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Patrick Springer, Published November 30 2013

Doctors sue over stalled real estate development

FARGO – Three area doctors are suing a lawyer, a law firm and a bank over a stalled commercial real estate investment planned for the Osgood neighborhood.

The lawsuit was filed in Cass County District Court in late September but was temporarily sealed at the defendants’ request until the judge ordered the file opened last week.

The plaintiffs – Troy Schaff, Matthew Friederichs and Matthew Nelsen – said they were presented in the spring of 2009 with a “low-risk, high-return” real estate investment opportunity.

The as-yet-undeveloped property at the heart of the dispute fronts 45th Street South and is located south of the Calvary United Methodist Church, near Freedom Credit Union.

Defendants named in the lawsuit, filed in Cass County District Court, are lawyer James Bullis; his law firm, Montgomery, Goff & Bullis; Cornerstone Bank; real estate developer Donald Dabbert, and firms associated with the development, Synergy Real Estate Investments and Mercantile Associates.

All of the defendants deny the allegations, which they characterized as “meritless,” and their lawyers said they expect to be vindicated by a jury at trial.

“In hindsight, the doctors got into the Synergy project at the wrong time,” said Todd Haggart, Dabbert’s lawyer. “It turns out the ‘great recession’ did come to Fargo, although later than it did across most of the country. Construction activity and real estate sales and development here ended up taking a real hit.”

Dabbert and Bullis co-founded Synergy in 2006, a company formed to buy a parcel of land for development, and borrowed

$4.5 million the following year from Cornerstone Bank, according to the lawsuit.

Each of the plaintiffs initially invested $125,000 for a 15 percent stake in Synergy and were told that Dabbert would hold 25 percent interest and Bullis would hold 30 percent. The investors were told the property would be developed in two years, according to the lawsuit.

When the deal was closed, in the offices of the Montgomery, Goff & Bullis law firm, the physician investors were told that Synergy had taken out a previously undisclosed loan of $800,000.

That meant each of the doctors was required to make a personal guarantee and ended up with additional indebtedness, they claim in the lawsuit.

Then, according to the plaintiffs, they began to learn about “material misrepresentations and omissions” about their investment in Synergy by Dabbert, Bullis and Cornerstone.

Those included delinquent real estate taxes, “grossly understated” development costs, and what they claim was an inflated appraisal for the property.

The physician investors also claim that, before the closing, Dabbert and Bullis experienced “undisclosed significant financial difficulty,” involving Synergy and unrelated real estate projects and loans involving Cornerstone.

Because of “grave circumstances,” Schaff, Friederichs and Nelsen said they were forced to invest another $100,000 each in Synergy, presumably to “stave off any legal action by Cornerstone” involving its loans for the project.

Later, Bullis and Cornerstone imposed a cash call of $25,000 on each of the three physician investors to cover cost “overruns,” according to their lawsuit.

The plaintiffs’ allegations against the defendants include fraud, misrepresentation, civil conspiracy and breach of contract, all denied by the defendants.

“Don (Dabbert) denies all liability and contends the three doctors who started the lawsuit were never misled,” Haggart said. “Don looks forward to being vindicated by a jury at trial.”

Tom Olson, a lawyer who represents Bullis, said the partners continue to press to develop the property, located in booming southwest Fargo.

“It’s an excellent corridor, but real estate develops when it develops,” he said.

“For some reason, they (plaintiffs) decided to commence litigation instead,” Olson said. “At the end of the day, we expect to be vindicated.”

Pete Fullerton, president of Cornerstone Bank, expressed similar views.

“We’re confident that when the facts come out the court will support us,” he said. “From our perspective, the lawsuit is meritless.”

The lawsuit was temporarily sealed at the defendants’ request due to concerns that disclosures from the litigation could “low ball” selling prices for the property.

The defendants also cited possible damage to their reputations, an argument that Cass County District Court Judge Douglas Herman rejected, saying allegations of fraud and misrepresentation are not uncommon in real estate litigation. The judge also noted that the defendants have been embroiled in litigation against each other in recent years.

“The ‘horse’ of embarrassment over these real estate transactions has long since ‘left the barn,’” Herman wrote in his decision unsealing the lawsuit.

Readers can reach Forum reporter Patrick Springer at (701) 241-5522