Thursday, July 2, 2009

Legasus Accuses Lender of Fraud

After obtaining $30 million in loans from a New Jersey lender last year, Jackson County developer Legasus of North Carolina sued Kennedy Funding, Inc. (KFI) in federal court.

The lawsuits stem from loans that KFI made to the Legasus shell companies East Fork Investment Group, LLC and High Grove Development, LLC.

In a complaint filed with the United States District Court in New Jersey in March of this year, Legasus leveled numerous allegations against KFI and/or its principals:

- Violations of the Racketeer Influenced Corrupt Organization (RICO) Act
- Unjust Enrichment
- Breach of Contract
- Breach of the Covenant of Good Faith and Fair Dealing
- Common Law Fraud
- Violation of New Jersey’s Consumer Fraud Statute
- Illusory Contract
- Void Option Contract
- Unconscionable Contract
- Fraud in the Inducement

In their answers to the complaints, KFI denied the allegations made by Legasus.

The judge in the case scheduled a settlement conference for this past Tuesday, June 30 at 2:00 between KFI, Legasus and several other plaintiffs who had filed similar lawsuits against the lender.

There’s no word yet on whether a settlement was reached during this week’s conference.

After the closing on the Legasus loans in April 2008, KFI issued a press release which read in part:

Legasus developers Robert A. Corliss and Theodore C. Morlok needed a major loan to build the Tuckasegee neighborhood of River Rock, a community in Cashiers, NC, along the Highland-Cashiers Plateau. As a longtime permanent or vacation home destination for affluent buyers, this area holds promise for success despite the oft-reported housing market downturn. With wooded hiking trails, a planned entertainment and fitness complex, and accoutrements consistent with high-country living, Tuckasegee will present buyers with scenic settings and desirable lifestyle elements. The $20.5 million loan will pay off existing debt and fund improvements including new roads, footbridges, an entrance feature, utilities, community lodge design, and construction startup for Phase I. The builders offered 677 acres of appropriately zoned land for collateral.

The same team is putting together High Grove Estates on more than 500 acres along mountain ridges in Whittier, 40 miles northwest of River Rock. Thirteen of the 91 lots already have buyers, leaving the remaining 78 lots as collateral. Additional acreage will eventually hold 85 single-family lots. The builders also own an existing 12,000 sq. ft. lodge and cottage and an industrial building along the nearby highway. Corliss and Morlok needed $9.54 million without a long waiting period to refinance present debt and to renovate a community center, complete an overlook pavilion with spectacular views, and finish the entire property's roads and bridges.

The Legasus loans demonstrate Kennedy's acumen and willingness for funding based on raw land collateral, virtually shunned by other lenders, while recognizing property potential for solid development and financial appreciation.

At the time, KFI was already embroiled in legal battles with some borrowers and potential borrowers, as reported by the Wall Street Journal on July 1, 2008:

Kennedy Funding is named as a defendant in nine civil lawsuits filed in U.S. District Court in Newark, New Jersey. The lawsuits allege the company engaged in an "advance fee" scheme by charging clients upfront "commitment" fees of as much as 3% of the loan amount, but then did not deliver commercial real-estate funding.

The plaintiffs' attorney, Gregg Trautmann, says his clients paid a total of $3.6 million in fees without receiving loans.

In December, Kennedy was ordered by a federal-court judge in New Jersey in a separate case to return fees of $260,000 to Omni Credit Alliance Inc., an Atlanta lender that said it applied to Kennedy for $25 million in funding for a boxing tournament but never received the loan. In his opinion, Judge Peter Sheridan wrote that Kennedy "did not take any reasonable steps to close the loan." Kennedy is appealing the Omni decision.

On its Web site, Kennedy says that it is "able to make multimillion dollar loans in a matter of days." Matt Cole, a senior vice president at Kennedy, says the firm has been in business for 20 years and has completed many loans. He said business is up lately "due to the lack of liquidity in the credit markets."

More to come…

To read the complaint filed by Legasus, go to:


Anonymous said...

Quite a long list of complaints and violations but I notice that they did not include Tortious Interference of Contract. Apparently only very special and deserving people can be accused of that form of egregious behavior.
It may surprise some to find out that right here in Jackson County, home of the almost Stray Cat Grill and 2001 Monolith Motel, that there are people who have actually been accused of TIC.
These people, who regularly and casually where flannel, were fingered by one of Jackson County's finest legal minds, a scion of a fine legal family full of tradition and committment as officers of the court. In fact, they are so revered that DOT actually built a bridge just for them.
Thank goodness we have legal bravehearts here in our own midst to toss about such pretentious terms.

Anonymous said...

Don't suppose you know anything
current about the Penland case?

GULAHIYI said...

Re: Penland...I'm told that the wheels of justice ARE turning, though ever so slowly. And Randy Carpenter, man of many hats - attorney, surveyor, engineer - he might be switching over to a fourth profession, instead. I'm not sure how viable the other three are anymore.