Las Vegas Sun

March 28, 2024

courts:

Lenders seek dismissal in investor lawsuit cases

Two of the defendants in investor lawsuits involving Las Vegas real estate lender Aspen Financial Services have filed court papers seeking dismissal of the claims.

Aspen is known as a hard-money lender because it pools the money of investors and loans it directly to developers. Unlike traditional bank loans, these are generally riskier deals that carry higher rates of interest for borrowers and higher returns for investors.

Aspen, like other local hard-money lenders, has been hit hard by the recession with numerous borrowers defaulting on loans. Disgruntled investors in Aspen loans have taken millions of dollars in losses and have responded with at least three lawsuits against Aspen since November.

The first case, which includes plaintiff Lois Levy, continues to wind its way through the legal system with lawyers lately trading legal briefs over whether another group of investors, including Joanne Fairchild, should be allowed to intervene against Aspen in the suit.

The second case, led by plaintiff Donna Ruthe, is in its initial stages -- as is a third case with plaintiff the Gorlick Family Limited Partnership and others.

The plaintiffs generally claim Aspen and its owner, Jeff Guinn, failed to look after their interests, engaged in self-dealing and failed to disclose important information about the loans -- allegations disputed by Aspen.

Attorneys for Aspen have now responded to the Ruthe suit, saying it's technically deficient.

“Four plaintiffs, including one who purports to be the attorney-in-fact for seven individuals and/or trusts and/or individual retirement account representatives, launched a 45-page amended complaint with hundreds of allegations and 19 claims for relief,” Aspen said in its reply. “However, despite the volume, people, parties and transactions in the complaint, plaintiffs' claims are undeterminable and incomprehensible.”

Aspen said that Ruthe, as the purported attorney-in-fact for various individuals and entities, should be dismissed as a plaintiff because she lacks standing to bring the claims of the individuals and entities she claims to represent.

Aspen attorneys said the entire lawsuit alleges a unified course of fraudulent conduct against Aspen -- but must be dismissed under Nevada law because it fails to specifically cite instances of fraudulent acts.

“Even assuming the truth of the allegations in plaintiffs' complaint, they simply have not alleged facts sufficient to support their claims,” wrote the Aspen attorneys with the firm Bailey Kennedy.

The attorneys said the investors' request that a receiver be appointed to supervise their loans should be rejected because the state Mortgage Lending Division -- not the court -- is best suited to decide when a receiver should be appointed for mortgage brokers. They noted District Judge Elizabeth Gonzalez rejected a motion for the appointment of a receiver to supervise certain Aspen loans in the Levy case.

Aspen argues fraud, conspiracy and racketeering allegations should be dismissed because the lawsuit fails to spell out in specific detail any allegations that would substantiate such claims.

“Plaintiffs have entirely shirked their responsibility to plead the ‘when, where and how’ that is essential to making a RICO allegation. As plaintiffs failed to do for their fraud-related claims, plaintiffs have similarly failed here to sufficiently identify when any false or misleading statements were made, by whom, to whom, or how any action or non-action taken by Aspen constitutes a RICO violation.”

Aspen attorneys used many of the same arguments in seeking dismissal of the Gorlick complaint.

They argued it, too, failed to allege specific facts to support its sweeping allegations of fraud.

They said in that case that despite the historic collapse in the real estate market in Las Vegas and across the country, a few investors -- among thousands who have invested with Aspen – “have decided Aspen is responsible for their recent losses.”

Also in the Gorlick complaint, another defendant has filed a motion to be dismissed from the case.

Defendant the Britton Group, doing business as ROI Appraisal/Britton Group, suggested the plaintiffs' lawsuit is driven by economic problems.

“Countless individuals and entities that have invested in real estate-related transactions have seen the value of their investments plummet, and are searching for avenues of recovery that were never contemplated at the time of making their original investments,” ROI said in court papers. “This case, insofar as it relates to ... ROI ... is one such instance.”

ROI noted the Aspen hard-money investors aren't the only investors and lenders who are suffering from the decline in the Las Vegas real estate market.

“The current economic situation is so dire that probably every single hard-money loan that closed in 2005 and 2006 is now ‘undersecured’ or ‘underwater,’” ROI said.

ROI also disputed allegations in the complaint that it harmed investors by negligently producing inflated appraisals on property securing their loans.

ROI said the claims against it are barred by the statute of limitations and that the investors in two of the loans at issue had invested in the property before receiving the appraisals.

“It boils down to this: it is impossible to rely upon representations contained in an appraisal that you did not have,” ROI said.

And in a third instance, the investors rejected a proposal from the borrower to grant extra land as additional collateral and voted to foreclose on the property.

“Thus, plaintiffs did nothing in reliance upon this appraisal,” said ROI's motion, filed by attorney J. Michael Oakes.

Oakes also said appraisal companies are protected by the “economic loss doctrine” recently spelled out by the Nevada Supreme Court.

Under this doctrine, except in exceptional cases, businesses and professionals can't be held liable for purely economic losses caused by unintentional mistakes.

“The imposition of tort liability against ROI (or any other appraiser in a similar instance) in favor of unknown individuals who would later claim damages resulting from ROI's negligence or negligent misrepresentation would, in effect, cause ROI to become a guarantor or insurer of the borrower's obligation, all for merely having expressed an opinion as to value in exchange for a standard fee,” ROI said. “Imposing unbounded tort liability for this purely financial harm would ... (cause) appraisal fees to become too expensive for the average economic actor to afford.”

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