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By Jim Therrien
BENNINGTON — A supporter of Southern Vermont College who put up $2 million to secure a loan for SVC wants a court to appoint a receiver to manage the assets of the financially struggling school.
Frederic Poses also seeks an injunction to prevent the board of trustees from assuming new debt or encumbering any campus assets without his involvement and consent.
According to a filing at Bennington Superior Court Civil Division, Poses, of New York City, put up $2 million in April 2011 to provide additional security for extension of $8.5 million in financing under a bond the college sought for campus projects and upgrades.
Terms of the loan security agreement included that the bank holding the mortgage could draw down bond payments from the $2 million Poses had placed in a collateral account if SVC defaulted on its payments. The school did default in late March after a plan to close SVC had been announced.
In the suit and a motion for a preliminary injunction, Poses said he also concluded a separate reimbursement agreement with SVC to protect his pledge and to take effect if the college was determined to be in default on its repayments. That, according to the injunction motion, obligates SVC to "immediately and unconditionally pay to [Poses], upon demand," the amount that had been drawn down by the mortgage-holder, plus interest and expenses incurred.
Under the agreement, Poses said he also can "repossess the above-mentioned collateral, sell the collateral, and/or collect all revenues and proceeds of the collateral."
To further secure SVC's obligations, the suit states, Poses obtained a mortgage of "all real and personal property" of the college, which provides that upon a default "a receiver can be appointed as a right to manage the mortgaged property."
And the reimbursement agreement "prohibits SVC from taking on any new debt or pledging any assets of SVC without the consent of the plaintiff," according to the suit.
A motion for a writ of attachment on all real and personal property of the college also was filed with the suit.
The college trustees announced March 4 that SVC would close at the end of the spring semester in light of what was described as some $6 million in bond debt and declining enrollment — factors that threatened the school's academic accreditation. Accreditation was, in fact, withdrawn as of Aug. 31 by the New England Commission of Higher Education.
Since the announcement, the college has retained real estate firms to market the 371-acre campus and buildings. Poses contends his agreement concerning his pledge to SVC allows him a role in such decisions, but he contends he has not been fully consulted concerning financial decisions.
Poses, who is represented in the court filing by Alexander LaRosa, of MSK Attorneys, of Burlington, also says the reimbursement agreement was not adhered to when members of the SVC trustees provided a $910,000 loan to cover college expenses through the end of May and beyond graduation on May 18. The loan, he said, included a campus building — the Laumeister Art Center — as collateral.
College officials, who could not be reached Monday to comment on the suit, have said the arts center was acquired through a donation in 2017 and was not associated with the bond, which is held by Community Bank and Bank of Bennington and is secured by the rest of the campus property.
The reimbursement agreement Poses holds, the suit contends, "pledges almost all assets to plaintiff as collateral" and that "upon default, plaintiff can repossess the collateral and manage and/or sell the collateral."
A "mortgage in favor of the plaintiff conveying an interest in all property at 982 Mansion Drive, Bennington, Vermont [the campus address] to secure SVC's obligations to the plaintiff" also provides that "upon an event of default, a receiver can be appointed [by a court] as a right to manage the mortgaged property," the filing states.
Failure to pay under the reimbursement agreement "is also a default," according to the suit.
Won't halt graduation
Despite the filing, Poses states that he is not trying to shut down the school or cancel Saturday's graduation ceremonies for seniors.
In arguing for a preliminary injunction appointing a receiver to manage SVC, LaRosa says that "SVC may argue that the students and faculty will be harmed by the appointment of a receiver, but this is a strawman argument. Plaintiff does not ask that this court dissolve SVC and shut it down before graduation in May. Rather, plaintiff asks this court to empower a receiver to manage the assets of SVC with the best interests of all parties in mind."
The suit adds that Poses "believes the evidence clearly shows that the board of trustees and its counsel are not working in the interest of all parties. Rather, they are managing SVC at this point in their best interests."
Appointing a receiver also "is in the public interest," the suit contends. "This is a high profile failure by the board of trustees. An impartial receiver ensures that the wind down will be orderly and fair — serving students, faculty, employees and creditors."
Wind Down Plan
According to the suit, SVC missed a bond payment on March 4 and apparently was in default as of March 20. Shortly before that date, the suit states, officials with principal mortgage holder Community Bank and college officials met to discuss a "Wind Down Plan" for college operations.
That included "mechanism to repay the bank, but made no effort to acknowledge, honor or repay the obligation owed to the plaintiff" should the bank draw down the $2 million collateral account, the suit states.
Poses states that in an April 16 letter, he was notified by the bank that it had drawn down the $2 million he had pledged. And on April 30, he said he executed his rights under the reimbursement agreement and sent a demand letter to SVC for the full $2 million plus costs and fees.
Asked by the college in early April to consent to SVC borrowing additional funds from members of the board of trustees, Poses, according to the suit, said he would consent under certain terms and conditions. But he did not consent, he said, and the college did not respond to his communication.
Poses said he learned April 30 that trustees had loaned SVC $910,000 and the college would grant a mortgage using as security the arts center off West Road. The suit contends any additional debt or encumbering of assets required Poses' consent, which was not obtained.
Those actions by the college were "made with knowledge of the plaintiff's position and with intent to hinder and defraud plaintiff," according to the suit, and were done to "shelter the arts center from creditors such as the plaintiff and to defraud creditors for the benefit of SVC's trustees."
The suit seeks a court order "voiding SVC's execution of a loan with its trustees and conveyance of an arts center mortgage" on that property.
And Poses seeks an attachment against the arts center, as well as appointment of an impartial receiver through a preliminary injunction to "take charge of the arts center property and an injunction against the disposition of any other assets ."
The suit states that "SVC is for all intents and purposes insolvent. It cannot pay its debts and is winding down its affairs."
The suit subsequently seeks an award of damages to be determined at trial "as a result of SVC's fiduciary duty [to creditors] and an avoidance of the arts center mortgage executed by the trustees on the aforementioned art center property along with an award of attorney's fees and costs with such and other further relief this court deems just."
Jim Therrien writes for New England Newspapers in Southern Vermont, including the Bennington Banner, Brattleboro Reformer and Manchester Journal. Twitter: @BB_therrien