An attorney said Tuesday that developer B. Allen Casey has milked between $6 million and $7 million out of riverfront property where he has maintained a controversial barge across from Ross's Landing.
Attorney Gary Patrick claimed that the developer, who was the founder of the famed Chattanooga Choo Choo railroad entertainment complex in the 1970s, told numerous investors they had first mortgages on the 9.1-acre site, but he said deeds of trust were never filed.
He called it a Ponzi scheme that left his clients and others holding the bag.
Attorney Patrick told Bankruptcy Judge Shelley Rucker that John and Barbara Winesett, David Debter, Roy Roach and Gregory Hellwig had loaned Mr. Casey $550,000 after he told them he was facing foreclosure on the property. He said they did not find out for years that they actually did not have a first mortgage and that others were in the same situation.
He said developer Casey "clearly defrauded these people. He acted like this property was his personal piggy bank. He literally treated this as his own back pocket. And nobody knows where the money went."
He said at the same time the developer was dealing with his clients on a first mortgage, "he was negotiating with Regions Bank."
Attorney Patrick argued that the bankruptcy action filed Monday should be stayed and that a lawsuit filed by his clients should be allowed to go to trial before Chancellor Frank Brown. He said it had been set to start today, but can begin on Wednesday morning if the stay was granted.
He said developer Casey offered settlements several times. "He would name the financial institution and give the name of the loan officer. He made it believable, even to me, but it never happened."
But attorney David Moss and bankruptcy trustee David Fulton said it would be unfair to the 25 other creditors to let the Patrick group win a state judgment and seek to use it to jump ahead of other claimants.
Attorney Moss said, "That group includes me." He said he is owed $113,000 in attorney fees and interest by Mr. Casey. He said he too was told he could have a first mortgage in lieu of a cash payment for his legal services.
The attorney said, "I keep trying to get out of this case, but I can't. I'm stuck like tar paper."
He said developer Casey owes attorney Jim Henry a million dollars for representing him over a decade.
Attorney Moss said developer Casey is currently without a lawyer and is not putting up a defense to the chancery case. He said, "A judgment against Mr. Case is worthless. He's judgment proof."
He said the bankruptcy court should sort the mess out and decide who are the valid creditors and how much each should get.
Attorney Patrick said the case is extremely complicated because developer Casey had broken the property into lots and assigned them to various entities he created, including one called Trinity presided over by his wife, Emmy. He said two realty specialists have been hired to try to explain the web of land dealings at the trial.
The attorney said about half of the prime river property near Manufacturers Road had been sold by Mr. Casey to Jackson Wingfield for $2.9 million.
Mr. Casey at times had announcements about major developments at the site, but attorney Patrick said, "Not a footing was poured."
He brought the barge downriver to be a restaurant, but it did not open and began to partially sink. Senator Bob Corker, Mayor Andy Berke and leaders of the Convention and Visitors Bureau and the River City Company were among those calling for it to be removed.
The petition for River City Resort listed over $1 million in assets and over $1 million in debts.
There are from 1-49 creditors.
A motion for relief from stay says:
"Comes now River City Barge and River Café, LLC, f/k/a River Café, LLC and River City
Barge Company, LLC, John Winesett, Barbara Winesett, David Debter, Roy Roach, and Gregory
Hellwig (collectively referred to as the “Barge and Café Creditors”), through counsel pursuant to
11 U.S.C. §362 and Rule 4001 F.R.B.P., and for their Motion for Relief from the Automatic Stay
state as follows:
"1. The Barge and Café Creditors are the plaintiffs in a lawsuit pending in Hamilton
County, Tennessee Chancery Court against Debtors B. Allen Casey, Jr. and River City Resort,
Inc. entitled River City Barge and River Café, LLC, f/k/a River Café, LLC and River City Barge
Company, LLC, John Winesett, Barbara Winesett, David Debter, Roy Roach, and Gregory
Hellwig v. River City Resort, Inc. f/k/a Showboat Suites, Inc., and B. Allen Casey, Jr., Docket
No. 08-0751. The case has been pending since 2008 and involves fraudulent conduct of Debtor,
misrepresentation and false pretenses, among other causes of action, relating to the property and
the barge located on the north shore of the Tennessee River across from downtown Chattanooga.
"The claims involve various state law causes of action and Tennessee statutes. Throughout the
pendency of the Chancery Court proceedings, Debtor Casey has engaged in dilatory tactic after
dilatory tactic delaying resolution of the case including continuances of the trial previously set on
two other occasions. The case is currently set for trial beginning Tuesday, February 25, 2014
and is scheduled for approximately three to four days. The Chancery Court has blocked out the
remainder of the week for the trial. The parties have engaged in years of discovery. The parties
have briefed and argued motions for summary judgment filed by Debtor which motions were
heard by the Chancellor and denied. Chancellor Frank Brown has stated that he will not
continue the case again. The Barge and Café Creditors have waited years to have their case
heard, which case concerns the money fraudulently obtained from them by Debtors Casey and
River City Resort, and have spent tens of thousands of dollars preparing for the trial of the case.
There are over 250 exhibits marked for trial, multiple witnesses have been subpoenaed and all
parties are ready for trial. The likelihood of success of the Barge and Café Creditors in the state
court litigation with Debtor is very strong.
"2. Debtor Casey’s sole reason for filing a petition in bankruptcy is to delay the trial.
"3. When determining whether to allow a lawsuit to move forward in state court,
bankruptcy courts have considered (1) whether prejudice to the bankruptcy court would result;
(2) whether the hardship to the plaintiff caused by the continuation of the stay outweighs the
hardship to the debtor; and (3) whether the plaintiff is likely to prevail on the merits of the case.
Other courts have considered factors such as judicial economy, prejudice to third parties, and
other equitable considerations.
"4. Barge and Café Creditors are seeking relief from the automatic stay to allow the
state court to determine the issue of liability of Debtor to the Barge and Café Creditors. These
matters will have to be litigated and the state court is most familiar with the issues as the case has
been before the state court for over five (5) years. Years of discovery have been completed,
witnesses subpoenaed and prepared to testify, over 250 exhibits marked for trial, and the parties
are ready for trial. To stay the trial at this stage would result in great hardship to the Barge and
Café Creditors, as they have already suffered due to the many prior delays engineered by Debtor.
"5. There will be no prejudice, however, to the Debtor or the bankruptcy estate by
allowing the trail to proceed in state court to determine liability. It would not change the Barge
and Café Creditors’status in relation to other creditors and would not thwart the underlying
purpose of the automatic stay; i.e., to preserve the Debtor’s estate and to provide a systematic
and equitable plan for repayment and reorganization.
"6. The interests of judicial economy warrant the lifting of the stay due to the
imminence of trial.
"WHEREFORE, Movants pray:
"A. That relief from the automatic stay pursuant to 11 U.S.C. §362(d) be granted and
the state court proceeding against Debtor be allowed to proceed with the trial on Tuesday,
February 25, 2014.
"B. That Movants have such other and further relief, both general and specific, to
which they may be entitled."