Landfill dispute could spoil GNP sale 2 bankruptcy judges aim to resolve disagreement over property rights

BANGOR – Maine’s two federal bankruptcy court judges are hurriedly trying to resolve a property rights dispute over an East Millinocket landfill before it destroys a $103 million sale of Great Northern Paper Inc.

The landfill is a make-or-break condition of the sale which has to be completed by April 21. Brascan Corp. of Toronto, which was named the buyer of Great Northern on Monday, said this week, “no landfill, no deal.” If the deal isn’t completed, Great Northern’s two mills could be sold off piecemeal to pay creditors.

On Friday, U.S. Bankruptcy Chief Judge James B. Haines Jr. said he would act as a mediator in private, closed-door settlement discussions on the landfill dispute sometime next week. And Judge Louis H. Kornreich said he would facilitate a two-day trial starting April 14 if the dispute isn’t resolved by then.

The seriousness of the harsh economic realities that could befall the state if the property fight isn’t settled and the sale isn’t completed hasn’t gone unnoticed by the judges.

“A permanent closure [of Great Northern] would result in the loss of over 1,000 jobs and related health benefits to employees and pensioners,” wrote Kornreich, in his Friday order that set April 14 as a trial date. “It would also have a ripple effect on the municipalities, communities, businesses and individuals who provide goods and services to Great Northern Paper Inc. and its employees.”

Great Northern’s attorneys have promised, in writing, that they would deliver the landfill and other properties at the heart of the dispute to Brascan by April 21.

On March 11, Great Northern’s attorneys filed a 10-count lawsuit against Inexcon Maine, the parent company of Great Northern, and its owner, Lambert Bedard, for refusing to return millions of dollars worth of land and property allegedly transferred from Great Northern to Bedard and Inexcon Maine in 2001.

The lawsuit claims that Bedard and possibly others “devised a wrongful and improper scheme” to obtain about $3 million in loans in 2001. Great Northern’s board of directors agreed to give Bedard and Inexcon Maine parcels of land and property, including the landfill, so that they could use the assets as collateral to secure loans in their names for use by Great Northern.

Three loans were obtained at Katahdin Federal Credit Union in Millinocket. Two of them, totaling $2.35 million, were written in Bedard’s name and the third, for $700,000, was written out to Inexcon Maine, according to the lawsuit.

Kornreich broke the lawsuit into two separate complaints on Friday. The April 14 trial would focus on whether the landfill and other properties were fraudulently transferred to Inexcon Maine and Bedard. A subsequent trial could be held to determine whether Inexcon Maine and Bedard breached their fiduciary duties by securing the land transfers. If the judge rules they did, Great Northern wants “monetary relief.”

During court proceedings on Wednesday pertaining to scheduling the trial, Katahdin Federal Credit Union was verbally made a party in Great Northern’s lawsuit because it currently is the actual holder of the titles on the properties. Dan Cummings, an attorney for Katahdin Federal, said Wednesday evening that Great Northern’s attorneys had not notified him that he would have to prepare for a trial on April 14. He added, “it’s highly likely the credit union will object” to going to court on that date because there is not enough time to prepare for a trial.

Katahdin Federal defends its loans to Inexcon Maine and Bedard, Cummings said.

“Each of them were short-term loans,” he said, “designed simply to assist Great Northern to keep the paper mills open. At that point, they were unable to get financing through any other source. [Katahdin] knew it was sticking its neck out to some degree.”

Meanwhile, Katahdin Federal Credit Union has begun foreclosure proceedings proceedings in Maine Superior Court in Bangor.

According to court documents, the landfill alone had a value of $3 million when it was transferred to Bedard and Inexcon Maine almost two years ago.

Cummings said that Great Northern attorneys asked him earlier this week to turn over the titles on the properties, but did not offer to pay off the mortgages.

Cummings said that the credit union is unable to turn over ownership to Great Northern without at least receiving the balances on the loans.

He said Katahdin Federal is mindful of “the magnitude of what’s going on” with Great Northern’s bankruptcy and sale, but he added, “this isn’t a small claim.”

“The combined $3 million in three loans is a huge amount for this credit union,” he said. “For this size credit union, this is a huge obligation.”

Earlier this week Bedard said he believes the landfill and other properties were properly transferred to him and Inexcon Maine, and noted that the money was spent by a financially struggling Great Northern. The balances on the loans are outstanding, according to court documents.

Bedard said that for about three months, he has been approached by Great Northern’s attorneys to “hand over” the land. But, he said, the attorneys don’t want to give him a dime even though he owes millions in loans that are backed by the properties.

“What they’re basically asking for is a gift of $3 million,” Bedard said. “And I’m not going to give a gift of $3 million.”

Bedard said that he should be paid at least enough to cover the balance of the credit union loans, attorneys’ fees and possibly other amounts depending on the commercial valuations of the land if they were to be sold to someone else.

Great Northern attorney Dan Bleck of Boston did not return numerous telephone calls for comment this week.

Attorney Nicholas Walsh, who represents Inexcon Maine in the property dispute, said Friday that he was respectful of the attention the federal bankruptcy court system in Maine was giving to resolving the matter. The respect, he said, is above and beyond his professional disagreement with Kornreich’s ruling to hurriedly prepare for trial on April 14.

“This is good,” said Walsh, about the mediation talks next week. “The parties have been at loggerheads for months.”