EpiCentre's unsecured creditors appeal ruling

The committee of unsecured creditors in the EpiCentre's bankruptcy case has appealed a judge's decision to disband the committee.

In January, U.S. Bankruptcy Judge George Hodges approved a motion by the EpiCentre's trustee to disband the committee. In his order filed with the court, Hodges said he approved the trustee's motion because the committee "is no longer necessary to protect the interests of its constituency; the administrative expense of the Committee is not justified; and the Committee has appeared to be counter-productive to the process of this case."

The decision came as the uptown complex's developers, lenders and bankruptcy trustee argue over whether millions of dollars in parking revenues and other money was wrongfully diverted from the project so they wouldn't have to be paid out to creditors.

The committee's attorney, Dennis O'Dea, has told the Observer such a move was unprecedented. Unsecured creditors are among the last to be repaid in a bankruptcy case, with secured creditors and administrative expense claims being paid first.

The project's bankruptcy trustee, Elaine Rudisill, managing director of The Finley Group, is investigating the EpiCentre's finances, looking for money and property that should be recovered to pay off the project's debts.

In an order explaining his decision, Hodges said the trustee "is capable of and required to adequately represent the interests of unsecured creditors in these cases."

So far, more than $220,500 has been paid in legal fees and expenses for the committee, court filings say. This money comes from cash generated by the EpiCentre.

"In these cases the secured creditor has a lien on the cash generated by the debtors' operations. Consequently, the Committee's fees are paid out of cash collateral of that creditor," the order says. "This continued free ride for one group of creditors at the expense of another is an administrative burden that is no longer merited.

At stake in the bankruptcy case is the future of the prominent, 302,000-square-foot retail and entertainment complex, which has been mired in court battles since holding companies Pacific Avenue and Pacific Avenue II filed for Chapter 11 bankruptcy protection in 2010.

The EpiCentre's owners filed for bankruptcy protection after Regions Bank started to foreclose after a $93.9 million loan came due.

Regions later sold the construction note to Blue Air 2010, a limited liability company. Since then, a new company has been hired to manage and operate the complex at Trade and College.

Rudisill has sued EpiCentre developers Afshin Ghazi and George Cornelson III contending that the men "fraudulently, intentionally and knowingly caused the Debtors to transfer millions of dollars in parking revenues to affiliated entities for the benefit of Ghazi and Cornelson personally." The court filings allege the men used shell companies to hide the revenues, and that they did not disclose the companies or the transfer to the bankruptcy court.

Home to restaurants, bars, an art gallery, movie theater and offices, the complex at Trade and College streets sits across from Time Warner Cable Arena, site of the upcoming Democratic National Convention, which will attract tens of thousands of visitors.

Attorney for EpiCentre developer Afshin Ghazi withdraws citing litigation's ongoing cost

An attorney representing EpiCentre developer Afshin Ghazi in bankruptcy court has withdrawn from the case saying the long-running, contentious court proceedings are draining Ghazi financially.

"I have thought for years that money is what controls politics," attorney David Badger told the court Thursday afternoon, when U.S. Bankruptcy Court Judge George Hodges approved Badger's request. "Money is what controls the outcome of litigation as well. You can outspend (a defendant) until they are defenseless."

"I'm in a position where they, quite frankly, don't have the finances to stay in," Badger said referring to Ghazi and fellow developer George Cornelson III. Badger also said he had "considerable accounts receivable."

Ghazi and Cornelson have been involved in heavy court battle since July 2010, when their two limited liability companies that own the EpiCentre, Pacific Avenue and Pacific Avenue II, filed for Chapter 11 bankruptcy protection to avoid foreclosure.

The uptown entertainment project's original lender, Regions Bank, had recently started foreclosure proceedings when a $93.9 million loan came due.

Since then, Regions Bank has sued the developers, questioning how Ghazi and Cornelson spent their loan money and kept records. Ghazi and Cornelson denied claims of self-dealing.

That case was dropped after Regions in November 2010 sold the construction note to Blue Air 2010, a limited liability company. Since then, a new company has been hired to manage and operate the 302,000-square-foot entertainment complex at Trade and College streets.

Things seemed to progress more smoothly until October, when the EpiCentre's new lender sued the project's developers, accusing them of wrongfully diverting money from the troubled entertainment complex before filing for bankruptcy protection.

Blue Air's lawsuit claims Ghazi, Cornelson and others "manipulated and falsified" bookkeeping records and transferred assets to "various insider companies" before the project filed for Chapter 11 last year.

The lawsuit also claims the debtors made "numerous false statements" in their pleadings and court filings. Blue Air is arguing that Ghazi and Cornelson are responsible for returning the EpiCentre's assets, according to court documents.

Blue Air and the EpiCentre's owners have said they were close to agreeing to a reorganization plan this fall. The plan would have released the project from bankruptcy protection.

But the plan fell apart in October when Blue Air changed its terms, according to the court filing by 210 Trade, a Ghazi-affiliated company. 210 Trade owns valuable air rights above the EpiCentre. These air rights, which are connected to potentially millions of dollars in parking revenues, are currently being examined by the bankruptcy trustee appointed to investigate the case.

"Blue Air thereupon proceeded to wrest control ... and began what is a transparent effort to obtain what it could not obtain through negotiation or blackmail ... parking revenue associated with the Air Rights Tract, " the documents say. "Whether due to lack of due diligence or otherwise, it is clear that Blue Air has buyer's remorse and that it does not like the deal it negotiated."

Currently, attorneys in the case are doing discovery and conducting numerous depositions.

A confirmation hearing on the reorganization plan is expected to be held later this month.