Palm Coast, FL – February 8, 2013 – The U.S. court of Appeals for the Eleventh Circuit has reversed the decision of a lower court. That court had dismissed several fraud lawsuits against Bobby Ginn, Lubert-Adler and affiliated entities on the basis of venue, finding that the lawsuits must be filed in Bahama, not in the U.S. These lawsuits will now move forward in U.S. Court.
The lawsuits included in the appellate ruling were filed by Danna Ballinger on behalf of several plaintiffs who had purchased building lots in Ginn Sur Mer, a $4.8 billion resort developed by Bobby Ginn on Grand Bahama. GSM, and three other Ginn developments (Tesoro and Quail West in South Florida and Laurelmor near Blowing Rock, N.C.), were left insolvent after Ginn defaulted on a cross-collateralized $675 million Credit Suisse loan.
Tesoro and Quail West were forced into bankruptcy and were liquidated. Laurelmor was sold for pennies on the dollar. Ownership of GSM, on Grand Bahama, is now split, part owned by Credit Suisse investors, the rest by Lubert-Adler (Ginn's financial partner). The Ginn and Lubert-Adler joint ventures have been unwound. Ginn is out of the picture.
Only half of the $675 million Credit Suisse loan was applied toward construction of the partially built projects. The rest went directly to Ginn and Lubert-Adler. In a separate lawsuit, the Tesoro/Quail West Bankruptcy Trustee Drew Dillworth recently prevailed when Ginn and Lubert-Adler agreed as part of a settlement to pay $25 million to the Trustee's list of client creditors, many of whom are lot owners who paid thousands of dollars for Tesoro Club memberships to be deposited into an escrow account and held until promised amenities were built. All the amenities weren't built and the escrow account didn't exist. That settlement was reached days before scheduled depositions of several Ginn and Lubert-Adler executives.
194 GSM building lots were sold before sales were suspended by HUD. Most of those lots sold for more than a million dollars. But the promised GSM casino/hotel was never built. The mega yacht marina is empty. Though the basin and canals are dug, there are no piers or marine facilities. None of the planned condominiums emerged from the ground. Construction of one of two promised golf courses remains unfinished. Construction of the second golf course never began. The airport, with its 6,000 foot runway, has been closed. A few homes are under construction, but in spite of the developer's boast that infrastructure development has been completed, new homes require septic tanks. The wastewater treatment facility is not functional.
The legal system is not speedy. The first of dozens of lawsuits against Ginn was filed in May 2007 by 99 Michigan residents. It was subsequently dismissed. Lawsuits fail on either procedural or substantive grounds. They take months, often years to resolve. Ballinger's appellate decision came after a year of waiting.
Early on, the legal sparring is focused on technical issues, such as venue or class certification. Many lawsuits, especially those of the overly broad "shotgun" variety, are dismissed for technical reasons well before the discovery phase. We never get to hear the substantive arguments or see the relevant documents.
The Dillworth lawsuit had reached the substantive phase. I suspect that the $25 million settlement was prompted by defendants' concern over what might be exposed through their executives' depositions or by continued discovery. It may also have been prompted by what must be defendants' diminishing liability insurance pool. Lawsuits are expensive especially when they are numerous and drawn out. It will be interesting to see how that plays out as the Ballinger lawsuits enter the substantive phase.