Case KRH Doc 112 Filed 04/04/11 Entered 04/04/11 16:41:39 Desc Main Document Page 1 of 24

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1 Document Page 1 of 24 B104 (FORM 104 (08/07 EDVA ADVERSARY PROCEEDING COVER SHEET (Instructions on Reverse ADVERSARY PROCEEDING NUMBER (Court Use Only PLAINTIFFS OFFICIAL COMMITTEE OF UNSECURED CREDITORS, on behalf of the Chapter 11 Estate of THE DOMINION CLUB, L.C. ATTORNEYS (Firm Name, Address, and Telephone No. HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia 23219, ( DEFENDANTS LOCH LEVAN LAND LIMITED PARTNERSHIP, HHHUNT/WYNDHAM DEVELOPMENT CORPORATION, HHHUNT CORPORATION, HUNTING HAWK, LLC, and HUNT FAMILY TRUST II ATTORNEYS (If Known PARTY (Check One Box Only PARTY (Check One Box Only Debtor U.S. Trustee/Bankruptcy Admin Debtor U.S. Trustee/Bankruptcy Admin Creditor Other Creditor Other Trustee Trustee CAUSE OF ACTION (WRITE A BRIEF STATEMENT OF CAUSE OF ACTION, INCLUDING ALL U.S. STATUTES INVOLVED Contribution, Breach of Contract, Turnover and Declaratory Relief NATURE OF SUIT (Number up to five (5 boxes starting with lead cause of action as 1, first alternative cause as 2, second alternative cause as 3, etc. FRBP 7001(1 Recovery of Money/Property 11-Recovery of money/property turnover of property 12-Recovery of money/property preference 13-Recovery of money/property fraudulent transfer 14-Recovery of money/property - other FRBP 7001(2 Validity, Priority or Extent of Lien 21-Validity, priority or extent of lien or other interest in property FRBP 7001(3 Approval of Sale of Property 31-Approval of sale of property of estate and a co-owner - 363(h FRBP 7001(4 Objection/Revocation of Discharge 41-Objection / revocation of discharge - 727(c,(d,(e FRBP 7001(5 Revocation of Confirmation 51-Revocation of confirmation FRBP 7001(6 Dischargeability 66-Dischargeability - 523(a(1,(14,(14A priority tax claims 62-Dischargeability - 523(a(2, false pretenses, false representation, actual fraud 67-Dischargeability - 523(a(4, fraud as fiduciary, embezzlement, larceny (continued next column FRBP 7001(6 Dischargeability (continued 61-Dischargeability - 523(a(5, domestic support 68-Dischargeability - 523(a(6, willful and malicious injury 63-Dischargeability - 523(a(8, student loan 64-Dischargeability - 523(a(15, divorce or separation obligation (other than domestic support 65-Dischargeability - other FRBP 7001(7 Injunctive Relief 71-Injunctive relief imposition of stay 72-Injunctive relief other FRBP 7001(8 Subordination of Claim or Interest 81-Subordination of claim or interest FRBP 7001(9 Declaratory Judgment 91-Declaratory judgment FRBP 7001(10 Determination of Removed Action 01-Determination of removed claim or cause Other SS-SIPA Case 15 U.S.C. 78aaa et.seq. 02-Other (e.g. other actions that would have been brought in state court if unrelated to bankruptcy case Check if this case involves a substantive issue of state law Check if this is asserted to be a class action under FRCP 23 Check if a jury trial is demanded in complaint Demand $11,600, Other Relief Sought

2 Document Page 2 of 24 B104 (FORM 104 (08/07 EDVA BANKRUPTCY CASE IN WHICH THIS ADVERSARY PROCEEDING ARISES NAME OF DEBTOR BANKRUPTCY CASE NO. THE DOMINION CLUB, L.C (KRH DISTRICT IN WHICH CASE IS PENDING EASTERN DISTRICT OF VIRGINIA DIVISION OFFICE RICHMOND NAME OF JUDGE HUENNEKENS RELATED ADVERSARY PROCEEDING (IF ANY PLAINTIFF DEFENDANT ADVERSARY PROCEEDING NO. DISTRICT IN WHICH ADVERSARY IS PENDING DIVISION OFFICE NAME OF JUDGE SIGNATURE OF ATTORNEY (OR PLAINTIFF /s/ Tyler P. Brown DATE April 4, 2011 PRINT NAME OF ATTORNEY (OR PLAINTIFF Tyler P. Brown, Esq. INSTRUCTIONS The filing of a bankruptcy case creates an estate under the jurisdiction of the bankruptcy court which consists of all of the property of the debtor, wherever that property is located. Because the bankruptcy estate is so extensive and the jurisdiction of the court so broad, there may be lawsuits over the property or property rights of the estate. There also may be lawsuits concerning the debtor s discharge. If such a lawsuit is filed in a bankruptcy court, it is called an adversary proceeding. A party filing an adversary proceeding must also complete and file Form 104, the Adversary Proceeding Cover Sheet, *unless the party files the adversary proceeding electronically through the court s Case Management/Electronic Case Filing system (CM/ECF. (CM/ECF captures the information on Form 104 as part of the filing process. When completed, the cover sheet summarizes basic information on the adversary proceeding. The clerk of court needs the information to process the adversary proceeding and prepare required statistical reports on court activity. The cover sheet and the information contained on it do not replace or supplement the filing and service of pleadings or other papers as required by law, the Bankruptcy Rules, or the local rules of court. The cover sheet, which is largely selfexplanatory, must be completed by the plaintiff s attorney (or by the plaintiff if the plaintiff is not represented by an attorney. A separate cover sheet must be submitted to the clerk for each complaint filed. Plaintiffs and Defendants. Give the names of the plaintiffs and defendants exactly as they appear on the complaint. Attorneys. Give the names and addresses of the attorneys, if known. Party. Check the most appropriate box in the first column for the plaintiffs and the second column for the defendants. Demand. Enter the dollar amount being demanded in the complaint. Signature. This cover sheet must be signed by the attorney of record in the box on the second page of the form. If the plaintiff is represented by a law firm, a member of the firm must sign. If the plaintiff is pro se, that is, not represented by an attorney, the plaintiff must sign. *Per LBR , in the EDVA, a properly completed Adversary Proceeding Cover Sheet is required.

3 Document Page 3 of 24 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: THE DOMINION CLUB, L.C., Debtor. OFFICIAL COMMITTEE OF UNSECURED CREDITORS, on behalf of the Chapter 11 estate of THE DOMINION CLUB, L.C., Plaintiff, v. LOCH LEVAN LAND LIMITED PARTNERSHIP, HHHUNT/WYNDHAM DEVELOPMENT CORPORATION, HHHUNT CORPORATION, HUNTING HAWK, LLC, and HUNT FAMILY TRUST II, Defendants. Case No KRH Chapter 11 Adv. Pro. No. COMPLAINT Plaintiff, the Official Committee of Unsecured Creditors on behalf of the Chapter 11 estate of The Dominion Club, L.C. (the Plaintiff, hereby sets forth the following as its Complaint against the above-named defendants: Tyler P. Brown (VSB No Michael G. Wilson (VSB No Justin F. Paget (VSB No HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: ( Telecopier: ( Counsel for the Official Committee of Unsecured Creditors

4 Document Page 4 of 24 I. Parties 1. The Dominion Club, L.C. (the Debtor is a Virginia limited liability company and is the debtor-in-possession in this bankruptcy case. As described below, the Official Committee of Unsecured Creditors (the Committee has standing to bring this claim on behalf of the Debtor s estate pursuant to the Final Order Authorizing Debtor to Obtain Post-Petition, Secured Financing, entered on February 22, 2011 (the Final DIP Order. 2. Defendant Loch Levan Land Limited Partnership ( Loch Levan is a Virginia limited partnership with its principal place of business in Glen Allen, Virginia. Loch Levan owns real estate in and around the Wyndham development, including the real estate and improvements on which the Debtor operates a country club. 3. Defendant HHHunt/Wyndham Development Corporation ( HHHunt/Wyndham is a Virginia corporation with its principal place of business in Blacksburg, Virginia. Until July 9, 1998, HHHunt/Wyndham was known as Snyder-Hunt/Wyndham Development Corporation. Upon information and belief, HHHunt/Wyndham is the General Partner of Loch Levan. 4. Defendant HHHunt Corp. is a Virginia corporation with its principal place of business in Blacksburg, Virginia. Until July 9, 1998, HHHunt Corp. was known as The Snyder- Hunt Corporation. HHHunt Corp. is a limited partner in Loch Levan with a 95% ownership interest. 5. Defendant Hunting Hawk, LLC is a Virginia limited liability company with its principal place of business in Glen Allen, Virginia. It is owned and/or controlled by HHHunt 2

5 Document Page 5 of 24 Corp. and affiliates and operates a golf course on real property adjacent to the Wyndham development. 6. Upon information and belief, Defendant Hunt Family Trust II is a trust formed under Virginia law with its principal place of business in Blacksburg, Virginia. The Hunt Family Trust II owns 95% of the member interests in the Debtor. 7. Each of the Defendants are affiliates of the Debtor, as acknowledged in the Final DIP Order. Each of the Defendants are owned and/or controlled by HHHunt Corp. and/or its principals. Except when a particular Defendant is referenced by name, the Defendants and entities owned and/or controlled by them are collectively referred to in this Complaint as Hunt. The Defendants have overlapping officers, members and/or directors. For example, David E. Reemsnyder, II is the registered agent for each of the Defendants with an address for service at 800 Hethwood Blvd., Blacksburg, Virginia Upon information and belief, Mr. Reemsnyder also is the President of each of the corporate Defendants, is the President and a Trustee of the Hunt Family Trust II, and served as the President of The Dominion Club, Inc. prior to its merger into the entity that ultimately became the Debtor. II. Jurisdiction 8. The Court has jurisdiction over the parties and the subject matter of this proceeding pursuant to 28 U.S.C. 157 and This action is a core proceeding within the meaning of 28 U.S.C. 157(b( Venue is proper in this district pursuant to 28 U.S.C and The predicates for the relief requested herein are sections 105, 541, 542, and 1109 of the Bankruptcy Code and Part VII of the Bankruptcy Rules. 3

6 Document Page 6 of 24 III. Background A. The Committee s Standing 12. On January 11, 2011 (the Petition Date, the Debtor filed with the Court its voluntary petition for relief under chapter 11 of the Bankruptcy Code, commencing the abovecaptioned chapter 11 case. 13. The Debtor continues to operate its businesses and manage its property as debtorin-possession pursuant to sections 1107(a and 1108 of the Bankruptcy Code. 14. On January 21, 2011, the Office of the United States Trustee appointed the Committee. 15. As a condition to agreeing to provide post-petition financing to the Debtor, the Debtor s affiliate, Loch Levan, demanded, and the Debtor agreed to seek, approval from this Court of a release of any and all claims that the Debtor had against Loch Levan and other affiliates of the Debtor. 16. As a result of negotiations with the Committee and the concerns of the Court expressed during a hearing on the motion to seek approval of the financing, the Debtor and Loch Levan agreed to identify specifically the affiliates the Debtor proposed to release and to make the proposed release subject to an investigation period in favor of the Committee before the release of Loch Levan and its affiliates by the Debtor would become effective. The affiliates identified by the Debtor and Loch Levan are the Defendants in this adversary proceeding. The scope of the release and the terms of the investigation period provided to the Committee are set forth in the Final DIP Order. 4

7 Document Page 7 of Among other provisions, the Final DIP Order granted standing to the Committee to pursue any claims it identified that belong to the Debtor and that the Debtor was proposing to release. The claims asserted in this Complaint are within the parameters of the standing provided to the Committee in the Final DIP Order. Other claims, such as claims belonging to individual creditors or to the Committee and that are not the exclusive domain of the Debtor to release, are not included in the release authorized by the Final DIP Order, nor are they included within this Complaint. B. The Development and Ownership of the Club 18. The Wyndham residential community in Henrico County, Virginia was developed by Hunt beginning in the 1980 s. The plan for the community called for the development of a first-class golf course, club house, and other country club amenities to be operated as a memberonly club (the Club. 19. In its proffers to obtain approval of the plans for Wyndham, and in particular the smaller size of the lots, Hunt committed to keeping the 180-acre golf course area of the community as open space, appropriate only for a golf course. Upon information and belief, Hunt has no ability, absent zoning changes, to use the golf course for other development. 20. Prospective purchasers of lots within the Wyndham community were advised of the plans for the Club, and the inclusion of the Club in the plans for the community was a significant draw for many purchasers, some of whom joined the Club from the outset and continue to be members of the Club today. 21. The land on which the Club was built is owned by Loch Levan. 5

8 Document Page 8 of Hunt oversaw the design, construction and organization of the Club and the establishment of The Dominion Club, Inc., which is a predecessor in interest to the Debtor, to be the entity to own the Club. From its formation, The Dominion Club, Inc. was owned entirely by Hunt. The Dominion Club, Inc., which was incorporated in Virginia on March 27, 1992, later merged into and became The Dominion Club, L.C., the current name of the Debtor, as the surviving entity of a merger effective January 20, Throughout its existence, the entity owning the Club has been owned and controlled exclusively by Hunt. 23. The current ownership of the Debtor is as follows: Hunt Family Trust II owns 95%, Harry H. Hunt, III owns 4.5% and HHHunt Corp. owns.5% of the limited liability company membership interests in the Debtor. 24. From the outset, the Club was maintained and operated under the complete direction and control of Hunt. 25. Hunt officers and managers continue to make the critical decisions for the Debtor. Hunt s representatives make all substantive decisions regarding the operation of the Club, including the capital improvements and repairs to be made, the amount of the monthly dues payable by members, the initiation fees charged to new and upgrading members, the marketing plans, and the hiring and firing of key Club personnel. C. Loch Levan s Lease with the Debtor 26. The Debtor operates the Club s golf course, clubhouse, tennis courts and other country club amenities on real estate and improvements it leases from Loch Levan pursuant to an operating Lease Agreement, dated August 1, 1992, as amended from time-to-time (as amended, the Lease. The current term of the Lease expires on December 31, The Debtor has two 6

9 Document Page 9 of 24 remaining five-year option periods, which, if exercised, will extend the last term available under the Lease through December 31, The annual rental payment under the Lease is about $1,100,000. As of the Petition Date, the Debtor was current on its obligations under the Lease, but as described below, only due to the financial support of Hunt. 28. The Lease is a triple net lease, requiring the Debtor to pay all costs and expenses incurred relating to its use of Loch Levan s land and improvements, including taxes, utilities, and maintenance. D. The Sale of Memberships in the Club 29. Hunt first offered memberships in the Club for sale in or about the Fall of 1990 and opened the golf course for play in From the outset, all memberships sold for the Club have been non-equity memberships. 31. At the time each member joins the Club, the member is required to acknowledge receipt of and the binding nature upon the member of the Club s Membership Plan and the related Rules and Regulations. These documents are incorporated by reference into each member s membership agreement and, in fact, take precedence over any conflicting language in the membership agreement. 32. The first iteration of a Membership Plan was produced in or about October The Membership Plan was developed for and at the direction of Hunt by a Florida law firm that Hunt engaged, Hillier & Wanless, P.A., which specialized in real estate matters involving golf course communities. 7

10 Document Page 10 of According to representatives of the Debtor, there have been at least seven amended versions of the Membership Plan adopted since 1990, with the last such version amended effective April Each version of the Membership Plan has contained a provision advising prospective and current members that members will never have to incur member assessments to cover any operating deficits of the Club. Instead, the Membership Plan consistently has provided: The Company will pay all operating deficits incurred in the operation of the Club Facilities and will retain all operating profits resulting from the operation of the Club Facilities. The term Company was consistently defined in the early versions of the Membership Plan to include the Club and its affiliates, successors and assigns. Later versions of the Membership Plan changed the promise to pay all operating deficits as a promise of the Club, but that term consistently was defined in each of those same versions of the Membership Plan to include both the Debtor and its affiliates, successors and assigns. 35. The members of the Club, thus, have been promised consistently since the formation of the Club that any operating deficits would be paid by affiliates of the Debtor. This promise made sense since the Debtor owns no other assets, and has no other means to cover operating deficits of the Club, except through financial support from Hunt. 36. A document produced by Hunt in or about 1991 and provided to prospective members of the Club, many of whom became members in reliance on Hunt s promises, labeled Frequently Asked Questions about Private Club Membership, repeated the promises contained in the Membership Plan: As long as the Company owns the club facilities, the Company will pay any costs of operating and maintaining the club facilities which are not covered by 8

11 Document Page 11 of 24 membership dues and club charges paid by members. The Company is defined in that same document to be the Club and its affiliates, successors and assigns. It also states that the club facilities will be managed by the Company or its agents. 37. The promises in the Membership Plan are consistent with the public statements and marketing materials of Hunt. For example, in a Richmond Times-Dispatch interview published on June 12, 1992, at page G2, Mr. Jerry Van Houton, General Manager of the Club at the time, told the reporter that, Most country clubs tend to nickel and dime you, but we figure with membership you deserve the amenities.... Any shortfalls in membership revenues will be covered by the Snyder-Hunt Corp., developers of Wyndham. 38. Hunt actively solicited new and prospective homeowners in Wyndham to become members of the Club through a variety of marketing methods, including mailings, brochures, newspaper and radio advertisements, and other materials. Hunt consistently promoted the Club as a first-quality country club for which Hunt, rather than the members, would bear the risk of the Club s financial performance. Doing so allowed Hunt not only to improve the financial performance of the Club by adding new members, but allowed Hunt to better market and sell lots Hunt had developed in Wyndham and in certain surrounding Hunt developments. E. The Refundable Initiation Deposits 39. From the period of 1991 through 2006, the Debtor collected from prospective members of the Club varying amounts of money described in the membership agreements and the Membership Plan as Refundable Initiation Deposits. The sums represented either all or a specified percentage of the initiation fee that would be returned to the Club member at some point in the future, upon the earliest of either (a the passage of 30 years (for resident members, 9

12 Document Page 12 of 24 (b the death of the member and the member s spouse, (c the resignation of the member and the sale of four (in some cases, two new memberships in the Club after the member moved to the top of the list of resigned members awaiting return of their Refundable Initiation Deposits, or (d upon the occurrence of certain other circumstances, such as the recall of all memberships or a particular member s membership interest by the owners of the Club. 40. The Refundable Initiation Deposits of members who do not resign before then will come due, at the latest, 30 years after the date the member joined the Club. Thus, unless an earlier payment date is triggered, the Refundable Initiation Deposits will come due, at the latest, between 2022 and For a period of time, persons who lived outside of the Wyndham community were permitted to join the Club as an Invitational Member, which was a category of membership created to increase membership in the Club and the collection of initiation fees and monthly dues while Wyndham was still under development. Because those Invitational memberships were more likely to be subjected to recall by the Club to allow more room in the Club once the demand for memberships increased among Wyndham residents, the Refundable Initiation Deposits for those Invitational Members had a much shorter outside due date of December 31, 2010, rather than the 30-year period applicable to resident members. 42. Based on public statements made on behalf of Hunt by Mr. Reemsnyder, and confirmed by James Crowder, a Hunt manager who appeared at the meeting of creditors in this case on behalf of the Debtor, Hunt knew by about that the Debtor would not be able to return all of the Refundable Initiation Deposits out of the generation of new membership initiation fees and the operating income of the Debtor. Thus, Hunt decided that the Debtor 10

13 Document Page 13 of 24 would reduce and, ultimately, phase out, the returnable portion of any future initiation fees. By sometime in 2006, Hunt had directed the Debtor to no longer include any Refundable Initiation Deposits as part of new member initiation fees. 43. Despite knowing that the Debtor would not generate sufficient income to repay the Refundable Initiation Deposits as those sums came due, Hunt continued to develop and sell lots in Wyndham and adjacent communities Hunt had developed by marketing the ability of prospective homeowners to join a financially viable, first-class country club. F. Intercompany Financial Support of Operating Deficits 44. Prior to December 2010, the Debtor s income and expenses were managed by Hunt. All of the Debtor s income, including from monthly dues and other charges, special events, and initiation fees, including Refundable Initiation Deposits, was deposited in a pooled cash account with other Hunt affiliates that was controlled by Hunt (the Pooled Cash Account. Expenses were then paid from that Pooled Cash Account either on checks drawn by the Debtor or by Hunt, on behalf of the Debtor, and corresponding credits and debits were recorded against the Debtor s interests in the Pooled Cash Account as the Debtor s money flowed in and out of the Pooled Cash Account. 45. The Debtor historically has been unable to generate sufficient income to pay in full the expenses of operating the Club, including the amounts owed under the Lease and to return Refundable Initiation Deposits as those expenses came due in the ordinary course. In fact, the Debtor has lost money each year since its inception, leaving it unable to pay the expenses of operating the Club without financial support from Hunt. 11

14 Document Page 14 of Consistent with Hunt s public statements, promises to members of the Club and prior practices for the first 18 years of the Club s existence prior to December 2010, one or more of the Hunt affiliates supported the Debtor by paying the expenses, including portions of the Lease payments and repayment of Refundable Initiation Deposits that became due, that the Debtor could not afford to pay. Hunt caused the payment of theses sums to be reflected on the books and records of the Debtor and its affiliates as intercompany loans (the Affiliate Payments. The balance of the Affiliate Payments reflected on the Debtor s books and records went up and down as the Debtor needed additional funds from Hunt and as it was able to deposit more cash in the Pooled Cash Account. While Hunt caused the Affiliate Payments to be reflected as intercompany loans, the Debtor s books and records did not reflect the accrual of any interest owed to Hunt on account of the Affiliate Payments. 47. Prior to 1996, the Debtor was able to repay most of the Refundable Initiation Deposits that came due, and to cover other operating expenses, through the use of approximately $7 million of initiation fees that the Debtor had collected from members as Refundable Initiation Deposits. Affiliate Payments were made by Hunt through the Pooled Cash Account, but these sums were not significant in amount prior to 1996 due to the Debtor s use and exhaustion of the incoming cash represented by the Refundable Initiation Deposits prior to that time. 48. After having to increasingly provide financial support to the Debtor due to the prior use of the cash represented by Refundable Initiation Deposits, beginning in or around March 2006, Hunt began discussing with a group of active members of the Club the concept of a plan to convert the Club to a member-owned equity club, which would have placed the financial 12

15 Document Page 15 of 24 burdens of the operating deficits on the members, rather than Hunt. Those plans have been unsuccessful to date. 49. As of December 1, 2010, the balance of the Affiliate Payments provided to the Debtor by Hunt and paid out of the Pooled Cash Account, on behalf of the Debtor, to either Loch Levan for rent, Hunt for the costs allocated to the Debtor for shared services paid by Hunt, or to third party creditors, including to resigned members on account of Refundable Initiation Deposits, totaled approximately $10.7 million. 50. Thus, prior to December 1, 2010, through the financial support of Hunt, the Debtor returned the Refundable Initiation Deposits as they came due to members in the ordinary course of business under the early payment provisions. Upon information and belief, prior to December 1, 2010, the Debtor had returned a total of approximately $6 million in Refundable Initiation Deposits, with $2.7 million in Refundable Initiation Deposits returned during the period of 2002 and The money returned to resigned members on account of the Refundable Initiation Deposits was paid from the Pooled Cash Account in the ordinary course as those obligations came due. Thus, as with all other operating expenses, the funds that belonged to the Debtor in the Pooled Cash Account were used to the extent available to cover these obligations, and to the extent the Debtor had insufficient cash to cover these obligations, they were paid through Affiliate Payments funded by the Defendants. G. The Pre-Bankruptcy Plans of Hunt to Evade Liability 52. In or about December 2010, in preparation for its bankruptcy filing, Hunt caused the Debtor to change the Debtor s cash management system by establishing for the Debtor a 13

16 Document Page 16 of 24 separate account and ceasing to have the Debtor s income deposited into, and its expenses paid from, the Pooled Cash Account. 53. In or around December 2010, Hunt also determined that it was in Hunt s best interests in advance of any bankruptcy filing by the Debtor to treat the Affiliate Payments as capital contributions to the Debtor. 54. Accordingly, as of the Petition Date, Hunt had acknowledged that the Debtor did not owe Hunt any monies on account of Hunt s prior funding of the Debtor s operating shortfalls. 55. Upon information and belief, the Debtor had approximately $1.6 million of Refundable Initiation Deposits that were scheduled to come due on December 31, 2010, for the Invitational Members. Contrary to its public statements, representations in the Membership Plan and membership agreements and its consistent historical practices, Hunt decided at least a month in advance of that date that it would not fund the amounts needed by the Debtor to pay these sums when they came due, and accordingly, the Debtor did not have the ability to, nor did it, pay these sums when due. 56. Instead, Hunt decided that the Debtor should seek to discharge its obligations to its creditors, including the obligation to return all remaining Refundable Initiation Deposits, rather than pay them out of available cash and Affiliate Payments as Hunt had consistently done in the past. 57. The obligation to return the Refundable Initiation Deposits is an obligation not only of the Debtor, however, but also of each of the affiliates, successors and assigns of the Debtor, which includes each of the Defendants in this adversary proceeding. 14

17 Document Page 17 of The failure of the Defendants to provide funds to the Debtor to allow it to repay the Refundable Initiation Deposits that came due December 31, 2010, was a breach of the obligation of each of the Defendants to the Debtor for which each of the Defendants is jointly and severally liable. 59. In addition to the approximately $1.6 million of Refundable Initiation Deposits that came due December 31, 2010, a total of approximately $10 million in additional Refundable Initiation Deposits will come due between now and 2036, when the last of these Refundable Initiation Deposits will come due to resident members if a payment date is not triggered earlier. Further, given the Debtor s consistent historical operating losses, there likely will be other obligations of the Debtor that will come due in the future that the Debtor will be unable to fund from operations. 60. Through positions taken prior to and during the bankruptcy case, the Defendants have repudiated any obligation to fund the current or future operating deficits of the Debtor, including but not limited to ensuring that the Debtor can repay the Refundable Initiation Deposits as and when they come due. 61. In addition, because Defendant Loch Levan owns the real property and improvements on which the Debtor operates the Club, but has only provided the Debtor with Lease options through December 31, 2022, the Debtor does not have the present ability to even operate the Club at the time when the substantial majority of the Refundable Initiation Deposits will come due during the period of 2022 through

18 Document Page 18 of 24 IV. Causes of Action Count I - Contribution 62. The Plaintiff incorporates by reference the allegations set forth above in paragraph 1 through 61 as if fully set forth herein. 63. On December 31, 2010, approximately $1.6 million in Refundable Initiation Deposits came due and payable by the Debtor to certain resigned members of the Club. 64. The Debtor currently is unable, and historically has been unable, to pay its operating expenses out of operating income as those expenses have come due in the ordinary course of business. 65. The Defendants have a duty, under the express terms of the Membership Plan and otherwise, to contribute the funds necessary for the Debtor to pay the Refundable Initiation Deposits and all other operating expenses as they come due if the Debtor is financially unable to do so. 66. Despite their knowledge of the Debtor s inability to pay these expenses without their contribution of funds, the Defendants have failed to pay the operating deficit of the Debtor for 2010 by failing to pay, among other unpaid debts of the Debtor, approximately $1.6 million in Refundable Initiation Deposits due on December 31, Due to the failure and refusal of the Defendants to provide the Debtor with the funds required to cover the Debtor s operating shortfall, the Debtor defaulted on its obligations to creditors, including certain former members of the Club, and now faces unsecured claims for those sums in its bankruptcy. 16

19 Document Page 19 of The Defendants knew that their failure to honor their contribution obligations would leave the Debtor unable to pay its debts as they came due. 69. The Defendants orchestrated the filing of the bankruptcy petition by the Debtor as a means to attempt to have the Debtor discharge the liabilities of the Debtor to its creditors and thereby attempt to avoid their contribution liability to the Debtor. 70. The Defendants contribution obligations to the Debtor are not subject to discharge through the bankruptcy case of the Debtor. 71. As a result of the Defendants breach of their duties of contribution, the Plaintiff has suffered damages, including, but not limited to, the inability of the Debtor to pay amounts that the Debtor legitimately owes to creditors and the costs incurred by the Debtor, either directly or through the incurrence of debt under the Hunt affiliate loan authorized by the Final DIP Order, in preparation for and as a result of the filing of its bankruptcy petition and the related costs and expenses of administration, including attorneys fees and statutory fees. 72. Consistent with Hunt s public statements, the terms of the Membership Plan, and as evidenced by the Defendants prior conduct, each of the Defendants is obligated to pay the amounts constituting an operating deficit of the Debtor, and thus, each is liable, jointly and severally, to the Plaintiff in an amount not less than $1.6 million, plus other expenses, costs and attorneys fees. 73. In addition, each of the Defendants is jointly and severally liable to pay the amounts constituting operating deficits of the Debtor as they occur in the future, in amounts to be established at trial. 17

20 Document Page 20 of 24 Count II - Breach of Contract 74. The Plaintiff incorporates by reference the allegations set forth above in paragraph 1 through 61 as if fully set forth herein. 75. As evidenced by, among other things, the public statements of Hunt, the terms of the Membership Plan drafted by and at the direction of Hunt, and consistent with their financial support of the Club throughout its history, the Defendants agreed with the Debtor to pay the amounts required for the Debtor to return the Refundable Initiation Deposits and to pay all other operating expenses as they come due if the Debtor is financially unable to do so. 76. On December 31, 2010, approximately $1.6 million in Refundable Initiation Deposits came due and payable by the Debtor to certain resigned or current members of the Club. 77. The Debtor currently is unable, and historically has been unable, to pay its operating expenses out of operating income as those expenses have come due in the ordinary course of business. 78. Despite the Defendants contractual duty and their knowledge of the Debtor s inability to pay its creditors as debts came due, the Defendants have failed and refused to pay to the Debtor the amounts necessary for the Debtor to pay approximately $1.6 million in Refundable Initiation Deposits that became due and payable on December 31, In addition, the Defendants have repudiated their contractual obligation to fund operating deficits of the Debtor in the future. 80. Due to the failure and refusal of the Defendants to provide the Debtor with the funds required to cover the Debtor s operating shortfall, the Debtor defaulted on its obligations 18

21 Document Page 21 of 24 to certain trade creditors and to former members of the Club and now faces unsecured claims for those sums in its bankruptcy. 81. The Defendants knew that their failure to honor their contractual commitment to the Debtor would leave the Debtor unable to pay its debts as they came due. 82. As a result of the Defendants breach of their contractual obligations to the Debtor, the Debtor has suffered damages, including but not limited to the inability to pay amounts that the Debtor legitimately owes to creditors and the costs incurred by the Debtor, either directly or through the incurrence of debt under the insider loan authorized by the Final DIP Order, in preparation for and as a result of the filing of its bankruptcy petition and the related costs and expenses of administration, including attorneys fees and statutory fees. 83. As a result of the breach of their joint contractual commitment to the Debtor, each of the Defendants is liable, jointly and severally, to the Plaintiff in an amount not less than $11.6 million, plus other expenses, costs and attorneys fees. Count III - Turnover 84. The Plaintiff incorporates by reference the allegations set forth above in paragraph 1 through 83 as if fully set forth herein. 85. Pursuant to 11 U.S.C. 541(a(1, the claims asserted against the Defendants in this Complaint are property of the Debtor s estate. 86. The debts owed by the Defendants as described in the claims asserted in this Complaint are matured and presently due and payable to the Debtor. 19

22 Document Page 22 of Pursuant to 11 U.S.C. 542(b, because the Defendants owe a debt to the Debtor that is property of the estate and that is matured, the Defendants are obligated to pay such debt to the Plaintiff. Count IV - Declaratory Relief 88. The Plaintiff incorporates by reference the allegations set forth above in paragraph 1 through 83 as if fully set forth herein. 89. Each of the Defendants are required to fund operating deficits of the Debtor. 90. The Defendants failed and refused to honor their obligations to fund operating deficits of the Debtor beginning in December An actual controversy exists between the Plaintiff and the Defendants with respect to the obligation of the Defendants to fund all operating deficits of the Debtor as and when they occur in the future. 92. Unless this Court decrees the right of the Debtor to have the Defendants fund any operating deficits the Debtor cannot fund in the future, the Debtor will not have the ability to retain members of the Club in sufficient numbers to make the Club viable. 93. Because it is currently unknown what the amounts of any operating deficits will be each year in the future, and because the Debtor and the Committee must determine whether the Defendants must cover such operating deficits in the future in connection with any attempts of the Debtor to reorganize through this bankruptcy case, the Plaintiff lacks an adequate remedy at law. 20

23 Document Page 23 of Accordingly, the Plaintiff requests that the Court decree the parties respective rights and declare that the Defendants are obligated to fund operating deficits of the Debtor as and when they accrue in the future. [REMAINDER INTENTIONALLY BLANK] 21

24 Document Page 24 of 24 V. Prayer for Relief Wherefore, the Plaintiff prays for the following relief against the Defendants: a. On Count I, for judgment in favor of the Plaintiff and against the Defendants, jointly and severally, in an amount not less than $11.6 million; b. On Count II, as an alternative to Count I, for judgment in favor of the Plaintiff and against the Defendants, jointly and severally, in an amount not less than $11.6 million; c. On Count III, for judgment in favor of the Plaintiff and against the Defendants, jointly and severally, for all amounts proved to be owed to the Plaintiff pursuant to either Count I or Count II; d. On Count IV, for declaratory relief in favor of the Plaintiff declaring that the Defendants are liable, jointly and severally, for all operating deficits of the Debtor as and when they come due in the future; and e. On all Counts, for such other and further relief as the Court deems appropriate. /s/tyler P. Brown Tyler P. Brown (VSB No Michael G. Wilson (VSB No Justin F. Paget (VSB No HUNTON & WILLIAMS LLP 951 East Byrd Street Richmond, Virginia Telephone: ( Telecopier: ( Counsel for the Official Committee of Unsecured Creditors 22