PHOENIX-After nearly three years, Gray Development Group’s lawsuit against Northeast Phoenix Partners has concluded with a Maricopa County jury awarding Gray Development a judgment of $110.6 million.
NPP's leadership is closely related to executives with Chicago-based Klutznick Co. A number of Klutznick executives are involved in NPP in various ways.
While NPP will likely pay a portion of the settlement in cash, the company’s biggest asset is a 120-acre parcel in the 5,700-acre Desert Ridge master-planned community, and Gray Development plans to take control of that parcel, according to Michael Kibler, an attorney with Simpson Thacher & Bartlett. He represented Gray Development and tried the case with his partner Barry Ostrager.
“We are now known as the judgment creditor, and [Klutznick] is known as the judgment debtor,” Kibler tells GlobeSt.com. “We have the right to take their assets.” However, Gray Development’s ability to gain control of the parcel is complicated by NPP move to assign ownership of the land to a Delaware-based corporation involved with Klutznick Co.
Ed Aro, attorney for Northeast Phoenix Partners, tells GlobeSt.com via e-mail that the judgment was expected. "It is a formality that simply signals that the next phase of this case has begun," he writers. "NPP now has the right to ask the trial court to reject the jury's verdict based on the numerous legal errors that led to that judgment. NPP also has an absolute right to appeal. We are confident that the judgment will be reversed and that in the end the courts will confirm that NPP has done nothing wrong."
The case concerned Gray Development's attempt to develop a 41-acre parcel located in Desert Ridge on Deer Valley Road across the street from NPP’s mixed-use developments, Desert Ridge Marketplace and CityNorth.
Gray Development acquired the parcel for $32 million in 2004 at a state auction and planned to build luxury apartments on the site. During the trial, Kibler presented evidence that Northeast Phoenix Partners abused its powers as Desert Ridge’s master developer to block Gray Development from moving forward with its own project.
The jury agreed that Gray Development’s project was held up by Northeast Phoenix Partners. The total judgment recompenses the firm for money it spent out-of-pocket to try to develop the project, as well as revenues it would have generated over time if it had been able to build the project as outlined in its purchase agreement.
“This case is unique because it is the first in Arizona where a master developer has been held liable for breaching fiduciary duties to other developers who are developing projects in the master planned community,” Kibler explains, adding that NPP not only served as master developer, but the firm also was building a project that would compete with Gray Development’s luxury multifamily project – not only for residents, but also for infrastructure, power and water.
Gray Development gave up on its plans to develop the land after it was unable to receive approvals from the community’s HOA and design review committee and failed to find a bank to refinance the mortgage on it. The firm let the land go back to the state, and today, the land remains virgin desert.
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