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Former Patriot National CEO accuses Fifth Third of impeding 'superyacht' sale

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Former Patriot National CEO accuses Fifth Third of impeding 'superyacht' sale

As Patriot National Inc. prepares to file for Chapter 11 bankruptcy, company founder and former Chairman and CEO Steven Mariano continues to battle claims brought by Fifth Third Bank regarding an alleged default on a mortgage for a 57-meter "superyacht."

Mariano, Guarantee Insurance Group Inc. and various other defendants denied in a federal court filing dated Dec. 4 that they are in default under the terms of the $32.3 million mortgage on the "Lady Sara" and a $12 million revolving line of credit, and they amplified a series of allegations they previously made regarding the Fifth Third Bancorp subsidiary's conduct in seeking to foreclose on the vessel.

The filing newly alleges that Fifth Third has damaged the defendants through its correspondence with Fraser Yachts Florida Inc., an entity listing the Lady Sara for sale and serving as its charter management company. The correspondence allegedly demanded that the company turn over all Lady Sara-related charter revenue to the bank.

The defendants further accused Fifth Third of sending demand letters to various other yacht brokers, an action that they claim serves notice that the yacht "may be subject to a distress sale and impacts [the owner]'s ability to charter and sell the Vessel, and significantly depresses the Vessel's sale price."

The Lady Sara, which boasts six guest staterooms, fast cruising speeds and a luxuriously appointed interior, is listed for sale for $36 million. The defendants said they intend to use proceeds from the yacht's sale to "satisfy" the mortgage.

Originally named the Lady Linda, the yacht and former owner Douglas Von Allmen are the subjects of a book entitled, "Grand Ambition: An Extraordinary Yacht, The People Who Built It, And The Millionaire Who Can't Really Afford It." Fifth Third named Von Allmen a co-defendant in its complaint. Von Allmen and an affiliated company advanced $5 million in seller financing upon divesting the Lady Linda in March 2015.

The Lady Sara is available for charter in the eastern Mediterranean in the summer and the Caribbean in the winter for rates starting at $250,000 per week, according to Fraser's website.

While Patriot National is not a party to the complaint, shares of the company's common stock apparently serve as part of the collateral for the outstanding loans.

The Dec. 4 filing eliminates any reference to the discussion contained in the defendants' previous answer to the Fifth Third complaint regarding the potential effects of liquidating Patriot National's shares as a bank representative had allegedly threatened. The defendants alleged in October that doing so would cause "irreparable harm" to the company and its "hundreds of employees."

Since then, the Florida Office of Insurance Regulation placed Guarantee Insurance Group unit, Patriot National's primary source of revenue, Guarantee Insurance Co. into liquidation. That led Patriot National to terminate about a third of its workforce and set the stage for an agreement with certain of its creditors that will result in its reorganization in bankruptcy court. The Chapter 11 case had not been initiated as of this article's time of publication.

Patriot National's shares closed at $1.85 apiece on July 7, the day on which Fifth Third filed the suit in the U.S. District Court for the Southern District of Florida. They were selling for more than $11 at the time of the Lady Sara's purchase in March 2015. With the existing Patriot National equity interests facing extinguishment in the proposed prepackaged bankruptcy, they closed at 2 cents on Dec. 6.

Fifth Third has until Dec. 25 to submit a response to the defendants' Dec. 4 filings.

Mariano and/or related entities are also named as defendants in other pending federal litigation brought by banking institutions, including a December 2016 lawsuit filed by a Bank of Montreal unit that demands repayment of a $2 million note and February complaint by a JPMorgan Chase & Co. subsidiary alleging that he failed to pay a $1.5 million fee under a placement agreement.