Ginn-LA Lawsuit Settlement Checks Totaling $25M Mailed to Creditors: Guess who the Big Winners Were?

Bobby Ginn and his financial partner Lubert-Adler were sued several times for alleged transgressions during the housing bubble. To date, this is their only major loss.

Palm Coast, FL – July 14, 2014 – Ginn-LA (Bobby Ginn and his financial partner Lubert-Adler) and related entities were sued several times for alleged transgressions during the housing bubble. To date, only Dillworth vs. Ginn et al. resulted in a significant loss to the defendants. Checks resulting from the $25 million Settlement Agreement amount were mailed recently. So who were the big winners? Naturally, it was the lawyers.

Background:
In  July 2008, GoToby.com broke the story of Ginn-LA’s default on a $675 million loan from Credit Suisse. Ginn cross-collateralized the loan by encumbering several major projects; Ginn Sur Mer (Bahamas), Tesoro (Port St. Lucie), Quail West (near Naples) and Laurelmor (Boone, N.C.). Ginn-LA received approximately half of the loan proceeds as a direct payment, leaving all four communities without liquidity to pay down the loan. The bargain basement sale of Laurelmor, the foreclosure on Ginn Sur Mer and the Chapter 7 bankruptcies of Quail West and Tesoro were the result.

Many lawsuits were brought against Ginn-LA, but the only one with a significant payoff to plaintiffs has been Dillworth’s. Drew Dillworth, as Trustee in the combined Tesoro and Quail West bankruptcies sued Ginn-LA in May 2010, alleging, among other charges, Fraudulent Transfer.

This became a high profile case. Ginn was a flamboyant developer who had previously gone through bankruptcy in Hilton Head, S.C. in the nineteen eighties during the savings and loan precipitated economic crisis. It seemed audacious for Ginn and Lubert-Adler to grab nearly half the loan proceeds, dooming to failure four luxury communities used as collateral. And by naming Lubert-Adler's high-profile fund investors in the complaint, Dillworth exposed them. The list included several university endowments and scores of public employee retirement funds.

An Order filed in April 2011 by Paul G. Hyman, Chief Judge of the U. S. Bankruptcy Court in the Southern District of Florida dismissed Fraudulent Transfer claims against Ginn and Lubert-Adler. Hyman dismissed the fraudulent transfer claim with prejudice (cannot be re-filed) because the Debtors in the bankruptcy case, whom Dillworth represented, "….did not have control over the Loan Proceeds, and consequently, the Loan Proceeds were not property of the Debtors."  The Debtors were Guarantors, not Borrowers in the Credit Suisse Transaction.

In his ruling, Hyman questioned Dillworth's choice of choosing Ginn and Lubert-Adler as targets rather than Credit Suisse. A successful action against Credit Suisse might have resulted in the avoidance of the liens against the four Ginn-LA communities.  "….it is this Court's view that the proper cause of action would have been avoidance of the Liens against Credit Suisse….Unfortunately, early in this bankruptcy, the Trustee elected to release Credit Suisse from any such claims in exchange for post-petition financing."

But Hyman left one small opening. He dismissed without prejudice a portion of the complaint addressing a Second Lien. This means the Plaintiff could re-file that issue. However any recovery of assets seemed doubtful at the time. But Dillworth persisted and filed yet another amended complaint (his fourth).

The Settlement
November 2012, Hyman approved a $25 million Settlement Agreement. The agreement was reached shortly before depositions of key Ginn-LA executives Bobby Ginn and Bobby Masters were to take place.  The final distribution checks were mailed July 10, 2014, nearly two years later. The time between the approval of the Settlement Agreement and the final payout was consumed by the process of certifying which unsecured creditors would be paid and specifying the amount to go to each.

From the $25,009,754.32 paid out, the Class of unsecured creditors’ received a total of $14,936,650.31. Some creditors received amounts between $100,000 and $300,000. However several received less than $3,000 each. The balance went to attorneys for their role representing the creditors as follows:

Attorney Drew Dillworth – Trustee

• Compensation – $1,246,588.53
• Expenses – $9,951.51

Law firm of Stearns Weaver Miller – Special Litigation Counsel on a contingency basis

• Admin – $1,199,021.75
• Admin – $48,796.32
• Admin – $7,140,000.00
• Admin – $127,384.00

Not surprising. Without competent attorneys, the plaintiffs would have received nothing. The Settlement Agreement cost Ginn and Lubert-Adler $25 million, perhaps subsidized by insurance. Add the cost of Ginn-LA’s own defense. As a side note, a 2009 amended chapter 7 bankruptcy filing (Tesoro/Quail West) listed payments by Ginn-LA during 2008 leading up to the original Chapter 7 filing "related to debt counseling and bankruptcy" exceeding $4 million.”