A trial date was set Thursday in U.S. Bankruptcy Court to hear a dispute between four malls owned by CBL Properties and well-known Chattanooga businessman Emerson Russell.
Bankruptcy Court Judge Nicholas Whittenburg set the date for Aug. 5 in the case in which the malls have sought an involuntary Chapter 7 bankruptcy petition against Russell along with $1 million.
Russell attorney M. Craig Smith said during a court hearing in Chattanooga that the petition against his client should be dismissed, arguing bankruptcy court wasn't the place to settle a two-party dispute involving the businessman and shopping center developer CBL.
"CBL is seeking to use the court to collect its own debts," Smith said, noting that state court is a better forum.
"CBL can litigate to its heart's content," he said.
Also, Smith said, the case was brought by CBL in "bad faith," adding that it was filed to "maximize pressure on Mr. Russell."
He said Russell has projects he's trying to finance and vendors who are questioning whether they should ship to him. Smith pressed for the case to be expedited.
But, Jerrold Farinash, representing the malls in the case, said Smith's arguments aren't supported by evidence.
He said he understands Russell has several family trusts, and that there was an indication that the businessman had been having "cash flow" issues.
In court papers, CBL attorney Jeffery Curry had said 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.
Smith said that Russell within the last week made a $250,000 payment to CBL.
The attorney said in court papers that 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; Laredo, Texas, and Monroeville, Louisiana, paying sponsorship fees of $62,500 per year for four years, Smith said.
Smith 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.
Russell received the earnout last April and he and CBL were in discussions concerning a separate obligation owed 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 owed 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.
Contact Mike Pare at firstname.lastname@example.org or 423-757-6318.