This claim arose out of the acquisition by a California LLC in May, 1999, and the subsequent sale in September, 2007, of a 6947 acre parcel of land with ranch style improvements located in San Benito County, California. The Class A Member and the manager was a wealthy real estate development group from St. Louis, Missouri.
The Class A Member held a 75% interest in the Ranch. There was also a group of eight (8) individuals who were Class B Members, and who together held a 25% passive interest in the Ranch. The Class B Members were the original investors in an entity, which had previously acquired an option to purchase the ranch. The Class B Members contributed their prior rights and interests in the land in consideration for the interest they acquired in the Ranch.
The goal of the project was to acquire the Property, to obtain permission from the county to alter the use of the land from farming to residential and mixed use, and to subdivide and develop the land for resale of lots or homes over a ten year period. The Class A Member was solely responsible for the implementation of the development plan and would provide all funding for the project.
In summary, the plan called for the Class A Member to provide a loan for the acquisition of the Property in the amount of $12,500,00, secured by a Trust Deed, and reflected in a promissory note, which would accrue interest at the rate of ‘prime plus 2%’ until repaid. The Class A Member would also take a “Loan Initiation Fee” of $1,000,000, which would be paid at the closing and be added to the loan principal.
In order to fund the development of the Property, the Class A Member would provide up to an additional $500,000 under the mortgage loan, or $14,000,000 total, and would provide additional funds, as needed, in the form of capital loans (with interest also accruing at prime plus 2%) or with capital contributions.
In the following four years, the Class A Member hired consultants, performed studies and generally made efforts to obtain approval from the county to alter the zoning and permitted use of the land. This culminated in the submission of an application to the County in July, 2002, which came on for hearing several months later. The application was unanimously rejected by the county commission.
In the following four (4) years there was no apparent activity on the project. However, it appears that efforts were being made to market the land for resale, without the specific knowledge or consent of the Class B Members. Those efforts culminated in a written notice to the Class B Members in November, 2007, that a sale of the property had taken place in September, 2007. The Class B Members were never previously consulted about the sale, provided information about the proposed terms, nor did they give any consent or approval of the sale.
According to the ‘Memorandum of Sale’ provided to the Class B Members, at time of sale there was an outstanding Mortgage Loan Balance owed to THF Investors of $27,364,369 and a Capital Loan Balance of $5,031,637, bringing total indebtedness to $32,396,006.
The Class B Members were further informed by the Class A Member that, after payment of additional outstanding indebtedness, accrued interest, unpaid development fees, operating expenses, and minimum tax distributions, a sum estimated to total $52,000.00 would be the only funds available to distribute to the Class B Members, payable in five years when the seller’s note came due.
Following receipt of the Memorandum of Sale, certain Class B Members requested that the Class A Member provide additional documentation to substantiate the sums claimed, and THF Investors did eventually provide financial and other documents pertaining to the Property. These included annual financial statements, income/expense statements, loan interest calculations, and spreadsheets showing disposition of funds at time of sale.
The Law Offices of Keith L. Miller hired local counsel in San Jose, CA, and made a demand upon the Class A Member. Letters were exchanged and the parties agreed to mediate the dispute. The mediation took place in San Jose over the course of a day in April, 2009. The Class A Member agreed to pay the Class B Members the total amount of $2.85 Million Dollars to settle all claims in the dispute.