Get FREE SHIPPING on books today!
Canyon Paid At Least Six Law Firms to Capture the George in Ann Arbor and Litigation is Continuing! Canyon's Legal Fees May Exceed $10 Million Already
Just Twelve Checks to the law firms of Dickinson Wright and Sidley Austin Are Shown Above. There are Dozens or Perhaps More Than 100 Additional Checks for Legal Fees Spanning Seven Calendar Years and Counting - All to Capture One Developer's Property When No Loan Payments Were Missed!
Emails Reveal Lies, Plotting and Motive To Takeover Property
1. Pre-Closing, Canyon Told the Borrower That They Would Find Canyon to Be Very Reasonable in Practice But Was Secretly Saying That If Canyon Unilaterally Declares a Default, "Canyon will be in a position to quickly take title and control the Property at a significant discount to value."
Packard Square (the original property name) LLC had bought an older environmentally contaminated shopping center in Ann Arbor in 2001 with an eye toward re-development. It spent the next 14 years working on concepts, preparing hundreds of pages of drawings, getting Brownfield and unanimous site plan approvals, putting a 20+ firm team together, doing environmental clean-up and much more. The family which owned the property had spent decades completing dozens of other projects to gain the expertise to develop the Packard Square project. And, nearly all of their money earned on other successful projects over decades, approximately $14 million, was invested in Packard Square by the time the property was ready to obtain construction financing to build the 249 luxury apartments with 24,000 sf of retail space.
The developer's grave mistake was taking an up to $53 million loan from Canyon. Prior to the loan closing, Canyon assured the borrower that Canyon was great to work with as construction issues undoubtedly arise, "You'll find in practice that we're very reasonable." So the borrower felt comfortable to give Canyon a mortgage on its property.
But Canyon secretly put in their pre-closing Investment Summary that If Canyon declares a default, "Canyon will be in a position to quickly take title and control the Property at a significant discount to value."
2. Immediately After Closing, Canyon Repeatedly Attempted to Put the Borrower Into Default, Withheld Loan Funds, Accelerated the Loan and Demanded Repayment of $10 Million More Than Was Advanced When the Borrower Refused to Pay $150,000 in Default Interest Charges
Immediately after the loan closing, Canyon's actions were the furthest thing from reasonable. Canyon repeatedly attempted to get the borrower to admit a default when there was none, withheld loan funds and forced the borrower to fund construction costs while still charging interest on the unreleased loan funds, withheld and delayed their required approvals which delayed the project, accelerated the whole loan, threatened to foreclose and demanded repayment of $10 million more than had been advanced when the borrower refused to pay to Canyon $150,000 in default interest charges. See email (at right) that the borrower wrote when pressured to sign a reinstatement agreement and was forced to pay $150,000 even though his attorney was out of town and unavailable to review the loan amendment.
2. Immediately After Closing, Canyon Repeatedly Attempted to Put the Borrower Into Default, Withheld Loan Funds, Accelerated the Loan and Demanded Repayment of $10 Million More Than Was Advanced When the Borrower Refused to Pay $150,000 in Default Interest Charges
Immediately after the loan closing, Canyon's actions were the furthest thing from reasonable. Canyon repeatedly attempted to get the borrower to admit a default when there was none, withheld loan funds and forced the borrower to fund construction costs while still charging interest on the unreleased loan funds, withheld and delayed their required approvals which delayed the project, accelerated the whole loan, threatened to foreclose and demanded repayment of $10 million more than had been advanced when the borrower refused to pay to Canyon $150,000 in default interest charges. See email (at right) that the borrower wrote when pressured to sign a reinstatement agreement and was forced to pay $150,000 even though his attorney was out of town and unavailable to review the loan amendment.
3. In Emails Withheld by Canyon and Only Turned Over in the Spring of 2018, It Was Learned How Ecstatic Canyon Was in 2015-16 About the Project's Progress and Increased Value
Canyon relied on the developer’s expertise to complete the most difficult parts of the construction of the 360,000 square foot building while secretly saying very positive things about the project.
An email from a market consultant said “Ann Arbor is currently the #1 strongest submarket” for apartments in the entire United States, and that the project was projected, upon completion, to be worth $98.6 million. Also, “Wow? Current projected rents are 23% higher than the $1.82 psf [per square foot] we projected,” and, "The new projected rents are amazing." In his deposition testimony on May 2, 2018, Kevin Scholz confirmed, "-- a calculation would result in a -- $98.6 million in proceeds." The loan amount was up to a maximum of $53.7 million. Based on Canyon's calculations in 2016, that was approximately $45 million of borrower equity to be created by the completed project.
3.5 Email About The Strength of the Market at Right
4. Out-of-the Blue, When No Loan Payments Were Missed or Late, Canyon Demanded That The Borrower Sign a Deed-in-Lieu of Foreclosure Which Maria Stamolis Testified Was Designed to Wipe-Out the Owner
When Canyon was secretly plotting their takeover of the project, they hoped that they could pressure the Borrower to sign a deed-in-lieu of foreclosure to hand over ownership of the property to Canyon even though no loan payments had ever been missed, taxes and insurance were timely paid and there were no city violations. See email at right.
5. Around the Time the Borrower Refused to Sign the Deed-in-Lieu of Foreclosure, Canyon Withheld Loan Funds, and Summoned the Borrower to Los Angeles
Concurrently with their internal excitement about the property’s $98 million value and demand for a deed-in-lieu of foreclosure, Gerald Goldman intentionally withheld loan funds even though Canyon's staff had internally approved the amount of the construction draw. Goldman also telephoned the borrower and told him to travel across the country to Los Angeles to meet with Maria Stamolis, Gerald Goldman, Marcus Neupert, Canyon’s in-house counsel, and Bruce Fraser, their attorney from Sidley Austin.
At the October 20, 2016 meeting, Canyon demanded that Packard Square inject more money into the project but would not provide any calculations to support their demand. When the borrower asked a question along the lines of, "Why not be reasonable and simply release loan funds so the project can be finished in the next 5-6 months?", Maria Stamolis stared at him in and said, “Who do you think you’re dealing with!?” She then stormed out of the room and abruptly ended the meeting, leaving the borrower at a total loss about what to tell dozens of subcontractors who deserved to be paid for their completed work.
6. Canyon Secretly Took $20M of the Borrower's Loan Funds from Its Bank Accounts, and Internally Wrote That It Was "Mission Critical" For Their Former Employee to Provide An Affidavit Saying The Property Is In Disrepair
That same day, after Maria Stamolis stormed out of the meeting, upset that she was not able to extract more money from the borrower, Stamolis then wrote that it was "mission critical" and "super time sensitive" to get an affidavit about the property condition from their former employee. No issues with the property condition were raised at the meeting with the borrower.
The next day, Canyon swept all $20 million from the Borrower's bank accounts thereby eliminating its ability to pay for work completed at the site or for future work.
7. The Next Day, Dickinson Wright Filed A Lawsuit Declaring that the Project Was "Literally Left" "In Shambles" When In Reality Work Was Ongoing and There Were Not Any City Violations
At left is a page from Dickinson Wright's secretly filed ex parte Motion for Appointment of a Receiver and below it is a picture from a few days later which showed work ongoing in the ordinary course of construction. The borrower clearly had not "left the project" and it was certainly not "in shambles". It was a massive 360,000 square foot building with work ongoing. There were generally multiple city inspections of the work on a daily basis.
Still, Canyon filed an emergency lawsuit for foreclosure and ex parte motion for receiver despite the fact that no loan payments had been missed or ever late. Ex parte motions are usually reserved for instances when there is no time to notify the opposing party but the borrower was sitting in Canyon's office the previous day. Dickinson Wright was clearly trying to railroad through the receivership.
The borrower was served with the lawsuit the next week and a hearing date was set for October 27, 2016 – fewer than 72 hours after the service of the complaint and motion for the appointment of a receiver. It was, in the real world, a pragmatic impossibility for the borrower to retain experienced litigation counsel, to assemble written responses and evidence to the never before raised allegations, to prepare for oral argument, to conduct any discovery, and to create a complete record in less than 72 hours. The gamesmanship of Canyon's litigation tactics was to create chaos for Packard Square.
8. At The Court Hearing to Get a Receiver Appointed, Canyon's Counsel, Ben Dolan, from the Dickinson Wright Law Firm, Made Several Misrepresentations; Canyon's Gerald Goldman Attended The Hearing and Did Not Correct His Statements to the Court
To pre-meditate the property takeover, Dickinson Wright lined up a receiver, McKinley Inc. which was well-known to the sole business court judge. In other words, Dickinson Wright knew which judge they were going to get before the case started. McKinley's leadership was visibly present at the October 27, 2016 Hearing. In fact, they packed the hearing with McKinley’s CEO, Albert Berriz, McKinley’s Chairman of the Board, Paul Dimond, and other key staff members. Their front-row presence was calculated to manipulate the state court proceedings by tacitly communicating to the judge the importance of immediately imposing the receivership. They fully paraded their influence in a coordinated effort to gain an immediate and unfair advantage with the court.
Within an hour, the court obliged and immediately granted the receivership without an evidentiary hearing and without any admissible evidence. In fact, during the next two years of the case, the judge never let the property owner call a witness or have any evidentiary hearing. Many times the judge sanctioned the owner for trying to get evidence to prove fraud perpetrated by Canyon, their lawyers and their collusion with Albert Berriz, Paul Dimond and the court-appointed receiver, Matthew Mason, from McKinley Inc.
At the initial hearing, Dickinson Wright lawyer, Ben Dolan, asserted in open court that the proposed receiver “has a construction schedule that is very aggressive, very on point that will get the project done in a timely fashion and get it leased up” and “a game plan already set forth of taking over this project and bringing it to completion very quickly . . .” The borrower learned 17 months later that Canyon representatives were parties to a crucial email sent the day before the hearing with the actual plan to suspend the project in full for the winter and only “begin construction in earnest once the frost laws are lifted,” which generally occurs in Michigan in March or April each spring, approximately six (6) months later. In fact, the receiver had no schedule whatsoever and was going to "begin preparing" a "timeline of completion" "if all goes well tomorrow" to get appointed.
The Dickinson Wright lawyer, Ben Dolan, also falsely asserted that the project was in “jeopardy of going through the winter in a state of disrepair” and that Canyon possessed both a credible report and “affidavit” from an independent expert. He said that the borrower had failed to take adequate urgent pre-winter protections. In fact, there was no report and no affidavit, just an unsworn declaration from the unlicensed "expert", Tina Van Curen, who had recently worked for Canyon. See Video excerpt below. Van Curen did not know who prepared the document that she signed. Furthermore, at no prior time had Canyon sent a demand notice with a list of urgent “winterization” items. A legitimate lender with real concerns would have first contacted the developer and demanded that any urgent “winterization” items be fixed. The allegations of “imminent harm” were manufactured to support Canyon's "mission critical" plan to take control of the property without an evidentiary hearing, a property that the borrower had owned for 15 years after investing the family's life savings of $14 million.
Canyon's Former Employee, Who Was Also Canyon's "Construction Expert", Testified 18 Months Later About Who Prepared Her Affidavit (which was actually not an affidavit) Used To Seize Control of the Borrower's Property
By Law, A Receiver Is A Fiduciary Owing Highest Level Trust
To Get Appointed, the Receiver Signed the Declaration Below on October 21, 2016
Immediately After Signing the Declaration, the Receiver Did the Things It Attested It Didn't Do
Immediately After Signing the Declaration, the Receiver Did the Things It Attested It Didn't Do
As written above, before being appointed, the Receiver signed this Declaration and Canyon filed it with the court on October 21, 2016. The code at the bottom left indicates it was prepared by Ben Dolan at Dickinson Wright, Canyon's lawyer. The receiver attested that there is "no" "understanding" with Canyon's entity about who the receiver will "hire to provide services", how the estate will be "administer[ed]" or what the receiver's "charges" will be. This was the important Declaration to be considered by the court at the upcoming hearing on whether to appoint McKinley with Mason as its representative as an impartial receiver.
Immediately After Signing the Declaration, the Receiver Did the Things It Attested It Didn't Do
Immediately After Signing the Declaration, the Receiver Did the Things It Attested It Didn't Do
Immediately After Signing the Declaration, the Receiver Did the Things It Attested It Didn't Do
The next business day, on October 24, 2016, the Receiver stated in the above email that the selection of O'Brien Construction as the General contractor/Construction manager (CM) was "Completed" and many details were exchanged on how the estate would be administered. There was also a list of fees for the receiver's charges. Dickinson Wright did not produce this email until 17 months after the receiver was appointed so there was no way of knowing at the court hearing three days later that the receiver's Declaration was invalid at the time the court considered it on October 27, 2016.
Ben Dolan, Canyon’s attorney from Dickinson Wright, at the October 27, 2016 Hearing said that they would consider continuing the construction management by Gleeson, the borrower’s contractor, to complete the project as quickly as possible: “We’re here because we want the property completed, leased, up and generating income...I wasn’t saying we’re telling McKinley who to hire, just that they would consider all options including Gleeson, whatever would take the project forward as quickly as possible.” The lie to this statement is proven by the above email which included the attorney Ben Dolan and Canyon representatives and was sent from Mason to Gerald Goldman of Canyon three days before the October 2016 Hearing on October 24, 2016, in which Canyon agreed that the selection of O’Brien as the general contractor to replace Gleeson was “completed” and that O’Brien was the “cornerstone to our success.” Similarly, Mason, as Receiver, perpetuated this same lie in an affidavit (prepared jointly with the Canyon as reflected in an email sent on August 24, 2017, from Canyon’s attorney to Goldman, Scholz and Mason) to the United States Bankruptcy Court by swearing on September 7, 2017, that Gleeson was not chosen to continue as general contractor until “after careful vetting” of Gleeson, when, in fact, Mason's first act on his first day as Receiver was to bring O’Brien's employees to the Packard Square project and immediately terminate Gleeson.
The Receiver's Bad Faith and Collusion with Canyon
To Get the Receivership Implemented, The Receiver's Attorney Made Misrepresentations
The Receiver Blocked Its Books and Records from The Property Owner While Giving Everything to Canyon
To Get the Receivership Implemented, The Receiver's Attorney Made Misrepresentations
At the hearing, Canyon's attorney from Dickinson Wright, Ben Dolan asserted that McKinley, together with Mason, the representative of McKinley who would be the Receiver, was “a very experienced local knowledgeable excellent company that could come in” to complete construction as the Receiver - yet Mason testified nearly a year later on October 20, 2017 in the United States Bankruptcy Court that his “expertise is not construction”. The Receiver’s counsel, Jim Fink, misrepresented, “This is exactly the kind of project that my client has experience with. They know how to take a faltering project and turn it around. They’re known as turn-around experts. They don’t delay things.” But at the appeal hearing regarding the receivership, on January 10, 2018 in the Michigan Court of Appeals, in an effort to argue that McKinley was not conflicted because they were a manager of existing properties rather than a developer like Packard Square, a Dickinson Wright lawyer, Phil DeRosier, stated that McKinley was not a competitor since it's expertise was not the same as Packard, “not when it comes to ground up construction and development of these projects” on the “scale” of Packard Square – “that’s for certain.”
The Receiver Celebrated Canyon's Court Victories Over the Borrower
The Receiver Blocked Its Books and Records from The Property Owner While Giving Everything to Canyon
To Get the Receivership Implemented, The Receiver's Attorney Made Misrepresentations
Albert Berriz, the CEO of the receiver, McKinley Inc., and Matthew Mason, the receiver's representative repeatedly demonstrated their bad faith, collusion with Canyon, and breaches of fiduciary duty to Packard Square, the property owner, by expressing their excitement such as "more good news!" when courts ruled in Canyon's favor.
McKinley, one of the largest apartment managers in the United States with over 40,000 apartment units under management, was not an experienced or qualified developer. A short-term receivership should not have had great importance to McKinley but clearly they wanted the receivership very badly. As mentioned earlier, their leadership was visibly present at the October 27, 2016 receivership hearing. In fact, they packed the hearing with McKinley’s CEO, Albert Berriz, McKinley’s Chairman of the Board, Paul Dimond, and other key staff members. Their front-row presence appears to have been calculated to manipulate the state court proceedings. They fully paraded their influence in a coordinated effort seemingly to gain an immediate and unfair advantage with the court.
The Receiver Blocked Its Books and Records from The Property Owner While Giving Everything to Canyon
The Receiver Blocked Its Books and Records from The Property Owner While Giving Everything to Canyon
The Receiver Blocked Its Books and Records from The Property Owner While Giving Everything to Canyon
Repeatedly during the foreclosure action, the property owner attempted to exercise its rights to see the receiver's book and records. And repeatedly the receiver blocked those attempts, handing over only minimal information. Concurrently, the receiver essentially gave everything to Canyon that Canyon requested, had constant calls and meetings with Canyon, and even allowed Canyon's mole, an attorney named Janine Getler, to attend weekly construction meetings and communicate directly with O'Brien Construction without the receiver's involvement. Canyon has used Getler repeatedly in this role so that it can assert attorney-client privilege later - although Canyon's own investor materials refer to Getler as a project manager rather than an attorney.
Conversely, the receiver, who later admitted that his expertise is not construction, refused to ever have a phone call or meeting with the owner/developer or the architects and engineers who designed the building. Unsurprisingly the receiver took an extra two years to complete the project and incurred over $20 million of cost overruns.
The Receiver Spied on the Borrower for Canyon When the Borrower Wanted to Visit Its Own Property
The Receiver Spied on the Borrower for Canyon When the Borrower Wanted to Visit Its Own Property
The Receiver Blocked Its Books and Records from The Property Owner While Giving Everything to Canyon
The receiver allowed Canyon to visit the property freely but the property owner had to make appointments, which were often denied, and when appointments were honored, the receiver and Canyon forced the owner to be followed around by a security guard and then charged the owner for that cost. The receiver also served as Canyon's spy, reporting back the names of anyone accompanying the owner on site visits.
When Canyon Tried to Have the Receiver Sell the Property, the Receiver Blocked the Owner
The Receiver Spied on the Borrower for Canyon When the Borrower Wanted to Visit Its Own Property
When Canyon Tried to Have the Receiver Sell the Property, the Receiver Blocked the Owner
The receiver and Canyon decided to sell Packard Square's property even before any adjudication of the case. When the broker they hired put out an offering memorandum, Canyon and the receiver took steps to block the owner from even seeing the marketing info on its own property.
Canyon also renamed the property the George to try to hid the history of its litigation it started over the property.
The Receiver Bought Gifts for Canyon
The Receiver Spied on the Borrower for Canyon When the Borrower Wanted to Visit Its Own Property
When Canyon Tried to Have the Receiver Sell the Property, the Receiver Blocked the Owner
In a flagrant showing of preference for Canyon, the receiver repeatedly bought gifts for Canyon's representatives and thanked them for their "partnership".
The Receiver Socialized Repeatedly with Canyon and Its Attorney
Receiver Email Clearly Shows Collusion With Canyon, Bad Faith and Breach of Fiduciary Duty to Owner
The Receiver Prepared His Testimony with Canyon in Blatant Collusion Against Borrower
Matthew Mason, the receiver, went to social dinners with Canyon's representatives Kevin Scholz and Janine Getler in New York and elsewhere, exclaiming about the wonderful time he had with them.
The Receiver Prepared His Testimony with Canyon in Blatant Collusion Against Borrower
Receiver Email Clearly Shows Collusion With Canyon, Bad Faith and Breach of Fiduciary Duty to Owner
The Receiver Prepared His Testimony with Canyon in Blatant Collusion Against Borrower
When Packard Square attempted to regain control of its property by filing Chapter 11, Albert Berriz, the CEO, at first expressed disappointment. Soon thereafter, his representative for the receivership, Matthew Mason, went to Canyon' attorney's office, Dickinson Wright, to collude with Canyon and their attorneys to dismiss Packard Square's bankruptcy effort. It was discovered five months after the bankruptcy was dismissed that Mason secretly met with Kevin Scholz of Canyon, Paul Marcus of O'Brien Construction Janine Getler, Canyon's project manager, Ben Dolan and Michael Hammer, Canyon's attorneys from Dickinson Wright, and an appraiser. They coordinated their forthcoming testimony to prevent Packard Square from regaining control and refinancing its property. When they got the bankruptcy dismissed after Michael Hammer's and the others many misrepresentations to the bankruptcy court, Berriz and his employee, Royal Caswell, demonstrating their clear breaches of fiduciary duty to Packard Square, were in communication with and congratulating Canyon, exclaiming, "This is great news!"
Receiver Email Clearly Shows Collusion With Canyon, Bad Faith and Breach of Fiduciary Duty to Owner
Receiver Email Clearly Shows Collusion With Canyon, Bad Faith and Breach of Fiduciary Duty to Owner
Receiver Email Clearly Shows Collusion With Canyon, Bad Faith and Breach of Fiduciary Duty to Owner
By law, the receiver owed the highest level of duty and trust to all parties in interest, including of course the property owner. But in a clear demonstration of bad faith. Mason wrote to Canyon, "We will keep working hard on your behalf and implement whatever strategy Canyon decides upon. I am at your service for whatever you need."
9. Canyon Made an Unforeseen Separate Receiver Loan Against the Borrower's Property at a 16% Rate to Capture Quickly the Borrower's Equity in Its Real Estate
As soon as Canyon railroaded through the installation of their hand-picked receiver, Canyon made a new, unforeseen loan to the receiver, which the borrower was held fully liable for, at the ridiculously high 16% interest rate. Plus Canyon charged new origination and repayment fees of more than a half million dollars. This was in direct contradiction to clear language in the loan contracts that all funding had to be under the borrower’s loan. This would have prevented massive overspending, new fees and a higher interest rate since the borrower’s loan was capped at a maximum limit. The receiver loan greatly added unplanned debt to the borrower’s property, making it impossible to refinance. Canyon's investors, such as DUMAC, the investment arm of Duke University, went along with Canyon's tactics apparently because they liked the excessive 16% interest rate; so they provided a significant amount of the funding for the Receiver Loan.
In support of the the $19 million Receiver Loan, the receiver, Matthew Mason lied in his affidavit by saying that the value to be created would exceed the costs but there was no budget for the $19 million of costs and no documentation or any firm determination of the value to be created.
Less than a year later, the receiver lied again in an affidavit to make an amended receiver loan, increasing it to $37 million after incurring $20 million of cost overruns, when he swore that the value to be created would exceed the costs but again there was no documentation or any firm determination of the value to be created.
10. Once The Receiver Was Appointed, Canyon Did the Exact Opposite of What They Told the Court to Get the Receiver Appointed and Instead Mandated Construction Slower Than Industry Standards, Forcing the Borrower to Accrue Interest at the Exorbitant Rate of 16% for Two Years
Having the receiver perform construction slowly, translated to capturing the borrower's equity quickly. Immediately after arguing that the receiver appointment would allow for a more expeditious project completion, construction was brought to a near standstill. On April 25, 2017, Canyon and the receiver set a completion date of October 2018 - two years after being appointed. Yet at the time the receiver took control, the building was already 60% to 65% complete, and the borrower's contractor had explicitly undertaken to finish in 6 months. The deliberately slow construction enabled Canyon to not only capture the borrower's equity through the growth of exorbitant interest charges but also through the assessment of millions of dollars of late fees, lawyers’ fees and other “professional” fees. Canyon regularly paid the receiver amounts far in excess of the Order Appointing Receiver and never insisted that the receiver competitively bid work in order to control construction costs because the costs would just be charged back to the borrower. Canyon did everything in their power to prevent payoff of the loan too, by refusing to provide customary payoff letters and then ultimately providing unsupported payoff letters which expired in less than 24 hours.
11. During the Course of the Michigan Foreclosure Action, Canyon Did Everything Possible to Prevent and Delay Discovery of Evidence Which Could Be Used to Prove A Pattern of Defaulting and Foreclosing on Borrowers
Throughout the case, Canyon used Dickinson Wright to vehemently oppose producing documents and resisted and delayed critical depositions. They said that they were providing a "rolling" production of documents which was really just a delay tactic. Most documents to prove the full extent of any fraudulent acts were withheld by Canyon. Canyon also delayed for 17 months their depositions and then refused to answer key questions and repeatedly said "I don't know" and "I don't recall" rather than answer truthfully. (Watch deposition excerpts and download full transcripts on the Videos page.) Canyon asserted attorney-client privilege repeatedly and quashed non-party subpoenas. Throughout, they sought to suppress information and any semblance of normal discovery. Canyon acted to conceal their record of transgressions and flatly refused to answer deposition questions. Canyon brought approximately six motions for protective orders, and approximately eleven motions to quash subpoenas. The borrower filed approximately seven motions to compel discovery from Canyon. This is in addition to more than a dozen other motions when the borrower sought discovery from the Receiver and other parties, and Canyon sided with the party opposing discovery in nearly every instance. Nearly all of the borrower's efforts to compel discovery were denied, and nearly all of Canyon’s efforts to prevent discovery were granted. Canyon resisted discovery too by arguing that the discovery requests related to a fraud and racketeering (RICO) action that was filed against Canyon in federal court in New York in mid-2018 after discovering a pattern of similar actions by Canyon against other developers. Download the full complaint below.
Canyon also listed approximately 6,500 communications and documents in its April 18, 2018 Privilege Log. Could it be that Canyon's owners use attorneys as a shield by including attorneys on emails on a regular basis to prevent discovery later? See Canyon's CFO, John Plaga, testify about this on the Videos page.
12. Borrower Attempted to File Chapter 11 Bankruptcy to Regain Control of Its Property and Refinance Canyon's Loan But Canyon Failed to Disclose Their Internal Estimate of the Project's Value and Overstated the Debt Balance In Order to Get the Bankruptcy Dismissed
Since construction was moving at a snail’s pace while debt was mounting due to Canyon's massive legal fees, receiver fees and interest charges, the borrower had no choice but to file for bankruptcy protection to try to regain control and refinance its property. The borrower had a loan commitment for $22 million of debtor-in-possession financing at approximately 11% for funds to complete construction. But Canyon failed to mention their internal estimate of the property value and overstated the level of debt on the property. As a result, the Bankruptcy Court held that there was an inadequate equity cushion to support the $22 million loan. Yet, immediately after Canyon got the bankruptcy dismissed, Canyon went back into the state court where the foreclosure action was taking place and said that the property could support a $37 million loan from Canyon to the receiver at a 16% rate. So, Canyon told the bankruptcy court that the property could not support a $22 million third-party loan at an interest rate 5% lower, but afterwards told the state court that it could support a $37 million loan from Canyon at a 5% higher rate. Canyon told the bankruptcy court that the property value was $81,900,000 yet internal emails from Canyon produced 6 months later showed that they actually valued the to-be-completed project at $98,644,966. In his deposition testimony after Canyon got the bankruptcy dismissed, on May 2, 2018, Kevin Scholz testified, "-- a calculation would result in a -- $98.6 million in proceeds." Yet, in bankruptcy court, Scholz said that Canyon valued it internally in the range of "80 to $90 million". Canyon's attorney, Michael Hammer from the Dickinson Wright firm, repeatedly said that there were “$9,000,000 worth of liens” on the project, which included “5.9 million dollars from [the former contractor] Quandel”. Seven months after Canyon got the bankruptcy dismissed, Canyon’s lawyer from the same firm, Ben Dolan, sent the email (at left), which completely contradicted Canyon's bankruptcy court testimony, “As we believe Quandel’s lien is overstated substantially, we plan to file a motion – potentially even yet today – to require Quandel to amend its lien or for an order discharging its lien entirely.” So Canyon told the bankruptcy court the Quandel lien was $5.9 million and secretly after said it was illegitimate and should be discharged "entirely". Nearly a year later, Canyon settled with Quandel for zero dollars on a current basis and a potential payment of $600,000 when Canyon sells the borrower’s property. The Chapter 11 petition never would have been dismissed but for Dickinson Wright's and Canyon’s misrepresentations about the amount owed to Quandel and the property value.
13. Canyon Abandoned the Bond Which Was Protection for Cost Overruns
Canyon abandoned the $32 million performance bond which the borrower paid for to insure against cost overruns. Canyon did this despite directing $20 million of cost overruns by the receiver in order to pay for its massive legal fees and massive overspending. In its haste to foreclose, Canyon abandoned the borrower's bond despite the fact that Canyon had filed a separate lawsuit against the bond company saying that “all conditions precedent under the Bond” have been “met” and damages have been suffered “in the amount of, at least, $14,302,817.41.”
In conjunction with abandoning the valuable $32 million bond, Canyon secretly sought the contractor's cooperation against the borrower. All the while, Canyon was arguing to the court that the receiver controlled the bond claim when in reality Canyon had usurped that role to gain cooperation against the borrower.
14. After Missing a Key Deadline, Dickinson Wright Somehow Had the Court's Scheduling Order Changed (or should we say, Fixed?) So It Could Foreclose Without A Trial
Canyon filed its motion for a foreclosure judgment and noticed its motion for hearing on September 13, 2018 – a full three weeks after the August 23, 2018 deadline set forth in the Scheduling Order for the case. The borrower raised this fatal flaw in its response. Then, Canyon's counsel, Ariana Pellegrino, secretly made single-party contact with the Court Clerk to change the "problematic" scheduling order for Canyon. The court obliged.
A few days later, the Court then granted Canyon's motion to foreclose and the borrower was held liable for the receiver loan too, which it did not sign and which contradicted the express terms of the borrower's loan.
15. The Borrower Appealed the Foreclosure Judgment But The Court of Appeals Refused to Review the Appeal Because the Borrower Couldn't Pay $27 Million Above Its Loan Balance for the Receiver Loan Too
The borrower of course appealed the foreclosure judgment but on June 19, 2019, the Michigan Court of Appeals rendered the appeal moot without any review of the merits of the appeal because the six-month redemption period had then expired. In a nutshell, the court said the borrower had to have redeemed its property and repaid its own loan plus an extra $27 million for the receiver loan simply to have the appeal brief read by the 3-judge panel of appellate judges.
In the end, the borrower lost its $14 million invested, its two decades spent working on the project, and of course lost the property to Canyon too. Dickinson Wright and Sidley Austin, plus four other law firms, made millions of dollars. During the case, there were 100 motion hearings, but no hearing with witnesses ever occurred. And, none of the causes of action relating to fraud were ever litigated on the merits or adjudicated.