Saturday, July 06, 2002

Erpenbeck ruling expands lawsuit

Judge OKs move to add lenders, title companies

By Jim Hannah,
The Cincinnati Enquirer

        BURLINGTON — A judge's ruling Friday drew even more parties into one of the biggest lawsuits connected to the $107 million Erpenbeck debacle.

        Now, more banks could be found liable for any restitution and damages awarded, and 211 homeowners without clear title to their homes might have to wait at least a little longer to be paid.

        Judge Jay Bamberger granted the motion in Boone County Circuit Court to add up to 100 parties — including lenders and title companies — as defendants in a class-action suit filed on behalf of owners of Erpenbeck-built homes.

        Attorneys for Peoples Bank of Northern Kentucky, which had been the only defendant in the suit, applauded the Boone County Circuit judge's move.

        A representative for the bank said it will make it easier to reach a settlement with the more than 200 homeowners left without a clear title in the wake of the collapse of the Erpenbeck Co. of Edgewood, formerly the Tristate's fourth-largest home builder.

        “There is a whole host of (companies) that have some exposure,” said Mark Arnzen, a Covington lawyer and Peoples board member. “All these people (banks and title companies) are going to have to take care of the plaintiffs at some point in time. The question is what is their respective liability.”

        The lead plaintiffs in the class-action suit, Charles and Sherry Mitchell, of Independence, said the bank is trying to dodge responsibility for what happened.

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        “To sit here today and hear the bank try to make excuses was infuriating,” Mrs. Mitchell said. “This has been hard on the whole family. We blamed ourselves at first.”

        The couple had bought an Erpenbeck home in the Claiborne subdivision for $198,000, only to discover later that the company didn't use the money they brought to closing to pay off the construction loan on the house, leaving them with two mortgages.

        Cincinnati attorney Stanley Chesley, who pioneered the class-action suit and who argued on the Mitchells' behalf Friday in Boone County, said admitting the other defendants would impede the case and jeopardize a quick resolution for home buyers.

        “This is the first time that I have heard this bank state in open court that my clients don't have standing, and they are suing the wrong persons,” Mr. Chesley said. “These people need to be paid. You cannot take a check and put it in someone else's account. That is an act of negligence. This went on for two and a half years. Who was supervising?”

        Employees of the Erpenbeck company are accused of diverting almost $16.8 million in checks made out to other lenders into its accounts at Peoples. Federal authorities are investigating, but no charges have been filed.

        Because the checks never made it to lenders who made construction loans on the homes, the first mortgages on 211 homes were never released.

        Mr. Arnzen confirmed that the bank was talking with the various third-party defendants, mostly construction lenders and title companies, about reaching some out-of-court settlement.

        The third-party defendants in the class action suit will be the same defendants Peoples is suing in a separate lawsuit on file at the Boone County Courthouse.

        Judge Bamberger jokingly characterized that suit as “Peoples vs. The World,” because the list of defendants is so extensive.

        Peoples officials said the ruling essentially merges the two suits together so that everyone can come to the bargaining table at once. Among the briefs Judge Bamberger ordered the two sides to submit within two weeks was a proposed summary judgment order. Mr. Chesley has asked for summary judgment against Peoples.

        Mr. Chesley and W.R. Patterson, a Louisville attorney representing Peoples, presented their sides during the almost two-hour hearing attended by almost two dozen lawyers representing various interests involved with the growing scandal.


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