Desperate to sell empty lots in a foreclosed subdivision, a group of lenders turned to a marketing company that made big promises and had the references to back them up.
But those references turned out to be fake and the sales figures that the marketing company had boasted about from its prior work were inflated, according to Charlotte attorney Ross Fulton of Rayburn Cooper & Durham.
He and his law partner Ben Shook represented the lenders in a federal lawsuit that resulted in a damages verdict of more than $500,000 on Jan. 13 against the president of the now-defunct marketing company RPM.
In the wake of the 2009 foreclosure, the lenders formed a limited liability company called RDLG and acquired all the undeveloped lots in Linville Falls Mountain Club and Preserve in McDowell County.
After failing to attract buyers, the lenders hired RPM to hold a big sales event with licensed real estate brokers on hand to sell off the lots, according to Fulton. He said RPM and its president, Fred Leonard Jr., provided the lenders with references who touted the company’s success with prior sales events.
“They [the lenders] check it out. One person they call says RPM had done a great job,” Fulton said. “Later on we find out that this guy they called is one of RPM’s sales representatives and that the other names and numbers they provided were for investors and employees” of RPM, which worked on commission.
The lenders resolved their claims against every member of RPM except Leonard, whom they sued for fraud. He was sanctioned for failing to participate in the pretrial process and, after he did not pay the fine, the court entered a default judgment against him, which found him liable for RDLG’s damages.
Around that same time, Leonard filed for bankruptcy in Tennessee, spurring the U.S. District Court in Asheville to stay the damages hearing in the fraud suit pending the outcome of the bankruptcy case.
After reviewing the default judgment against Leonard, the bankruptcy court issued an order allowing the damages hearing to move forward by way of a jury trial. The jury deliberated for about two hours before awarding $500,580 to RDLG, Fulton said.
“We asked for the amounts that RDLG spent getting ready for the sales event, which turned out to be a flop,” he added. “It was a disaster.”
According to Fulton, RPM mailed out advertisements for the sales event stating that they were offering multiple-acre lots and lots with creeks, and that buyers wouldn’t have to pay utility connection fees – none of which was true. He also said buyers were promised that they could build small log cabins and park RVs in the development, which violated the homeowners association’s rules.
At the end of the event, RPM presented the lenders with 19 signed contracts, “which was way below what they indicated they would do,” Fulton said. He added that only six of the sales actually closed. Five of the lots were on a street in the development that did not have utilities.
“RDLG is still working on exchanging lots with some of the folks to try to get them into a developed part of the development so they don’t have to put in services to a street that no one lives on,” Fulton said.
RPM and its trial attorneys, John Hunter and Matthew Roberson of Adams Hendon Carson Crow & Saenger in Asheville, contended that the lenders were not entitled to recover the money they spent on the sales event because they benefitted from the event.
Hunter said in an email that RPM would raise the same argument on appeal. He added that Leonard also is appealing the default judgment.
Follow Phillip Bantz on Twitter @NCLWBantz
Case name: RDLG, LLC v. Fred M. Leonard, Jr.
Court: U.S. District Court, Asheville
Case Number: 1:10-CV-204
Judge: U.S. Magistrate Judge Dennis Howell
Date of verdict: Jan. 13
Attorneys for plaintiff: Ross Fulton and Ben Shook of Rayburn Cooper & Durham (Charlotte)
Attorneys for defendant: John Hunter and Matt Roberson of Adams Hendon Carson Crow & Saenger (Asheville)