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Development: Funds missing from Arcadia East project
By Charles Swenson
The largest planned development on Waccamaw Neck was proposed as an estate-planning tool for the area’s largest private landowner. With over 2,400 dwellings, a 500-room resort hotel, golf courses and an office park on 3,500 acres between Highway 17 and the Atlantic Ocean, Arcadia East was supposed to help Lucille Pate’s family pay estate taxes on Arcadia Plantation.
“In fact, liquidating Arcadia East by development or otherwise was not necessary to a sound estate plan for her,” according to a complaint filed by Pate in Circuit Court.
In a suit scheduled for trial later this month, Pate is suing the once-trusted advisor who proposed the plan, Kenneth L. Mitchum, seeking to recover money he drew from a $500,000 line of credit established when he worked for her as well as money she says is missing from funds that were supposed to pay for planning and development.
Nearly $7 million was spent by the company Pate created to develop the property, but $371,884 can’t be accounted for, according to court documents. Pate alleges that Mitchum “retained them, without authorization, for his own use.”
In February, Mitchum executed a “confession of judgement” for $714,738, representing the principal and interest drawn from the line of credit that was part of his employment contract with Pate. None of the money has been repaid, and according to the recent complaint, Mitchum transferred his home, his interest in the Litchfield Co. and cash to his wife Katherine “in an effort to shield those assets.”
Pate’s suit alleges “breach of contract,” “legal malpractice” and “fraudulent conveyance.” She seeks a judgement against both Mitchums, an accounting of the missing funds and punitive damages.
Georgetown County approved the Arcadia East development, which has since been renamed Bannockburn Plantation, in October 2002. The original plan called for 1.6 million square feet of office, commercial and civic space, but that was scaled back because of the traffic impact on Highway 17. The residential and reduced commercial development were still expected to create almost 40,000 trips per day on the highway at the end of the project’s 30-year build-out.
No development has been done, but Clemson University has used the property for research under an agreement with Pate that was intended to create guidelines for sustainable development.
According to an affidavit filed with her suit, Pate said Mitchum, who had been her attorney for several years by 2002, advised her to develop the property. “In conjunction with that advice he suggested an expanded role for his services in order to help bring cash into my estate and to ‘greatly expand’ my personal financial holdings and that of my children,” Pate said.
On the last day of 2002, after the Arcadia East plan had local approval, Pate and Mitchum signed an employment contract. It paid him $185,000 a year, plus a secretary and expenses, and required Pate to pay the lease on his law office. Mitchum would also get commissions on the sale of Pate’s property or development rights to that property.
The $500,000 line of credit was for “whatever purpose he shall deem appropriate in his sole discretion,” according to the contract. It would be payable along with interest when his employment ended, but Pate said in her complaint there were “liberal provisions for forgiveness.”
Along with personal duties to Pate and her family, the contract called for him to have control of “all facets of Arcadia East.”
Court records show that Mitchum drew $6.9 million from the line of credit established for the company Pate created to develop Arcadia East, Mandalay Limited Partnership. He deposited $4.3 million into his law firm’s trust account,
In June 2008, Pate learned that Mitchum’s law license had been suspended by the state Supreme Court for nine months due to misconduct involving another client. She fired him a month later, “even before she had learned the extent of his misfeasance and malfeasance toward her,” according to her complaint.
Mitchum was later suspended indefinitely, also for misconduct involving other clients.
In her affidavit, Pate says it was during Mitchum’s initial suspension that she asked for a detailed accounting of the Mandalay credit line. “I learned of the extent of Mitchum’s malfeasance and derelictions toward me, including what I now believe was his deliberate failure to make numerous tax filings on behalf of Mandalay, even though he had always stated he had made all required filings,” Pate said.
Mandalay had to pay the IRS back taxes and interest along with penalties, according to the complaint.
Pate filed suit against Mitchum for legal misconduct in October 2009. In his initial answer, Mitchum, who represented himself, denied all Pate’s claims, and said the termination wasn’t effective.