Downtown Fresno’s Club One is out of Chapter 11 bankruptcy protection after reaching agreement with two former owners to pay them a portion of what they were owed from a 2008 purchase.
Former owners Elaine Long and George Sarantos claimed they were each owed more than $4 million by the ownership group led by Kyle Kirkland. Kirkland’s ownership group filed for bankruptcy last October.
Under terms of the bankruptcy settlement, Sarantos and Long will each get $1.5 million. The agreement was approved in U.S. District Court in Fresno in March, and the state Gaming Control Commission supported the agreement last month, Kirkland said.
Chapter 11 bankruptcy is used to reorganize a partnership or corporation to keep a business functioning while paying creditors over time.
There were two entities involved in the bankruptcy, Club One Casino Inc. and Club One Acquisition Corp., a holding company for Club One’s stock. Club One Casino Inc. creditors were owed more than $9.5 million. Long and Sarantos claimed $4.15 million each.
Club One isn’t out of bankruptcy yet, said Riley Walter, who represents Long and Sarantos in the bankruptcy process. But conditions were met through the state Gambling Control Commission and payments have been made to Sarantos and Long. Federal court proceedings were “terminated” last week, court documents show.
The court realized it was a fair and reasonable resolution to a rather complicated case.
Kyle Kirkland, president of Club One
An unsecured claim, which was to pay Sarantos and Long $2.5 million each, was backed without collateral. Sarantos and Long will recover nothing from those notes, Walter said.
Kirkland, president of Club One Casino Inc., said the casino/restaurant venue is moving on from the controversy.
“The court realized it was a fair and reasonable resolution to a rather complicated case,” he said. “Everybody is not happy in something like this, but I think everyone is satisfied.”
The business at the corner of Tulare Street and Van Ness Avenue stayed open and continued paying fees it owes the city.
Kirkland said the 300-employee, 51-table card room pays about $1 million per year to the city in table fees. He said that during the bankruptcy process, employees and the city were paid.
Kirkland and partner Dana Messina acquired 80 percent of Club One’s business from Long and Sarantos in 2007 for $27 million. A third man, Haig Kelegian, owns 3 percent. Under the deal, Sarantos sold a portion but kept 17 percent of the casino, saying he wanted to semi-retire.
Long, who sold her 50 percent stake to Kirkland and Messina, was forced by the state Gambling Control Commission to sell because her share had been transferred to her from her husband, Charles “Bud” Long, who was convicted in 2000 of felony tax evasion.
Kirkland and Messina acquired about $22.5 million in financing, and Sarantos and Long each received the unsecured notes for $2.5 million.
(Club One) violated the covenant of good faith and fair dealing.
Judge O. Peter Sherwood, New York Supreme Court
In a 2014 decision, a New York state appellate judge ruled that Club One Casino Inc. and Club One Acquisition Corp. were improperly withholding money from Sarantos and Long and “violated the covenant of good faith and fair dealing.”
The judge said that Sarantos and Long “are the only parties who are awaiting their benefit” under the sale agreement.
Shortly after the New York ruling, the Chapter 11 filing was submitted in U.S. District Court by the ownership group, led by Kirkland.
Kirkland and Messina, who both graduated from Harvard, are former employees of Drexel Burnham Lambert, the Wall Street investment firm that had a high-profile bankruptcy in 1990. Kirkland and Messina acquired Steinway Musical Instruments in 1994 and merged it into Selmer Co. (now known as Conn-Selmer), according to published reports.