Scrub Island Resort’s bitterly contested bankruptcy proceedings recently became more contentious.
A June 24 lawsuit filed against FirstBank Puerto Rico by the Scrub Island Development Group alleges that a former resort executive sent dozens of e-mails “secretly undermining” SIDG’s interests while it was in negotiations with the bank to restructure loans.
According to the suit, beginning in early 2012 bank officials repeatedly received confidential information from resort project manager James Talton and offered to pay him a commission if he was able to privately find another investor willing to buy the resort’s debt from the bank.
“For a period of at least 14 months, therefore, FirstBank willfully and maliciously continued fraudulent and illegal activities that completely tilted the normal arms’-length borrower-lender relationship in favour of FirstBank,” SIDG alleged.
The lawsuit, filed in United States Bankruptcy Court in Tampa, Florida, accuses the bank of 11 counts of wrongdoing, including claims of “deceptive and unfair trade practices,” breach of contract, and civil conspiracy.
Restructuring talks
According to the lawsuit, Mr. Talton, who was reportedly paid $200,000 a year to manage the resort’s development, represented Mainsail Development Group in the 2012 negotiations to restructure millions in loans that SIDG took out with the bank.
Mainsail developed the resort, the assets of which are held through SIDG, a Virgin Islands-registered company.
SIDG and an affiliate firm, Scrub Island Construction Limited, which built villas at the resort, filed for bankruptcy in a Tampa court last year.
The resort’s June 24 lawsuit claims that Mr. Talton maintained “clandestine contact” with FirstBank Vice President Samuel Pastrana, often sharing confidential spreadsheets and financial projections via text messages or Mr. Talton’s personal e-mail account.
In a July 14, 2012 e-mail to Mr. Pastrana, Mr. Talton was allegedly worried that Mainsail President Joe Collier would find out about their communication.
“Please remember that you cannot take any specific action based on what I say so that he does not know I am feeding you this information, but you can be prepared to take action based on know [sic] these events are in play or to find out from Joe what is happening,” Mr. Talton wrote, according to the lawsuit.
The resort alleges that Mr. Talton’s actions, and the bank’s willingness to engage with him, were a pattern of “deceit and fraud” that was in violation of FirstBank’s loan agreement with the resort.
The lawsuit seeks at least $75,000 from the bank in damages, plus attorney fees.
Mr. Talton declined to be interviewed, but in an e-mail he called the lawsuit “one party’s perspective.” He explained that he had been put into a “unique position of having fiduciary responsibilities to multiple parties,” including SIDG, Mainsail, FirstBank and the VI government.
On behalf of FirstBank, General Counsel Lawrence Odell declined to discuss the matter in detail, but called the lawsuit’s claims “baseless.”
“It has absolutely no merit whatsoever,” he said. “We will defend it vigorously.”
Representatives of the resort declined to comment for this story.
Bankruptcy filing
The resort’s lawsuit is the latest chapter in a protracted legal battle that began last November when FirstBank — which claims that SIDG owes it more than $120 million in principal and interest payments despite only possessing $50 million in assets — asked a VI court to remove the resort’s management, a preliminary step to foreclose on the loan.
Days later, SIDG filed for bankruptcy in a US court, asking for time to restructure on its own terms.
The bank filed multiple objections in response, asserting that it is improper to proceed with the current managers in place.
In March, SIDG and SICL asked the court to approve a plan that would restructure their debts and take them out of bankruptcy.
The companies’ plan called for FirstBank to receive an immediate $7.5 million cash payment and $30 million over the next five years in exchange for forgiving an estimated $84.8 million in claims against the resort.
The bank objected and has asserted that a better solution would be to bring in a new management team to run the resort. The bankruptcy proceeding continues in the US courts, and a hearing over the restructuring proposal will likely be held in the coming months.
Meanwhile, the VI-court-appointed third-party receiver, Meade Malone, is still in place and is responsible for overseeing Scrub’s day-to-day operations together with the resort’s staff.
Villa lawsuit
In addition to the ongoing bankruptcy proceedings, two Americans who bought a vacant lot on the island to build a villa are alleging that both the bank and the resort are treating them unfairly.
Connecticut residents Luis Linares and David Foster sued SIDG, SICL and FirstBank in the Tampa court Friday, alleging that the parties breached their contract with the men. According to their suit, Messrs. Linares and Foster invested more than $500,000 in cash and obtained a loan for $1.6 million more from the bank, funds which were to be released to SICL as construction progressed on the villa.
Instead of being held to pay building costs, more than $1 million in loan funds was “improperly disbursed” and used either to fund the resort’s operations or to improve the resort, the lawsuit alleges. Additionally, the bank is still asking the men to repay the loan with interest, according to the suit.
“As a direct and proximate result of FirstBank’s diversion and misappropriation of funds, plaintiffs suffered and continue to suffer substantial damages,” the lawsuit alleges.
The suit also asks for SIDG and SICL to compensate the men for damages because despite their building contract, the men’s lot remains vacant.
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