Club One, a popular downtown Fresno casino and restaurant, has filed for bankruptcy.
The Chapter 11 filing was made Wednesday in U.S. District Court by its ownership group, led by Kyle Kirkland, Club One Casino Inc.’s president, who says the lucrative business at the corner of Tulare Street and Van Ness Avenue will stay open and continue to pay fees it owes the city.
An attorney for Kirkland says the casino pays the city of Fresno about $1 million annually in table fees, and Kirkland says Club One’s payroll is more than $500,000 per month for a staff of about 280.
The bankruptcy filing comes after a ruling last week in New York favoring two Fresno residents, former owner Elaine Long and minority owner George Sarantos, who are the casino’s biggest creditors after a 2008 sale. In total, Long and Sarantos are owed nearly $12 million combined, their lawyers said.
There are 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 are owed more than $9.5 million. Long and Sarantos are owed $4.15 million each. The law firm of Milbank, Tweed in Los Angeles is owed $907,000. Several creditors have unknown amounts listed.
The Chapter 11 filing documents say Club One Casino Inc.’s ownership group has an estimated $10 million to $50 million in assets and a similar amount in liabilities.
Club One Acquisition Corp. owes Long and Sarantos another $1.8 million each, said Jim Betts, Elaine Long’s lawyer. He said that amount includes attorney fees and interest.
Chapter 11 bankruptcy is used to reorganize a partnership or corporation to keep a business functioning while paying creditors over time.
$11 million to $12 millionLawyers estimates of amount owed two former owners
The $27 million sale of the casino was completed in early 2008. Kirkland and Dana Messina acquired about $22.5 million in financing and Sarantos and Long each received notes for $2.5 million that haven’t been paid.
Last week, 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.
In the decision, the judge agreed with a previous ruling that said “through a series of subterfuges and evasions Club One Acquisition Corp. and its principals …succeeded in evading payment properly owed” to Sarantos and Long.
The judge said that Sarantos and Long “are the only parties who are awaiting their benefit” under the sale agreement.
While bankruptcy proceedings get under way, Kirkland said, the judge’s decision is being appealed by Club One officials.
“Some things came to a head and we had to have it sorted out in front of a judge who understands it,” Kirkland said. “It’s frustrating spending so much time, energy and money trying to resolve these disputes. I prefer not to do this, but we have to get this sorted out.”
He would rather make improvements at the casino.
The plan, he said, is to place the two corporate entities under KMGI, a partnership owned evenly by Kirkland and Messina.
It’s frustrating spending so much time, energy and money trying to resolve these disputes.
Kyle Kirkland, president of Club One Casino, Inc.
But by doing that, said Betts, Long’s lawyer, Kirkland and Messina are trying to carve Sarantos and Long out of money owed them.
Club One Casino Inc. lawyer Hagop Bedoyandisputed that: “This is a company that has been around a long time and doesn’t have a problem paying its debt,” Bedoyan said.
Kirkland said he has spoken with Fresno city and state officials to notify them that they will be paid, and they are “comfortable” with the plans.
City Manager Bruce Rudd said Kirkland and Messina “assured me that a year from now Club One will be in downtown and generating the same amount of table taxes it has been, if not more.”
Kirkland and Messina, who also is an outstanding creditor owed $190,000 for management fees from Club One Casino Inc., acquired 80 percent of Club One’s business in 2007. A third man, Haig Kelegian, owns 3 percent. Under the deal in 2007, Sarantos kept 17 percent of the casino.
At the time, Long sold her 50 percent stake to Kirkland and Messina. Long had to sell because the state Gambling Control Commission wouldn’t let her keep her share. It was transferred from her husband, Charles “Bud” Long, who was convicted in 2000 of felony tax evasion. Sarantos said he wanted to semi-retire.
Kirkland and Messina, who both graduated from Harvard and are former employees of Drexel Burnham Lambert, the Wall Street investment firm led by Michael Milken 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 after another merger), according to published reports.