2009 Bankruptcies Illustrate Barber Group’s Slow Decline

The fairy tale story of The Barber Group ends at Chapter 7.

Two young freewheeling developers sought to change the landscape of Northwest Arkansas with talk of upscale multi-storied and multi-million dollar projects. But over-leverage and under-performance meant their stardom was little more than a brilliant flash.

The group’s premier and its only completed large-scale project, Fayetteville’s Legacy Building, is perhaps the most prominent emblem of its rise and fall. Now all four of the building’s original guarantors on the $16.7 million mortgage — Brandon L. Barber, his estranged wife Keri E. Barber, Seth K. Kaffka and his ex-wife, Laura P. Chambers — have filed for Chapter 7 bankruptcy, three of them within a week of each other in May. Brandon and Keri Barber’s divorce is pending in Washington County while they settle custody and finance issues.

Keri Barber and Laura Chambers are sisters, and daughters of Chambers Bancshares Inc. chairman John Ed Chambers III. Brandon Barber and Seth Kaffka are high school buddies from Jonesboro. At least two of the four have resorted to paying lawyers with jewelry.

Brandon Barber was the last to file his personal bankruptcy on July 31. He claimed nearly $48 million in liabilities but has heretofore been successful at hiding a true snapshot of his personal finances. On Aug. 28 and Aug. 31 he filed motions for the deadline for his schedules and statements to be extended until Sept. 14.

In the deficient schedules and statements, which are typically due 15 days after the bankruptcy petition is filed, Barber will be required to list his real and personal property as well as any income, transfers of property and losses. Each secured creditor in the bankruptcy filing will be connected with a particular piece of collateral and its value.

Barber’s claim of “no assets” on his initial filing drew widespread skepticism. But Jim Dowden, a bankruptcy attorney in Little Rock, said it is not uncommon for a developer to file a bankruptcy petition with no assets listed.

Generally it means the developer has so many limited liability companies attached to his name, that they can’t afford to file bankruptcy for himself and each LLC, Dowden said. Under that circumstance, the developer files for personal bankruptcy and lumps all of the liabilities associated with the various LLCs into the one filing.

The filing doesn’t show any assets, Dowden said, because the assets are tied to the businesses and not the individual.

In August 2008, Barber filed for Chapter 11 bankruptcy under his Lynnkohn LLC, listing $25.4 million in property assets. Of that amount, $18.1 million was tied to the Legacy Building.

The building has since been sold in foreclosure for $11.25 million to Legacy National Bank of Springdale, the primary lender on the mortgage.

“I’m obviously disappointed and sincerely remorseful and humbled by the sheer size of the projects that have failed,” Barber wrote in an e-mailed response to questions. “I’m optimistic that the most significant projects in Fayetteville, both the Legacy Building and Bellafont, will be successful for someone else in the future when the market turns around because of their location alone.”

Legacy National Bank’s law team is anxious to learn more about Barber’s personal finances. On Sept. 1, Marshall Ney, LNB’s lawyer with Mitchell Williams Selig Gates & Woodyard PLLC, filed an objection to Barber’s two August motions for extension.

“Debtor has been compiling the information needed for the schedules and financial statements since on or about January 22, 2009, and therefore, should not be allowed to delay this bankruptcy proceeding with requests for additional time,” states the objection.

“We are trying to determine what position we should take in respect to [all the bankruptcies],” Ney said.

The intent of the schedules and statements, Dowden said, is to reveal any transaction(s) that needs to be investigated. The documents should divulge where the money went.

After the schedules and statements are filed, Barber will have to face his creditors at a meeting on Sept. 21, where he will be questioned under oath by them and his appointed trustee.

 

Splitting Hairs
One sure way to get a peek at Barber’s finances would be in his divorce paperwork. Theoretically, he and Keri Baber will split their assets in some fashion and the finances will be listed in the documentation. But the divorce is still pending in the Circuit Court of Washington County.

The Business Journal did obtain Keri Barber’s bankruptcy paperwork, which gives, if not a peek, maybe a sideways glance at Brandon Barber’s finances.

On May 22, Keri Barber filed a petition for voluntary Chapter 7 liquidation in U.S. Bankruptcy Court for the Southern District of New York, declaring $47,401 in assets and $16.27 million in liabilities.

There are eight unsecured creditors listed in the filing, including LNB with a claim of $11.5 million, ANB Financial with a claim of $2.2 million and First State Bank with a claim of $2.11 million.

She also owes $33,000 to Arvest Bank and $36,600 to Citibank. Also listed are debts to her father, John Ed Chambers III, and sister, Laura Chambers for $130,000 and $170,000, respectively.

Included in her list of personal property is a $6,500 deposit held by her landlord, $2,500 in household goods and furnishings, $15,000 in jewelry, and $21,151 in an IRA at Chambers Bank. Keri Barber reported no income at the time of the filing and monthly expenses of $2,350.

The filing shows she sold several of her personal belongings, including a 2004 Range Rover for $37,000, a Lexus for $25,000, and an estimated $7,000 worth of furniture. She paid her bankruptcy attorney with two rings and a necklace, valued and liquidated at $89,000.

Even before the bankruptcy petitions were filed, the Barbers were dissolving their 10-year marriage. Keri Barber filed for divorce from Brandon Barber in Polk County on Dec. 17, 2008. She filed a motion for dismissal on June 8, 2009, after he filed for divorce in Washington County on May 21.

Brandon Barber’s divorce filing seeks joint custody of the couple’s two children and equitable division of their property and debt. Keri Barber filed a counterclaim on June 2, seeking primary custody as well as child support and spousal support. A trial has been set for Sept. 29, regarding the issue of financial support.

Meanwhile, a temporary order was granted on July 16 in Washington County court.

According to the order, the Barbers agreed she will have custody of the children while he will have liberal visitation rights.

The order also states that, pending the final hearing, Brandon Barber will pay support to Keri Barber in the amount of $3,500 per month.

There are no apparent transactions between the two listed anywhere in her paperwork.

The couple sold their 5,713-SF home at 3122 E. Township Ave. in Fayetteville for $1.55 million last October.

Brandon Barber is now living in a 1,438-SF condo in Fayetteville, which last appraised for $182,000. Keri Barber is a resident of New York.

Keri Barber could not be reached for comment.

More Brandon
Included in Brandon Barber’s bankruptcy was property on the corner of Dickson and Block streets in Fayetteville, the site of the proposed Divinity hotel.

First State Bank of Northwest Arkansas recovered a judgment against the property on Aug. 25, in the amount of $5.5 million. The court will auction off the land on Sept. 28.

Barber also listed $3.1 million worth of unsold lots in Sloan Estates subdivision in Fayetteville. According to Washington County property records, these lots are still in the name of Lynnkohn LLC.

The Bank of Fayetteville and Chambers Bank each hold mortgages on the property for $1.7 million and $1.3 million respectively.

Barber’s Dream Team LLC owns several lots in Belclaire Estates in Fayetteville, a development on Arkansas Highway 112 tied to a $5.2 million loan from First Federal Bank of Arkansas.

First Federal claims Barber still owes the balance on the note, in the amount of $2.9 million. The bank filed a complaint on Aug. 6, objecting to the debt being discharged through the bankruptcy petition.

A debtor in the filing is Enterprise Bank of Clayton, Mo., which has $3.3 million in unsecured claims and $15.84 million in secured claims against him.

Steve Marsh, president and CEO of the bank, couldn’t comment on specific loans and litigation, but said it is not the bank’s policy to loan money on an unsecured basis.

Seth and Laura
Laura Chambers filed for Chapter 7 bankruptcy on May 14, declaring assets of $498,000 and liabilities of $18.68 million.

Kaffka filed for bankruptcy the same day as Keri Barber, on May 22. In his voluntary petition, filed in U.S. Bankruptcy Court for the Western District of Arkansas, Kaffka declared assets of $19,064 with liabilities of $29.66 million.

Kaffka’s creditors include Enterprise Bank with a $3.5 million claim, First Arkansas Bank & Trust with a $4.4 million claim, First Federal Bank with a $3.5 million claim and a $2.8 million claim, First State Bank with a $5.5 million claim and Legacy National Bank with a $5.4 million claim.

Further illustrating Kaffka’s financial troubles, the filing shows that his father, Shannon Kaffka, paid his attorney fees and credit counseling fees. And in exchange for several other legal services, Seth Kaffka gave Fayetteville attorney K. Vaughn Knight a men’s Cartier watch valued at $10,000.

Seth Kaffka now works at CrossWood Associates Inc., a food commodity trading firm in Fayetteville. Laura Chambers most recently worked at The New School in Fayetteville, but has no current employment listed. Kaffka declined to comment and Laura Chambers could not be reached.

Their documents show that several vechicles owned by the couple were transferred to Chambers in the divorce settlement, most of which are being sold to satisfy some of her debt to creditors. Laura Chambers also lists the sale of $638,285 worth of stock in Chambers Bancshares Inc. of Danville.

Danville Dad
Barber said he could not put his finger on any one event that led to the decline of The Barber Group.

“We definitely realized in the Summer/Fall of ’06 that the phones weren’t ringing at the level we had grown accustomed to hearing in 2004 and 2005,” he wrote.

“I’m confident that it wasn’t one specific event that led to our fall but rather a culmination of both our large inventory of non-income producing land and residential lots along with the numerous contracts that weren’t honored with the completion of the Legacy Building.”

He says he’s not running away from his troubles, but trying to face them.

“The last three years have been a stressful exercise of humility and I, personally, take 100 percent of the blame for the risks we took as a company,” he wrote. “I’ve been pleasantly surprised with the unyielding support from my family, friends and partners as we try to focus on opportunities for the future.”

When asked about his ex- and soon-to-be ex-sons in-law, John Chambers, said, “They were married to my daughters… they’re the fathers of my grandchildren.”

“I can’t necessarily say that I supported everything they did,” he said about their projects, but he invested in some of the developments, “and unfortunately lost it.”

When asked how much he lost, he wouldn’t give a figure.

“I’m not without my scars on it,” Chambers said.

(Editor Worth Sparkman and associate editor Rob Keys contributed to this report.)