Dunne and Killilea will ask US court to strike out Nama action on debts

On Monday, lawyers for the Irish couple will ask a judge to rule that Nama has no jurisdiction in its claims

The security guard emerged from his hut as the taxi pulled up to the barrier. “Back the car up please or I’ll call the cops,” he says at the Mead Point gated community in upmarket Greenwich, refusing to let us pass or to allow photographs be taken of the houses inside.

This area of Connecticut, next to the Atlantic shore, is one of the wealthiest communities on the US east coast in one of the most affluent states in America. Wealthy commuters used to live here and travel into Manhattan for work: nowadays senior bankers at European groups such as UBS and RBS, and hedge fund executives have chosen to live and work here because of the state’s favourable personal tax regime.

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42 Bote Rd

Inside this private estate, on Indian Field Road, is the rented home of Sean Dunne, once one of Ireland’s most ambitious property developers, and his wife Gayle Killilea, the former journalist who now – the couple have argued before a Connecticut court – is a property developer in her own right, using money transferred to her by her husband long before the National Asset Management Agency was set up and the Irish property crash wiped him out financially.

Debts owed

Dunne is debtor number 39 on Nama’s books. The debt owing by his DCD Group of companies to the State’s de facto “bad bank” stood at €358 million in December 2010. The High Court ordered him personally to repay €185 million in March 2012 arising over personal guarantees he had given. Not long after, Nama took enforcement seizing control of his business.

The bulk of Dunne’s corporate debts at DCD and his personal debts are held by non-Nama banks, such as the UK-owned Ulster Bank and the former Bank of Scotland (Ireland), bringing his total bank liabilities to almost €900 million. Ulster Bank was the lead lender of three banks that funded Dunne’s most audacious project, the proposed redevelopment of the eight-acre Jury’s hotel site in Ballsbridge that was blocked by An Bord Pleanála. Dunne lost control of the budget hotels he ran on the site last year, handing them over to managers appointed by the banks.

The scale of his debts reflects the activities of one of the State’s most prolific developers. The Carlow man built 3,500 houses in Ireland over a 30-year career and paid a personal tax bill of more than €40 million in 2007, the zenith of the property boom. That was then. Now the money he owes is vast, and it is money that he claims he doesn’t have. Dunne invested much of his own cash in deals, covering about half the peak values of his properties or 50 per cent “gearing”. He has been left deep in insolvency by the crisis.

Nama has, over the past year, taken enforcement action on developers who have either no prospect of surviving financially or who have not co-operated with the taxpayer-owned agency, foreclosing on their businesses. About a third of the agency’s top 190 debtors – who owe the bulk of the €74 billion of bank loans (acquired by Nama for €32 billion, reflecting the drop in property values) – are facing enforcement action. Dunne is one.

The State agency has also taken the fight to developers, identifying those it claims have put assets beyond its reach, reducing the potential sum that Nama can recover from them on behalf of the State.

Nama told The Irish Times this week that it believes it will be able to secure “significantly more” than the €500 million of additional assets from debtors that it previously quoted. This includes assets such as properties, company shares and a variety of personal items transferred to spouses, other family members and third parties.

As of last July, the agency had reversed the transfer of about €160 million worth of assets. A spokesman for the agency declined to say whether it has reversed more since then.

Actions are ongoing. The High Court heard just this week that Nama would receive $205,000 (€153,000) raised from the sale of an 8.38-carat diamond ring at auction in Florida last week. The ring was formerly owned by Mary McCabe, the wife of builder John McCabe, whose companies owe the State agency €235 million.

Nama moved unexpectedly against Dunne and Killilea, his second wife, last July. The couple learned, after the Superior Court in Stamford, Connecticut, had been petitioned by Nama, that the agency had taken legal action against them, three US companies and their lawyers, Thomas Heagney and John Slane of Heagney, Lennon Slane in Greenwich. Nama had made an ex parte application, giving them no advance notice.

The agency had sought a pre-judgment remedy, freezing the couple’s assets, as well as those of three companies, and that of Heagney, a prominent attorney in Greenwich and his Connecticut legal practice.

Nama presented the application using newspaper articles as evidence of Dunne’s transfer of his half-share in an apartment in Geneva to his wife and claims that she had purchased three properties in Greenwich using Dunne’s money – 38 Bush Avenue, 22 Stillman Lane and 42 Bote Road – and that the law firm had acted as trustees.

The transactions ran to millions of dollars, involving the purchase, demolition, renovation and construction of properties.

The State agency claimed the transfer of the half-share in the Geneva property from husband to wife was “fraudulent” at a time when Dunne owed significant debts to his banks in Ireland and to Nama.

When the case came to court again on July 12th last, both sides were represented. Nama made its case, arguing that Dunne was behind the property transactions in Greenwich, that the money was his, and that at least part of that money came from the sale of the share of a Geneva apartment transferred to her.

“This woman was a columnist,” Nama’s attorney, Thomas Rechen, told the judge. “She was a newspaper columnist, a gossip columnist, if you will, in Ireland. One would not expect that she would have the kind of income that would be required in order to purchase the properties that we are talking about in Greenwich.”

Documents

The agency argued that Dunne’s name had cropped up on documents behind some of the transactions. His name appeared on the original purchase agreement for the Bush Avenue property though it was subsequently “crossed out” and Killilea signed it instead, according to Nama.

Dunne’s name appeared as the principal of three US firms set up in 2010 – Mountbrook USA (Dunne’s group of companies in Ireland were called Mountbrook), Barclay Beattie Brown and Molly Blossom. Dunne later said that his name had been listed in error and that his wife was, in fact, the sole member of the companies.

The July hearing didn’t go Nama’s way. Judge Douglas Mintz would not entertain the agency’s request to freeze the couple’s assets. The judge said Nama was seeking “an extraordinary remedy” when the agency had not shown the evidence to prove its claims.

Since then, the case has been going back and forth between the two sides and various depositions have been taken from contractors who worked on the Greenwich properties at the centre of this case.

On Monday, lawyers for Dunne and Killilea will ask a judge to throw out Nama’s case claiming it has no jurisdiction to pursue a legal action in a court in Connecticut or that the agency can argue in a US court that the transfer of a part-share in a Geneva apartment between two Irish nationals living in Switzerland was fraudulent.

The couple have sought to question Nama chief executive Brendan McDonagh under oath. Dunne’s loan portfolio manager at Nama, Kevin Nowlan, who has since left the agency, will be deposed later this month. Next week will be the hearing of the couple’s first major defensive play against Nama.

Speculative development

Connecticut’s property market is ripe for speculative development given how the financial crisis dampened construction work in the area over the past four years.

Being one of America’s wealthiest states, property values never fell as sharply as in other parts of the US but are also unlikely to rise in the recovery. Still, there is money to be made here as there is a shortage of houses to feed appetite among new buyers scouring the leafy suburbs for homes within easy commuting distance of Manhattan.

“We don’t have the inventory we should have here,” said one property agent in Greenwich who didn’t want to be named. “There are opportunities here now and builders are starting to buy land and build ‘spec’ houses.”

Killilea and Dunne (if Nama’s claim is correct that he is involved in the property projects) have already clocked a few successes in the Greenwich market since their move here from Switzerland two years ago.

According to Nama, they purchased, through an attorney, the Bush Avenue property for $2 million (€1.5m) in 2010, demolished the house and built a new one on the site, selling it for almost $6 million (€4.5m) in July 2012.

The agency claims that Dunne and Killilea bought the property at 42 Bote Road for $825,000 (€615,000) in 2011 (through Heagney acting as trustee) demolished the house and built a new one, selling it for $3 million (€2.2m) in April 2012.

The third property in the Greenwich area, 22 Stillman Lane, has not yet been sold but a drive-by inspection of the property shows the house to be virtually complete, from the outside at least.

Records filed in nearby Rye, an upmarket area popular with Irish expats in nearby New York state, show that Mountbrook USA has paid county taxes on another house, on Hidden Spring Lane, for 2012. The property was purchased for $1.7 million (€1.3m), sub-divided and sold on for $2.5 million (€1.9m) – a tidy profit in just nine months.

“They are not just developing one type of house,” said the property agent. “They are picking good neighbourhoods, and not just in the $5 million (€3.7m) to $8 million (€6m) range but around $3 million (€2.2m) as well.”

Nama’s case against the couple centres on these property projects and hinges on the statement of affairs Dunne submitted to Nama in December 2010 and the timing of the transfer of money by Dunne to Killilea.

Killilea has claimed through her lawyers that Nama is on a “fishing expedition” and that her husband had transferred in excess of €10 million to her from 2005, before Nama came into existence. She was never a director of Dunne’s Irish companies and was never a customer of a Nama bank; her accounts were with Ulster Bank.

The cash transfers from Dunne to Killilea appear to have taken place when statements of Dunne’s assets and liabilities showed him to be in rude financial health. A net worth statement by KPMG valued his assets net of liabilities at more than €500 million in June 2007, around the peak of the property bubble. Bank of Ireland assessed his net worth at €576 million in October 2008, as the market was starting to turn.

But Nama wasn’t happy that the Geneva property did not feature in Dunne’s statement of affairs to the agency in December 2010 or that he made no references to the property activities of Mountbrook USA. The agency hired international forensic accountants Kroll to carry out a trawl of Dunne’s assets in 2011.

The Dunnes have claimed that Dunne only featured on the ownership records of the Geneva property to secure a mortgage from Crédit Suisse and that it was always Killilea’s own property and that, ultimately, they made little or no profit on the sale of the apartment in 2010.

Distorting the financial relationship between the couple even more, Dunne noted in a letter to Nama on February 17th, 2011, filed in court in the US litigation, that he is unable to divulge any information relating to proceedings “involving Ms Gayle Killilea Dunne or indeed my first wife” as they are covered by the in camera rule.

Nama manager Kevin Nowlan had earlier raised a query with Dunne about Killilea’s reference in an email to the State agency to “court-ordered legal obligations” from Dunne to Killilea and his children.

All this complicates an already complex case for the State loans agency and raises questions about whether it can reverse an asset transfer through the US courts involving the wife of one of its most tenacious debtors.