A failed Hawaiian real estate project leads to the doorstep of a Katonah resident.
Ke Kailani Development LLC filed for Chapter 11 protection in federal bankruptcy court in White Plains on May 1.
The company was formed to develop high-end luxury housing in Hawaii, but its principal place of business is 33 Reyburn Drive in Katonah, a large estate owned by its sole member, former media executive Michael J. Fuchs.
The petition is the company’s second attempt to reorganize under bankruptcy laws.
Fuchs made his reputation as an executive with HBO. He joined the company in 1976, eventually became its chairman and CEO and built it into one of the largest and most successful cable networks.
Time Warner Inc. bought HBO and he became CEO of Warner Music Group. He was forced out in 1995 and reportedly got a $60 million payout.
Fuchs borrowed $70.4 million from 2005 to 2006 for a project within the Mauna Lani Resort in South Kahala, Hawaii. He bought about 65 acres to develop 39 lots for single-family homes and one parcel for 12 condominiums, according to court papers.
Only 11 single-family lots and two condominiums were sold, and in 2009 the company defaulted on its loans.
The company’s creditors – the similarly-named Ke Kailani Partners LLC – owned the original bank loans, sued for foreclosure and won a court judgment.
The day before the property was scheduled to be auctioned in 2011, Fuchs’ company filed for Chapter 11 bankruptcy in Hawaii.
Creditors cried foul.
Fuchs’ company owed them $29 million and he had personally guaranteed the loans, according to court papers.
“The apparent intention of the bankruptcy filing was to protect debtor’s sole member, Mr. Michael J. Fuchs,” the creditors stated.
“Fuchs has stalled the foreclosure and frustrated Ke Kailani Partners’ (and other creditors’) right to have the property liquidated,” the creditors stated. “The circumstances suggest that Fuchs orchestrated the bankruptcy as a strategy to negotiate release of his personal obligations.”
Fuchs, with consent from his creditors, ended the bankruptcy case in 2011. In dismissing the case, the judge barred Fuchs from filing another bankruptcy petition until the property was sold.
The new case lists a $25 million claim from Ke Kailani Partners, the creditor. Fuchs disputes the debt.
Fuchs filed the new case “to enable the debtor to reorganize its financial affairs,” he states in an affidavit.
“The purpose of filing this petition is to preserve the assets of the debtor for the benefit of the creditors,” he wrote, “and rehabilitate the business.”