Trailer Court Adversaries Fight Over $4.8-Million Settlement

The residents and owners of an embattled San Juan Capistrano mobile home park are wrestling over that is tangled in bankruptcy proceedings.

Whether the 127 residents of Capistrano Terrace Mobile Home Park who sued the owner in 2007 for neglecting to maintain the park's infrastructure are entitled to the payout will be decided later this month.

Only hours before the $4.85-million settlement was offered to the residents July 12, owner , putting a stay on the civil suit—settlement included.

Residents have since asked for the stay to be lifted, contending the settlement would be paid by insurer Columbia Casualty and should therefore not be considered among the owner's assets.

In court documents filed Monday, the park owner disagreed, arguing that approving the settlement before the bankruptcy is settled would strip the park of its primary asset, the insurance policy, which would leave its other creditors out to dry.

Listed among the creditors are hundreds of other residents, property managers and investors, and the city of San Juan Capistrano, which it owes more than $7,000.

In 2007, 127 residents sued Capistrano Mobile Terrace Ltd. for breach of contract and for failing to maintain the mobile home park. Neglecting the upkeep resulted in serious health and safety code violations, they said, as the sewer, water, electrical systems and other common areas, such as the pool, were left in disrepair.

A judge severed 17 plaintiffs from the group for a jury trial, which on Jan. 13, 2011, awarded them $1.14 million in damages.

Since April, all of the residents identified in the initial suit have met with the owners and their insurance company, Columbia Casualty, to settle the entire case, including the attorney fees. Their final mediation was July 12.

In a letter dated July 14, Columbia Casualty confirmed an offer to settle for $4.85 million.

However, because Capistrano Mobile Terrace Ltd. filed for Chapter 11 before the offer was made, the settlement became subject to bankruptcy court approval, and any new decisions in the civil suit were suspended.

The owner says that although the proposed $4.85-million offer would relieve the 127 plaintiffs, it does not have enough insurance proceeds to pay as many as 300 other former and current residents who have similar property damage and claims but who are excluded from the settlement.

It says the most equitable resolution of the Chapter 11 case would be to generate a pool of cash to distribute among its many creditors. The park would fund the pool either through negotiation of a buyout of the insurance policy, or through "insurance bad faith" litigation with Columbia Casualty.

The insurance policy, it says in court documents, is intended for all of its current and former residents, not just the plaintiffs named in the civil suit.

On Aug. 22, a bankruptcy court judge will consider whether the residents are entitled to the offer in spite of the Chapter 11 filing.