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12/18/2012 12:00:00 PM
They're off and... stalling:
Yavapai Downs bankruptcy suit languishing in court
Piles of keys sit on a table in an office at Yavapai Downs. The bankruptcy case against the racetrack’s former managers has been in the legal system for more than a year with little progress.
Photo courtesy Les Stukenberg
Piles of keys sit on a table in an office at Yavapai Downs. The bankruptcy case against the racetrack’s former managers has been in the legal system for more than a year with little progress.
Photo courtesy Les Stukenberg

Joanna Dodder Nellans
Special to the Tribune

PRESCOTT - More than a year after the Yavapai Downs horse racetrack's bankruptcy trustee first filed suit against the track's former board of directors and managers, not much has taken place in the case.

Neither side has yet conducted depositions on witnesses since trustee Brian Mullen filed the complaint in Yavapai County Superior Court on Sept. 9, 2011, accusing track directors and managers of a poor job of running the track before shutting it down in May 2011 and filing for bankruptcy two months later.

Mullen's suit basically started over in October when Mullen got Judge Michael Bluff's approval to file an amended complaint.

The defendants opposed the amended complaint.

"Basically, the plaintiff is requesting a 'do-over,'" the defendants said, complaining that Mullen has no new evidence and he is "pandering to local media."

The defendants accuse Mullen of trying to "shake down the defendants' insurer" with the lawsuit, to get money for the bankrupt corporation.

"For a corporation to allege it's 'damaged' in the amount of debts that it is not able to pay... is an end run around the entire purpose of the bankruptcy code," the defendants charged.

Mullen's amended complaint accuses the board of breaching its statutory duties by allowing an insolvent company to incur new debts they knew or should have known they couldn't repay. The then-new board of directors accepted a $14 million federal loan shortly after taking over the Prescott Valley track in 2009. The track now has a potential buyer who hopes to reopen it next year.

The amended complaint includes former Yavapai County Farm & Agriculture Association board member Charles Krause alongside Jeff Wasowicz, Rod Cordes, Kevin Keighron, Laurie Boaz and Phil Bybee, as well as their spouses.

Mullen had withdrawn Krause from the original complaint, but now has added him back because the amended allegations are aimed at the board's work before Krause quit.

The amended complaint also accuses former general manager Gary Spiker and former finance director Sharon Fischer of breach of statutory duties and breach of contract.

The defendants accused Mullen of filing detailed financial reports about the track in the court case just to "generate publicity and poison the jury pool."

The report from the MCA Financial Group and a newly filed supplemental MCA report say the damages to the corporation from the board and managers' actions total $7.5 million to $9.5 million.

The board projected a $100,000 loss for its first year when the previous board had just lost $1.9 million and the new board made few if any changes, the MCA supplemental report said. The new board ended up losing $1.5 million its first year, Mullen said.

The board's new federal loan included $525,000 to buy more property and horse stalls, plus $200,000 to pay off the Fain family when Wasowicz was a member of the Fain family, the supplemental report by the MCA financial experts said.

The board voted to establish a reserve account, but the financial investigators could not find any evidence of such an account, the MCA supplemental report said.

The board also neglected to conduct an audit even though it was required by the U.S. Department of Agriculture's Rural Development arm, the Arizona Department of Racing and the board itself, the MCA supplemental report said.

The defendants filed a "notice of non-parties at fault" last month saying that, though they deny any fault in the case, USDA Rural Development gave the track the loan even though federal officials knew about the track's financial problems. Most of the loan was transferred from the Yavapai County Fair Association, which originally obtained federal and bank loans to build the track in PV in 2001.

The supplemental report included an October 2009 letter from then-Department of Racing director Luis Marquez saying the board needed a new state permit to conduct racing instead of using the permit held by the previous owners, the Yavapai County Fair Association, which gave the track to the new association in 2009.

The subsequent state racing director, Lonny Powell, allowed the board to run races without ever submitting a complete application for a new permit or producing an annual audit.

It was unclear what efforts Powell's administration made to oversee the track, because he refused to produce public documents requested by The Daily Courier that were created any later than 2010, and he refused to talk about the issue after the track shut down.

Related Stories:
• Yavapai Downs racetrack sale won't be official until next week
• Miller files Yavapai Downs racing permit application
• Bankruptcy trustee sues racetrack board, employees
• Downs racetrack bankruptcy meeting this Wednesday in Phoenix
• Track bankruptcy could jeopardize county fair

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