This article originally appeared in slightly different formin the Connecticut Law Tribune.

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NEW HAVEN, CT—A federal judge in Connecticut has awarded $10.6million to Wells Fargo after the financial institution proved thata prominent developer shifted corporate assets to shell companiesin an attempt to dodge a nearly $23-million verdict lodged againsthim in Maryland in 2005. The developer, MichaelKonover, of Konover Development Corp.,based in Farmington, is appealing Judge Alvin Thompson's ruling tothe US Court of Appeals for the Second Circuit here.

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Lawyers for both sides declined to discuss the case on therecord. But according to court documents, Konover's variousenterprises include the construction, development and management ofcommercial real estate throughout the United States. One of theproperties developed by the Konover companies, more than 20 yearsago, was a 26-acre shopping center known as Diamond Point Plaza inBaltimore. The plaza stood atop a hill, not too visible to the mainthoroughfare and across the street from a sewer treatmentplant.

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The anchor tenant was a Sam's Club store, whichis owned by Wal-Mart Stores Inc. In July 2002, Wal-Mart closed theSam's Club in the plaza but kept paying the lease payments. It thenopened another Sam's Club just three miles away, which violated thelease agreement with Diamond Point Plaza. The vacant warehousestore was then used as a setting of the HBO television seriesThe Wire, which also was in violation of the leaseagreement.

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Konover had taken out a real estate loan on the shopping center.Wells Fargo served as the trustee and ORIX CapitalMarkets served as special servicer for the loan. According to WellsFargo and ORIX, Konover had taken out the loan in 1988 with a largepayment due in 2000. Konover covered that payment by taking out anew $15.4-million loan.

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But Wells Fargo and ORIX contend that by the time Konoverapplied for the second loan, the developer knew the Sam's Club wasplanning to leave the plaza and failed to disclose that to thelenders. Due to business failures of the shopping center, Konoverstopped making payments on the second loan.

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Wells Fargo and Orix sued Konover, alleging fraud. The case wentto trial in Baltimore County in 2005 and the court awarded roughly$23 million in damages. In a separate case, Wal-Mart Stores Inc.and Sam's Club were held liable for $1.3 million for breach ofcontract in violating the lease.

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Following entry of the judgment in Maryland, the plaintiffsattempted to locate Konover's assets. The only known asset was theshopping center, which at this point was worth a lot less than theoutstanding loan amount.

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In time, the plaintiffs' attorneys said they discovered thatKonover had made a series of money transfers to newly organizedKonover companies. The plaintiffs claimed that Konover was usingshell companies to avoid the creditors' claims from the 2005judgment in Maryland.

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So the plaintiffs again took Konover to court, this time in USDistrict Court in Connecticut. They attempted to pierce thecorporate veil by proving that the separate companies had nopurpose other than giving the main Konover enterprise and MichaelKonover a place to move assets and avoid creditors' claims.

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The case went to trial before in Hartford from October 2012until December 2012. The jury agreed with the plaintiffs, andstated that Michael Konover and his company is "personally andseverally liable" for the Maryland judgment. The jury also ruledthat punitive damages of legal fees and costs should also beawarded. It was then up to the judge to award those damages at alater time.

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In a recent 45-page written ruling, Thompson awarded$10,601,355. Even though a sale of the Baltimore plaza helped pay aportion of the initial judgment, the combination of the twoverdicts leaves Konover on the hook for more than $30 million, onceinterest from the 2005 case is factored in. In addition, Konover'sown attorney fees and costs sit at about $15 million.

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“Wells Fargo obtained this best possible result while expendingless for attorney's fees and expenses than did the defendant,”wrote Thompson. “In fact, the defendant's own expenditures forattorney fees and expenses shows that the plaintiff's counsel weremore efficient and more economical overall than the defendant'scounsel.”

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Wells Fargo and ORIX's team of lawyers were led by Jeff Joyce ofJoyce, McFarland & McFarland in Houston, and John Nolan of DayPitney in Hartford. Konover's legal defense team is led by JamesShearin, of Pullman & Comley in Bridgeport, and William Murphy,of Murphy & Shaffer in Baltimore. All the attorneys cited theSecond Circuit appeal as a reason for not discussing the casepublicly.

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According to Thompson's ruling, as of the date of the jury'sverdict in Connecticut in late 2012, the litigation between the twosides had lasted seven years and produced a million pages in courtdocuments, 223 motions, 44 depositions, 45 hearings, 24 trial days,20 trial witnesses and 711 trial exhibits.

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Christian Nolan can be reached at [email protected].

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