The Day

By:  Patricia Dadonna
9/29/2010

Judge: Thomas owes bank millions

Court issues $6.5M judgment in lawsuits filed against former Mashantucket chairman, agent Michael Thomas, former chairman of the Mashantucket Pequot Tribal Council, owes Sovereign Bank more than $6.5 million for defaulting on a $1 million line of credit that later grew to $5.2 million, a Superior Court judge ruled Tuesday.

The sum includes a principal of $5,198,990, interest totaling more than $1,372,532, and undetermined late fees and legal fees.

"We're disappointed," said Thomas' attorney, Lawrence Rosenthal of the Hartford law firm Rogin Nassau. Declining to rule out an appeal, he noted, "I haven't discussed that with my client."

The bank declined comment.

The primary lawsuits filed by the bank in 2008 against Thomas and, later, against his business agent, Billy Hadley, were joined at trial, which began July 20, with a lawsuit filed by Allstar Capital Inc., an investment vehicle for Thomas associate Daniel Gordon.

At issue in the lawsuits were allegations of forgery, negligence and betrayals of trust, the validity of intricate real estate transactions involving a single parcel of land known as Boulder Heights in Groton, and the unproven claim that the bank was violating federal law by intending to use the Thomas loan as a means of steering business to Foxwoods Resort Casino, the gaming resort owned by the tribe.

Combined, the foundation for legal arguments rested on expert testimony about title searches and handwriting analysis, the recollection of witnesses, including Thomas himself, and hundreds of bank documents and legal exhibits.

In ruling from the bench at the close of a civil trial "as complicated as this case is," Judge Joseph Q. Koletsky said that two competing mortgages on Boulder Heights - one secured by the bank and one secured by Allstar - were valid, but that the Allstar mortgage had priority.

Koletsky granted Allstar a strict foreclosure to take title of the property, noting that the Allstar mortgage was taken to protect Thomas by Hadley, a Norwich real estate agent. Allstar was suing the bank and Liberty Investors, which in the spring of 2007 gave the property to Sovereign Bank in exchange for the bank not calling the line of credit against Thomas.

Two years prior, however, the line of credit, handled by Hadley, grew to $4 million with the acquisition of the Groton parcel, but was put in the name of TAL Properties, an instrument also created to protect Thomas' identity as an investor.

Testimony in both the Allstar and Sovereign Bank cases turned on whether the bank should have known that there was a competing mortgage on the property by virtue of a title search.

"I do find that when Sovereign Bank took the mortgage from Liberty Investors, they had constructive notice of the existence of the Allstar mortgage," Koletsky said when reading his handwritten verdict.

The line of credit eventually grew to $5.2 million with the acquisition of properties in Ledyard and Lisbon, all "for the benefit of Michael Thomas," said Hadley's lawyer, Paul Geraghty of the law firm Geraghty and Bonnanno LLC. Earlier, Hadley had pleaded the Fifth Amendment against self-incrimination in some questions at deposition and failed to answer subpoenas by the bank or Thomas.

While Thomas claimed that Hadley acted without his full support or knowledge, he admitted to signing the original paperwork for the line of credit and relying on Hadley, at least initially, as an adviser who had the authority to arrange real estate deals but not to execute them.

Thomas also acknowledged not reading many of the legal documents he signed.

In his verdict, Koletsky also determined that Thomas' attorneys failed to prove Hadley's negligence, that Hadley forged checks on behalf of Thomas, that there was a breach by Hadley of good faith or fair dealing, or any violation of unfair trade practices.

Rosenthal failed to prove that the bank improperly intended to steer casino business to the bank, the judge found, despite the citing in so-called Sovereign Approval Memorandums that the bank was considering lending money to Thomas to help secure a "foothold in Foxwoods."

Koletsky also found that Sovereign Bank failed to prove that Hadley deceived the bank in his dealings with it.

"To say we're happy is an understatement," said Geraghty. "I think the judge's ruling showed the lack of credibility to Mr. Thomas's claims."