Sullivan Square Developer Sues Ireland Partner

LAS VEGAS-Glen, Smith & Glen Development, the locally-based developer of the stalled 16-acre Sullivan Square mixed-use development here, is suing its equity partner in the deal, Harcourt Developments, a private company from Dublin, Ireland, which had agreed to finance up to $800 million for the 1,300-unit residential-over-retail project at Durango Drive and Interstate 215.

The lawsuit, filed on behalf of Glen, Smith & Glen Development Company LLC in Clark County District Court, alleges breach of contract and breach of fiduciary responsibility by Harcourt Nevada for failure and refusal to timely fulfill its funding obligations pursuant to the agreement. Harcourt was served with the lawsuit several days ago, according to court records, but has not yet responded to the allegations and did not respond to a request for comment.

“This case is not just simply about a contractual suit [and] our clients are really upset,” Plaintiff’s attorney John Manley tells GlobeSt.com. “The [Plaintiffs] are not small-time, penny-ante guys and this is not their first project. They have put their heart and soul into this and they staked their reputations on it; they are mad and very committed to having a jury hear this case and having Harcourt held accountable for what they’ve done.”

Harcourt Nevada and its principal, Patrick Doherty, agreed to provide all funds for the development and construction of the project for a 60% interest in the partnership formed to develop Sullivan Square, according to the agreement filed with the lawsuit. Glen, Smith Glen, which owned the land and obtained the entitlements, was charged with overseeing the development and construction of the project.

The lawsuit contends that Harcourt and Doherty never provided the necessary funds despite repeated attempts to retrieve them by the Plaintiffs. “What’s most offensive about their behavior is that Doherty himself came to Vegas and was told of the situation and told [the Defendants] he would personally take care of it and then nothing occurs,” Manly says. “At the local level there are small business people, vendors, that have been really hurt and that’s not OK.”

The lawsuit alleges that Harcourt and Doherty “never had any intention of performing” under the agreement and, as far back as June 2007, “conspired to, intended to, and, in fact, did exploit [Glen, Smith & Glen], obtaining value for the project through the Plaintiffs efforts, all with the eventually intended result of bankrupting or seriously damaging the Plaintiffs so that the Defendants could assume control of the project for their sole benefit.”

Manly tells GlobeSt.com that the Plaintiffs “are absolutely positive” the Defendants are going to try to move ahead with the project without them because, he says, they have been trying to pay debts independently and trying to find independent sales space.

Manly has experience with Irish defendants and Irish Courts and courts in the EU in general and says Harcourt and other foreign developers sometimes aren’t aware that courts in the US, unlike European countries, allow punitive damages to be assessed.

“In Europe, the worst that happens is you pay what you owe; in the US, the worst that happens is you pay what you owe plus punitive damages for your conduct,” Manly says. “Some of us here are scratching our heads, wondering what these guys are thinking. My client owned the land. Harcourt asked to be a part. You can’t just take someone’s property and not pay them for it; it’s offensive and arrogant to think you get to act like this and do this to people without ramification.”

The partnership was created in August 2006. The lawsuit contends that Glen, Smith & Glen performed under the agreement, successfully marketing the project, “resulting in substantial sales of condominiums and leasing of retail property within the development.” Also pursuant to the agreement, the lawsuit contends that Glen, Smith & Glen “consistently presented budgets to Defendant Harcourt, spent within those budgets, and assured that all marketing costs were approved by Harcourt.”

Harcourt defaulted on its funding obligations in October 2007, according to the lawsuit, by failing to timely provide sufficient funding for development and construction of the project, and failing to fund the overhead for Glen, Smith & Glen to the project. In response to repeated demands, the Defendants “repeatedly promised that funding was imminent,” and as recently as February 2008 Doherty “personally met with Plaintiffs” and assured them that Harcourt “would satisfy its funding obligations in twenty-four hours.”

Believing Doherty, Glen, Smith & Glen negotiated with vendors and consultants to obtain more time to pay, according to the lawsuit. The money never came however, resulting in, among other things, “lawsuits and mechanic’s liens from contractors, vendors and consultants to the project. Further, this failure resulted in significant damage to Glen, Smith & Glen’s reputation in the Las Vegas business community and has placed the partnership in default under its various financial commitments.”

Manly is not expecting the litigation to move quickly. “When you have a case of this magnitude–we’re talking about between $500 million and $1 billion that is at issue here–there’s no way to run that through in a year,” he says.