A dispute involving one of Chattanooga's best known companies and one of the city's highest-profile business people has overflowed into U.S. Bankruptcy Court.
Four malls owned by CBL Properties have sought an involuntary Chapter 7 bankruptcy petition against Emerson Russell and are seeking $1 million in payment, according to the court action brought last month.
CBL attorney Jeffery Curry said in court papers that Russell, who was Chattanooga's 2016 manager of the year, signed sponsorship agreements at the malls valued at a total of $1 million.
He said in a letter that $62,500 was to be paid by Russell to each of the malls within 10 days of Dec. 1, 2018.
"For the four sponsorship agreements, this amounts to an aggregate of $250,000. No such payments have been received by the landlords as of the date thereof," Curry said in an April 26 letter to Russell.
The letter said that the landlords would terminate the sponsorship agreements and accelerate all sums due under the agreements, or $1 million, and an action would be taken to collect the full amount.
On May 5, CBL filed the petition in Bankruptcy Court in Chattanooga.
An attorney for Russell called the filing of an involuntary bankruptcy petition "to say the least an extreme remedy with serious consequences" to the businessman.
Attorney M. Craig Smith said the filing of the involuntary petition against Russell is a way for the CBL malls to "use this court as their own collection agency to the detriment of Mr. Russell and his other creditors in what is a two-party dispute between the businessman and CBL & Associates Management Inc."
Smith sought an expedited hearing, and one has been scheduled for Thursday in Chattanooga.
Russell's attorney argued that the petition is "wholly frivolous and in bad faith," and he called for compensatory and punitive damages.
Smith, in a response to the petition, said Russell had enjoyed a decades-long professional relationship with CBL, one of the largest owners and operators of shopping malls in the country. Companies formerly owned and controlled by Russell provided services including maintenance and security for many of CBL's centers, he said.
In 2017, Russell's businesses, the ERMC entities, entered into negotiations to sell substantially all its assets including numerous service contracts with CBL to SecurAmerica LLC and its affiliates, Smith said.
He said CBL's consent was required for the ERMC entities to have the ability to assign the CBL contracts to SecurAmerica. Smith said CBL threatened to withhold consent unless Russell and SecurAmerica agreed to provide CBL with certain consideration.
Russell then entered into the sponsorship agreements, in which Russell agreed to be the sponsor of community partnership programs at the four malls in St. Louis, Missouri; Asheville, North Carolina; Larado, Texas, and Monroeville, Louisiana, paying sponsorship fees of $62,500 per year for four years, Smith said.
He said Russell made it clear to CBL that he wouldn't pay the fees until he received "an earnout" from the transaction with SecurAmerica, which he expected this spring.
But Smith said CBL consistently reached out to him seeking payment of $250,000 for the first year.
Russell received the earnout last April and he and CBL were in discussions concerning a separate obligation owned to CBL, which was secured by an office building on Lee Highway, the attorney said.
He said CBL refused payment in full on that obligation unless and until Russell also satisfied the obligations owned under the sponsorships. Russell objected, saying the two obligations weren't linked, and as a result, Russell's intended performance under the sponsorships was delayed, Smith said.
CBL then sent the April 26 letter seeking payment for the full $1 million, he said.
Both Smith and CBL declined comment.
Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.