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Aristotle
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Joined: 05 Dec 2007
Posts: 594
Location: On a sand dune, sipping a cold soda

Woebegone Days at SunCal
PostPosted: Wed Jul 07, 2010 3:29 am Reply with quoteBack to top

Woebegone

1. beset with woe; affected by woe, esp. in appearance.

2. showing or indicating woe: He always had a woebegone look on his face.


California's self proclaimed "largest land developer in the West", and its owner, are woebegone these days, given an onslaught of bad outcomes of litigation in which the company and its owner are engaged.

Readers will remember SCC Acquisitions, Inc. dba The SunCal Companies, and its owner Bruce Elieff, prominent Orange County, CA resident and Disney adversary. They have had a long series of bad fortune in court rooms of late.

Readers will remember that SCC Acquisitions, Inc. and Mr. Elieff were the innocent partners of some 30 Lehman Brothers controlled land development entities, which according to Mr. Elieff began to be "stiffed" in terms of capital contributions by Lehman during the 9 months before Lehman Brothers bankruptcy, leaving the Lehman/SunCal entities unable to pay their subcontractors and service providers.

Mr. Elieff and SCC Acquisitions, Inc. claimed that before the Lehman bankruptcy in 2008, they had signed a "comprehensive" work out agreement with the Lehman entities, negotiated by Lehman's bankruptcy counsel Weil Gotschal & Manges, but that the work out agreement was breached or undone by the Lehman bankruptcy.

Mr. Elieff and SCC Acquisitions, Inc. claimed that after the Lehman bankruptcy Lehman's Chief Restructuring Officer/Chief Executive Officer Bryan Marsal and staff decided to foreclose on all of the Lehman/SunCal properties. In other words Lehman had been both partner and mortgage lender to Lehman/SunCal equity ownership entities, and the mortgage lender face of Lehman decided to foreclose on the Lehman/SunCal development entities.

This sad turn of events came in the face of Lehman's bankruptcy judge giving Chief Restructuring Officer Marsal the authority to "restructure" Lehman's real estate loans and equity investments post bankruptcy, in most cases without intimate supervision by the judge.

However, due to seemingly unrelenting bad blood between Lehman's staff and Elieff, peace and restructuring with Lehman has eluded the SunCal operations.

Instead:

(1) The 9th Circuit Bankruptcy Appellate Panel reversed an Orange County bankruptcy judge's decision, with the bankruptcy appellate panel telling the Lehman/SunCal bankruptcy judge that she must let the Lehman entities foreclose on the Lehman/SunCal projects.

(2) The Chapter 11 Trustee over some of the Lehman/SunCal entities, Steven Speier, who was siding with SunCal in "lender wrongdoing litigation" against Lehman entities has now "switched sides", making peace with Lehman.

(3) Lehman's bankruptcy judge in New York vehemently instructed Elieff and SunCal that if they wanted to sue bankrupt Lehman entities on "lender wrondoing torts" or similar theories, the adversary lawsuits had to be brought in his court in New York, not in Orange County.

(4) Lehman's bankruptcy judge in New York also allowed bankrupt Lehman entities to re-acquire mortgage loans it had "sold", pre-bankruptcy, to not-bankrupt Lehman affiliates, so that the "automatic stay" would force Elieff and SunCal to sue the mortgage-holders in that same NY bankruptcy court, i.e. an extension of the principle in (3) above.

(5) The effect of (1), (3) and (4) above rendered Elieff and SunCal mere unsecured creditors of the bankrupt Lehman entities, rather than Elieff and SunCal having "rights of set off" against the sums due on the mortgages on the Lehman/SunCal projects held by the bankrupt Lehman entities. SunCal is, of course, appealing those decisions, but the appellate time frame is not swift.

(6) Elieff and SunCal's proposed Chapter 11 Plan for roughly 25 of those bankrupt Lehman/SunCal entities has been derailed as a consequence of the foregoing, and Elieff has been left liable on millions of dollars of surety bond guarantees for bonds posted with municipal agencies involved in the 30 or so Lehman/SunCal projects. In the case of one such bonded obligation, for massive highway improvements in San Clemente, the city and the bonding company came within a hair's breath of trial on the bonding company's default and failure to pay the city for the promised work. The "settlement agreement" for that case, contained in the California bankruptcy court's file, implicates Elieff continuing to be liable to reimburse the bonding company, as they pay the city, due to Elieff's guaranty of the bonds.

(7) SunCal and Lehman gave up on their vaunted Century City project land, which they had "won" in a bidding war against Donald Trump, and decided to allow Danske Bank relief from stay to allow them to foreclose.

SunCal and even the bankruptcy trustees, from Ventura to the Inland Empire to Oakland, have been cited by local and state agencies for violations of innumerable safety codes and laws, relating to the failed Lehman/SunCal projects.

However, perhaps adding insult to injury, was the consequence of Central Pacific Bank's sale of a mortgage loan it made to yet another SunCal entity, guaranteed by Elieff and SCC Acquisitions, Inc. personally.

The buyer of the Central Pacific Bank loan and guarantee was Gray1 CPB LLC, a mysterious San Diego County hedge fund. Some time before the loan sale, the voters of the City of Fillmore had down-zoned the SunCal entity's property by way of initiative petition.

Because, in Central Pacific Bank's and Gray1 CPB LLC's view, the loan was in default at the time it was sold to Gray1, Gray1 didn't bother to foreclose, and simply sued Bruce Elieff and SCC Acquisitions, Inc. (the SunCal parent company) personally, on those loan guarantees, initially claiming $7.9 Million was due and unpaid. Orange County Superior Court Case No. 30-2008-00112660.

Elieff and SCC responded by filing a 7 count Cross Complaint against Central Pacific Bank ang Gray1, alleging the guarantees were "sham guarantees" and the usually disfavored garden variety of tort and quasi-contract claims commonly used by guarantors and borrowers on defaulted real estate loans to delay the inevitable.

Elieff and SCC Acquisitions, Inc.'s cross complaint claims were: The guarantee is unenforceable because it was a sham; Central Pacific Bank orally promised to grant a 5th extension to the loan's maturity date, but failed to do so; promissory estoppel prevented Central Pacific Bank or Gray1 to refuse to extend the maturity date of the loan; Central Pacific Bank played games with its appraisals of the Fillmore property, didn't tell SunCal they were in the process of selling the loan to Gray1, and committed 'intentional fraud' against Elieff and SCC Acquisitions, Inc.; Gray1 intentionally interfered with those unwritten extensions of the loan maturity; and that because of Central Pacific Bank's and Gray1's alleged "bad acts" they violated California's Unfair Business Practices and Unfair Competition laws and an injunction should be issued against them. Obviously, Central Pacific Bank and Gray1 vehemently denied all of those claims.

On February 16, 2010, the Orange County trial judge dismissed, on summary adjudication, all but the "sham guarantee", "intentional fraud" and "unfair business practices" claims in the Cross Complaint.

Well prior to trial, the Orange County Superior Court issued pre-judgment writs of attachment against all attachable assets owned by Elieff and SCC Acquisitions, Inc., and Gray1 actively enforced those attachments, attaching even Elieff's and SCC Acquisitions, Inc.'s claims against the Lehman entities. As late as the week before trial was to start Gray1's lawyers were scurrying around, looking for even more of Elieff's and SCC Acquisitions, Inc.'s assets to attach, even obtaining a writ of attachment against some Elieff relative. By the time of that late writ of attachment, Gray1's claim on Elieff's and SCC Acquisitions, Inc. guarantees had reached $9 Million.

After dismissing their white-shoe law firm before trial, Elieff and SCC Acquisitions, Inc. went to trial with an Orange County criminal defense lawyer representing them. That lawyer apparently had previously represented Elieff's wife in some sort of traffic case.

Elieff and SCC Acquisitions, Inc. liability on the guarantees was tried to a jury, and on 6/23/10 the jury reached a verdict as to the liability on the guarantees. However, it was up to the judge, a former criminal defense lawyer, to render a verdict on the claim that the guarantees were "sham" guarantees.

Just posted online in the Orange County Superior Court's online records today (7/6/10) was the judge's written statement of decision on the sham guarantee issue. It is Docket # 583. With very stern words for Elieff and SCC, the judge ruled that the guarantees were not sham guarantees and wrote, in essence, 'You set up the entities this way, you signed the guarantees, you are very sophisticated players, and you knew what you were getting into.' The judge then dismissed the only remaining cause of action in the Cross Complaint which would have provided an "offset" to the dollar liability to Gray1 on the guarantees, the cause of action for rescission of the guarantee as a sham guarantee.

As a result, Elieff's and SCC Acquisitions, Inc.'s claim of "intentional fraud" will go forward against Central Pacific Bank, hobbled by the judge's and jury's prior decisions that the loan maturity date was not extended and that the guaranteed payment was due. However, even winning those claims will generate the inevitable appeal by Central Pacific Bank, and no cash with which to pay Gray1 on the guarantees.

The result of the judge's decision is that Elieff and SCC Acquisitions, Inc.'s only cause of action remaining against their actual money creditor on the guarantee, "Gray1", is for an injunction to forbid the lender to "stop committing unfair business practices and unfair competition".

How much did the jury award Gray1 on the guarantees? Until 7/7/10, when the Court Room Clerk in Department C-19 of the Orange County Superior Court finally got around to posting the pdfs of the jury verdict forms, no one outside the case knew the amount of the jury award against Elieff and SCC Acquisitions, Inc. It was $9,165,465.22 plus $2,606.03 per day beginning June 1, 2010.

So, two questions remain, aside from whether the jury will decide against Central Pacific Bank, the original lender, on the tort claim to be tried before the same jury later in July or August:

(1) Do Elieff and SCC Acquisitions Inc. have the financial where-with-all (in terms of assets which have not already been attached) to bond a judgment on the guarantee, at 1.5 times a $9.1 Million jury award plus Gray1 and Central Pacific Bank's attorneys fees, or to make a cash deposit with the court in a similar amount, i.e. 1.5 times the total judgment, so that they can pursue an appeal of the judge's and jury's decisions in Gray1's favor?

(2) Are Elieff, SCC Acquisitions, Inc. and the employees of its subsidiaries making full disclosure to planners, architects, engineers, geologists, lawyers, consultants, contractors and other service providers with whom they are currently doing business that the entry of a money judgment against Elieff and SCC Acquisitions, Inc. will occur in the next 60 days or less?

The reason that second question is important is because, according to Teresa Burney at Big Builder Magazine, as a result of a bankruptcy court decision in the TOUSA case, trusts for unsecured creditors (created by Chapter 11 Plans) are commonly suing everyone who received payment on accounts receivable from insolvent developers during the 90 days before bankruptcy.

I agree these so-called "preference actions" have become very common and very painful to subcontractors and service providers who consider themselves 'partners' of development companies. In the infamous LandSource/Newhall Land bankruptcy case in Delaware, there are now close to 50 preference lawsuits against Newhall Land's service providers and subcontractors, who diligently worked up to and through the bankruptcy, even though losing a substantial amount of money as unsecured creditors themselves. Now, those trusting, honorable souls are being sued to force them to "give back" the hundred thousand dollars or so each of them received in the 90 days leading up to the LandSource/Newhall Land bankruptcy. See U.S. Bankruptcy Court for Delaware Case No. 08-11111 (KJC). For many of those California service providers and subcontractors, a judgment forcing such a give back let alone the cost of attorneys fees to hire a lawyer in Delaware to defend them, will be the end of their businesses.

What do we learn from all of this?

Guys be careful who you are working for.

Be careful who you are providing services to.

Keep your ear to the ground, and walk away if you know a project you are working on, or your project's parent company, is in financial trouble.

I know this is "tough love" but you don't want to be forced into bankruptcy yourselves because the NY law firms for the "unsecured creditor wolves", which are largely hedge funds and vulture funds, get the right, through a developer's Chapter 11 Plan, to sue you.

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Aristotle

As Yogi Berra said "It's like deja vu all over again."

Last edited by Aristotle on Thu Jul 08, 2010 3:08 am; edited 2 times in total
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Aristotle
Nitroglycerin


Joined: 05 Dec 2007
Posts: 594
Location: On a sand dune, sipping a cold soda

SunCal Employees Drowning in Lake Woebegone?
PostPosted: Wed Jul 07, 2010 7:15 pm Reply with quoteBack to top

This public document, released by the City of Alameda, California, came to us this morning, by way of Google Alert:

http://www.scribd.com/doc/3401.....uly-6-2010

Obviously, there is another shoe which may drop, in terms of SunCal employee's involvement in allegations of wrongoing against this Councilwoman Lena Tam.

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Aristotle

As Yogi Berra said "It's like deja vu all over again."
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Aristotle
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Copies of Court Documents of $9.1 Mil Jury Verdict v. SunCal
PostPosted: Sat Jul 10, 2010 12:40 am Reply with quoteBack to top

See scribd pdfs at:

http://www.action-alameda-news.....9-million/

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Aristotle

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Aristotle
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Bruce Can Run SunCal But He Can't Hide
PostPosted: Wed Jul 21, 2010 6:57 am Reply with quoteBack to top

$9 Million creditor aggressively pursuing Bruce Elieff, principal owner and Chairman/CEO of SCC Acquisitions, Inc., trying to recover sums due on Elieff's and SunCal's guarantee. Elieff alleged to be refusing to appear at deposition to discuss whereabouts of assets:

http://www.action-alameda-news.....is-assets/

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Aristotle

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Aristotle
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They Left Their Hearts in San Francisco Bay (Alameda)
PostPosted: Wed Jul 21, 2010 11:43 pm Reply with quoteBack to top

See: http://www.sfbg.com/politics/2.....-developer

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Aristotle

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Aristotle
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Claims That SunCal Imploded Itself in Bay Area
PostPosted: Tue Aug 03, 2010 8:04 pm Reply with quoteBack to top

See: http://www.baycitizen.org/deve.....t-alameda/

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