In re Telluride Global Development

Decision Date23 March 2007
Docket NumberBankruptcy No. 06-12720 MER.,Adversary No. 06-1588 MER.
Citation380 B.R. 817
PartiesIn re TELLURIDE GLOBAL DEVELOPMENT, LLC, Debtor. Telluride Global Development, LLC, Plaintiff, Telluride Asset Resolution, LLC, Intervenor, v. Dennis Bullock, et al., Defendants.
CourtU.S. Bankruptcy Court — District of Colorado

Harold G, Morris, Jr., John C. Smiley, Theodore J. Hard, Denver, CO, Steven R. Fox, Encino, CA, for Debtor.

ORDER

MICHAEL E. ROMERO, Bankruptcy Judge.

THIS MATTER comes before the Court on the Plaintiffs Complaint, the Intervenor's Complaint (collectively the "Complaints") and the Limited Moving Partners' Answers thereto. The Court has reviewed the pleadings, the testimony, the written closing arguments of counsel and the legal authority cited by, the parties and makes the following findings of fact and conclusions of law.

JURISDICTION

The Court has jurisdiction in this matter pursuant to 28 U.S.C. §§ 1334(a) and (b) and 157(a) and (b)(1). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (K) and (0).

PROCEDURAL BACKGROUND

On May 15, 2006, Telluride Global Development, LLC (the "Debtor" or "TGD"), filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Three days later on May 18, 2006, the Debtor filed the present Adversary Proceeding against the individual limited partners of Telluride Income Growth Limited Partnership ("TIGLP"). A group of these limited partners (the "Moving Limited Partners") filed a motion to dismiss the Complaint, and after the motion's subsequent denial, filed an Answer on September 13, 2006. On October 3, 2006, Telluride Asset Resolution, LLC ("TAR") filed a motion to intervene in this Adversary Proceeding, which was granted on October 24, 2006.

TIGLP is also a bankruptcy debtor by virtue of a Chapter 7 involuntary petition filed in this district, in which an Order for Relief entered on June 4, 2004.1 As part of the TIGLP bankruptcy, the Honorable A. Bruce Campbell, entered three orders which are the subject of two recently issues decisions in the United States Bankruptcy Appellate Panel of the Tenth Circuit (the "B.A.P.")

FACTUAL BACKGROUND

The facts and circumstances leading up to the Debtor's bankruptcy filing and this Adversary Proceeding are complex. In their Pretrial Statement the parties stipulated to the facts set forth below.2

1. January 1991—TIGLP was formed as an Arizona limited partnership by Steve Sogard and his brother, Scott Sogard. The original general partners of TIGLP were Telluride Development Group, Inc. (an entity controlled by Scott Sogard) and Scott Sogard individually.

2. TIGLP's primary business purpose was to purchase and develop real estate in Telluride, Colorado.

3. Steve Sogard, along with others working with him, organized and raised approximately $1,600,000 from various investors. The investors became limited partners in TIGLP.

4. Defendants are the limited partners in TIGLP. The Moving Limited Partners are 36 of the limited partners in TIGLP.

5. TIGLP purchased real estate in Telluride, Colorado, which later became known as the "Ballard House."

6. TIGLP, through its original general partners, commenced development of the Ballard House as a mixed-use residential condominium and commercial/retail project. Consisting, of a North and a South unit, the intent was to develop and sell the North building first.

7. January 22, 1994Scott Sogard was embroiled in a dispute with various TIGLP limited partners and his brother, Steve Sogard, over the operation of TIGLP.

8. Although an organizer of the TIGLP limited partners, Steve Sogard has never been a TIGLP limited or general partner.

9. June 1994Scott Sogard and Telluride Development Group, Inc. resigned as general partners of TIGLP.

10. September 1994—Peak Returns Limited Liability. Company, a Colorado LLC, ("Peak Returns") was appointed as the replacement general partner of TIGLP. Peak Returns began the development process anew. It determined that the South building should be developed and sold first.

11. Lorraine Development, an affiliate of William H. Baird ("Baird"), was retained by TIGLP as development manager for the project. Baird was a member of the Peak Returns board until 1998.

12. In April 1997, TIGLP obtained a $4,900,000 construction loan from Pueblo Bank & Trust Company ("Pueblo Bank").

13. Peak Returns was suspended on June 1, 1997, by the Colorado Secretary of State for failure to file its 1996 periodic report.

14. Construction of the South building began in early 1997 and was completed, but not timely. The South building unit sales commenced in February 1999.

15. November 10, 1997—Robert and Arthur Levine (collectively referred to as "the Levines") first became involved with TIGLP by paying $363,192.50 in deposits for condominium units 208N, 209N, 305N, and 306N.

16. The original Peak Returns Board of Managers consisted of Bruce Bjork, Hamish Cruden, Baird and Mike Galvin. In October 1998, Baird and Mike Galvin resigned from the Board of Managers of Peak Returns. Bruce Bjork, Ed Tompkins, Hamish Cruden, James Sterling, and Michael Milburn then constituted the Board of Managers of Peak Returns.

17. November 16, 1998—The Levines, or an entity they control, paid $160,000 to TIGLP for 4 parking spaces in the North building, a building which had not yet been built.

18. January 1999—TIGLP retained the services of David Patir to review partnership documents, contracts and transactions and prepare a report to the Board of Managers of Peak Returns.

19. April 29, 1999David Patir issued a preliminary report on the Ballard House project stating, among other things, that TIGLP had a negative cash flow position.

20. In 1999, discussions were held by Baird and his entities on the one hand, and Peak Returns and its members on the other. The discussions concerned Baird's position that (1) he was without funds to continue to support the construction, (2) Pueblo Bank was threatening foreclosure, and (3) if title was vested in one, of his entities, he could better deal with Pueblo Bank.

21. June 15, 1999—Pueblo Bank commenced a foreclosure proceeding against Ballard House to foreclose its lien securing a loan to TIGLP that was in default.

22. Hamish Cruden, Ed Tompkins and Bruce Bjork favored transferring title to the Ballard House to Baird's entity Western Slope, LLC ('Western Slope"). James Sterling opposed the transfer and insisted that if the Ballard House were transferred the limited partners be given a priority re-payment status of their investment of approximately $1.6 million plus interest.

23. Baird refused James Sterling's demand.

24. June 22, 1999, August 10, 1999, September 2, 1999-The Levines, or an entity they control, paid $500,000 to TIGLP as a loan to help with construction costs.

25. June 23, 1999Ed Tompkins, Michael Milburn, James Sterling, Hamish Cruden, and Bruce Bjork, then the Board of Managers of Peak Returns, signed a resolution regarding the pending foreclosure and the contemplated transfer of Ballard House to Baird or his designated entity. Baird's designated entity was Western Slope, which he controlled.

26. June 30, 1999—TIGLP, William H. Baird, and Lorraine H. Baird, on the one hand, and Pueblo Bank, on the other hand, entered into the first of five. Forbearance Agreements to extend the foreclosure sale on the Ballard House project.

27. July 2, 1999—The Levines, or an entity they control, paid $426,034.56 for condominium unit 302S and one parking space in the Ballard House South building.

28. July 15, 1999James Sterling received the first draft of what would become known as the Contract of Sale and Equity Participation Agreement (the "EPA") from S. Kent Karber, Esq., an attorney at Hall & Evans, LLC, a law firm in Denver.

29. July 18, 1999—Baird sent James Sterling a facsimile containing a revised proforma for development of the Ballard House project that projected no distribution to TIGLP under the EPA being negotiated unless a number of things "go well." Even if all things went "well," the projection set the maximum distribution to TIGLP at $1,552,674. This projection was incorporated into the final EPA.

30. James Sterling sent two letters to the limited partners, dated August 2, 1999, and August 19, 1999.

31. There were multiple drafts of the EPA prepared over a period of time of couple of months.

32. The members of Peak Returns reviewed the multiple drafts of the EPA on behalf of TIGLP and discussed the drafts amongst each other.

33. The Peak Returns board voted on July 31, 1999, to transfer the Ballard House from TIGLP to Western Slope. James Sterling was the only board member to vote against the EPA.

34. After the Peak Returns board voted to transfer the Ballard House from TIGLP to Western Slope, James Sterling resigned from the Peak Returns board.

35. October 7, 1999Michael Milburn sent an e-mail to Ed Tompkins, another member of the Board of Managers of Peak Returns, concerning his vote on the transfer of the Ballard House to Baird and now purporting to abstain.

36. October 7, 1999—TIGLP and Western Slope, an entity controlled by Baird, entered into the EPA.

37. October 11, 1999—Western Slope signed a Purchase Money Deed of Trust (the "PMDOT") securing its obligations to TIGLP under the EPA. The PMDOT was then recorded in San Miguel County, along with a warranty deed reflecting the transfer of title from TIGLP to Western Slope.

38. November 15, 1999—Baird sent an e-mail to Michael Milburn and other members of the Peak Returns board expressing concerns about the profitability of the Ballard House project.

39. December 22, 1999—The Levines, or an entity they control, paid $660,628.47 to Western Slope for condominium unit 205S.

40. December 22, 1999—The Levines, or an entity they control, paid $428,440.85 to Western Slope for condominium unit 301S.

41. May 12, 2000—The Levines, or an entity they control, paid...

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