Palm Coast Data Battles Eviction Lawsuit and Calls “Fraud” on Landlord and Former Owners, Casting Pall on 600 Jobs

The company was sold to Ireland-based Studio Media last April. Court documents reveal that the transaction was nowhere near as seamless as it appeared at the time. Palm Coast Data is now accusing its former owners of “fraud” and deceptive maneuvers last April, saying its balance sheet was not at all what its former owners claimed it had been at the time of the sale, and asserting that had the new owners “known the true state of facts surrounding Palm Coast [Data, they] would not have purchased Palm Coast [Data] and would not have entered into the subject lease.”

Both the lawsuit and Palm Coast Data’s answers combine to paint a grim picture for one of Palm Coast’s largest employers, after the school district and AdventHealth Palm Coast.  Less than a year ago, Palm Coast Data employed 600 people. According to court papers, that picture had darkened well before the coronavirus emergency. The lawsuit exacerbated matters, as did the loss of a major account the same month at the subscription-fulfillment company, which had been battered for years by the shrinking magazine industry. The public health emergency is yet another blow.

The proposed eviction order was triggered by a Feb. 18 settlement agreement between the two sides stipulating that if certain benchmarks weren’t met by Monday, the subsidiaries would file the order. The subsidiaries claim the benchmarks were not met.

Last Sunday, in anticipation of the subsidiaries’ attempt to seek a final eviction order, Michael Kean, the Palm Beach Gardens attorney for Palm Coast Data and others named in the suits, filed a motion to prevent the final judgment absent a hearing. The motion argues that, aside from $625,000 payments Palm Coast Data has made since December, the coronavirus emergency amounts to an “act of God” that warrants delays in deadlines and proceedings.

Circuit court in Flagler County and the rest of Florida were ordered to reduce dockets to “mission-critical” proceedings. The order includes civil cases. It isn’t clear when Circuit Judge Terence Perkins will rule on either side’s motions: today,  Chief Judge Raul Zambrano extended the order through April 19.

“I can tell you this lawsuit will have no impact whatsoever on the employees at the present time or in the foreseeable future,” Keane said. But he was more circumspect when asked about the long-term conditions of the company. “The answer to that question is I have no clue,” the attorney said, noting that he’s not the company’s in-house counsel. “I represent the company in a lawsuit. If you want comments about their current business plan, I couldn’t provide them to you because I don’t know what they are.” Making a reference to the public health emergency, he added: “I think the future of everything in our lives is greatly uncertain at this time. I don’t know anything as it relates to Palm Coast Data’s business plan or predictions.”  

Richard Shane, one of the attorneys representing the two subsidiaries suing Palm Coast Data, said in an email they had “no comment.”

The two companies suing Palm Coast Data are subsidiaries of Amrep Corp., which owned Palm Coast Data until it sold the company to Ireland-based Studio Media in April 2019. It wasn’t a traditional sale. Rather, Palm Coast Data became a tenant of Amrep’s. The cost of acquisition was to be spread out over 10 years, with each year’s rent payments including those costs. At the time, Palm Coast Data employees welcomed the move, seeing in it a 10-year commitment to Palm Coast Data by Studio Media. But Palm Coast Data was taking on two financial challenges to its bottom line that it did not have before: the rent payments, and the fact that the payments would be increasing every year.

The combined rent for 2 and 11 Commerce was $1.9 million in the first year, or $158,333 a month. It would have been $2.5 million in the 10th year, or $209,500 a month. Palm Coast Data was also responsible for covering all property tax, insurance and maintenance fees (so-called triple-net charges) incurred by the landlord in addition to the base rent. Late fees would apply, then accrue, in case of late payments.

Taxes were due in November and December. Rent was due on Dec. 1. Fees started accruing after that. By the time the lawsuits were filed just before Christmas (one for each building), Amrep charged that Palm Coast Data had failed to pay rent, property taxes and other fees totaling $391,000 for the two buildings. Late fees alone totaled $57,000.

Palm Coast Data contested, arguing that it had received “insufficient and defective” notice that it would be sued, and that some of the charges it was being assessed were either inaccurate or not due, which would preclude further action on eviction.

The company’s answer then revealed some of the disputes that had shadowed the sale months after it took place, with Amrep as landlord by then: Amrep and its subsidiaries, Palm Coast Data’s answer states, “were the owners of Palm Coast [Data]. As such, [they were] fully and completely aware of the finances of Palm Coast [Data], its ability to support (or not support) lease payments and other obligations, and the entire operation of Palm Coast [Data] and its business.” In other words, Amrep should have known about Palm Coast Data’s precarious finances. (Palm Coast Data lost a major account in December, when the publishing company formerly known as The Enthusiast Network shuttered 19 of its 22 magazines, almost all of them car and truck-related. The company still publishes Motor Trend, among other titles.)

Palm Coast Data goes on to charge that the sellers “made numerous material misrepresentations” to Palm Coast Data and its new owners, “and likewise failed to disclose numerous material misrepresentations,”  including allegations of “fraud.” The company’s answer claims the sellers had misrepresented how much cash there was in a particular Palm Coast Data trust account, leaving Palm Coast Data short $1.5 million. It claims the sellers didn’t disclose the “nature and status” of the company’s contract with the National Rifle Association “and the significant impact to Palm Coast [Data]’s bottom line,” along with other costly obligations the buyers did not learn of until after the acquisition.

The result, the company claims, was that Palm Coast Data was overvalued, and that the sellers “materially misrepresented to [Studio Media] the market value of the subject premises, and the ability of Palm Coast [Data] to have sufficient cash flow to satisfy the rental obligations under the subject lease.” The seller’s “misrepresentations and omissions,” the company goes on to claim, were all part of the sellers’ “scheme to induce Palm Coast [Data] to enter into the subject lease, which in turn would result in a grossly overvalued price for the subject premises (using the overvalued lease to establish a net operating income grossly over market, and which would result in an overvaluation of the premises for the purposes of sale to a third party), allowing [the sellers] to not only defraud [Palm Coast Data] but another unwitting buyer of the building as well.”

Disputes arose last fall after the two sides had negotiated the proposed sale of one of the buildings. The proposal collapsed. After the lawsuits were filed, the two sides negotiated again, and by February 18 had led to a complicated settlement agreement that entailed Palm Coast Data buying 11 Commerce outright, the more expensive of the two buildings. The settlement agreement outlined triggers for a default judgment–the triggers Amrep now says have been tripped, causing them to file the motion for eviction.

“Those stipulations were only to be filed in the event certain conditions were top occur,” Kean said in an interview. “The landlord contends that those conditions did occur, and we contend that they didn’t occur because of the current situation in the world, because of the current pandemic and what’s going on, that we’re entitled to certain extensions and certain events to occur, and that they’re jumping the gun and trying to use that to their advantage–the landlord that is.” 

In the months since the signing of the settlement agreement, Palm Coast Data says it paid Amrep a total of $625,000–the rent due for the two buildings, though the sum was “not specified” in the settlement agreement. Amrep is sticking to the settlement agreement’s triggers: further non-payment of rent.

Earlier this week, Amrep’s two subsidiaries paid off the county property taxes due for 2019.

“Litigation unfortunately for many companies is just a part of life, of doing business,” Kean said. In other words, there’s still a long way before an actual eviction notice makes it to the company’s door–and other circumstances may yet intercede.