Home :: In the News :: Verdicts and Settlements
Verdicts and Settlements
Wednesday, September 20, 2011
By Greg Land, Staff Reporter
A local developer seeking damages of at least $6.5 million from the real estate investment and management firm that oversaw several Buckhead properties in which he has an interest was awarded $625,000 by a Fulton County jury earlier this month.
Despite receiving less than 10 percent of what he requested, the developer, David Eichenblatt, is happy with the award because it was accompanied by other pretrial actions by the defendants that resulted in a "seven figure benefit" to the value of his holdings at issue in the dispute, said the plaintiff's lawyer, Richard L. Robbins of RobbinsFreed.
"It was not my longest trial, but it's probably the most difficult one I've ever handled," said Robbins. "This was a very hard-fought trial against a very large firm representing a very wealthy family."
For her part, lead defense attorney Rebecca M. Lamberth said her clients, Craig S. Kaufman and three affiliated companies, "are very pleased that the jury returned a defense verdict on all breach of fiduciary duty, negligence and related tort claims against all parties sued. Likewise, we are pleased that in response to Mr. Eichenblatt's claim that he was somehow damaged in an amount between $6.5 and $10 million … the jury clearly disagreed."
Lamberth, a Duane Morris partner, said via email that no decision has been made about whether to appeal the judgment, and she was gratified that the amount was only "a small fraction" of the damages sought.
Kaufman, said Robbins, is the son of Henry Kaufman, an economist and financial consultant who was once managing director at Salomon Brothers and on the board of now-defunct Lehman Brothers. Beginning in the mid-1990s, Robbins said, Eichenblatt joined Craig Kaufman on several projects.
"The Kaufman family generally put up the money, and Eichenblatt put in the sweat equity," said Robbins. "He has a background in finance and real estate, and they bought about 13 properties together. The testimony was that the Kaufmans made about $20 million on these deals."
Eichenblatt is a co-investor in several companies with Kaufman, according to the complaint in the case. In 2000, they broke up the partnership but, under the terms of a separation agreement, Eichenblatt retained an interest in the companies and their holdings.
"The current agreement between Eichenblatt and Kaufman provides that Eichenblatt is to receive distributions and allocations for his interest in the companies and their assets, while Kaufman would prudently manage the companies' assets exclusively," said the complaint in the case.
"Unfortunately, Kaufman has not held up his end of the deal."
Between 2000 and 2007, said Robbins, 11 of 13 properties the companies owned were liquidated, apparently without dispute.
But they retained the first project they invested in together, Piedmont Court, which consists of three office buildings and a restaurant—currently occupied by Mosaic—between Piedmont Road and Maple Drive in Buckhead.
The complaint said Kaufman offered to purchase Eichenblatt's interest in the property around 2007, estimating its total value at between $10 million and $11 million. Eichenblatt had his own appraisal done, and it showed the property's value to be about $24 million.
The complaint alleged that Kaufman and his management company, Kaufman Development Partners (called KDP in pleadings), "wanted to buy-out Eichenblatt's remaining interest 'on the cheap.' When Eichenblatt was not willing to sell, they conspired to find any way to effectively strip Eichenblatt of the economic value of his interest."
According to the complaint, Kaufman's "scheme" involved deliberately allowing a $3.3 million loan, secured by half of the Piedmont Court property, to go into default without Eichenblatt's knowledge.
After the default, Kaufman "failed to make a reasonable offer to modify the loan," and the lender sold the note at auction.
Kaufman, it said, "secretly purchased the note at the auction through a 'straw party.' Using Wall Street funding techniques with his family's partnership, Kaufman had another family-related entity buy the note, using two high-interest loans from KDP."
Those two loans, each for $950,000, carried interest rates of 10 percent and 20 percent, "significantly higher" than the 5.6 percent interest on the loan rate the property had before. Since the interest was paid to Kaufman's company, the defendants "have completed their intention to capture all the value of the Piedmont Court property … thus wiping out Eichenblatt's economic interest."
"The family just bought the bank loan and replaced it with high-interest family loans," said Robbins. "They move millions around like pocket change; they replaced the 5 percent bank loan with high-interest loans, so as years passed the chances of Mr. Eichenblatt seeing any returns were zero."
In October 2010, on behalf of Eichenblatt, Robbins and fellow RobbinsFreed member Jason S. Alloy filed suit in Fulton County Superior Court against Kaufman, KDP, Kaufman Realty Group and Piedmont Maple LLC, the company that owns the Piedmont Court properties.
The nine-count complaint included claims of breach of the operating agreement, breach of separation agreement, breach of fiduciary duties, gross negligence and unjust enrichment. The suit also sought an accounting, the appointment of a receiver, attorney fees and punitive damages.
Robbins said a mediation effort failed, declining to reveal any offers made to settle the dispute.
Just days before the trial was to begin, said Robins, the defendants replaced the high-interest loans on the property with a 5 percent loan, thus satisfying a major element of his case.
"We essentially got a seven-figure return before trial even started," said Robbins, "so a key claim was resolved the week before trial."
On Aug. 29, trial began before Superior Court Judge Kimberly Esmond Adams.
"I told the jury, 'you're going to hear mind-bogglingly complex real estate and financing details' … but the basic point was that the defendants had a contract, and they didn't honor it," Robbins said.
At trial, he said, the plaintiff's team only called two witnesses: Eichenblatt and Kaufman.
The defense team of Lamberth, fellow Duane Morris partner William A. Capp and associate Ryan E. Borneman called the same two witnesses, he said, as well as the Kaufman companies' chief financial officer, a real estate consultant and the Kaufmans' attorney, Mark A. Block at Seyfarth Shaw.
"We had appraisers and brokers lined up to call as witnesses, but we didn't call them," Robbins said. "We decided the jury got it; they didn't seem interested in hearing from anybody else."
On Thursday, the jury took five or six hours to find in the defendants' favor on all claims except one: that Kaufman breached the separation agreement between himself and Eichenblatt. Even so, the panel didn't award any damages against Kaufman personally, instead finding that KDP was liable for $625,000 in compensatory damages.
Robbins said he couldn't explain the rationale for the jury's allocation.
"I assume they had decided on a damage number, and just put it on the corporate entity. It didn't matter to us," he said.
Eichenblatt, he said, still holds a 40 percent interest in the property, "so the critical issue for us was getting a reasonable loan, which we did."
Lamberth hailed the jury's decision not to award damages against Kaufman personally. She said post-trial conversations with jury members revealed that they felt that only one of the corporate defendants held any liability for Eicheblatt's claims.
"The verdict awarded against KDP was based on the jury's opinion that a refinancing of the property at issue in 2005 triggered a technical breach of the governing agreement," she said.
Robbins said he didn't speak to the jurors afterward, but he said it was a mixed panel including hourly workers, a couple of schoolteachers and an accountant.
"I don't think I've ever seen a jury this congenial," he said. "One day they all came in wearing matching T-shirts one of them brought in from his landscaping company. … You could hear them in the jury room just laughing and having a great old time; they were having fun together."
The case was Eichenblatt v. Kaufman, No. 2009CV175140.