FAC Still Embroiled in Legal Wranglings with Note Holder

It’s been about a year since the owners of the Fayetteville Athletic Club were notified the private equity group that obtained their loans had filed foreclosure on the facility.

SM-WLJ Asset Owner LLC of Chicago filed foreclosure on the FAC for about $10 million on Feb. 25, 2009. SM-WLJ purchased three loans (valued at $9.89 million at the time) from a third-party for $3.4 million in October 2008. The loans, which were originated with the now-failed ANB Financial NA of Bentonville, were bundled and sold through a closed auction process via First Financial Network Inc. of Oklahoma City, a normal process for many nonperforming or marginal loans caught up in a bank failure.

Owners Robert and Katherine Shoulders, who were verbal about their feelings last year, declined to comment on the current status of the battle. However, in an e-mailed response, Bob Shoulders characterized the fight as “legal ping-pong.”

Court filings bear that out as an accurate assessment. Activity can be summed up here:

• SM-WLJ requested the appointment of a receiver with its initial filing. The foreclosure was filed in Washington County Circuit Court. To date, no receiver has been appointed.
• In June, a second supplement motion to appoint a receiver contained affidavits from two former employees. One, Stuart Walker, who worked for the Shoulderses for 12 years and was the one-time general manager of the club, claims he is owed $18,000 on a personal loan he made to the company, that Bob Shoulders had fraudulently used a company credit card and that the couple ran personal expenses through FAC’s books.

A second former employee, Deanna Cicaitello, who was the FAC’s accountant, claims the club had been “delinquent in its payment obligations and past due on payments most of the time” since it obtained a $9.5 million loan from ANB in 2005.

• On July 14, 2009, the fight spilled over into U.S. Bankruptcy Court when Athletic Clubs of America LLC, the company owned by the Shoulderses, which operates FAC, filed for Chapter 11 bankruptcy protection, claiming between $1 million and $10 million in assets and between $10 million and $50 million in liabilities. The action stayed the foreclosure of the property.
• In September, ACA LLC filed an adversary complaint against SM-WLJ in U.S. Bankruptcy Court, alleging, among other things, that the private equity group had engaged in deceptive trade practices and therefore “removed potential third-parties from the pool of potential purchasers” of the athletic facility.
• In October, SM-WLJ filed a motion for relief from the automatic stay in Bankruptcy Court, claiming the Shoulderses had negative equity in the collateral valued at $4.41 million; “the debtor is without funds or management skills necessary to preserve and maintain the collateral…”; and that the Shoulderses had “no reasonable prospect for reorganization.”
• A trial is set for May 20.

John Kooistra, a lawyer with Williams & Anderson PLC in Little Rock represents SM-WLJ. He declined to comment on the case.

The Shoulderses have not made a payment on the debt to SM-WLJ.

The club claims it has 7,000 members and is ranked as the No. 1 health club in Northwest Arkansas by the Business Journal (see list, p. 13). According to a monthly operating report filed in U.S. Bankruptcy Court in January, Athletic Clubs of America had a net income of $36,789 for December, but had a $100,000 loss for 2009.