As a point of order, it doesn’t matter whether the defendants in a Baldwin County fraud lawsuit do or do not have the ability to repay a debt, Judge Jody Bishop said Oct. 27, after an attorney for developer D.R. Horton objected to testimony that pried into their personal finances.
But the door had been opened years before, the plaintiff’s attorneys argued, when the owners of Baldwin County Sewer Service (BCSS), who were also in the business of financing and developing subdivisions to add more and more residential accounts to the private sewer utility, told representatives of the Bellaton Property Owners Association (BPOA) in 2018 they didn’t have the “ability to pay” a $625,000 mortgage on a common lot for the community’s swimming pool.
That statement allegedly came from David DeLaney, a financier with a long history of lending to Clarence Burke, who is known as the “owner” of BCSS. In discovery that took place over the summer, attorneys for BPOA used DeLaney’s admission to peek into the finances of those responsible for the mortgage.
One of those attorneys was Will Chason, who represented a different client in previous litigation against the owners of BCSS for alleged fraud. There, a forensic accountant determined the company is equally owned by both DeLaney and Burke through shell companies, while attorney Robert Cunningham and engineer John Avent hold minority ownerships.
In the BPOA case, Chason and attorney Patrick Collins went further, obtaining a 2019 business valuation report that indicated BCSS has a fair market value of $93.3 million. The report, which was compiled by Axiom Valuation Solutions for Trustmark Bank, notes that up until recently, Baldwin County was “mainly a rural area with a number of relatively small municipalities.” But the population appears to have increased nearly 100 percent since 1980, growth fueled by “low real estate prices, close proximity to the Gulf of Mexico, and quick access to the larger metropolitan area of Mobile.”
“To accommodate this demand for affordable housing, many developers focused on building on cheaper plots of land outside of municipalities,” the report reads. “However, to get the desired dwelling density to make a sufficient profit, the developers needed to connect their communities to a sewer system, rather than putting in septic systems for each house, which are cheaper but need a much larger land footprint. Since there were no major private systems offering sewer service, a group of developers and investors in the area started Baldwin County Sewer Service under the leadership of Clarence Burke.”
The report mentions the company had grown from the two wastewater treatment plants it started with in Lillian and Malbis to a total of five treatment plants today, collecting sewage across 640 square miles. BCSS had an average of 16,000 customers in 2016, but by 2019, it had grown to over 19,000. It charges a $5,000 set-up fee for each new home, then $54.50 per month for unlimited use.
“The company essentially functions as a utility but it is not regulated by the state,” the report notes. “There is no guaranteed rate of return, and there are no governmental approvals needed for raising rates.”
Then it dove into the financials, reflecting the company was still owned 43.5 percent by Burke, 43.5 percent by the DeLaneys, 11 percent by Cunningham and 2 percent by Avent.
“Each year over the period of review, revenue has grown steadily from $13.53 million in 2014 to $19.72 million in 2018, with both 2016 and 2018 showing double-digit revenue growth rates.”
In another exhibit, Chason and Collins introduced the distribution of the net income from BCSS for a single month, March 2020. Burke’s company Wolf Creek Industries received roughly $191,000, DeLaney’s company Christopher 16 got the same amount, Cunningham’s Supersonic LLC got $48,000 and Avent’s Southern Avanti got $8,000.
The DeLaney defendants have since settled BPOA’s claims against them, but two weeks ago, Bishop denied a motion to dismiss D.R. Horton and Burke, and the case is scheduled for trial early next year.
Meanwhile, Burke himself was also deposed in the case in September. In a Conception Street law office, he told Chason he only lived part-time in Baldwin County, as he splits his time between his cattle farm in Robertsdale and his other cattle farm in Lowndes County. But Burke acknowledged he also frequents a $2 million condo in Los Sueños, Costa Rica, where he keeps a 53-foot sportfishing yacht.
Burke told Chason he has no intention of paying back the mortgage he owes at Bellaton. Asked repeatedly why not, Burke said he didn’t have to give a reason. Asked if he had the money to repay it, Burke said he didn’t.
“I probably got $600 in my pocket that belongs to me,” Burke said, adding he can’t pay BPOA’s mortgage note of $4,300 per month. “I could probably borrow it from somewhere.”
In deposition, DeLaney Company Vice President Brooks DeLaney admitted those who signed the promissory note in May 2008 are responsible for the debt, adding Burke and Burke’s development company were sent “standard collection letters” when the loan finally went into default in May 2021. He said their options now are to try to get the obligors on the note to pay, or to foreclose on the mortgage.
“Clarence Burke and a whole lot of homebuilders were experiencing severe distress, which is what led to this loan going into default,” DeLaney explained. “Clarence assigned this interest to us because it was something that had value, theoretically, in an effort to help facilitate payment on his multiple obligations that he had with us …”
He said in his 40 years of writing loans, they very rarely sue to recover losses, but on the other hand, “we have foreclosed on a whole lot of real estate.”
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