"We deny all allegations on behalf of GSG and its principals," Manly Stewart attorney Saul Wolf tells GlobeSt.com. "We intend to seek dismissal of all causes of action in the counterclaim."
Harcourt alleges that GSG, its principals and one of their spouses devised and implemented an elaborate fraudulent scheme to try to induce Harcourt to fund construction of the development based on sham condominium sales, according to the counterclaim filed with the Eighth Judicial District Court.
Harcourt filed the counterclaim last month after District Court Judge Mark Denton granted some, but not all, of its motions related to GSG Development's amended complaint. GSG filed its amended complaint in early 2008, charging Harcourt with breach of contract, breach of fiduciary responsibility, consumer fraud and negligence.
In August, Judge Denton dismissed with prejudice GSG's negligence and consumer fraud causes of action, as well as its allegations of intentional interference and conspiracy. Several of the causes of action remain, including breach of contract, breach of fiduciary responsibility, breach of good faith and fair dealing, unjust enrichment and derivative claims.
Generally speaking Harcourt Nevada agreed to provide all funds for the development and construction of Sullivan Square in exchange for a 60% interest in the development partnership. GSG's lawsuit contends that Harcourt "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 [GSG], obtaining value for the project through [GSG's] efforts, all with the eventually intended result of bankrupting or seriously damaging [GSG] so that [Harcourt] could assume control of the project for their sole benefit."
Harcourt denies the allegations, saying construction financing for the project became unavailable at commercially reasonable terms in 2007 due to the lack of sales and the deteriorating market conditions. As a result, Harcourt says it recommended a moratorium on development to GSG until marketing conditions improved and financing became available, which according to the counterclaim GSG rejected.
Moreover, Harcourt's counterpunch claims that GSG conspired to lie about the pace of condominium sales and made multiple poor decisions that Harcourt claims cost the project tens of millions of dollars. Specifically, Harcourt claims that GSG entered into an exclusive listing agreement Viridian Group LLC, which Harcourt claims never existed and was a "false front" for GSG principal Ken Smith and his spouse, Dale Rowse. Harcourt claims that Rowse was presented to it as the owner, president, and manager of Viridian and that his relationship with Smith was never revealed.
In late 2006, Harcourt says GSG and Viridian reported nearly 100 valid sales, but a year later produced only 92 "hard contracts," more than one-third of them having deposits less than the 5% or 10% required by the sales agreements. In many cases, Harcourt alleges that the brokers' fees paid on the low-deposit sales exceeded the deposit received.
"GSG and Viridian/Rowse originated and perpetrated this scam to increase "sales" of units in order to meet the Irish Bank's pre-sale requirements for furnishing additional funds and to support Kenneth Smith and Dale Rowse's lavish lifestyle," states the counterclaim. "Viridian/Rowse has refused to return the commissions paid."
Rowse has reportedly engaged a law firm other than Manly Stewart to defend against the allegations. Both GSG and Rowse have until May 27 to respond to the counterclaim, a more detailed account of which may be found in the first story listed below.
To read previous stories on the case, click on any of the following headlines:
Sullivan Square Defendant Switches to Offense
Sullivan Square: One Motion Granted, One Denied
Sullivan Square Lawsuit Ramping Up Again
Judge OKs Amended Sullivan Square Complaint
GSG Seeks Amended Sullivan Square Complaint
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