BuilderFinancial litigation grinds through courts

By Paul Brinkmann, South Florida Business Journal

Prominent mezzanine lender BuilderFinancial Corp. recently won a small victory in its ongoing legal battles against investors and borrowers in South Florida courts.

Fort Lauderdale securities attorney Charles Pearlman and the former chairman of Arthur Andersen are part of a group that’s suing a prominent Wharton School alumnus amid the collapse of a $199 million mezzanine fund, Builder Funding and BFWest LLC, and their parent company, Builder Financial. The plaintiffs are suing over $40 million in compensation, some of it paid by borrowers.

BuilderFinancial has filed motions to dismiss the Pearlman complaint in Broward County Circuit Court, which are still pending. Two other related lawsuits by other investors, represented by the Tripp Scott law firm, are also pending, but Builder Funding attorneys have filed motions to disqualify Tripp Scott.

“We’ll be resuming our lending business one way or another after the litigation is concluded and the markets stabilization,” said Kyle Meyer, president of BuilderFinancial.

Meanwhile, the company recently won a ruling in another case filed by one of its former borrowers, Gary Goldstein of Palm Beach County, in a lawsuit over a mortgage loan on a condo property.

The fund, Builder Funding, and its parent company were led by defendant Andrew Heller, who sits on Wharton’s board of overseers, and Meyer.

All of BuilderFinancial’s former mortgages and notes under its former subsidiary

BFWest have been assumed by its top financer, German bank WestLB and its U.S. real estate arm, Indigo Real Estate.

Indigo had attempted to foreclose on a loan to Goldstein, which was last recorded in a mortgage modification showing a total of $15.85 million in December 2005.

Goldstein borrowed from BuilderFinancial to assemble properties along Federal Highway, north of downtown West Palm Beach. But, Goldstein filed suit against Indigo and BuilderFinancial, alleging that the interest rates and fees had been usurious – exceptionally high in cost. Palm Beach County Circuit Judge Jack Cox ruled March 9 that the rates and fees were not usurious. Some other aspects of the lawsuit may go forward, but the usury allegation was a major piece of it.

“The discount fee, origination fee and facility fee constitute interest for purposes of the usury statute. The interest reserve, however, cannot be added in more than once, which is what the plaintiff’s calculation attempts to do,” Cox’s order states. “Any attempt to include the interest reserve as additional interest under the Spreading Statute, and then added that number to the 8 percent stated interest rate, would be double counting.”

Fort Lauderdale attorney Tom Angelo represented BuilderFinancial in Goldstein’s suit.

“It’s important because there are other cases out there in South Florida where borrowers are trying to escape their obligations by asserting usury,” he said. “These borrowers are saying we didn’t know what we agreed to pay, therefore we don’t want to pay you back.”

Business leaders among investors

On the investor side, plaintiffs against BuilderFinancial include Joe Berardino, former chairman of Arthur Andersen; Hal Beretz, former president at Phibro-Salomon (later Salomon Smith Barney); William Grayson, former senior VP at Macy’s; the Albert Miniaci and Beatriz Miniaci revocable trust funds, and the Alvin Sherman Trust. The Sherman and Miniaci names are prominent on the research center and theater at Nova Southeastern University.

The original complaint in the case alleged that Builder Funding, a mezzanine loan fund established in 2000, sold $99 million in investment units and borrowed an additional $100 million. When the investors were told in June 2007 that the fund was being liquidated, they also found out that fund manager and parent company BuilderFinancial Corp. (BFC) had not disclosed some of its compensation to investors, the complaint alleges.

Todd Levine, partner with Kluger, Kaplan, Silverman, Katzen & Levine in Miami, represents the Builder Funding companies, Heller, Meyer and principal George Henderson Jr.

Levine has said the defendants deny the allegations and that fees were disclosed.

While Heller and Meyer are defendants in the case, they also have investments at risk in the liquidation, the complaint indicates. They and five other defendants owned a combined $32.9 million in units as of September 2007, a chart with the complaint states.

According to the complaint, the $100 million in financing for the fund came from WestLB.

The Pearlman lawsuit was filed by attorneys with Kopelowitz Ostrow in Fort Lauderdale, including David Ferguson. He said the suit has been delayed by several procedural matters, and now includes 50 plaintiffs. | (954) 949-7562