Financier hit with $ 4.13 mil. judgment

Thursday, March 20, 2003 | 11:21 a.m.

A federal judge on Wednesday awarded $4.13 million, plus interest, to developer Howard Bulloch, who had accused real estate financier Michael Shustek of wrongfully charging him penalty fees for a loan that Bulloch maintains wasn't in default.

Keith Rooker, Bulloch's attorney, said that following a trial that began Friday, U.S. District Judge James Mahan ruled that a $4.13 million penalty fee Del Mar Mortgage Inc. had collected from Bulloch was "unlawful." Del Mar is a Shustek company along with Vestin Mortgage, a big real estate lender.

"The penalty was ruled unlawful because it is designed to force Bulloch to make payments on a loan that he already promised to make and did make in accordance with the loan's terms. He just didn't make them at the time and in the way Shustek wanted," he said.

The $4.13 million penalty was enforced in connection with dealings over two loans Bulloch had received from Del Mar: a $13 million loan for Bulloch to buy a 35-acre property on Blue Diamond Road and Las Vegas Boulevard and a $34.5 million loan to buy a 10-parcel property near McCarran airport.

"When the time came for the $34.5 million loan to be funded, Shustek said he wouldn't advance the money until Bulloch agreed to make a $4.5 million payment on the Blue Diamond loan, which wasn't due yet and another $3.5 million payment by Dec. 4, 1999," Rooker said. "Shustek also demanded a penalty of $10 million if both of the two payments weren't made. Bulloch paid the $4.5 million but not the $3.5 million and, as a result, the $4.13 million penalty was imposed."

Steve Morris, Vestin's attorney, counters that Bulloch had agreed to make the $4.5 million and $3.5 million payments to pay down the Blue Diamond loan, which was past its original due date in January 1999, before Shustek would make the $34.5 million loan to him.

"That agreement had an incentive fee. If Bulloch didn't pay down the Blue Diamond loan, then he'd owe us a $10 million fee. If he paid down $4.5 million, that fee will be reduced to $5 million. That fee was later reduced to $3.8 million and paid with interest by Bulloch," he said.

Morris said Vestin will ask for reconsideration of Mahan's ruling and may appeal if denied.