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Nipomo project in the dark

By   /   Saturday, January 31st, 2009  /   Comments Off on Nipomo project in the dark

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Maria Vista Estates – a 77-lot development in Nipomo that’s in Chapter 7 bankruptcy proceedings – has moved one step closer to settling a road-fee lawsuit with San Luis Obispo County for $100,000.

The county has already signed the proposed settlement, which is waiting for bankruptcy court approval. But one of Maria Vista Estate’s largest creditors opposes the deal, calling it a “take the money and run” approach and arguing it’s worth more.

That ticks off a thorny three-way conflict among the trustee in charge of divvying up Maria Vista Estates, its creditors and attorneys that Judge Robin Riblet of the U.S. District Bankruptcy Court in Santa Barbara will have to sort out.

Maria Vista Estates filed for bankruptcy in March 2007 after a string of legal disputes with county and local governments and neighboring landowners.

The road-fee dispute with San Luis Obispo County began in February 2005, when Maria Vista Estates applied for building permits for part of the development. The county asked for a road fee of about $6,800 per lot.

But Maria Vista Estates argued it should pay a lower road fee in the $2,000 range that was in place in 1989, when the county approved maps for the development. The county said no, arguing fees were determined by permit application date and not map approval.

The developers paid the higher fees “under protest,” a legal move that kept their right to file a lawsuit against the county, which they did the next month in San Luis Obispo County Superior Court. They lost but filed an appeal.

Bankruptcies typically put litigation on hold, but the case went forward because of the chance that Maria Vista Estates could win money. But by December, Jerry Namba, the U.S. Trustee in charge of liquidating the development’s assets and doling out the proceeds to creditors, moved to end the legal fight and settle with the county for $100,000, a figure his attorney called “less than some creditors would like.”

In bankruptcy court filings, the trustee argued that cash-poor Maria Vista Estates should take the certainty of $100,000 over keeping up the legal fight. Though the case against the county looked strong, there was no guarantee of winning, especially after losing in a lower court, the trustee argued.

The trustee’s attorney wrote that a settlement would provide “the infusion of a significant amount of money into the estate, which has virtually no assets other than its litigation claims and the property itself,” which is entangled in a $23 million debt for the bank loan that financed it.

But Trincon Construction Group, which is owed $3 million and was the general contractor on the development, opposed the settlement.

“This litigation is worth sustainably more than $100,000, whereas the trustee is simply using the ‘take the money and run’ approach,” Sandra McBeth, the construction firm’s attorney, wrote in court filings. “This is too valuable an asset to take such an approach. If the major unsecured creditor is willing to wait just a bit to recover these substantial sums, then so should the trustee.”

Reached by phone, McBeth said she wasn’t authorized to comment beyond her court filings.

Typically, if a creditor thinks a proposed settlement is too low, it can offer a higher price and buy the rights to keep up the legal fight.

But Trincon Construction Group can’t do that because the firm itself is in Chapter 11 bankruptcy proceedings. Tricnon principal Erik Benham – who was also one of the partners in Maria Vista Estates – can’t do so either because he’s in bankruptcy proceedings.

On top of Trincon’s opposition, attorneys set to argue the appeal against the county say they were confident they could win – and have a better shot at recovering more of their own costs. One firm – Sheppard Mullin Richter & Hampton – was even willing to take the case on contingency, taking a cut of the proceeds if it won and charging nothing for a loss.

“My firm, as well as Sheppard Mullin, had fully briefed the appeal,” San Luis Obispo attorney John Fricks, who was co-counsel on the case, told the Business Times. “We thought there was a good chance for success.”

The only side that seems satisfied with the trustee’s move is San Luis Obispo County.

Deputy County Counsel Tim McNulty said the settlement is worth its price in order to have a clean legal slate if the development sells to new owners who want to finish it. It also simplifies his office’s workload because the county has to defend against two other suits from Maria Vista Estates that are on appeal.

“In the greater context of all the disputes we have with Maria Vista Estates, it seemed like this was going to be an equitable solution because the property owners have already paid something like $178,000 in road fees,” McNulty told the Business Times. “If the additional lots were to build out, there’s a substantial amount of fees that would be paid.”

The 84-acre Maria Vista Estates contains 77 buildable lots, according to bankruptcy court filings. On those stand 24 completed homes, 15 homes that are about 70 percent finished and 37 lots with utility entitlements but no homes built.

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