An El Paso real estate investment trust, run by some of city's most successful business people, faces new allegations of fraud in a failed housing venture just as another lawsuit against the trust has been dismissed by a federal judge.
Encore Enterprises, a Dallas real estate investment and development company, filed a lawsuit late last month in a Dallas state court alleging the board of directors for the Borderplex Realty Trust defrauded the company as they were forming a partnership for a multimillion-dollar venture to develop apartment complexes in the Southwest.
The allegations come just as U.S District Judge Kathleen Cardone dismissed another fraud claim against the El Paso real estate investment trust, which is tied to the same failed housing venture.
In that case, filed almost a year ago, New Mexico real estate and medical school mogul Dan Burrell claimed he was duped by Borderplex trust officials when they allegedly misrepresented Encore Enterprises' ownership and compensation in the joint venture. He would not have agreed to the $20 million investment if he had been given the correct information, according to his lawsuit.
For its part, Encore Enterprises, which filed its lawsuit in late April, asserts that Borderplex trust officials hid Burrell's involvement from the company. Encore argues that the Borderplex trust was not only getting Burrell's investment, but also getting him to raise more money for the venture, and promising him representation on its board "proportionate to the capital he raised."
Encore said in court documents that the El Paso real estate investment trust did not inform the company of such an agreement, adding that its officials would not have accepted the arrangement.
Borderplex Realty Trust was formed in late 2006 by William "Bill" Sanders, a real estate and banking mogul, and other El Paso businessmen, to acquire Downtown El Paso buildings for redevelopment.
The El Paso real estate investment trust, which had about 200 shareholders last year, was formed to buy Downtown El Paso properties for redevelopment. It owns the 21-story Wells Fargo building, the 18-story Chase Tower in Downtown El Paso, and other properties.
Three years ago, it shifted to a new investment strategy of developing and buying apartment complexes in several Southwest cities. The trust offered $44 million in shares to potential investors to help fund a proposed venture with Encore that would initially spend $234 million developing five multifamily properties, according to court documents.
Burrell, who is founder and board chairman of the Burrell College of Osteopathic Medicine at New Mexico State University, agreed to purchase about $20 million in shares, court documents state.
He canceled that agreement after making the first $8.5 million payment, which the El Paso trust has not refunded, according to his lawsuit.
The move left Boderplex short of the $40 million it needed to fund the proposed venture, resulting in the trust canceling its agreement with Encore, according to court documents.
Encore is now asking the court to award the company more than $1 million in damages and other costs from the Borderplex trust.
The company asserted that it relied on false representations from the trust and "as a result of such reliance, dedicated funds, properties and personnel" to the proposed venture and "did not pursue other profitable opportunities and transactions to (the company's) detriment."
Borderplex and its board in a statement released last week, said they see Encore's lawsuit as its way of lashing out after an El Paso judge denied the company's motion to compel arbitration over the collapse of the proposed housing venture, and Encore's claim that the trust owes it millions of dollars in damages, lost profits, and expenses.
Borderplex last year filed a lawsuit in El Paso County that asked the court to declare the trust owes nothing to Encore over the failed housing venture, except for the $670,000 escrow deposit it forfeited after canceling the proposed venture. That case is pending.
Encore's lawsuit is "a desperate, transparent and belated attempt by Encore to obtain some sort of leverage in the existing litigation," Borderplex said in a statement.
"The new suit against the Borderplex Realty directors is without merit, and in any event should be consolidated with the case in El Paso that Borderplex Realty filed almost one year ago," the statement concluded.
Burrell's lawsuit was dismissed May 2 by federal Judge Kathleen Cardone. She wrote in her decision that Burrell's lawyers failed to cure defects in the lawsuit.
Cardone in a 29-page order issued last month, concluded Burrell's lawsuit failed to "sufficiently specify any fraudulent statements made by Borderplex Realty Trust." And the lawsuit failed "to allege that any individual officer or employee of the trust possessed the requisite state of mind to perpetrate fraud on (Burrell's) Borderplex Investment Partners."
Still, the legal fight between the Borderplex trust and Burrell is not over.
A lawsuit the Borderplex trust filed last year in a state court in El Paso, claiming Burrell's Borderplex Investment Partners breached a contract by reneging on its agreement to invest at least $20 million for the trust's venture with Encore, is again active after Burrell's federal lawsuit was dismissed.
The Borderplex trust and its board, in a statement, said they are pleased with Judge Cardone's decision and the trust "hopes to resolve all remaining issues" with Burrell.
El Paso lawyer Link Beck, one of the lawyers representing Burrell in his federal lawsuit, said he and Burrell have no comments about the pending litigation.
