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Bjerget House Sold; Bankruptcy Judge Pushes for Prosser Settlement

April 16, 2008 — U.S. Bankruptcy Court Judge Judith Fitzgerald on Wednesday authorized the sale of the Bjerget House on St. Croix to a major Texas real estate firm, the Stanford Finance Group, for $7.7 million.
Until recently Jeffrey Prosser and his companies owned the property, which was sold as part of a long-running, contentious bankruptcy case. The auction leading to the sale took place April 9, but needed a court order from the judge to be confirmed.
The Stanford Group will use the complex of buildings as its V.I. headquarters, according to Stan Springel, the court-appointed Chapter 11 trustee in the case.
"Stanford will be good for St. Croix," Springel said after the Pittsburgh court hearing, explaining that the organization is already engaged in another multimillion dollar development on St. Croix. It's a solid company with solid finances, he said.
Springel said earlier that he had found several potential buyers and was sure the complex would bring at least $4 million to help pay off Prosser's creditors. Then he put on a three-hour auction in the 18th century Bjerget House — once owned by pianist-comedian Victor Borge — involving three major financial firms, which ended with Stanford's winning bid.
The bid was handled by a Stanford affiliate company, Christiansted Downtown Housing. John Foster Real Estate Company advertised the property extensively and helped with the sale. But the company got only a 1-percent commission because Springel was in touch with the Stanford Group before Foster was hired, and after the court approved retention of the firm. Had they brought in a new bidder, the rate would have been 5 percent.
Prosser earlier objected to the terms of the proposed sale, saying a $4 million potential price was too low, the complex was not advertised sufficiently, and too little notice was given about the prospective sale. The judge said Springel managed things in such a way to overcame Prosser's complaints.
The approval of the real estate sale was the most positive development in a five-hour hearing on the 54th floor of Pittsburgh's USX tower, the headquarters of the once mighty U.S. Steel Company. Most of the rest of the day was spent in complex legal arguments, often marked by restrained hostility, with some of the larger battles involving competing factions within the non-Prosser forces in the room.
There was, for instance, the vigorous three-way battle for the moneys to be gained from the expected sale of Prosser's home in Palm Beach, Fla. While it has been clear all along that the Bjerget House had been the property of the Innovative Communication Corporation, the ownership of the house in Florida is more complicated.
The three combatants are:
— Jeffrey and Dawn Prosser, who want to keep the house, or at least postpone its sale;
— Springel, who wants to sell it and place the resulting $5 million in — to use the legal term — the estate of the former Prosser corporations, to be divided among the creditors later; and
— Greenlight, one of the two major creditors, which contends that it has a lien on the property as an indirect result of an earlier Delaware state court decision, a judgment that preceded the bankruptcy trial. (Greenlight represents former minority stockholders in an earlier Prosser company.)
There is also a question about the Florida mansion and the other two Prosser residences: whether they are owned by Prosser individually (which would make them salable for the benefit of the creditors); by ICC, which would have the same result; or by the Prossers jointly. In the last-named circumstance, the trustee's ability to sell the house would be compromised.
Wednesday's court session was partially a hearing, in that decisions were made by the judge on the Bjerget House sale and several minor matters. It was partially a status conference, in which Springel's lawyers outlined the exact posture of approximately a dozen different issues. The session ran from 11 a.m. till a little after 4 p.m. without a break for lunch, and even at that pace the judge and lawyers worked their way through only about half of the 21-page agenda. Another hearing is set for May 16 in Pittsburgh. A series of hearings on St. Thomas regarding some of the remaining issues is scheduled for four days starting June 9.
The judge pressed the assembled lawyers hard on the question of an overall settlement, saying that she wanted all the parties — including the Prossers — to be present or give their lawyers full authorization to negotiate a settlement.
"That's an order," she said.
Gregg Galardi, the Greenlight lawyer, told the judge that he had called his client during a short break in the proceedings, and had the client's full authority to negotiate, but asked that his client be spared the trip to the Virgin Islands. The judge did not warm to the request, but Galardi persisted and won his point later in the afternoon.
To strengthen her pitch for a settlement she added a little humor, saying she wants the firms to get out of bankruptcy and the roomful of lawyers "to get away from each other." Fitzgerald also said she would throw in a few orders of her own that week "to encourage negotiations."
In other developments, Prosser's criminal defense lawyer, speaking by phone from New York, joined the proceedings to support the Prossers' use of the fifth amendment in their refusal to answer questions put to them in the bankruptcy process. In an earlier hearing, Lawrence Schoenbach irked the judge when he failed to meet a court deadline for filing a written brief on this point. Subsequently one of Schoenbach's assocates and another attorney filed such a brief, but Schoenbach had not signed it.
The judge asked a series of tough questions of Schoenbach, noting that some of the documents that the lawyers wanted, such as bank statements, were highly unlikely to be incriminating. She appeared particularly unimpressed with arguments that Dawn Prosser was likely to incriminate herself with her answers to financial questions. She made no decision on the fifth amendment question.
The judge gave a similar lukewarm reaction to Dawn Prosser's motion to have an issue about property ownership put to a jury trial, but issued no order. Juries are rarely, if ever, used in bankruptcy cases.
Springel's lawyers had argued that jury trials were appropriate in criminal trials and in civil cases involving money judgments, but not in civil hearings where the ownership of property, but not money judgments, was at stake.
In one of her other decisions Wednesday, the judge denied a petition from Prosser's adult children to dismiss a complaint against them. The complaint charges that they failed to follow the court's orders to provide information to the court on what the creditors' lawyers said were ICC-funded purchases and rental payments made on their behalf.
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