Questions on the Status of Current Legal Proceedings

Dear Member,

We’ve had a number of questions from members regarding the cancellation of the member meeting, the annulment of members’ voting rights and the progress (or lack of it) on the Adler lawsuit against the Association.  We haven’t been able to answer individual member queries on this to date, but hopefully the following will serve to fill you in.

Without going over too many details already communicated, I believe most members understand by now the principal chronological points whereby,

• In 1998, QLLA members voted to approve a comprehensive Development Agreement with the new developer, Lateran, which included detailed plans for the eventual development of Section 5C, as well as Right of First Refusal language.
• In late summer of 2005, Lateran revealed to the Board of Trustees their initial conceptual plans for the development of 5C.
• The QLLA Board started negotiations with Lateran to revise this initial conceptual plan and to reach a comprehensive revision to the 1998 Development Agreement which would be more favorable for QLLA than the existing agreement.
• In summer of 2005, Lateran’s then-partner Greenallon decided to sell its ownership interests in the developer. Taurus, another development company, then replaced Greenallon.
• During 2006, the relationship between Taurus and the local company developed and altered, such that, by the end of last year all four of the Lateran principals eventually decided to ‘cash in’ and leave Taurus with full ownership and control of the developer.
• After long discussions and many revisions, all Board members (with one exception) agreed with a Taurus proposal to examine their otherwise private records so that the Association could decide for itself if the Association’s rights under the right of first refusal (ROFR) were violated by the 2005 transaction. In return for allowing us to review these private records, Taurus demanded that each reviewer sign a confidentiality agreement that prohibits public sharing of the details contained within the reviewed documents.
• In December of 2006, the developer delivered a “Purchase Notice” offering QLLA the opportunity to buy 100% of the “property” of the developer (now called QL Resorts, LP) for the price of $26 million.
• The QLLA Board objected to this Purchase Notice on a number of grounds, including its ambiguities, but because the ROFR required a response within 30 days and the Board lacked the authority to fund the price, a special meeting of the members was scheduled for January 27, 2007.
• Subsequently in January, the December Purchase Notice was replaced by a second offer to purchase the ownership interests in the developer “for not more than $25,825,000”.
• As a result of the second offer, the member vote scheduled for January 27, was cancelled and a new special meeting was scheduled for March 10 in order to meet an extended ROFR timeline of March 12.
• On January 23, the Adler lawsuit was filed. Among other requests, the plaintiffs sought an injunction against holding the special meeting on January 27; however, because that meeting was to vote on an offer that had been replaced, the meeting was unnecessary and was cancelled.
• With respect to the scheduled March 10 special meeting, the Adler plaintiffs again sought to enjoin the holding of that meeting.

The basis for the Adler lawsuit, filed against all of us at QLLA by a small but zealous group of current QLLA members, claims that the Association 1) had failed to identify a breach of the 1998 Development Agreement arising from the 2005 Greenallon/Taurus/Lateran transaction, and 2) did not supply sufficient information prior to the scheduled special membership meeting vote to allow members to decide which way to vote. The instigating members of the suit sought to have the vote enjoined (prohibited), and also asked for monetary damages to be paid to them as individuals.

After receiving a copy of the complaint in the lawsuit, we noticed that the law firm representing the plaintiffs was the very same firm which had been hired to defend QLLA in a similar lawsuit (the Bodnar lawsuit) approximately 5 years ago, at a time when Bruce Macdonald and I were both on the Board. After discussion, both we and our lawyers felt strongly that it was quite improper for the plaintiffs’ firm to ‘switch sides’ and then use whatever knowledge they may have gained from the Bodnar suit to depose me and press this lawsuit against QLLA, their former clients. We were told that this was a reasonably entrenched principle in Vermont, as well as other states’ law.

Accordingly, we filed a motion with the court to disqualify the plaintiffs’ law firm and asked that discovery not be commenced until the Court had ruled on our motion. At approximately 6pm on March 8^th , the night before the injunction hearing, our lawyers were faxed a notice that the Court had denied our motion. At the hearing the next morning, it was patently palpable that the judge had erroneously decided that our motion to disqualify was a “sleazy” lawyer trick, rather than the serious, substantial concern we believe it to be. Her further actions that morning seemed to emphasize that conclusion.

The plaintiffs proceeded to claim that they could not present their case because they had been unable to undertake discovery (even though they were ready to do so in January, prior to the cancelled special meeting) and the judge postponed the hearing (now scheduled for May 14^th). However, the judge went still further, and ordered that the membership vote scheduled for the next morning be forbidden to take place. This was not a finding on the merits or in any way based upon any evidence. Rather, it appears to have been in the nature of a further sanction on the Association. Unfortunately, the effect is the same: normal democracy was denied and our 1400 members were deprived of their ability to vote on this important issue. As you know, the Board of Trustees had strongly opposed accepting the ROFR and the end result is consistent with that Board view. But it bothers us greatly that members were denied their vote, and as a result, this offer has now been totally and irretrievably lost to the Association.

Where do we go from here? First, from our side, we continue to feel strongly that the plaintiffs’ law firm should have been disqualified and that the judge’s order was, and is, wrong on that issue. As a result, we have authorized our lawyers to file a motion for reconsideration with the judge, and, if necessary and appropriate, to seek relief from the Vermont Supreme Court. This is not a matter of either vengeance or honor, but an issue of principle on which we feel the Association has been inappropriately disadvantaged.

Second, from the plaintiffs’ side, technically, the twenty or so dissidents have accomplished their stated goal in prohibiting the rest of the membership from voting. However, they are continuing to press forward, apparently to win monetary damages they are seeking.  Of course, it is difficult to define someone else’s motives, but, from the writings and comments of some of the plaintiffs, it seems clear that the real objectives may well be 1) to ideally frustrate any development in 5C by tying it up in continuing legal proceedings; and 2) to hope to eventually invalidate the entire 1998 Agreement in the mistaken belief that the chaos that might ensue would be beneficial.

In the meantime, costs will continue to mount. The Association legal costs are rapidly rising and are estimated to be 3-4 times greater than in previous years. This is member money, sadly committed to an unfortunate distraction from the real business of the Board and the Association. We are painfully aware of our need to spend it wisely, so long as this regrettable action undertaken by a small group continues to bedevil us all.

I have reviewed all of the recent member e-mails concerning the lawsuit and the judge’s order and I believe the above information answers most if not all of the member questions and concerns. The Board will continue to keep the membership informed as new developments arise.

Sincerely,

Patt Taylor
President, QLLA