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Business Associations Keyed to Coffee, 9th Ed.
Auriga Capital Corp. v. Gatz Properties, LLC
Citation:
40 A.3d 839 (2012)Facts
In 1997, William Gatz and William Carr formed Peconic Bay, LLC to develop a golf course on land owned by the Gatz family. The Gatz family leased the property to Peconic Bay under a 40-year Ground Lease. Peconic Bay then subleased the property to American Golf Corporation to operate the golf course. The Gatz family controlled the majority of both Class A and Class B membership interests in Peconic Bay, giving them veto power over major decisions.
By 2004-2005, Gatz knew American Golf would likely terminate its sublease in 2010, but he failed to take any steps to find a replacement operator or explore strategic alternatives. When RDC Golf Group expressed interest in acquiring Peconic Bay in 2007, Gatz refused to provide basic due diligence materials and discouraged negotiations, despite RDC’s willingness to discuss a price “north of $6 million.”
Instead, Gatz used RDC’s interest to make low-ball offers to the Minority Members based on misleading information. When these offers were rejected, Gatz orchestrated a poorly marketed auction in 2009 with unfavorable terms designed to discourage third-party bidders. After learning he would be the only bidder, Gatz purchased Peconic Bay for $50,000 above its debt. This resulted in a mere $20,985 distribution to the Minority Members, while Gatz regained control of the property with its improvements.
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