An untold chapter in the Morgan saga

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In 2015, Robert Morgan and a former business partner sued Richard Brovitz, a well-known lawyer who had long served as Morgan’s general counsel, accusing him of legal malpractice.

After pursuing the case for four years, Morgan abandoned the lawsuit in March after his attorney bowed out, pleading that Morgan owes his firm a substantial amount that would likely not be paid and the firm could no longer afford to pursue the case. Morgan declined to comment last week. 

The dispute details a curious and previously unreported chapter in Morgan’s career that might shine some light on the beginnings of difficulties that now threaten to bring down Morgan’s once mighty real estate empire. 

Brovitz denies the charges leveled in the complaint and is continuing to “vigorously” fight claims being still being pursued by Morgan’s former business partner and co-plaintiff, Robert Moser, says Kevin Hulslander, Brovitz’s attorney with the Syracuse firm of Smith, Sovik, Kendrick & Sugnet.  

Moser, a Saratoga County-based real estate developer, heads Prime Group Holdings, a firm that owns $1.6 billion worth of self-storage facilities. He did not respond to the Rochester Beacon’s request for comment.

Long history

In court papers, Morgan describes Brovitz as the attorney who for two decades not only represented Morgan’s extensive real estate interests but also handled legal matters for members of Morgan’s family. In his action Morgan sought to win at least $8.65 million from Brovitz personally. Or, in what appears to target Brovitz’s former law firm’s liability carrier, to collect at least that amount from Fix, Spindelman, Brovitz & Goldman, the Rochester firm of which Brovitz had long been a name partner and where Brovitz practiced when the events that sparked the dispute took place. Fix, Spindelman dissolved in 2013. Brovitz now is a partner at Woods Oviatt Gilman.

Filed in state Supreme Court in Saratoga County four years ago by Morgan and Moser, the action claims Brovitz failed to adequately guide the partners through workout deals on $128.2 million in defaulted loans that Morgan and Moser had arranged to refinance for an eight-state portfolio of 17 recreational vehicle parks. The partners contend that Brovitz’s alleged failure to properly advise them unnecessarily put Morgan and Moser personally on the hook to pay $8.65 million of their own money to close out defaulted loans for which they thought they had no personal liability. Legal fees factored in resulted in a damage claim “in excess of ten million dollars.”

The lawsuit also alleges that as a minor partner in a three-property RV park portfolio that was part of the 17 RV parks that Morgan and Moser co-owned, Brovitz’s representation of Morgan and Moser was improperly hampered by conflicts of interest. The RV parks that made up Morgan’s and Moser’s portfolio were either sold or foreclosed on before the claim against Brovitz was filed, the court complaint shows. 

In addition to his own real estate interests, Moser is a director of Green Lake Apartments, a Morgan Communities multi-unit residential complex in the Buffalo suburb of Orchard Park that is one of scores of Morgan-owned properties federal authorities are seeking to take over.

Morgan is currently under indictment by federal prosecutors, accused of bank and wire fraud. His properties, meanwhile, are the object of a Securities and Exchange Commission civil action for running an alleged Ponzi scheme in an attempt to keep his deteriorating real estate empire afloat. 

Short-lived glory

When he and Moser partnered in the eight-state RV park venture, Morgan’s reputation locally and nationally was golden. In the Rochester area, Morgan Management partnered in major local commercial projects with top-tier developers like Buckingham Properties and Christa Construction, and owned scores of residential rental units. 

In 2016, Morgan was negotiating with the city of Rochester to help develop the reclaimed Inner Loop tract in Rochester’s trendy East End by building a mixed-use residential and office complex. As recently as 2017, Morgan and the Rochester Broadway Theater League proposed building a downtown performing arts center. 

Morgan’s reputation began to tarnish in summer 2018 when the Buffalo News broke the first stories of the FBI investigating charges that Morgan’s company was fraudulently inflating values of apartment complexes to score bank financing. His troubles have mounted since then. 

In May, federal prosecutors indicted Morgan on fraud charges, capping an FBI investigation that had already implicated Morgan’s son and nephew in alleged bank and wire fraud. An SEC civil suit, which claimed that Morgan’s efforts to keep his cash-strapped empire afloat included pulling investors into an alleged Ponzi scheme, followed a day after the indictment was unsealed. 

Court papers filed by Morgan and Moser in the legal malpractice claim describe the partners as “exploring potential joint investment in … recreational vehicle properties throughout the Eastern Seaboard and Midwest beginning in the early 2000s.” 

The court action paints Morgan’s and Moser’s RV park business as very good at its start. In 2005, for example, the partners cleared $40 million on the sale of an RV park portfolio, which they turned around and invested in 17-park portfolio, refinancing the purchase a year later with the $128.2 million loan package thatyielded a $16 million payout.  

According to the partners’ court complaint, during the same period “Brovitz began pressing Morgan for an ownership interest in one of Morgan’s real estate ventures,” proposing to pay for his stake with sweat equity earned by doing legal work. 

Unwilling to have Brovitz take a refusal to let him in on an RV park deal as “an affront to the parties’ relationship and a slight of Brovitz’s perceived professional acumen,” Morgan eventually complied, signing over a 10 percent stake in one of Morgan’s and Moser’s RV park portfolios, the complaint states. 

The good times were short-lived. In the throes of the worst economic downturn since the Great Depression, the RV park market after 2008 cratered, putting financial strains on Morgan’s and Moser’s heavily mortgaged portfolio. By 2010, the refinancing loans, written by Barclay’s Real Estate Capital Inc., went into default. Morgan and Moser hired a loan workout specialist and the loans eventually ended up overseen by LNR Partners, a firm specializing in servicing loans. 

A complicated situation

Over time, Morgan and Moser were able to sell off properties and partly pay off some but not all of the $128.2 million in loans, the court action states. Some two years into the workout, an RV park portfolio securing a $36.3 million tranche of loans, which financed the three RV parks in which Brovitz was a partner, fell to foreclosure. 

Workout terms with LNR initially included a forbearance agreement staying foreclosure for two years with the RV parks’ cash flow going to LNR. Some of the parks were still losing money in 2012 when LNR started the foreclosure action. To extend the forbearance agreement for another six months while the foreclosure proceeded, LNR demanded $5 million in cash collateral. 

Terms of the initial, $128.2 million package of loans did not call for Morgan and Moser to personally guarantee them and the partners resisted putting $5 million of their own money on the line, “a fact they made abundantly clear” to Brovitz, the court complaint claims.

Nevertheless, as Morgan and Moser tell it, Brovitz convinced them to lay out the cash, inaccurately leading them to believe the $5 million was a sort of security deposit that would be returned to them if they did not impede the foreclosure.

As it turned out, the cash collateral agreement was not that simple. Terms called for each RV park securing the loan to be operated as a standalone property. If funds from the various RV parks were commingled, the $5 million would be forfeited, a feature that Morgan and Moser claim Brovitz failed to inform them of. 

To make matters worse, Morgan and Moser assert, LNR, “emboldened by its stranglehold on (Morgan’s and Moser’s) $5 million (and) disinclined to negotiate further,” insisted on payment of an additional $3.65 million to secure the release of LNR’s recourse claims against the partners, bringing Morgan’s and Moser’s out of pocket costs to $8.65 million. 

For that, the partners blamed Brovitz and the Fix law firm. 

As various court papers describe, Brovitz as a legal adviser pulled in hefty fees and as a minor partner made some $700,000 as his share of a $16 million payout from the $128.2 million refinance despite, Morgan and Moser complain, his “investment of $0.00.”

In answering papers filed in 2015, Brovitz denies any wrongdoing and contests Morgan’s and Moser’s version of events. 

Morgan and Moser incurred the $8.65 million obligation “in whole or in part” by their own “culpable conduct,” and the partners’ loss was in no way traceable to Brovitz, who “exercised no supervision or control” over their actions, Hulslander says in answer to the partners’ claims.

Besides, adds Hulslander, as sophisticated investors well familiar with terms such as the loan covenants they signed, which were in fact identical to covenants they had signed previously, Morgan and Moser knew or should have known what they agreed to.

LNR’s decision to keep the $5 million and demand another $3.65 million came in part because Morgan and Moser violated agreements they inked with the loan servicer whose terms Brovitz had adequately explained to them. According to Brovitz, Morgan’s and Moser’s breaches of the loan covenant, in addition to comingling funds, included keeping cash the foreclosed properties generated during the six-month extension period that they were supposed to turn over to LNR.

The dispute inched through the court over the next three years as attorneys from both sides jousted over disclosure. Then, in December 2017, Brovitz filed papers asking for the case to be dismissed on summary judgment. Six months later, state Supreme Court Justice Thomas Nolan, in an arguably positive turn for Morgan and Moser, turned down Brovitz’s bid, ruling that there were questions of fact that could be determined only in a trial.

Last December, Morgan’s lawyer—Donald Ottaunick, a Cole Schotz member in the firm’s Hackensack, N.J., office—petitioned the court to be let out of the case. According to a request Ottaunick filed with the court, “despite multiple requests for payment, Morgan failed to satisfy his payment obligations to Cole Schatz with a substantial accounts receivable due.” His request was granted.

On March 15, weeks before being criminally indicted and seeing his properties targeted by the SEC, Morgan, acting without an attorney, inked a stipulation agreeing to give up any claim he might have against his onetime general counsel and to never press such claims again. 

One thought on “An untold chapter in the Morgan saga

  1. “..$5 million would be forfeited, a feature that Morgan and Moser claim Brovitz failed to inform them of. ” That says a mouth full or is that an example of “fine print” that comes around and bites the biters?

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