Posted 8/25/2008 12:00 am
Updated 2 years ago
Barber filed a complaint seeking $10 million against lender Legacy National Bank of Springdale and Flake & Kelley Commercial, which in May entered into an agreement with court-appointed receiver Wayne Swofford to market the building. Barber accused the bank of conspiring to maximize his $18.7 million in liabilities on the project with the intention of repurchasing the building and profiting from the sale of its condos.
Barber alleges that Legacy blocked pending condo sales by improperly ordering Flake & Kelley to not accept any offers until after the foreclosure sale of the building, which was scheduled for last Thursday. The suit filed Wednesday – the same day Barber's Lynnkohn LLC filed for Chapter 11 bankruptcy protection – postponed the sale.
The lawsuit fingers Legacy – which signed a regulatory agreement with the Office of the Comptroller of the Currency on April 24 – as main culprit and describes Flake & Kelley as a complicit party.
"Flake Commercial is also at fault because it knew or should have known that Legacy Bank did not have authority to refuse to accept offers on the Property," the suit states. "Flake knew or should have known it was to follow the orders of the Receiver and the Court."
Legacy National Bank shared participation in the $16.7 million loan with Metropolitan National Bank of Little Rock, First National Bank of Fort Smith and First National Bank in Green Forest. Metropolitan has also entered into a regulatory agreement with the OCC this year, signing an agreement on May 22 that found "unsafe and unsound" practices at the bank.
Lynnkohn LLC's bankruptcy filing listed assets of $35.46 million and liabilities of $31.62 million. Lynnkohn has 86 creditors holding unsecured claims of $3.88 million and outstanding real estate debt of $25.3 million.
Barber identified himself as the sole member of Lynnkohn, but his wife, Keri Barber, and Seth and Laura Kaffka are guarantors on the original $16.7 million loan from Legacy written in December 2005. Barber was the sole guarantor on a subsequent $2.7 million loan written in February 2007.
In an Aug. 13 e-mail, receiver Swofford's attorney, Bob Honea, informed Barber's attorney, Vaughn Knight, that Legacy COO Patrick Swope had instructed Flake & Kelley's Christine Pennington to change the listed prices on the condos.
The e-mail was also sent to Legacy's attorney, Marshall Ney. Addressing Ney, Honea wrote, "Marshall, I once again demand that you take whatever steps are necessary to ensure that your client stops interfering with the receiver's court approved contractual relationship with Flake and Kelley. Please advise whether it will be necessary to secure a court order to make this happen."
In a statement, Ney said the suit by Barber – which alleged tortuous interference, violations of the Deceptive Trade Practices Act, fraud, breach of contract and breach of fiduciary duty – is without merit.
"The combined efforts of the lawsuit and bankruptcy by Barber's company are nothing more than a desperate attempt to prevent the August 21 sale of the Legacy Building and resulting deficiency against the Barbers and Kaffkas," he said.
Ney declined to comment further. Knight's office said he would have no comment on the lawsuit. Honea did not return a call seeking comment.
Swope and Don Gibson, president and CEO of Legacy National Bank, declined to comment.
After nearly a dozen contractors with more than $2 million in lien claims were paid off, a July 23 foreclosure decree in favor of Legacy National Bank found the Barbers and Kaffkas liable for loans totaling more than $18.7 million.
The contractors enjoyed first priority lien rights because work began on the Legacy Building site before the bank issued its $16.7 million construction mortgage. Under Arkansas law, first lien rights date to the first work done on a project, meaning the contractors had to be paid before the bank.
According to the suit and supported by e-mails attached as exhibits, the latest dispute arose over the Aug. 1 weekend when Barber Real Estate agent Stacy McSpadden asked a representative from Flake & Kelley to meet her on Aug. 3 to show a prospective buyer two units in the Legacy Building.
In an Aug. 3 e-mail, Jordan Jeter of Flake & Kelley told McSpadden he couldn't put anything under contract until Aug. 21 and couldn't close on any sales until Sept. 21.
"I know this stinks but my hands are tied until the banks receive full possession," Jeter wrote.
That exchange prompted an e-mail from Knight to Swofford and copied to Ney and Honea on Aug. 6 asking how long such a moratorium had been in place and who authorized such an order.
After speaking to Jeter, Knight reported to Ney that Legacy National Bank attorney Alan Lewis had personally instructed Pennington not to enter into any more contracts until Aug. 21.
Unit 510, a 1,283-SF condo, was under contract during this period, and sold on Aug. 8 for $320,750, well below Flake & Kelley's listed price of $442,165, which was also a steep discount from its original asking price. A Washington County property appraisal values the unit at $450,450.
Also during this period, a buyer made an offer on unit 501 for the same $250 per SF paid on unit 510. According to the lawsuit, Swope ordered Flake & Kelley to counter offer at $306 per SF, a $25,000 increase.
The suit alleges that when Swope ordered Pennington to change the listed price on the unit, he had her raise the prices on five units other buyers had expressed interest in – including 501 – while lowering prices on the 24 other units.
After Knight's Aug. 6 e-mail to Ney, Ney responded that, "To be clear, the Receiver answers to the Court – not to the banks or their attorneys – and Flake has the contractual privity with the Receiver – again, not the banks or their attorneys.
"The bank does not hold power to accept or reject any offer to purchase until and unless it purchases the building on Aug. 21. Flake may very well have heard the banks' attorneys say something to this effect – but nothing more."
According to its bankruptcy filing, Lynnkohn owes $5.13 million for the 1.5-acre lot on Dickson Street in Fayetteville that was to be home to the Divinity Hotel, $690,000 for two buildings on Church Street and another $3.1 million on the Sloan Estates subdivision.
Lynnkohn owes $131,008 in property taxes and $40,000 to the Legacy Property Owners Association.
Including the Legacy foreclosure, Barber's other LLCs have been hit with more than $25 million in foreclosures this year, including on his company headquarters on Old Missouri Road in Springdale.
(Assistant Editor Susannah Patton contributed to this report.)