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Wednesday, 22 November 2006 00:00

Smoky Mountain Golf Course’s ordeal: Drawn-out legal saga nears possible resolution

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A three-year legal saga between the owners of Smoky Mountain Golf Course and the developers of Smoky Mountain Country Club moved one step closer to a resolution this week.

 

Judge James Down ordered the owners of the golf course to sell the course to the country club by Jan. 15, 2007. The golf course owners failed to comply with a previous court-ordered sale of the course in July. Downs has given the owners one last chance to comply before intervening to force the sale.

The 18-hole golf course sits on 133 acres in Whittier and is Swain County’s only golf course. Country club residents and golfers claim the course has been held hostage by absentee owners who neglected the course over several years before shutting it down completely this summer.

According to the lawsuit, the owners allowed the golf course to fall into disrepair, with crumbling golf cart paths, unkempt fairways and shoddy sand traps and tee-boxes. They also failed to fully correct shortcomings in the course design.

Typically, golf course owners can do what they please with their course. If they want to let the course languish, they can. But this case was different.

When a group of men from Pennsylvania called Woodville Associates bought the course in 1998, they signed a legal agreement with Smoky Mountain Country Club promising a host of upgrades, along with proper upkeep.

The agreement paved the way for needed improvements to the course. The course was considered awkward and one of the least-desirable in the region among golfers. The course was too confining and had several poorly designed holes.

Woodville wanted to redesign several holes, but needed land from the adjacent Smoky Mountain Country Club to do so.

“The land the Woodville group purchased was inadequate in everyone’s opinion to make an 18-hole golf course that anyone would want to play. It was very restrictive,” said Mike Cornblum, the developer of the country club. Cornblum was willing to help since the country club would clearly benefit from an improved course. So Cornblum and Woodville struck an agreement, and Cornblum conveyed more than 40 acres to Woodville for the new course layout. He also provided easements for golf cart paths.

In exchange, Woodville promised to improve the golf course to make it “reasonably playable” by average golfers and keep it “well maintained and in a good state of repair.” Woodville pledged to keep the golf course open for continuous play through the year 2014.

 

Financing the deal

With the agreement in place, Woodville purchased the golf course in December 1998 for $600,000. The group financed far more than the purchase price, however, borrowing nearly $2 million.

Initially, Woodville made several improvements. Half a dozen holes were redesigned and moved to new locations thanks to the land swaps between Cornblum and Woodville. But Woodville soon went the way of absentee owners, according to the lawsuit. It quit investing in the course and allowed it to become run-down, according to golfers.

“When they bought the course here they said they were going to do all kinds of things for Swain County. For a while it was good, but it seems now they could care less. They have taken from us what they could take and they aren’t going to pay their dues,” said Travis Stephenson, a golfer in Swain County.

In late 2003, Cornblum filed a lawsuit against Woodville. Cornblum wanted the court to compel Woodville to live up to the 1998 agreement, namely a redesign of two holes that still weren’t “playable” and resume proper upkeep, according to court filings.

After two years of legal wrangling, Woodville decided to sell the golf course to Cornblum rather than make the improvements. The court ordered the sale at fair market value — $703,000 to be exact. But there was a hitch. Woodville still owed $1.7 million in loans it borrowed against the property. The sale price wouldn’t cover Woodville’s debt by a long shot. Woodville had to come up with $1 million to pay off the remaining debt and deliver the property free and clear of liens.

By now, the golf course was shut down, and Cornblum was anxious to gain title to the course. He gathered up $700,000 and placed it in escrow. But when the court-ordered sale date rolled around in July, Woodville was a no show.

“They didn’t even call to say they’re sorry. They just basically didn’t go through with it,” said Cornblum’s father, Marshall Cornblum, the major financer behind the country club development.

Woodville behaved the same way when it shut down the golf course, according to court testimony. The group just quit making payroll for the staff.

“They don’t even tell the people when they fire them. They just drifted off into oblivion,” Cornblum Sr. said.

 

The plot thickens

Initially, Woodville planned to sell land it owned in Pennsylvania to raise money to pay off its liens on the golf course, paving the way for the court-ordered sale to go through, according to court depositions.

But the four partners in Woodville got in a fight over their business dealings, according to court testimony. Two brothers, Jack and James Cargnoni, were the ringleaders of Woodville, according to court testimony. The other two partners, Steve Balogh and Joe Gizienski, got fed up with the Cargnonis, according to depositions.

In court, Cornblum Sr. said Balogh had been “destroyed” by the Cargnonis and “was getting nailed.” Gizienski apparently became displeased with the Cargnonis as well. In April, Balogh and Gizienski kicked the Cargnonis out of the Woodville corporation, according to court testimony.

The Cargnonis promptly sent Woodville invoices totaling $3.5 million for work they allegedly performed over a five-year period. To exact payment, the Cargnonis took out a $3.5 million lien against Woodville-owned land in Pennsylvania.

Woodville could no longer rely on the land to raise the $1 million needed to pay off the golf course liens and comply with the court-ordered sale to Cornblum.

“The liens put a stranglehold on the corporation,” Balogh said in a deposition. “The Cargnonis have things so screwed up we haven’t been able to do anything.”

Cornblum Sr. accused the Cargnonis of “playing games.”

“I am totally frustrated,” Cornblum Sr. said during court testimony.

Cornblum Sr. asked the presiding judge, Judge James Downs, to remove the Cargnonis’ $3.5 million in liens from the Pennsylvania property so Woodville could use it to raise the capital it needed to pay off the golf course debt and allow the court-ordered sale to go through.

An attorney who appeared on behalf of the Cargnonis said the Cargnonis were entitled to the $3.5 million billed to Woodville.

“The Cargnoni corporations had been doing work for Woodville for five years and not getting paid,” said Attorney Chad Michaelson. “You really don’t know the background of why these background liens were filed.”

“I’m not in the business of going to Pennsylvania and figuring out what is going on between your clients,” Cornblum Sr. replied. “There’s one thing I’ve never received from your clients and that’s performance.”

Cornblum asked Downs to hold the Cargnonis, Balogh and Gizienski in contempt of court for failing to comply with the court-ordered sale.

“We know that Woodville only acts under power and pressure,” Cornblum Sr. told Downs.

None of the men appeared in court in person, but sent attorneys in their place, further frustrating the case.

 

The local fallout

Woodville’s failure to maintain the golf course made it hard for the country club development to sell lots and condos, according to the suit. It also lowered property values, according to homeowners.

“It has certainly impacted property sales here,” said Michael Hill, a homeowner at the country club. “There are people who have walked away. They liked the area and liked the development, but said ‘Until the golf course issue is resolved, I’m not interested.’”

During court testimony, Cornblum’s father and the chief financial backer of the country club, Marshall Cornblum, said Woodville’s failure to live up to the agreement has resulted in significant losses.

“Because of the impact of the golf course we have had only one or two sales of condominiums and one or two sales of lots at Smoky Mountain Country Club this year,” Cornblum Sr. said.

The attorney for Steve Balogh, Stanley Stein, wasn’t sympathetic.

If the golf course was so important to the financial future of the country club, why not pay off Woodville’s debt yourself and then file a lien against Woodville to collect, Stein asked Cornblum.

“Because I don’t let people screw me forever,” Cornblum Sr. said.

“So this is a matter of your principal in not letting people screw you?” Stein asked.

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