Two of the most prominent developers in the Philadelphia area, after working on projects together since 2010, are now locked in a legal battle involving allegations that one siphoned money from two projects the other had undertaken and excluded him from another project. The plaintiff in the case seeks $1.4 million in damages and the right to inspect documents related to each of the three projects. The defendant in the case has called the allegations unfounded.
Both developers have been an integral part of maintaining the liveliness of the commercial real estate market during the economic slowdown, particular in Center City and surrounding neighborhoods. The two developers in the present litigation have worked together on previous projects.
According to the complaint, the plaintiff was unable to secure a construction loan without more investors and reached out to the defendant for help. At the time, the plaintiff was facing default on a promissory note for another apartment project in South Philadelphia. The two decided to work together in early 2010 after the plaintiff became convinced that the defendant would be able to help him salvage his projects.
To make it work, the defendant transferred an equity interest in two projects to the defendant, as well as the authority to manage and control those properties, and the defendant promised to contribute $1 million to one of those projects.
Later on, according to the complaint, the plaintiff realized the defendant wasn’t able to help because of overextension on other projects. It also became clear that the defendant would not be contributed the money he had promised and that he was using millions of dollars in borrowed cash and rents for the plaintiff’s projects to fund his own projects. The plaintiff also alleges the defendant excluded him from one of the defendant’s projects after the former had worked to help win community support for the development.
The plaintiff isn’t publicly discussing the lawsuit, but there is little doubt that there will be extensive discovery in order for the case to go forward. Litigation between developers often involves contract issues, as this case surely will.
Developers do well to consult with their attorney during all phases of their projects. Doing so will allow them to avoid many potential problems and address those that arise along the way.
Source: Philadelphia Inquirer, “Philadelphia real estate magnates have a falling-out,” Jennifer Lin, July 26, 2012
