Posted on Wednesday, December 1, 2010
A Wall Street real estate firm and Greenberg Traurig are on the defensive in a lawsuit sparked by a $41.5 million land deal gone wrong.
A 587-page lawsuit filed Monday by a Hollywood real estate company against the nation's eighth-largest law firm and its client, GFI Acquisitions, signals the tables have turned.
For two years, American Federated Title, Robert Cornfeld's family-run business, battled several GFI entities, defending its decision to call off the sale of four Florida apartment complexes.
GFI is part of GFI Capital Resources Group — a developer, property manager, mortgage bank and insurance services firm — that contended it had been defrauded. Cornfeld argued the deal was broken when GFI and Greenberg Traurig, the law firm brokering the deal for both parties, failed to show up at the scheduled closing in 2008.
A U.S. Bankruptcy Court judge earlier this year sided with American Federated, issuing a $7.5 million judgment in its favor.
But the firm's Fort Lauderdale attorney, Franklin Zemel, said the judgment is against GFI entities with no assets, which means American Federated can't collect. So he is taking those findings into the newly filed Miami-Dade Circuit Court case claiming malicious prosecution, abuse of process and negligence.
The Arnstein & Lehr partner contends GFI and its Florida entities covered up a plan to flip the purchase contracts — and Greenberg Traurig attorneys who knew GFI's plan went along.
"Greenberg has a lot to answer for here. Greenberg will have to explain how they could accuse the seller of defrauding the buyer. As it turns out, those allegations are blatantly false," Zemel said. "They were looking to cover up what may be their own negligence."
Two Greenberg Traurig attorneys cited in the lawsuit but not named as defendants did not respond for comment. Instead, the firm issued a statement, saying: "This is a frivolous lawsuit. Unfortunately, you get these during challenging economic times. We will defend ourselves vigorously."
Cornfeld and his company are seeking $10 million in damages. The lawsuit assigned to Judge Pedro Echarte states the law firm's tactics were "tantamount to a fraud upon the court" and could open the doors to punitive damages.
The business relationship between the companies now fighting in court began a decade ago when American Federated began leasing its properties to limited liability companies formed by GFI, all under numbered versions of the name A&M Florida Properties. They signed 50-year leases with American Federated for four apartment complexes in Miami-Dade, Broward and Pinellas counties from 2000 to 2005.
With the commercial real estate boom still alive, GFI owner Allen Gross approached Cornfeld in late 2006 and offered to buy all four properties. Zemel said Greenberg Traurig shareholder Moshe Lehrfield in Miami brokered the deal.
In July 2007, they agreed to a sale price of $41.5 million, and Gross paid a $2.6 million deposit. Later that year, the two sides butted heads when the idea of excluding some of the properties was raised. In the end, no one showed up for the closing scheduled Feb. 8, 2008, at Greenberg Traurig's Miami offices, and Cornfeld assumed the deal was off.
Zemel said the agreement stated Cornfeld was entitled to keep the deposit if Gross blew the deadline and Greenberg Traurig failed to prepare the documents.
Gross sued American Federated a month later in Miami-Dade Circuit Court, claiming the company committed fraud because it never disclosed mortgage payoff restrictions on the Florida properties. He was represented by Alaine Greenberg, a Greenberg Traurig shareholder in Fort Lauderdale. The suit was moved to federal court after one of GFI's companies filed for bankruptcy.
U.S. Bankruptcy Judge Arthur J. Gonzalez in New York oversaw the case as Zemel fought for e-mail to prove GFI's allegations were baseless.
Zemel contended GFI was secretly seeking to flip the properties, sell its purchasing rights for more than the $41.5 million purchase price and walk away with the difference.
To show that, he needed GFI's internal e-mail to prove the company knew every aspect of the deal and couldn't claim American Federated hid anything. GFI attorneys at New York's Goldberg Weprin Finkel Goldstein maintained there were none.
"I kept saying, 'Look, this is a $40 million transaction. There are 13 drafts. There was a seven-month closing period. You've got months of negotiation, and there's not a single internal e-mail among GFI staff and employees discussing this?' I wasn't buying it," Zemel said.
When a deposition of a GFI employee revealed the company was deleting e-mail, the judge threatened to dismiss the case, Zemel said. That's when GFI suddenly informed the court it had discovered 10,000 e-mails.
Zemel said one showed GFI was shopping the properties for $50 million, confirming his belief the firm was secretly trying to sell its purchasing rights. Others showed GFI had been informed about parts of the deal it claimed were kept from it.
"That was the game plan: Delay the closing while they continue to shop the properties," Zemel said.
Armed with Gonzalez's findings, Zemel sued Greenberg Traurig, Gross, GFI and the GFI LLCs. The counts include malicious prosecution and abuse of process against the law firm and its client, as well as negligence against GFI.
Leases for all four properties have been canceled, but American Federated claims it was forced to pour millions of dollars into repairs after GFI let the properties fall into disrepair after the real estate bubble burst. One of the complexes, Cutlerwood in southern Miami-Dade, was slapped with nearly 3,000 code violations in recent years.
Jose Pagliery Daily Business Review