The Shasta RV Park on Lakeshore Road is the subject of power struggles between four Callahan brothers.
Photo credit: Google Earth
January 25, 2022 – 10:00 am
Lloyd Callahan began building a real estate and property development empire in Kelowna in 1964, but his sons have spent the last 20 years struggling to get there.
During those two decades, control of more than $300 million in property was contested.
The latest battle revolves around control of the Shasta mobile home park on Lakeshore Road, which the family describes as the “crown jewel” of their property. Located across the street from Rotary Beach, the 18-acre property is a valuable development site.
Ted Callahan, the owner of Argus Properties, is taking his three brothers, Bob, Bruce and Doug, to court over their efforts to evict him from Shasta, a company that owns a number of properties, including the RV park.
BC Supreme Court Justice Heather MacNaughton ruled in his favor in a decision released earlier this week.
The story, as detailed in MacNaughton’s judgment, begins in Fort St. John in the late 1950s when Lloyd and his wife Marjorie started a trucking business and later a family of their four sons, Ted being the second oldest.
Around 1964 they sold the trucking company and moved to Kelowna where Lloyd worked in real estate and began buying and developing properties.
In 1968 he bought the Shasta in partnership with the then owners and formed four separate trusts giving each of his sons equal shares.
In the 1980s, with his father facing financial ruin, Ted dropped out of law school and returned to Kelowna not just to save the company, but to build it, MacNaughton explained in her verdict.
Ted now owns Argus Properties, which has a number of commercial, residential, and hotel interests in the city, including Hotel Eldorado and Manteo Beach, which he bought in 2014 and 2015, respectively.
The other brothers later joined the family business.
Apparently, the brothers never got along.
“There is a long history of arguments and litigation between Ted, his brothers and Lloyd,” MacNaughton wrote. “Bob, Bruce, and Doug mostly agreed with Lloyd, and Ted was the breakaway. Bob, Bruce, Doug and Lloyd have made allegations of personal dealing and breach of trust against Ted, and he has made similar allegations against them.”
Beginning in 2004, they entered mediation and then arbitration to separate Ted’s ownership and interest in most of the Callahan family businesses in which Doug had no interest. Those properties were valued at more than $300 million, MacNaughton wrote.
Given Ted’s role in building the companies, he was given a 38% stake in the companies while his father shared the other 62% with Bob and Bruce.
“Since none of the family members wanted cash due to the undisputed family creed of ‘land is king’, the arbitrators divided the various lots according to the 38/62 split between the parties,” MacNaughton wrote in her ruling. “The arbitrators also considered each side’s preference for certain properties over others. Where subdivision was possible, properties that were highly desirable to both sides were subdivided. None of the properties have been sold to third parties.”
The family’s “land is king” philosophy also means they don’t have to pay expensive capital gains taxes if the land is divided up.
The Shasta properties were not part of this settlement as Doug is an equal shareholder in Shasta.
Described as the crown jewel from an early age, Shasta holds sentimental value for all four brothers as they have had ownership interests since childhood.
It is in a part of the city that is rapidly being renovated. Next door is the former Hiawatha campground and RV park being converted into high-rises and townhouses by Westcorp.
CONTINUE READING: The major redevelopment of Kelowna’s Hiawatha RV Park is slated to begin this summer
Not far away and across Lakeshore Road is Aqua, which Mission Group plans to develop with high-rise buildings.
CONTINUE READING: iN VIDEO: Three waterfront towers planned for Kelowna’s South Mission
While the Callahans did not indicate to the court that they had any intention of developing the Shasta site in the near future, MacNaughton noted that its development potential is worth much more than the estimated $14.3 million.
The RV park generates approximately $1 million in annual revenue with nearly $500,000 in expenses. In fiscal year 2020, it had net income of $470,721 and net worth of $1 million. The company also owns some of the on-site units, MacNaughton wrote.
Ted began as a director for Shasta in 1985 and for a short time between 2008 and 2009, and all four brothers were directors of the company until Bob, Bruce and Doug voted Ted out on June 30, 2009.
Despite Ted’s efforts to get back on the board, the others always voted against him.
The court ruling states that Bob, Bruce and Doug need only re-elect themselves as directors at the AGM. Lloyd died last spring.
The RV park is run by a manager so the directors have little to do. Despite this, from 2009 to 2018, Shasta paid directorial fees totaling $859,697 to Bob, $859,697 to Bruce, and $1,130,597 to Doug. Ted has objected, but that’s a subject for another court filing.
CONTINUE READING: With the decline of RV parks in Kelowna, affordable home ownership is slipping away from many
This court case was triggered by resolutions of the AGM on November 6, 2020, at which the brothers did more than re-elect themselves. They also passed motions to appoint a liquidator to essentially sell the property.
Ted had offered in 2017 to split up the Shasta property for Argus free of charge for Shasta to settle their differences. The brothers refused.
When Ted received the invitation to the 2020 AGM and the intention to liquidate, he wrote to the brothers asking for an explanation.
“If you have reasons why shareholders should vote a certain way, then you have an opportunity to voice your opinion at the AGM,” read the written response he received the day before the meeting.
Ted showed up at the meeting and asked his questions. The brothers did not answer.
“Due to ongoing litigation, it has been the practice for many years to communicate with Ted in writing whenever possible,” Bob wrote in his testimony in court. “Where this has not been possible, it has been the practice of directors, in our capacity as directors, to have minimal engagement with Ted at meetings, for example.”
Essentially, this means that the three brothers don’t speak to Ted.
While Bob told the court in his affidavit that liquidation was the best way to carve up the land, rather than trading in cash, Judge MacNaughton disagreed.
“Honestly, his affidavit makes no sense in the context of this case,” MacNaughton wrote. “The auction process will result in one or more of Shasta’s current shareholders losing the opportunity to hold and develop the crown jewel, and given the history of collaboration between Bob, Bruce and Doug, it is likely that they will do so together.” Outbid Ted in a closed auction process.”
This meant that Ted would be getting cash and would not be able to participate in the development of the land or give his share of the property to his own sons as he had planned.
Ted’s claim was that his brothers’ actions were “oppressive or unfairly prejudicial” to him.
Judge MacNaughton ruled that was indeed the case.
“I accept that Ted is not interested in the cash value of the crown jewel or receiving cash in lieu of its interest,” he wrote. “For Ted, ‘land is king,’ and he has a reasonable expectation that his share of the crown jewel will come in the form of land, not cash.”
MacNaughton restored the status quo by reversing the resolutions of the November 2020 AGM.
Not that this is likely to be the end of the story.
In a 2015 court ruling on a previous dispute between the brothers, Judge Ronald Skolrood described the one issue that was not in dispute between the parties, the “substantial rift in the family and a high level of hostility and distrust,” MacNaughton wrote.
— This story was originally published on Monday, January 24th, 2022 at 7:35 am.
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