Firm News

Trustee to oversee disposition of Powder Ridge

By: Sue VanDerzee , Town Times

In the end, it was over quickly. After more than 12 hours of testimony over three days, U.S. Bankruptcy Court Judge Lorraine M. Weil ruled that a trustee should be appointed to oversee the disposition of White Water Mountain Resorts of Connecticut, better known as the Powder Ridge ski area in Middlefield.

The ruling came Thursday at 2 p.m., after 2½ hours of closing arguments by attorney Barbara Katz, representing Ken Leavitt, owner and CEO of WWMR, as well as attorneys representing the primary mortgage holder, Middlefield Holdings LLC; the unsecured creditors (those with no liens to secure their right to money owed); and a trustee for the U.S. Bankruptcy Court, New Haven District.

Also present, but not presenting testimony or questioning witnesses on the final day, were attorneys for the town of Middlefield and for Robert Switzgable, owner/operator of Ski Sundown in New Hartford.

The hearing was necessitated by a petition from the creditors' committee asking that Judge Weil appoint a trustee to manage the affairs of WWMR, replacing Leavitt. Attorney Robert White, representing the town of Middlefield, was happy about the ruling, and Selectman Dave Lowry added, "We're another step along the road," to the town's goal of Powder Ridge remaining a ski area. In a referendum earlier this year, town residents voted to make an offer to purchase the property.

WWMR is in Chapter 11 bankruptcy after being thrown into Chapter 6 (involuntary) bankruptcy days before a scheduled foreclosure auction of the property in May of this year. At the last moment, Leavitt applied for and received, as is customary, status under the Chapter 11 (voluntary) bankruptcy rules.

This gave him a period of time to reorganize the business in an attempt to satisfy creditors ranging from the mortgage company that holds a $2.77 million mortgage on the property, to tradespeople who performed maintenance work, to vendors who provided goods, to towns (Middlefield, Meriden and Wallingford) who are owed back taxes. The total owed by WWMR, whose sole owner is Ken Leavitt, is just over $4 million, according to court documents.

Leavitt's plan, delivered to the court early this month just before the deadline, envisions a timeshare development of approximately 200 units in various configurations on the mountain, as well as a conference center/hotel, all located around the ski area and a water park, both of which are currently permitted uses. There are several plan variations, one of which includes 56 houses in Middlefield and one of which includes an indoor water park as well as the outdoor one.

In their summations on Thursday morning, attorney Elon Marcus, representing Middlefield Holdings LLC, questioned the apparently cavalier way Leavitt had treated multiple offers by both Switzgable and the town of Middlefield partnering with Switzgable. "You made no written response to Switzgable's Feb. 2007 offer or instructed your broker (Dow, Collier and Condon) to reply?" Marcus asked. (In February 2007, according to earlier testimony by Switzgable, he and the town offered $4.2 million for the property, an offer that was rejected without written explanation or counteroffer.) Marcus pointed to the last several months as yielding "disturbing evidence of Leavitt's self-serving attitude, selling creditors' assets without permission of the bankruptcy court and using the proceeds for personal expenses."

Attorney Holley Claiborn, a U.S. Bankruptcy Court trustee, questioned the lack of fire and loss insurance on the structures on the property when "they clearly represent value to creditors."

Attorney Douglas Skalka, representing several unsecured creditors (those who originally filed the involuntary bankruptcy petition against WWMR), reiterated that his clients "only want a level playing field while Ken Leavitt only wants to consider his own plan, which is not a reorganization process, but a sale process with only one potential purchaser, and he wears multiple hats - as a debtor, an unsecured creditor and a re-purchaser. A level playing field is in the best interest of all creditors and Ken Leavitt, as well."

According to Leavitt's earlier testimony, this plan, if it had been allowed by Judge Weil to proceed the way he (Leavitt) would have liked it to, would result in all creditors, including unsecured creditors (those with no liens against the property), to receive "full payment, plus interest" in three years.

That time frame is the result of adding a year and a half for obtaining the necessary permits and a year and a half for dealing with possible challenges, arranging financing and marketing the timeshares and/or various aspects of the plan, such as splitting the ski area and/or water park area out of the current 246-acre parcel and selling it/them separately.

Attorney Skalka pointed out that three years without payback would add enormously to the final amount that was owed, with mortgage interest and payments at around $20,000 each month for 36 months and interest on taxes currently due at around $5,000 per month for 36 months.

Also called to give testimony earlier in the week was Robert Switzgable, owner/operator of Ski Sundown. Switzgable has partnered with the town of Middlefield in making an offer to buy Powder Ridge. Under that plan, Switzgable would own outright the 125 acres of the ski area itself while the town would own the surrounding 121 or so acres, as well as the development rights to the ski area land. In a referendum on April 10, 2007, the town overwhelmingly approved bonding up to $2.85 million for the town's share of this proposal.

According to sworn testimony, this wasn't the first time that Switzgable and Leavitt had traded offers. Leavitt testified that he had "discussions with Switzgable for a year before foreclosure, but he didn't offer enough."

Switzgable testified that he had offered Leavitt $1.75 million for the ski area only (120 acres) in early 2006, contingent on reaching an agreement with the town to purchase the rest of the land, "due diligence" (generally meaning an inspection and investigation to see if what is being sold is represented accurately), and a promise not to build a water park for seven years (at Leavitt's insistence).

The latter contingency was especially interesting, given Leavitt's oft-stated opinion that a one-season recreational facility (ski area) is not economically viable, and certainly not viable in mid-Connecticut, given the string of warm winters the area is experiencing. When questioned further, Switzgable replied that Leavitt had apparently not wanted the water park permits to be used by anyone else since they had been so expensive in time and money to put in place.

According to Switzgable, Leavitt made a counteroffer and Switzgable came back with a $2 million offer, which Switzgable felt had been what Leavitt was seeking. By this time, however, Leavitt had apparently changed his mind, and he (Leavitt) began negotiations with the town of Middlefield based on overtures made by newly-elected First Selectman Jon Brayshaw.

A sale-leaseback arrangement negotiated by the Board of Selectmen in 2006 stalled when the Board of Finance was challenged to "stop it here" if they couldn't support it in the end, which they did.

After a firestorm of negative public opinion caused by residents' perceptions that their local government representatives weren't necessarily working together or doing what "the people wanted," finance board Chairman Paul Pizzo and Selectman Dave Lowry undertook the task of figuring out "where do we go from here?" while Leavitt listed the Powder Ridge property with Colliers, Dow and Condon, a commercial real estate firm based in Hartford, for $5.75 million.

In May 2007, following the auction-that-didn't-happen and the bankruptcy filings, the town and Switzgable offered $3.8 million for the property, again with no financing contingencies, but a time contingency - the offer would fall to $3.3 million if the deal was not consummated by Aug. 1, 2007, due to the difficulty of getting the ski area ready to operate for the coming season.

When asked by attorney Skalka if any negotiations had occurred since that time, Switzgable testified that "Last week Ken (Leavitt) called and asked 'where are we?' and I repeated the $3.3 million offer."

According to attorney Michael Enright, representing Switzgable and present for the entire proceeding, what happens next is that attorney Claiborn, the U.S. Bankruptcy Court trustee for this case, will entertain suggestions from the creditors' committee and the secured creditors for who might make a good trustee.

"I believe it will happen quickly," he said. "Probably next week."

After that, the trustee will develop a plan for disposition of the assets of WWMR, which must be approved by the court and then implemented.