Breach of contract, breach of fiduciary duties, and fraud: Real Estate Deal Enriches One Partner at Expense of Other Suit for Ill-gotten Profits Settled for Commercial Lot

We represented a Phoenix business owner in this case.  One of our client’s business associates, who will be referred to as Mr. B, informed our client that vacant land, consisting of approximately eight acres in Glendale, Arizona, was for sale at a very attractive price.  Mr. B proposed to our client that they jointly purchase the property and then use, develop, or sell it at a profit.  Our client agreed to the joint venture, because it appeared the sale price was below market value.  Mr. B had already entered into an agreement for the purchase of the property, and he provided a copy of it to our client.

At Mr. B’s request, our client wrote a check for $5,000 payable to Mr. B, for earnest money to be deposited into escrow for the purchase of the property.  Several months later, while the property was still in escrow, our client wrote another check to Mr. B, in the amount of $2,800, for a “phase I” environmental survey of the property.  Approximately a month later, Mr. B told our client that the Phase I environmental survey came back “dirty,” and that the purchase of the property had therefore fallen through.

Unbeknownst to our client, Mr. B had formed a limited liability company on an expedited basis, and through the newly-formed company he secretly purchased the property.  In two separate transactions during the ensuing 13 months, Mr. B sold the property for a profit of $1.3 million.  Our client learned of the transactions from one of the purchasers approximately two years later.  We filed suit against Mr. B and his wife for breach of contract, breach of fiduciary duties, and fraud.  In the lawsuit, our client demanded half the profit from the sale of the property.

By mutual agreement, the parties participated in mediation shortly after the lawsuit was filed.  By that time, however, the economy was in recession and Mr. B’s financial condition had deteriorated significantly.  Mr. B and his wife had essentially spent the profit from the property sale, and had very little cash left to settle the case.  They did, however, own a commercial lot in Glendale having a value of $313,000, which they offered to settle the case.  Our client accepted the settlement offer, and subsequently acquired title to the property.  The lawsuit was dismissed.

The information contained in this article should not be construed as legal advice or legal opinion on any matter discussed. The contents are intended for general information purposes only. Always consult a qualified attorney for legal advice on a specific matter.