Tuesday, November 12, 2002

Another suit filed against Peoples

Law firm seeks third party to distribute assets

By James McNair
The Cincinnati Enquirer

As Peoples Bank of Northern Kentucky prepares to leave the banking business and liquidate its remaining assets, a Florence law firm is asking that the bank's final disbursements be decided by a court-appointed receiver.

Shareholders of the Crestview Hills bank will vote next Monday on the proposed sale of its branch offices, deposits and most loans to The Bank of Kentucky. The sale, expected to close Nov. 22, will give Peoples about $15 million toward the payoff of creditors, legal claims and, if anything is left, holders of its 1.5 million shares of stock.

Click here for all Enquirer reports on Erpenbeck Co.
If you have any additional information on the business dealings of the Erpenbeck Co. or Peoples Bank of Northern Kentucky - or on the involvement of any parties not yet identified in our coverage - please email Enquirer business reporter James McNair at jmcnair@enquirer.com or Kentucky Enquirer reporter Patrick Crowley at pcrowley@enquirer.com.
As of Monday, Peoples estimates it will have between $12.1 million and $16.7 million for stockholders, or $8 to $11 per share.

Days after Peoples released its liquidation plan last week, Florence lawyers Jeff Blankenship and Ed Monohan filed a federal class-action suit seeking third-party control over all Peoples' outlays following the asset sale to Bank of Kentucky. Not that Peoples could start writing checks immediately: Kentucky law gives creditors of liquidating corporations two years to file claims.

But when the liquidation does commence, the Florence lawyers want it conducted on terms fairer to their clients - people who paid cash for Erpenbeck Co. homes, only to find themselves responsible for construction loans. They say their lead client, Louise Schulte - a resident in Erpenbeck's Sherwood Lakes development in Florence - is one of about 50 people stuck with a combined $4 million in Erpenbeck obligations.

"Peoples Bank is about to sell its assets to The Bank of Kentucky," Mr. Blankenship said Monday. "We don't have any objection to the sale, but we want a receiver to determine who gets paid and when. To pay one creditor over another is an unlawful preference."

The complaint, filed in U.S. District Court in Covington, is the second class-action civil racketeering suit spawned by the Erpenbeck-Peoples Bank fiasco.

In June, Morris Heating & Cooling of Burlington and two other subcontractors that are owed money by Erpenbeck brought a federal racketeering, fraud and check "conversion" lawsuit against Peoples Bank and A. William "Bill" Erpenbeck, the homebuilding company's co-owner and former president. It also named each of Peoples' 17 directors; former Peoples executives John Finnan and Marc Menne; and Jams Properties, a Finnan-Menne venture that bought model homes from Erpenbeck Co. That lawsuit is pending.

In both cases, Peoples Bank denies involvement in any criminal activity. Covington lawyer Mark Arnzen, who doubles as a Peoples director and as its outside counsel, disputed the need for a receiver to handle the bank's liquidation.

"Obviously we don't agree with that," he said. "We'll take care of vigorously defending ourselves against this case as we will as other cases. There will be no distribution to shareholders until all claims are settled."

For Mr. Blankenship, Mr. Monohan and their clients, the racketeering lawsuit offers a chance to recover from a major legal setback in October.

The lawyers had represented Steven and Whitney Remley in a class-action lawsuit against Peoples on behalf of the 50 or so people who had paid cash for Erpenbeck homes. Boone County Circuit Judge Jay Bamberger, however, would not certify the class, leaving the plaintiffs to sue individually.

Judge Bamberger had earlier granted class certification to Erpenbeck customers who had bought homes with borrowed money. Peoples has settled with that group of more than 100 homebuyers, and if the judge ratifies the settlement Friday, Peoples will allocate nearly $17 million to pay off Erpenbeck's unpaid construction loans.

On another legal front, Peoples disclosed that it has been threatened with lawsuits by several small Kentucky banks that loaned money to Erpenbeck through Peoples.

Peoples said Bank of Corbin and "other participant banks in the Pineville area" contend they were induced to make the loans through fraudulent representations made by Mr. Finnan and Mr. Menne. The banks want Peoples to repurchase the loans for $3.5 million.

E-mail jmcnair@enquirer.com

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