He’ll Be Premier There, in Arrears Here : Litigation: Costa Mesa executive Milan Panic, scheduled to be installed in Yugoslavia on Tuesday, is being sued in San Diego for defaulting on an $8.4-million loan.
SAN DIEGO — Yugoslavia’s prime minister-designate, Southern California businessman Milan Panic, is a deadbeat as far as the U.S. and San Diego County governments are concerned.
The Resolution Trust Corp. is suing Panic in U.S. District Court here for defaulting on an $8.4-million loan he assumed when he bought the 233-room Budget Motel in Mission Valley in December, 1985. The loan was made by Progressive Savings Bank of Alhambra, which was seized by the RTC in May, 1991.
Panic also owns another Budget Motel in Encinitas on which he has not paid his real estate taxes since 1990, according to county tax records.
Panic is in Yugoslavia and unavailable for comment this week. His attorney, Bernard I. Segal of Costa Mesa, acknowledged that the two motels had financial problems. Regarding the RTC suit, Segal said that his client was “fraudulently induced†to assume an over-valued loan.
“There are technical and other reasons why the amount that is owing should be substantially less,†Segal said. “Whereas everyone else down there has allowed their hotels to go back to the lenders, Panic has tried to work out arrangements to keep these hotels.â€
The RTC, the federal agency charged with cleaning up failed thrifts, does not accept the defense. George C. Lazar, an RTC attorney in San Diego, said Thursday that Panic’s reason for defaulting on the Mission Valley loan are “legally insufficient.â€
Panic, a Pasadena resident who emigrated from Yugoslavia in 1956, is the founder of the Costa Mesa-based drug firm ICN Pharmaceuticals Inc. He was Orange County’s highest-paid executive in 1991, receiving salary and benefits of $6 million.
Panic, who is to be installed as prime minister Tuesday of war-torn Yugoslavia, purchased two Budget Motels for more than $15 million in 1985. Today, both are operating at a loss.
According to San Diego County tax records, Panic has not paid property taxes for the past two years on the Budget Motel in Encinitas. He owes San Diego County more than $37,300 in back taxes and penalties, and the county filed a tax lien on the motel last year.
Panic stopped paying back the loan on the Mission Valley motel in November, 1990, and now owes more than $9 million in principal, interest and late fees, according to court records. The RTC has initiated foreclosure proceedings to recover the property.
Panic purchased both hotels from Richard J. Carroll in December, 1985. Carroll leased the Mission Valley hotel back from Panic. Five months later, Carroll filed for protection from creditors under Chapter 11 of the federal bankruptcy code.
Carroll was later convicted of bankruptcy fraud and is now serving a five-year term at the U.S. penitentiary in Lompoc, prison officials said this week.
In court documents filed in response to the RTC lawsuit, Panic blamed Progressive Savings for his real estate woes, alleging that Progressive officials knew that Carroll’s financial statements were grossly inflated. Panic claimed in filings that the RTC is entitled only to be paid what the property is worth today. The motel’s estimated current value is between $3.3 million and $5.1 million.
Asked why Panic waited five years to stop making payments and claim fraud, Segal said: “Because as long as the hotel generated cash flow, it didn’t precipitate as great a problem and battle as turned out to be the case afterward.â€
After seven months of legal bickering, Segal said the two sides are now considering settling the case through arbitration. Panic also has been attempting to restructure the loan on the Encinitas motel with lender Pacific First Bank of Seattle, Segal said.
This is not the Yugoslav emigre’s first entanglement with the government. Last year, ICN agreed to pay $600,000 in costs and penalties to the government as part of a civil settlement over alleged misrepresentations of its antiviral drug Virazole. The company had billed the drug as an AIDS treatment.
The Securities and Exchange Commission filed suit against Panic and the company after the Food and Drug Administration’s tests failed to support the company’s claims that the drug was an effective AIDS treatment. Without admitting guilt, ICN signed a consent decree and promised not to violate any securities laws in the future.
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