Sell Side

'Wine Shrine' Saga Has Downs & Ups

A claims trader that earlier injected itself into the bankruptcy proceedings of Copia: The American Center for Wine, Food, and the Arts has now purchased bonds issued by the nonprofit and filed a securities lawsuit seeking class-action status, according to the suit filed last week.

The suit came as the Copia estate and bond insurer ACA Financial Guaranty Corp. Friday announced a settlement that could result in the facility reopening.

The lawsuit, filed in federal court of the Eastern District of California, names as defendant conduit issuer California Infrastructure and Economic Development Bank, trustee Bank of New York Mellon Trust Co., and bond insurer ACA Financial Guaranty. Plaintiff Copia Claims LLC had earlier purchased a $12,000 unsecured claim for $4,000 after the bankruptcy and wanted the estate to pursue a fraudulent transfer claim over what it believes is a botched defeasance.

Copia Claims still contends that there was "never any proper or legal defeasance" of the original $70 million 1999 bond issue when the bonds were refunded with a $77 million sale in 2007. Without the defeasance, the 1999 bonds were still outstanding, leaving the bondholders with an "equitable but unrecorded lien" the debtor has the right to avoid, Copia Claims said.

But the debtor is also "empowered ... to preserve that avoided lien for the benefit of the estate thus keeping the 2007 bonds in an essentially unsecured posture," the lawsuit says. Copia Claims alleges the defendants broke securities law by failing to disclose the possibility the bondholders would lose secured status in the bond prospectus.

"As the result of all of the events and conduct alleged above, the 2007 bonds were always vulnerable to the catastrophic loss of secured status in case of the debtor's filing for bankruptcy," the lawsuit said. "That critical vulnerability to the loss of secured status in bankruptcy was deliberately and intentionally not disclosed anywhere in the 2007 bond prospectus by defendants and each of them, each of whom personally knew better."

Copia Claims believes there are more than 5,000 people and entities in the 2007 bondholders class.

The defendants either did not return calls or e-mails or declined to comment.

The lawsuit came just days before Copia and ACA agreed to work together on a plan for reorganization that could position Copia to reopen. Bank of New York Mellon will take over the property under the deal, and ACA will continue to work with the community groups it had already spoken to in attempt to put the property back into use, according to press reports Friday.

Copia's lawyer said the groups would still need to find funding to acquire it, according to the Press Democrat of Santa Rosa. It could take months, he said.

The deal was announced at a hearing in bankruptcy court Friday. Creditors and the court still need to approve the settlement. As part of the settlement, Copia would drop the bankruptcy plan it wanted to pursue, which included litigation over what it believed to be was a botched defeasance. They had suggested pursuing a fraudulent transfer claim to recover for the benefit of all creditors the entire $65 million held in escrow for the 1999 bondholders.

ACA had earlier disputed Copia's argument and said it did not believe a fraudulent transfer claim was likely to be successful.

ACA wanted to work out a collaborative solution with community stakeholders that could put the Copia property back into use. It has had discussions with the city of Napa, the Coalition to Preserve Copia, and the Culinary Institute of America, according to ACA's proposed disclosure statement.

"Simply stated, ACA believes that the debtor's plan is based solely on the threat of baseless litagation to the detriment of creditors and provides no basis for funding costs incurred to date, costs to be incurred or maintenance of the Copia property during the pendency of the protracted litagation," ACA's lawyers wrote.


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