Investor suits against real estate lender take different paths

By Steve Green

Friday, Oct. 8, 2010 | 1:50 a.m.

Investor lawsuits filed in 2008 and 2009 against Las Vegas real estate lender Aspen Financial Services -- as well as counterclaims -- are working their way toward separate trials.

Controlled by Jeff Guinn, son of the late former Gov. Kenny Guinn, Aspen and its investors profited during the Southern Nevada real estate boom. But after the recession was under way in 2008, real estate players started losing money and lawsuits began flying.

Aspen is a "hard money lender" that pools investors' funds and loans to real estate developers. These loans are typically riskier than standard commercial bank loans. In consideration of the higher risk, investors received higher interest rates than what banks paid for deposits.

Three lawsuits pending in Clark County District Court -- Levy et al v. Aspen, Ruthe et al v. Aspen and Gorlick et al v. Aspen -- claim investors' losses with Guinn can't be blamed just on the recession. These suits allege mismanagement of the investments, lack of or inadequate disclosures and that Guinn engineered transactions to benefit he and Aspen insiders and his friends to the detriment of the investors.

The first case, filed in November 2008 and involving plaintiff Lois Levy, was noteworthy because it included a rare -- and unsuccessful -- motion to disqualify the judge hearing the case (Elizabeth Gonzalez) because of her past association with the Guinns.

After the disqualification motion was rejected, Gonzalez in July issued a split ruling on Aspen.

She denied its motion to compel arbitration in the disputes with investors, but granted its motion to sever issues in the case rather than try them all together.

By breaking up the trial, the court will try the cases in groups of real estate investments rather than all together. Trials beginning in June 2011 are set for the "Celebrate," "Coronado 80," "Omega," "HDB," "Pay Dirt" and "JV" properties.

Records show that case now involves 12 investor plaintiffs.

Another hotly-contested case was filed in April 2009 by Guinn critic Donna Ruthe and nine more investor plaintiffs. Guinn and Aspen fired back against Ruthe, accusing her in a September 2009 counterclaim of libel, slander, defamation, abuse of process and conspiracy to destroy Guinn's business.

"This lawsuit is about greed and revenge," Aspen and Guinn charged in their filing.

Since then, legal wrangling in the case has remained just as contentious.

Both sides have hit each other with objections as well as motions for protective orders, to compel discovery and for sanctions -- and oppositions to those motions.

One dispute, for instance, has been over Aspen's insistence that secret minutes of a July hearing on how Ruthe could amend her complaint remain sealed. The hearing apparently included a discussion about "highly sensitive medical information" involving Jeff Guinn.

Ruthe's attorneys are asking the court to release to the attorneys the transcript so they can review it before amending the lawsuit.

"Opposing counsel's concern appears to be based upon an unfounded fear that the contents of the transcript might be publicly disseminated. This concern is unfounded," Ruthe's attorneys Dennis Prince and Douglas Duesman of the Las Vegas law firm Prince & Keating wrote in a court motion.

But Aspen attorneys John Bailey, Joseph Liebman and Brandon Kemble of the Las Vegas law firm Bailey Kennedy said in a Sept. 17 response that release of the transcript likely would result in it being reported on "based on Donna Ruthe's well-documented disregard for sensitive personal information -- in particular information about Mr. Guinn -- and her penchant for media attention."

The court has yet to rule on the transcript issue. With the case still in the discovery stage, and much of the discovery against Ruthe and Aspen being contested, that lawsuit is set for a March 2012 trial.

The third case, filed in May 2009, is headed toward an October 2011 trial and now totals 32 plaintiff investors.

In Gorlick v. Aspen, appraisal company Britton Group doing business as ROI Appraisal/Britton Group and construction-funding disbursement company Nevada Construction Services, a division of Nevada Title Co., were also named as defendants, resulting in a crossclaim by Nevada Construction Services against Aspen.

By May, however, the investor plaintiffs had dropped their claims against Nevada Construction Services.

An interesting angle in this case involves the state Mortgage Lending Division.

In responding to investor complaints, Aspen often points out it's in compliance with Mortgage Lending Division requirements and no problems have been found in its operations in state audits.

But the Gorlick plaintiff attorneys, Aaron Maurice and Scott Taylor of the Henderson law firm Woods Erickson Whitaker & Maurice LLP, said Aspen refused to provide during discovery information about investors' complaints to the division and Aspen's response to those complaints.

"If Aspen wants to reference the findings of the Mortgage Lending Division as somehow exonerating it, then Aspen must produce copies of the complaints and all materials submitted to the Mortgage Lending Division by Aspen in response to same," the attorneys wrote in a court filing.

Aspen attorneys disputed this, saying they have already turned over to the plaintiffs more than 5,000 pages of material involving the loans at issue including information provided to the Mortgage Lending Division.

What Aspen declined to provide -- the complaints and information sent to the division about the complaints -- it couldn't provide because it's confidential under state law, Aspen's attorneys said.

The investors won this round in court, with District Judge Mark Denton signing an order Oct. 1 requiring Aspen to turn over the documents by Oct. 28 -- but giving Aspen until Oct. 28 to file for a protective order if it wants to protect the confidentiality of certain information.

This latest dispute over the production of complaints and Aspen's response to the complaints gave both sides an opportunity to sum up their positions in the lawsuit, which centers on a loan for a never-finished development at Cactus Avenue and Bermuda Road called the Milano Property that was to be developed by Susan Mardian.

The suing investors see things this way:

From July 2004 through December 2006, Aspen churned (through brokering six loans to Mardian's Milano LLC) $55.14 million in loans using the Milano property.

"Based on the representations made by Aspen, plaintiffs believed that their (investment) money was to be used to fund construction of a 100-unit condominium project on the Milano property," their attorneys wrote.

"However, the economic downturn uncovered the truth. The truth was that Aspen and the (Mardian codefendants) had perpetrated a fraud. ... The investors' own money (as opposed to funds provided by the borrower) was used to make the interest payments on the loans (thereby creating the perception of a `performing loan'). When a loan matured, it was not paid off by the borrower. Instead, Aspen simply placed a larger loan on the property. Internal roll-overs were used to move the investors' money from one loan to another. Those investors who chose not to roll their funds over into the new, larger loan, were re-paid their principal with funds provided by other investors. Money intended for construction was pulled out of the project by the Mardian defendants. In total, the Mardian defendants pocketed $7.6 million. Aspen walked away with more than $1.5 million in assorted fees."

Aspen, however, sees it this way:

"It is undisputed that plaintiffs received every interest payment they expected in connection with the $17.7 million loan (for the property). It is also undisputed that in December of 2006, each plaintiff who had invested in the $17.7 million loan was offered -- and energetically rejected -- the repayment of their principal investment and instead chose to participate in a (refinanced) $19.24 million loan."

Aspen attorneys said that as is commonly done in refinancing loans, parties in the first loan who did not participate in the second loan were paid off with the funds the borrowers obtained through the new loan. But this didn't amount to a Ponzi scheme as alleged, the attorneys said.

"Under plaintiff's theory, a homeowner and a new mortgage company the homeowner uses to refinance its existing home loan are participating in a Ponzi scheme when they pay off an existing mortgage with funds from the newly obtained refinance loan," they wrote.

The Aspen attorneys argued everything about the development was disclosed to the investors in the second loan.

In the litigation, they said: "What distinguishes plaintiffs from their co-investors is their inability to grasp, or admit, the fact that an economic collapse of historic proportions led to a decline in the value of their real estate investments."

Noting the investor plaintiffs are "a handful of investors at Aspen," Aspen's attorneys also charged they are "turning a blind eye to the fact that Aspen, its employees, the family of its employees, and in particular Jeff Guinn, invested and lost much of their own funds in the same property and project at issue in this litigation."

Finally, records this week show a fourth lawsuit filed last year by Guinn and co-investors against the failed Community Bank of Nevada remains stalled in federal court in Las Vegas. The court referred that issue to an internal Federal Deposit Insurance Corp. dispute resolution process.