Rhodes homes wins round in court

Brian Seals

Friday, Sept. 11, 1998 | 11:11 a.m.

Judge Sally Loehrer on Thursday denied a motion by Rainbow Development Corp. to remove Rhodes Design and Development as managing partner in a joint venture between the two.

Rhodes and Rainbow formed Rainbow Canyon Development LLC in 1993 to build housing developments known as Palm Canyon and Palm Hills at the base of Black Mountain in Henderson.

Rainbow sued Rhodes on Aug. 25, accusing Rhodes of financial mismanagement and seeking to remove the company as the managing partner of the venture.

Loehrer's denial of the motion to remove Rhodes as manager of the partnership means the lawsuit now will proceed towards trial unless it is settled.

Rhodes' attorney, Rodney Jean, denied allegations of mismanagement.

Rainbow alleged Rhodes overcharged fees to the partnership, failed to pay all lot proceeds and failed to deliver accurate financial statements to the partners.

But Jean countered Rainbow has been kept informed of the progress and status of the project through weekly meetings.

"These partners have been meeting on a weekly basis," Jean said. "There has been extensive discussion on virtually every issue."

Moreover, Jean said Rainbow has received disbursements totaling about $3 million. Rainbow Development contributed more than $7 million in land toward the partnership. Jean said debt on that contribution was $4.8 million and that Rhodes had guaranteed land loans.

Because of that, Jean said, another Rainbow allegation that Rhodes delayed work on the Palm Hills development to focus on Rhodes' other projects was unlikely.

"It would be an insanely self-inflicted wound to delay Palm Hills," Jean said.

Rainbow also contended that Rhodes engaged in "self dealing," allowing related Rhodes entities to perform work on the project.

"Rhodes and related entities have milked $24 million out of this project," said Rainbow Development attorney William Coulthard.

Jean countered the work was done with authorization of the partnership and with contractual agreements.

In its original complaint, Rainbow alleges an audit revealed financial mismanagement.

"The Bradshaw, Smith and Co.'s financial investigation confirmed fee overcharges to Rainbow Canyon LLC by Rhodes, unpaid lot distribution proceeds, payments made to various subcontractors without contracts, no established budgets and significant cost overruns," the complaint read.

Jean said adjustments in yearly financial statements have been made the past three years because cost estimates were too low. The extra cost on the homes was not reflected on accounting records until they were sold, which caused the need for adjustments to the partnership's annual financial statements.