Green Hills Development Company LLC and Heartland Development Company LLC filed suit against CU Liquidity Services LLC, formerly known as Texans Commercial Capital LLC. The plaintiffs said TCU and the CUSO allegedly delayed funding for a real estate project, which resulted in them having to secure capital elsewhere. The plaintiffs claimed the delay masked TCU and CULS' attempts to collect fees and commissions without ever intending to fund the project.
"CULS and TCU are vigorously defending themselves against the allegations in the lawsuit, which are baseless and without merit," Lisa Krenek, TCU director of marketing, told Credit Union Times.
The plaintiffs described the transaction as a Ponzi scheme, claiming CULS did not deliver on promises of long-term lending to potential borrowers as an inducement but instead moved funds among several borrowers to provide an illusion of having adequate funding capacity.
This is not the first time TCU has had to defend itself in court over CRE projects. Earlier this year, a federal bankruptcy court in Dallas ruled that a realty firm owed CULS more than $40 million in a suit involving a defaulted Illinois property loan.
The $40 million was to be repaid by four Dallas real estate investors with Realty America Group LLC, which had guaranteed a CULS loan for the redevelopment of the Lincoln Mall project in Cook County, Ill. When the loan went into default, CULS demanded that the guarantors honor their obligations. Litigation soon followed, with the guarantors alleging that CULS, TCU and a number of officers and directors associated with both CULS and TCU were guilty of, among other things, breach of contract and orchestrating a loan Ponzi scheme, TCU said.
The court found there was no validity to the Ponzi scheme or the other allegations made by the guarantors and made it clear in its ruling that CULS had met all of its obligations under the loan agreement, according to TCU.
At the time of the ruling, Ted Daniel of Fulbright & Jaworski LLP, counsel to CULS and TCU, said the guarantors' allegations were nothing more than a desperate attempt to avoid honoring their obligations to CULS.
In 2009, CULS filed a suit against Coastal Federal Credit Union for breach of contract involving loan participation agreements tied to commercial properties in Pennsylvania and the same Illinois property involved in the suit filed by Green Hills and Heartland Development. The CUSO alleged that the $2 billion Coastal FCU and CULS signed two participation agreements on Aug. 30, 2006, for loans used to finance the Mockingbird Commons in Pennsylvania and the Lincoln Mall in Chicago. A third participation agreement was signed on June 6, 2007, for the Mountain Village in Pennsylvania.
The agreement was amended in 2007 by CULS and the mall, according to the complaint. The CUSO allegedly said it made the changes with the understanding that it did not need Coastal's consent to make material amendments to the terms of the agreement. Coastal supposedly paid $5 million for an all-in participation in the Lincoln Mall. The participation interest was initially set at 24.75%; however, the interest was to be reduced to 12.68% as the loan commitment increased. According to the complaint, CULS continued to pay Coastal the original 24.75%.
Overpayments were also made on the Lincoln Mall project by more than $486,909 and more than $558,163 on the Mockingbird Commons project, CULS alleged. Coastal had failed to return the overpaid funds, according to the complaint.