Little Rock developer Philip Herrington believes if he sells his undeveloped lots in Oklahoma City, he will have more than enough to repay the creditors in his $13.45 million bankruptcy.
Herrington’s Chapter 11 reorganization, filed on March 18, represents one of the largest debt totals in a personal bankruptcy filing in recent years in Arkansas. He listed $5.1 million in assets.
As of last week, Herrington’s detailed plan for how he’s going to emerge from reorganization hadn’t been filed with the U.S. Bankruptcy Court, and Bankruptcy Judge Ben Barry hadn’t set a filing deadline. But Herrington told Arkansas Business last week that a plan for reorganization will be filed soon, “and we’ll go from there.”
The creditors then will review it and could make objections.
One of Herrington’s creditors, Timberdell Road Group LLC of Oklahoma City, asked Wednesday for permission to question Herrington about his reorganization plans.
“Cryptic and late-filed operating reports state that there are no business cash transactions in the reporting periods,” Timberdell’s attorney, Michael Bickford of Oklahoma City, wrote in the filing. “It is impossible to tell if [Herrington] is actually paying prepetition debts based on the operating reports filed.”
Herrington’s handwritten monthly operating report for May listed his ending checkbook balance at $69.82.
He declined to comment further on specifics of his bankruptcy, in part because he is also a defendant in a number of pending lawsuits.
Herrington’s financial trouble can be traced to the Gaillardia Golf & Country Club in northwest Oklahoma City, which he bought in 2002 as part of a $9.1 million transaction with Oklahoma Publishing Co., led by Christine Gaylord Everest.
Creditors started filing lawsuits against Herrington and his other business entities in 2013 after he began defaulting on loans connected to Gaillardia, which features a 55,000-SF clubhouse and an 18-hole golf course. In 2014, he was removed from the operational control of the club after allegations of mismanagement.
Herrington’s personal bankruptcy followed a $3.7 million judgment that First Commercial Bank of Edmond, Oklahoma, received in June 2015 against him, Gaillardia Development LLC and his real estate development company, Herrington Inc. The bank assigned the judgment to Timberdell in October, and Timberdell now has a $3.1 million claim against him.
As Timberdell searched for Herrington’s assets, Herrington headed to U.S. Bankruptcy Court in Little Rock, which stopped the collections process and stayed the other lawsuits.
During a bankruptcy proceeding, an audio recording of which Arkansas Business obtained, Herrington, 63, said that he filed for bankruptcy protection because Timberdell was “pursuing collection of virtually all of my assets.”
Herrington said during the proceeding that he wants to sell the undeveloped lots in Oklahoma City. That, he said, would “allow me to be able to move forward in my other operating company, to deal with the rest of my career. But I really can’t do that without handling the issue in Oklahoma City.”
The bankruptcy filing and other lawsuits give insight into how Herrington’s financial world collapsed despite his 30 years in the real estate development industry.
Golf Course Trouble
One of the first public signs that there was financial trouble at the Gaillardia Golf & Country Club came in June 2013.
First Liberty Bank of Oklahoma City filed a lawsuit in District Court of Oklahoma County against Herrington and Herrington Inc. in an attempt to collect on a defaulted $1.6 million loan. The loan had been made to Gaillardia Country Club LLC, but Herrington and Herrington Inc. had personally guaranteed the loans. (Herrington Inc. has not filed for bankruptcy protection.)
The bank also asked that a receiver be appointed because the property wasn’t being maintained.
The club facilities received approximately $2 million in damage during a hailstorm, according to court proceedings. An insurance company paid a claim to have the property repaired, but the fixes weren’t made, according to the bank’s lawsuit.
Gaillardia also owed $460,000 for real estate taxes dating back several years.
In addition, Gaillardia “has been placed on ‘Cash on Deliver’ terms of payment by critical vendors such as food and beverage providers,” the filing said.
Oklahoma City District Judge Patricia Parrish placed Gaillardia in the hands of a receiver on June 27, 2013, as the property moved toward foreclosure.
Herrington worked out a deal for Concert Golf Partners of Newport Beach, California, to acquire the property.
In early 2014, Concert Golf received the property in a deed-in-lieu-of-foreclosure transaction worth $7.3 million. And Phil Herrington and Herrington Inc. were released from their personal liability on the loans and their personal guaranties on more than $7 million in debts, according to the court filings.
But Herrington’s financial problems in Oklahoma City weren’t over.
In 2015, Oklahoma Publishing Co., which had sold him Gaillardia in 2002, filed suit accusing him, Herrington Inc. and other defendants of breach of contract in connection with allegedly failing to pay approximately $160,000 for sales of lots in the Gaillardia community called the Promenade.
Oklahoma Publishing, according to the lawsuit filed in Oklahoma County District Court, said it should have received more than the $1 million Herrington remitted after the sale of Gaillardia to Concert Golf.
Also included in that amount is the insurance settlement that should have been used to repair the property but wasn’t.
It accused Herrington of fraud and deceit for failing to protect its superior liens in the Promenade lots.
Herrington and the other defendants denied the allegations in court filings. The case is pending.
Meanwhile, other issues with the Promenade were developing.
Development in Disarray
Herrington, the sole and managing member of Tri-Core Custom Homes LLC, a construction company founded in 2005, had been planning to develop the Promenade.
Starting in October 2013 and over the next 14 months, JLL Consulting LLC of Florida loaned Tri-Core a total of $1.58 million, Herrington said in a June affidavit filed in a court proceeding. The money was used for Herrington Inc. as “well as all of its subsidiaries, including the Gaillardia Development Co. LLC,” Herrington said in the sworn statement. Herrington also is the manager of Gaillardia Development, a real estate development firm founded in 2002. Gaillardia is a subsidiary of Herrington Inc.
In March 2015, Herrington sold the construction rights and the development rights in the Promenade to JLL Consulting for the forgiveness of the loans as well as an additional $100,000 advanced to Herrington Inc.
The transaction later would cause headaches for JLL.
After First Commercial Bank received its judgment against Herrington in June 2015 and assigned the amount to Timberdell Road, Timberdell started looking for Herrington’s assets.
Timberdell targeted JLL Consulting. Timberdell said JLL didn’t own construction rights to the Promenade, according to a lawsuit JLL filed in 2015 in U.S. District Court in Oklahoma.
JLL asked the federal judge to say that JLL has exclusive development and construction rights in the Gaillardia development. Timberdell then filed a counterclaim asking the judge to rule that Timberdell’s rights in the Promenade area of the Gaillardia residential community are superior to any right of JLL’s.
Timberdell also filed a claim in that lawsuit against Herrington for the deal with JLL. It alleged that Herrington made the transaction with “actual intent to hinder, delay or defraud Timberdell,” according to the pleading, which was filed by Bickford. Timberdell said the deal was made “without receiving reasonable equivalent value in exchange for the alleged transfer” and asked that Herrington’s transfer of the development rights to JLL be voided.
The portion of the lawsuit against Herrington has been stayed because of his bankruptcy procedure, but the rest of the litigation is moving forward.
A jury trial is set for March 14.
The Promenade rights weren’t the only thing that Herrington shed himself of in 2015.
In November, Phil and Annette Herrington sold their 6,151-SF home near Pleasant Valley County Club in west Little Rock for $1.3 million.
Phil Herrington said in the bankruptcy proceeding in April that he didn’t receive any cash equity from the sale of the home.
Herrington also said that he hadn’t received a salary from his Herrington Inc. in at least two years and didn’t have any gross income from his operations.
And when he sold items any proceeds from the sale went to repay debts, he said.
Herrington told Arkansas Business last week that he thinks the value of the 56 lots in the Promenade ultimately could be as high as $14 million. His Gaillardia Development Co. has a 53 percent interest in the lots, which could generate $7.4 million for Herrington. But the current value is reported lower in his bankruptcy filing. “There’s a difference between the cost versus the market value, and I think once we clarify that, they’ll be substantially higher than the filing,” he said. “But we’ll have to determine that.”
He said he went through bankruptcy to be transparent.
“All the parties need to be included, and my objective is to maximize what we can get for the assets and distribute those to creditors,” he said. “This is far and away the most transparent process that is available, as opposed to a bunch of private and/or side deals, which we don’t have any interest in doing.”