Receiver to Bank: Stop Interfering with Flake & Kelley

A last-minute lawsuit against Legacy National Bank on Aug. 20 provided a surprising twist in the long-running battle over Brandon Barber’s Legacy Building in downtown Fayetteville.

In a lawsuit seeking $10 million against lender Legacy National Bank and Flake & Kelley Commercial — which in May entered into an agreement with court-appointed foreclosure receiver Wayne Swofford to market the building — Barber accused the bank of conspiring to maximize his $18.7 million in liabilities on the project with the intention to repurchase the building and sell the condos itself.

Barber alleges that LNB blocked pending condo sales by improperly ordering Flake & Kelley to not accept any offers until after the foreclosure sale of the building scheduled for Aug. 21. The suit filed Wednesday led to a postponement of the foreclosure sale.

The lawsuit fingers LNB — which signed a regulatory agreement with the Office of the Comptroller of the Currency on April 24 — as main culprit in the impropriety and includes Flake & Kelley as a complicit party.

“Flake Commercial is also at fault because it knew or should have known that Legacy Bank did not have authority to refuse to accept offers on the Property,” the suit states. “Flake knew or should have known it was to follow the orders of the Receiver and the Court.”

LNB shared participation in the $16.7 million loan with Metropolitan National Bank, the First National Bank of Fort Smith and the First National Bank in Green Forest. MNB has also entered into a regulatory agreement with the OCC this year, signing an agreement on May 22 that found “unsafe and unsound” practices at the bank.

Barber also filed for Chapter 11 bankruptcy of his Lynnkohn LLC on Aug. 20, listing assets of $35.46 million and liabilities of $31.62 million. Lynnkohn has 86 creditors holding unsecured claims of $3.88 million and outstanding real estate debt of $25.3 million.

Barber identified himself as the sole member of Lynnkohn, but his wife Keri and Seth and Laura Kaffka are guarantors on the original $16.7 million loan from LNB written in December 2005. Barber was the sole guarantor on a subsequent $2.7 million loan written in February 2007.

On Aug. 13, in an e-mail to LNB attorney Marshall Ney and Barber attorney Vaughn Knight, Swofford’s attorney Bob Honea informed Knight that LNB chief operating officer Patrick Swope had instructed Flake & Kelley’s Christine Pennington to change the listed prices on the condos.

Addressing Ney, who was copied on the e-mail attached as an exhibit in the lawsuit, Honea wrote, “Marshall, I once again demand that you take whatever steps are necessary to ensure that your client stops interfering with the receiver’s court approved contractual relationship with Flake and Kelley. Please advise whether it will be necessary to secure a court order to make this happen.”

In a statement, Ney said the suit by Barber alleging tortuous interference, violations of the Deceptive Trade Practices Act, fraud, breach of contract and breach of fiduciary duty is without merit.

“The combined efforts of the lawsuit and bankruptcy by Barber’s company are nothing more than a desperate attempt to prevent the Aug. 21 sale of the Legacy Building and resulting deficiency against the Barbers and Kaffkas,” he said.

Ney declined to comment further. Knight’s office said he would have no comment on the lawsuit. Honea did not return a message.

Swope and Don Gibson, president and CEO of Legacy National Bank, declined to comment.

After nearly a dozen contractors with more than $2 million in lien claims were paid off, a foreclosure decree in favor of Legacy National Bank on July 23 found the Barbers and Kaffkas liable for loans totaling more than $18.7 million.

The contractors enjoyed first priority lien rights because work began on the Legacy site before LNB issued its $16.7 million construction mortgage. Under Arkansas law, first lien rights date to the first work done on a project, meaning the contractors had to be paid before LNB.

According to the suit, and supported by e-mails attached as exhibits, the latest dispute arose over the Aug. 1 weekend when Barber Real Estate agent Stacy McSpadden requested a representative from Flake & Kelley meet her on Aug. 3 to show a prospective buyer units 305 and 403 in the Legacy Building.

In an Aug. 3 e-mail, Flake & Kelley Commercial’s Jordan Jeter told McSpadden he couldn’t put anything under contract until Aug. 21 and couldn’t close on any sales until Sept. 21.

“I know this stinks but my hands are tied until the banks receive full possession,” Jeter wrote.

That exchange prompted an e-mail from Knight to Swofford and copied to Ney and Honea on Aug. 6 asking how long such a moratorium had been in place and who authorized such an order.

After speaking to Jeter, Knight reported to Ney that LNB attorney Alan Lewis had personally instructed Pennington to not enter into any more contracts until Aug. 21.

Unit 510, a 1,283-SF condo, was under contract during this period, and sold on Aug. 8 for $320,750, well below Flake & Kelley’s listed price of $442,165, which was also a steep discount from its original asking price. A Washington County property appraisal values the unit at $450,450.

Also during this period, a buyer made an offer on unit 501 for the same $250 per SF paid on unit 510. According to the lawsuit, Swope ordered Flake & Kelley to counter offer at $306 per SF.

The suit alleges that when Swope ordered Pennington to change the MLS prices, he had her raise the prices on five units other buyers had expressed interest in — including a $25,000 increase on 501 — while lowering prices on the 24 other units.

After Knight’s Aug. 6 e-mail to Ney, Ney responded that, “To be clear, the Receiver answers to the Court — not to the banks or their attorneys — and Flake has the contractual privity with the Receiver — again, not the banks or their attorneys.

“The bank does not hold power to accept or reject any offer to purchase until and unless it purchases the building on Aug. 21. Flake may very well have heard the banks’ attorneys say something to this effect — but nothing more.”

According to the forms, Lynnkohn owes $5.13 million for the 1.5-acre lot on Dickson Street in Fayetteville that was to be home to the Divinity Hotel, $690,000 for two buildings on Church Street and another $3.1 million on the Sloan Estates subdivision.

Lynnkohn owes $131,008 in property taxes and $40,000 to the Legacy Property Owners Association.

Including the Legacy foreclosure, Barber’s other LLCs have been hit with more than $25 million in foreclosures this year, including on his company headquarters on Old

Legacy Lawsuit Timeline

Aug. 2 Barber Real Estate agent Stacy McSpadden asks Flake & Kelley for showing of units 403 and 305 on Aug. 3.

Aug. 3 Jordan Jeter of Flake & Kelley tells McSpadden nothing can be put under contract until Aug. 21 and that his “hands are tied until banks receive full possession.”

Aug. 6, 10:30 a.m. Brandon Barber attorney Vaughn Knight sends e-mail to court-appointed receiver Wayne Swofford and Legacy National Bank attorney Marshall Ney asking who told F&K they were not to accept offers.

Aug. 6, 12:07 p.m. Knight writes to Ney, et al, saying Jeter told him the “bank’s attorneys” have told him not to enter any contracts. Knight tells Ney that Christine Pennington of F&K told Knight that LNB attorney Alan Lewis instructed them on Aug. 1 to not enter into any more contracts.

Aug. 6, 1:56 p.m. Ney responds to Knight: “To be clear, the Receiver answers to the Court — not to the banks or their attorneys … The bank does not hold the power to accept or reject any offer to purchase until and unless it purchases the building on Aug. 21.”

Aug. 13, 4:20 p.m. Knight writes to Swofford about MLS prices being changed and asks if receiver authorized it.

Aug. 13, 4:52 p.m. Honea writes to Knight the price changes were “news to us” and they had been ordered by LNB COO Patrick Swope on Aug. 11. Addressing Ney, Honea wrote, “Marshall, I once again demand that you take whatever steps are necessary to ensure that your client stops interfering with the receiver’s court approved relationship with Flake & Kelley.”

Source: Exhibits attached in Lynnkohn LLC vs. Legacy National Bank, Flake & Kelley Commercial; Washington County District Court records Missouri Road in Springdale.

(Assistant editor Susannah Patton contributed to this report.)