Fur flies at hearing over time shares | TahoeDailyTribune.com

Fur flies at hearing over time shares

by Michael Schneider

Arguments regarding a preliminary injunction which would force Mitsui Trust & Banking Co., Ltd. to hold on to an overdue bank loan it provided the developers of the state line Embassy Suites hotel were heard Friday.

El Dorado Superior Court Judge Patrick Riley offered little information, saying only that he planned to rule on the matter as soon as possible.

Riley required each side to submit by Thursday any further arguments in writing, limited arguments to 20 pages.

KOAR-Tahoe Partners, L.P. was loaned $53 million in 1990 by Mitsui so that the partnership could construct the Embassy hotel across the state line from Harrah’s Lake Tahoe.

The hotel opened for business in 1991, giving KOAR more than six years to pay off the loan before it matured last July.

From the beginning, the hotel, although successful by the city’s standards, failed to live up to KOAR’s occupancy expectations.

The partnership saw the loan deadline approaching without sufficient funds to pay it off and formulated a plan to pay the bank back by converting 188 Embassy units to time shares. The plan called for the sale of the converted units to Signature Resorts, Inc., a time-share company controlled by two KOAR partners.

The conversion, which won City Council approval when the council amended its five-year moratorium on time shares last year, would, according to KOAR, raise $35 million for Mitsui in five years. Conversion is expected to begin in May.

The proposed conversion was at the heart of the civil proceedings Friday.

KOAR attorney Lawrence Cox claimed Mitsui representatives, in internal bank documents and in conversations with KOAR partner Osamu Kaneko, gave bank approval of the time-share process.

Cox claimed the bank would allow the loan to remain in a “stand-still” status after the July deadline had passed while KOAR lobbied the city to allow the conversion. He said KOAR had already invested $500,000 into the conversion process and wouldn’t have done so had Mitsui not agreed to allow it to proceed.

Seth Ribner, who argued for Mitsui, said when bank officials looked into KOAR’s time-share proposal, KOAR mistakenly took that to mean the bank was interested.

Ribner said Mitsui has already lost $4 million due to the loan and continues to lose $18,000 each day as KOAR stopped paying interest on the loan last summer.

“They are just pocketing the interest payments,” Ribner said, asking that if Riley were to grant the injunction, he order KOAR to pay the bank $20 million.

Ribner pointed to a “Fact Sheet” presented to the City Council Oct. 29, 1997 by KOAR partner Steve Kenninger, of which Kenninger testified that the “facts” weren’t really facts.

In that document, KOAR claimed it had no agreement with Mitsui regarding time shares and, if the city were to not allow the time-share conversion, the hotel would go bankrupt and impact further redevelopment projects.

Kenninger said this because, according to Ribner, the partners needed to create a sense of panic in the minds of the City Council to move through the time-share approval process.

Two months later, when the bank threatened foreclosure on the loan, Kenninger changed his tune and said Mitsui had agreed to the conversion process from the beginning, according to Ribner, so that KOAR would have a case against Mitsui.

“They used threats of bankruptcy against the city just as they did against us,” Ribner said. “I would be surprised if they treated the city any better than us.

“The only thing they want to do is turn a dollar and they will say and do anything to do so.”

Cox didn’t argue that Kenninger lied to create a sense of urgency in the minds of the City Council and South Lake Tahoe residents.

“Steve (Kenninger) allowed a sense of urgency to set in so that progress could be made. I don’t see how that makes him dirty,” Cox said. “He just got the city to the place it wanted to be.”

If Riley continues a restraining order granted against Mitsui as a preliminary injunction, he said he would set a trial date for July or August at the latest.

In order for Riley to rule for KOAR and make Mitsui wait out the conversion, he must find there is both a likelihood that KOAR will win the case on its merits in a trial and that KOAR would suffer injury if Mitsui is allowed to proceed with the sale of the loan.

Tahoe Daily Tribune E-mail: tribune@tahoe.com

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