Bibelot deal with creditors crumbles

Weeses' settlement falters

trial to start Monday in Baltimore

January 03, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

A deal to settle millions of dollars in lawsuits against Brian D. and Elizabeth G. Weese, who owned the defunct Bibelot bookstore chain, has unraveled, forcing a trial in the couple's personal bankruptcy case to go forward.

But because the Weeses and two of their biggest creditors had expected to complete the $12.7 million settlement, the trustee overseeing the personal bankruptcy case said he is not ready for trial and plans to ask for a postponement.

The trial, which is still on the calendar to start Monday in U.S. Bankruptcy Court in Baltimore, was scheduled after trustee Irving E. Walker filed a lawsuit in June last year asking the court to order millions of dollars of the Weeses' assets returned to the United States from an offshore trust in the Cook Islands.

Creditors have said they are seeking to recover assets they believe were fraudulently transferred overseas in 2000, before the bookstore chain filed for bankruptcy in March 2001 and went out of business. The couple had incurred more than $20 million in debt while operating and expanding the Baltimore-area Bibelot stores.

Walker, an attorney with Saul, Ewing LLP in Baltimore, said yesterday that he had stopped preparing for Monday's trial to instead work out a settlement under which creditors Bank of America, Community Banks and Allfirst Bank would have recovered more than $12 million - or 65 percent to 70 percent of the total owed them. U.S. Bankruptcy Judge James F. Schneider approved the agreement Dec. 12.

The settlement would have paid $10 million to the Weeses' largest creditor, Bank of America NA, which is owed about $15.5 million. The agreement also would have paid $1.2 million of the estimated $1.7 million owed to Allfirst and $875,000 of the $1.3 million owed to Community Bank. Community Bank issued its $1.3 million line of credit in 1999 to secure payments under a lease for a Bibelot store at the Village of Cross Keys.

The payments were to be made from funds controlled by Alex Grass, Elizabeth Weese's father and the founder of Rite Aid Corp., Walker said.

But Allfirst Bank objected to the deal, court documents show. An attorney for Allfirst, Paul D. Trinkoff of Miles & Stockbridge, said yesterday that he could not comment on the case.

In court documents, Allfirst argued that the settlement violated bankruptcy rules because it allows unsecured creditors to receive distributions before the debtors worked out a plan of reorganization.

The bank also argued that a settlement "divests the estate of most of its assets and liabilities, leaving a small fraction to be distributed as part of a plan," and denies the nonsettling creditors rights under a Chapter 11 filing, including the right to equal treatment.

Because Allfirst was granted a stay by U.S. District Judge J. Frederick Motz on Dec. 23, the settlement could not be reached by the end of the year, one of the bankruptcy court's conditions, and thus fell through.

"As trustee, it was my hope to be able to consummate a settlement that was desired by the two creditors whose claims comprised 90 percent of the dollar amount owed to the general unsecured creditors - Bank of America and Community Bank," Walker said yesterday.

Attorneys for the Weeses and Bank of America could not be reached for comment.

Bank of America and other creditors are pursuing lawsuits in Baltimore County and in the Cook Islands in the South Pacific, claiming the Weeses set up the offshore account intending to defraud creditors. Court records show that Elizabeth Weese set up a trust under the Cook Islands laws, then over the next three months, transferred assets worth more than $19.5 million.

Walker didn't rule out the possibility that another settlement could be agreed upon before the trial.

He said Bank of America has "clearly expressed an interest in achieving a result sooner rather than later."

Walker plans to ask the court to postpone Monday's trial until the spring.

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