Partner Jonathon Friedmann Successfully Defends Developer

Rudolph Friedmann partner Jonathon Friedmann recently represented a developer and his wife in a five-day jury trial in Barnstable Superior Court. The complex litigation involved nine counts against the firm’s clients, including fraud, negligent misrepresentation, unfair and deceptive practices, civil conspiracy, breach of fiduciary duty, breach of contract and Chapter 93A violations, which would have entitled the plaintiff investor to triple damages. After hearing all of the evidence, the jury dismissed all but one claim – a judgment against a defunct real estate trust with no assets.

Background

The firm’s client is a general contractor and developer. In 2006, he entered into a business transaction with two individuals to buy a piece of property consisting of a run-down house on a marsh lot on Cape Cod for $405,000. The developer agreed to act as general contractor, tear down the building and construct a 4,000 square-foot spec home with an asking price of $1,295,000. The developer invested $100,000 in the venture and the other two individuals invested $200,000 and $100,000, respectively.

The developer and the investors created the Sippewissett Realty Trust to facilitate the sale of the property and all three were named trustees of the trust. As trustees they opened a bank account at Cape Cod Five Cents Savings Bank in the name of the trust.

After trying to sell the property for more than two years, plans for building the single-family residence were scaled back to a 2,126 square-foot home. In 2009, the two of the trustees of the Sippewissett Realty Trust secured a $675,000 construction loan through USAlliance Federal Credit Union to build a home on the property. The cost for construction totaled $477,000.

During the course of the construction, the developer closed the trust’s account at Cape Cod Five Cents Savings Bank and opened a new account at Citizens Bank. The new account was opened in the name of the Sippewissett Realty Trust and both the developer and his wife were listed as the signors on the account. The developer deposited and disbursed monies related to the construction of the 2,126 square-foot home into the new trust account.

The Lawsuit

With the housing bubble burst and the economic recession hampering the real estate market, it took another two years for a buyer to purchase the property. In 2011, it sold for $850,000 – significantly less than the $1,295,000 anticipated at the outset of the project. After paying $60,000 in interest on the loan and a $43,200 brokerage commission, each investor, including the firm’s client, lost 75 percent of their investment.

The two investors went to the police claiming the developer stole their money. When the police determined it was a civil matter and not a criminal matter one of the investors filed a lawsuit against the developer individually and as trustee of the Sippewissett Realty Trust. The lawsuit included claims against the developer’s wife, his business entities and USAlliance Federal Credit Union.

The Trial

During the trial the developer admitted he co-mingled funds in the Sippewissett Realty Trust with other construction projects, but said he always paid the money back to the trust. Luckily, the client kept meticulous records and countless documents were produced at trial detailing deposits and disbursements.

The Verdict

In less than three hours of deliberation, the jury found the developer’s testimony believable and dismissed all the individual counts against him and his wife, as well as all the counts against his construction and development businesses. The counts against USAlliance Federal Credit Union were also dismissed. The only count that was not dismissed was the count against the defunct trust. The plaintiff was claiming damages of $185,000, attorney fees and triple damages in all, estimated to be in excess of $850,000.