MIAMI — DLA Piper, one of the world's largest law firms, helped a San Diego developer siphon off millions of dollars from a joint project with Lennar while representing both the company and the developer, according to a malpractice lawsuit settled by the Miami-based home-builder and the firm.
Without naming the litigant, Lennar last month acknowledged a $37.5 million third-party confidential settlement contributed a $27.4 million first-quarter profit for the company. The Daily Business Review learned the settlement came in the DLA Piper malpractice case.
The 3,500-lawyer DLA recently opened a Miami office with plans for 30 attorneys. It did not respond to numerous requests for comment by deadline. An assistant to Brian Foster, the DLA partner named in the lawsuit, hung up when a comment was requested from the San Diego attorney.
In an answer filed in January 2010, DLA and Foster denied wrongdoing, offered 26 affirmative defenses and said the firm "acted in good faith at all relevant times."
The suit filed by Lennar in San Diego Superior Court claimed the company was victimized by a conflict involving Foster. The complaint claimed he was a personal friend of the developer, Nicolas Marsch III, and worked against Lennar's interests in development of The Bridges gated golf community in Rancho Sante Fe, California. Lennar and Marsch's Briarwood Capital formed HCC Investors to jointly develop The Bridges.
Lennar would not elaborate on the settlement mentioned in a one-paragraph note in a Securities and Exchange Commission filing.
The development was built, but Briarwood is now under a trustee's supervision in San Diego bankruptcy court.
The settlement is more fallout from protracted legal battles in federal, state and bankruptcy courts involving Lennar, Marsch, DLA and a convicted con artist, onetime Wall Street wunderkind Barry Minkow.
The war over The Bridges also gave birth to the second prosecution of Minkow, whom Lennar accused in a state court lawsuit in Miami of driving down Lennar's stock at Marsch's behest.
Minkow pleaded guilty to securities fraud conspiracy March 31 in Miami federal court. Posturing himself as an anti-fraud crusader, he had released a report claiming Lennar ran its joint ventures like a Ponzi scheme while shorting the home-buiding company's stock, federal prosecutors charged. A one-day plunge on the heels of a critical Minkow report in early 2009 shaved about $583 million in market value from Lennar's common stock.
Miami-Dade Circuit Court Gill Freeman entered a default judgment against Minkow last December due to repeated discovery violations in a defamation suit filed by Lennar.
With Marsch as a co-defendant, the 2009 civil suit claimed Marsch hired Minkow to engineer an online attack via YouTube and Minkow's Fraud Discovery Institute on the home-builder, its executives and its accounting. Lennar claimed Marsch
Lennar's malpractice suit against DLA Piper in California alleged a breach of fiduciary duty and sought damages and disgorgement of legal fees for malpractice, fraud and breaches of trust.
The company, the nation's largest home-builder before the housing crash, claimed any profit from The Bridges were to be distributed to HCC's members only after Lennar received its invested capital and a 25 percent preferred return, but that point was never reached.
Marsch sued in 2006, claiming he was not paid money that was due him.
Lennar, in a counterclaim, was awarded $54 million including attorney fees by San Diego Superior Court Judge William R. Nevitt in September. Lennar presented evidence Marsch received more than a $50 million benefit through cash and other economic benefits through The Bridges project.
The malpractice suit claimed Marsch lined his pockets with Lennar's money with Foster's help. HCC paid Marsch $13 million in "override fees" based on information from Foster from 1999 to 2008, the suit claimed.
"Foster's advice was false and without any reasonable basis," the suit said.
In one instance cited in the lawsuit, Foster inflated money due Marsch and helped him get $6 million from Lennar in 2001 "to satisfy prior obligations."
An amended complaint also claimed DLA and Foster advised HCC to pay more than $15 million to satisfy two of Marsch's personal obligations to a previous business partner.
Lennar accused the law firm of assisting Marsch with the preparation of his claims and actively concealing their activities by withholding files in 2007.
Marsch attorney Richard S. Van Dyke said his client also plans to sue DLA Piper and maintains the settlement money should have been credited to HCC rather than Lennar.
In a March interview with the Wall Street Journal, Marsch denied trying to extort Lennar. Van Dyke refused to make Marsch available for an interview with the Daily Business Review.
Asked whether he expected federal charges to be filed against Marsch, Van Dyke told the Review, "From my perspective he has no reason to be concerned."
In Briarwood's bankruptcy case, the trustee filed an adversarial proceeding against HCC in San Diego bankruptcy court.
DLA Piper, represented by R.J. Caughlan Jr. of Coughlan Semmer & Lipman in San Diego, filed a pleading in Briarwood's case to quash a trustee's subpoena for Foster's testimony. He had no comment by deadline.
Information from: Daily Business Review, http://www.dailybusinessreview.com