Brewery lenders suing over defense obligation

By Christian Hill | The Olympian • Published January 07, 2009

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The lenders who financed the purchase of the Tumwater brewery almost five years ago have sued their title company for breach of contract, saying it has an obligation to defend them in a separate lawsuit that was filed by a bankruptcy trustee.

Stewart Title of Western Washington included a "creditors' rights exclusion" in the title insurance policies despite the lenders' instructions to remove the language, according to the suit filed in Thurston County Superior Court.

The language allows the insurer to exclude coverage if the transaction, among other things, ends up in federal bankruptcy court on specific grounds.

The lenders were unaware the language was in the insurance policies until after Stewart denied their claim. They had asked Stewart to defend them in the lawsuit filed by the bankruptcy trustee in March and indemnify them from any losses stemming from the court case. Stewart Title secured the title insurance from Stewart Guaranty.

"Plaintiffs asked Stewart Guaranty to issue revised documentation for the Policy to accurately reflect Stewart Title's obligation to obtain title policies without the Creditors Rights Exclusion," the suit said. "Stewart Guaranty refused to do so and again rejected the tender of defense."

Representatives for Stewart declined to comment Tuesday because they hadn't had a chance to review the lawsuit. It was filed Dec. 23. The lenders seek monetary damages to be proven at trial, interest and attorney's fees.

In his lawsuit, the bankruptcy trustee, Michael Hitt of University Place, accused the lenders of engaging in fraudulent and improper practices at the expense of creditors owed money for their work on the property.

The lenders have denied wrongdoing. The lawsuit is pending.

Plaintiffs named in the title lawsuit are R.E. Loans LLC, a Lafayette, Calif.-based lender; Barney Ng, a principal of R.E. Loans who lives in Wyoming; and Pensco Trust Co., which administers the retirement account of Ng. They all secured title insurance policies with Stewart. Also named in the suit is Well B Ng LLC, the owner of the former brewery property that is managed by Ng.

R.E. Loans and Pensco loaned more than $32 million to All American Bottled Water Corp. to buy the property in April 2004 and convert the shuttered brewery into a bottled-water plant.

Company President L. Eric Whetstone ran up millions of dollars in debt, and he abandoned the property after the company defaulted on the loans. Creditors forced the company into bankruptcy court. Hitt wasn't able to sell the property to repay creditors. The court then allowed Ng to move forward with foreclosure of the property, which occurred in March.

Hitt had sought a court judgment for Whetstone and his wife, a company officer, to pay more than $4 million he alleged they put to their personal use. The trustee and Whetstone reached an agreement in October in which Whetstone will pay $200,000. His wife was dismissed from the case.

Thurston County's three largest cities sued to condemn the property's water rights, and that lawsuit was settled recently. The cities paid $5.3 million for the water rights and 18 acres of land.

Thurston County Superior Court Judge Thomas McPhee is assigned the case. A status conference is scheduled for March 27.

Christian Hill covers Lacey and Thurston County for The Olympian. He can be reached at 360-754-5427 or chill@theolympian.com.