EAST ST. LOUIS – Failing retailer K-Mart found a buyer for a Florida property it put on the market to pay for losing a lawsuit to St. Louis lawyer Stephen Tillery.
K-Mart “wishes to sell” a Sears distribution center in Winter Park, according to Allie Pang of the U.S. Department of Justice.
The U.S. and Tillery client Carl Ireland hold a joint mortgage on the property.
Pang didn’t promise a sale but clearly expects one.
In an Aug. 23 court filing, Pang wrote that K-Mart offered to pay the U.S., Ireland, California, and Illinois $12.8 million from the proceeds at closing.
Pang wrote that the payment would serve as a partial advance on a $20 million payment due on Dec. 22. K-Mart would then deposit $1.6 million into an escrow account for a $19 million payment due a year later.
She wrote that the deposit would constitute an obligation under a $17.4 million mortgage Sears Roebuck of Puerto Rico pledged in January.
Ireland administers the estate of James Garbe, a K-Mart pharmacist in Ohio who claimed K-Mart cheated the government on reimbursements for prescriptions.
Garbe sued K-Mart under the False Claims Act, which authorizes private suits alleging fraud on the U.S.
The U.S. takes two thirds of a false claims judgment and the winner takes a third.
The U.S. can intervene in such a suit, but it didn’t intervene in this one.
Last July, with trial approaching before District Judge Nancy Rosenstengel, Garbe moved for entry of final judgment on some claims.
At a hearing, Rosenstengel asked Robert King of Tillery’s firm why final judgment on those claims was appropriate.
King said K-Mart counsel Catherine O’Neil “represented to you that if we try this case to a verdict and relator gets a verdict, that number will put K-Mart in bankruptcy – not just K-Mart, but K-Mart and Sears, its parent company.”
He said final judgment would protect the government should the case not get resolved prior to a verdict.
O’Neil said, “We should be going forward with trial and there is no reason to be entering final judgment ahead of trial.”
Last August, with trial 11 days away, Rosenstengel called it off.
She stayed all deadlines at the request of the parties.
Over the next 25 weeks, she presided over 23 telephone conferences.
She posted minutes on the docket but entered no orders.
Although the U.S. hadn’t intervened, assistant U. S. attorney Gerald Burke participated in the conferences.
With little else to give, K-Mart gave up property.
No one moved to approve the settlement and no one filed it in the public record, but Rosenstengel approved it in three paragraphs this Jan. 19.
She wrote that it took effect Dec. 22.
“The court’s approval of this settlement is contingent on the closing of the two properties serving as security for the settlement amount,” Rosenstengel wrote.
“Until both properties have closed, the court will retain jurisdiction to enforce all terms of the settlement.”
She didn’t identify the properties.
In a docket entry on Jan. 26, she ordered the parties to keep her up to date on “the Winter Park property.”
In April, after K-Mart made a first payment, she distributed $5.8 million to Tillery’s firm and $2.5 million to Ireland.
She distributed $1.6 million to Tillery associates at the firm of Phillips and Cohen in San Francisco and Washington.
On Aug. 24, all parties moved for approval of an amendment to the payment and security terms in the settlement.
The public can see the amendment but can’t see its effect, due to the absence of the original agreement from the record.
It provides reimbursement for lawyers that Tillery and his associates retained in Puerto Rico.