West end developer files for bankruptcy

Times-Herald Newspapers

DEARBORN — A development company locked in a breach-of-contract lawsuit with the city recently filed for Chapter 7 bankruptcy along with two corporate subsidiaries key to the suit.

Burton-Katzman Development Co. Inc., Westminster Homes Limited Liability Co. and West Village Commons LLC, submitted the filing Aug. 28 in U.S. District Court for the Eastern District of Michigan, just days before a court-ordered $5 million payment was supposed to be paid to the city.

Wayne County Judge Michael Sapala, who is presiding in the breach-of-contract suit, ordered the payment due no later than Sept. 1. But with the bankruptcy filing, the Bingham Farms-based companies will get an indefinite stay on the payment and a change of venue for at least part of its lawsuit with the city.

West Village Commons LLC, the namesake of the west downtown development project at the center of the suit, listed $11.2 million in secured and unsecured debt and $3.5 million in assets, according to court filings. Westminster listed $1.4 million in debt and $225,000 in assets. Burton-Katzman, the public face of the corporate family, claimed no assets and listed as its only liability the pending lawsuit with the city.

City attorneys said last week that the move appears to be strategic.

“Those were the three entities that were directly involved in our development contract, and those are the ones that were ordered to pay us our debt service,” said Corporation Counsel Debra Walling.

The debt service is tied to two parking decks the city built to support Burton-Katzman’s 2005 mixed-use project along Michigan Avenue. The decks were supposed to be paid off using tax-capture revenues from the new development, but as the economy faltered, Burton-Katzman said the project was no longer viable and stopped construction.

The resulting shortage of taxable buildings – namely two midrise towers and six condominiums – left the city $5 million short in tax capture revenues and has strangled the West Downtown Development Authority’s budget, causing strife between surrounding businesses and City Hall.

But even with the filing, other Burton-Katzman entities and executive-level employees could be targeted for damages and fines, which total more than $20 million, according to the city’s initial claim.

Sapala is scheduled to hear arguments on the matter Oct. 1.