Posted Nov 14, 2019, 5:57 PM
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Join Date: Jan 2010
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Probably has nothing to do with this development now but some relevant drama at Red:
https://www.bizjournals.com/phoenix/...ommercial.html
Quote:
A former business partner is suing Red Development LLC managing partners Scott Rehorn and Michael Ebert, alleging the two men have used the Phoenix company’s name improperly while completing projects that only benefit Rehorn and Ebert, rather than all of the firm’s equity partners.
Dan Lowe, a co-founder and former managing partner at Red, left the company in 2012 but remained a minority owner of the business, according to the lawsuit filed in Dallas County court in Texas. The suit alleges Lowe had an agreement with Ebert and Rehorn that required Lowe to continue to receive documentation, financial information and distributions from Red, and be treated the same as the other owners.
However, Lowe, who now runs Kansas City-based Legacy Development, alleges he has not received the documents he is entitled to from Red since 2012 and has not received any distribution from the company since 2013.
Ed Novak, an attorney with the Phoenix office of Polsinelli representing Red, said Lowe’s allegation that he has not received documents to which he is entitled is incorrect. Novak showed the Business Journal a log of documents accessed by Lowe and his associates during the time Lowe claims to have been denied access. Correspondence between lawyers for Lowe and lawyers for Red examined by the Business Journal show Red’s lawyers offered Lowe access to budgets and quarterly financial documents, which Novak said were then uploaded to a server Lowe was able to access.
“Dan Lowe gave up all rights as a manager, officer or director of any Red entities, and accepted a small minority interest in a number of properties,” Novak said.
Novak said Lowe has no interest in the company's properties developed after 2012, which includes the newly developed Block 23 in downtown Phoenix.
Lowe's lawsuit alleges Ebert and Rehorn would take out loans on properties owned by Red and use the money on larger, legacy projects, including Block 23, while leaving the older projects saddled with debt and increasingly vacant, diminishing the value of the other owners' stakes.
Lowe alleges in the court papers the value of his stake in the company has dropped from about $62.9 million to $14.5 million.
Novak disputes the valuation, noting Lowe claims he has not been provided documents that would illustrate the value of his stake.
The suit also alleges that Ebert and Rehorn were improperly using the Red Development name on projects, particularly Block 23. According to the suit, the two developed Block 23 using Red Development resources, but did not pay market value for Red’s resources.
“Ebert and Rehorn are developing the property under the Red Development name using Red Development resources, but without reimbursing the company for services at market rates and without giving a piece of the equity to Red Development’s equity holders,” the suit said. “They effectively are subsidizing their own private investments on Lowe and the other Red Development owners’ dime.”
Novak said Lowe has no claim to any cash distributions from Block 23, which was developed after Lowe split from the company, but said the projects' investors will be paid before Ebert, Rehorn and the other owners.
Lowe has previously been accused of fraud and breach of contract in Missouri and Kansas including failing to distribute funds to business partners in several cases that have since been settled, according to court documents.
Said Novak, “Red has been in town 20 years and has never had a fraud lawsuit in 20 years.”
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