Hospital dreams dashed in real estate fraud scheme

From: The Fort Worth Business Press

September 2, 2011

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By P.A. Humphrey

A Fort Worth physician has vowed to fight on in his legal battle against a fraudulent investment group that currently owes him $10 million and crushed his dreams of a patient-oriented hospital.

Realty Capital Corp. and its founder, Richard Myers, were found guilty in May of defrauding Fort Worth neurosurgeon George Cravens and ordered to pay nearly $7.1 million plus interest, a total of $10 million. In recent weeks, however, the company has filed papers declaring that they are broke and asking the court to waive a requirement that they put up a monetary bond equal to the judgment while the verdict is appealed.

Winning a multi-million dollar judgment against the investment company that promised to help him raise the money to build a state-of-the-art neurological hospital near downtown Fort Worth was a bittersweet victory, Cravens said.

What we were trying to do was create a physician-run hospital where it was physicians overseeing patient services, not just having ownership but having more say in how things were done,” he said.

According to Cravens’ lawsuit, Myers approached Cravens in 2007 with a proposal to raise capital to build the hospital, contending that two of the company’s executives, Darrell Lake and Rian Maguire, had prior hospital development experience. Myers agreed to come up with investors to fund construction and the equity necessary to develop the hospital.

Cravens, who founded the Center for Neurological Disorders at 1319 Summit Ave., owned the adjoining property as a proposed site for the hospital but didn’t have the money to pay construction costs. He eventually agreed to give up control of the property, worth about $3 million, to a general partnership formed by him and Realty Capital and controlled by Myers.

William Redford and Bradford Burdette of Dallas’ Thompson, Coe, Cousins & Irons LLP served as the attorneys for Myers and for Realty Capital Partners.

Donald Herrmann, Brandon Hurley and Megan Cooley with Fort Worth’s Kelly Hart & Hallman LLP were attorneys of record for Maguire, Lake and Realty Capital Corp.

Calls to Realty Capital’s attorneys were not returned.

Realty Capital could do it all: ‘Give us all the pieces; we’ll make it work. We’ve got investors lined up for miles. Your dream will be fulfilled. Just sign here and put your land in as your participating interest,’” said Carter Hampton, Cravens’ primary attorney.

The company convinced Cravens that it needed an interim loan to “get the package together” to qualify for a large construction loan, the attorney said.

They told him the backers would take $150,000 in development costs. After six months, when they had used that up, they took the development fee out of his rent,” Hampton said. “Needless to say, there was no construction loan, no investors, nothing but a set of architectural plans.”

Architectural work had been completed and the Downtown Design Review Board had approved the plan for a four-story hospital and a three-story parking garage, but Realty Capital had failed to attract any investors for the project.

It was when he discovered that Realty Capital had been paying itself a $30,000 monthly developer fee outside the partnership agreement that Cravens finally decided to sue, Hampton said.

In December 2009, the doctor filed suit against Myers, Lake and Maguire, the partnership RCC Medical #1 GenPar LLC, Realty Capital and Realty Capital Partners, contending that they had fraudulently represented their qualifications to find financing and complete construction on a medical facility.

These guys had never built a hospital in their lives,” Hampton said. “We just laid it out. This was not a business deal gone bad; this was more attuned to a scheme. A scheme, by definition, is where there’s no end game; at the end, there’s nothing of value. The jury agreed with us that it was fraud in its inception.”

The jury verdict: Realty Capital, Myers, et al, were guilty of multiple counts of fraud, misrepresentation, breach of fiduciary duty and unjust enrichment. In May, Judge Bonnie Sudderth ordered Myers and Realty Capital to pay more than $7.1 million plus interest.

However, the clock was ticking and time was running out on Cravens’ dream.

When President Barack Obama signed the Affordable Health Care Act in March 2010, the door on future physician-owned hospitals was closed. The law required such hospitals to be open and certified by Medicare by Dec. 31, 2010, or be barred from taking part in Medicare, the health program for the elderly, as well as other federal health 
programs.

We were trying to build a little place where we could take care of our patients, but we were hoping that it would be something that would someday grow into a flagship for neurological treatment, like M.D. Anderson in Houston is for cancer care, to show that this can be done and done right. I think it would have been a big plus for the whole area,” Cravens said.

Now it can’t be done even if we had the money. I’m still trying to get over that – the disappointment that this will never happen. The legal dynamics, that’s a different thing.”

Realty Capital Corp., which was located in Colleyville for much of its life, has been the center of controversy before, especially after its The Village of Colleyville development failed to become a viable commercial center as promised. Then, the company hired former Colleyville Mayor Donna Arp as its president six months after she resigned as mayor in 2003. Arp should have been familiar; she was a member of the tax increment financing (TIF) district board that regulates the taxing district’s funds, and Realty Capital was the largest recipient of TIF tax funds in Colleyville, according to Nelson Thibodeaux, a former Colleyville City Councilman.

Shortly after Cravens filed his lawsuit, Realty Capital Partners announced that it was moving its headquarters from Colleyville to the former Guaranty Bank in Preston Center in Dallas. In a statement, Myers said the company was partnering with Westmount Corp. and repositioning itself to capitalize on distressed assets.

Arp and Myers were rumored to have had a falling out and Hampton verified that Arp testified on behalf of Craven in the recent trial.

After they moved, they made a declaration: ‘Realty Capital is no longer soliciting business because Myers and the others moved to Westmount and merged with these other guys. They have new board members,’” attorney Hampton said. “Snakes shed their skin. They moved to Dallas, changed their names. It’s a whole new company, they say. Unfortunately, we take the position that this is just a continuation of the fraud.”

On Aug. 12, Myers and Realty Capital Corp. filed documents with the court saying that there is no money to pay the judgment and asking that an appeals bond in the amount of the judgment be waived. Under Texas law, in certain types of actions, the court is allowed to reduce the bond when it finds that the full amount of the judgment would cause “irreparable harm” to the 
appellant.

According to Realty Capital’s balance sheet, filed with the court, the company has assets of $479,500 and liabilities of $8.4 million (including the Cravens judgment), making it $7.9 million in the red.

Myers listed personal assets of almost $4.7 million (including a $1.6 million home and $1 million in retirement accounts) and liabilities of $28.7 million (including more than $18 million in “loans in default”). His net worth: a negative $124 million.

So now he says, well, I used to be worth millions … but now I’m worth nothing,” Hampton said.

We’re about to find out. We’re filing our contest. Hopefully, the court will allow us to do discovery and we’ll find out where it went.”

Just nine days after the court filing, on Aug. 21, Realty Capital Corp. announced that the company had now become an employee-owned firm, with Myers, Jimmy Archie, who went to work for the firm in 1997, and Tim Coltart, who joined the firm five years ago, as managing directors.

According to the company’s website, RCC has $10-$50 million in revenue and between 100 and 250 employees.

Currently Realty Capital’s land holdings total approximately 3,000 acres of prime commercial and residential tracts, in various stages of development, including professional office, medical and retail buildings as well as master-planned residential communities,” the website states.

RCC and RCP are still in business, Hampton said.

We’d like to say, these people are still out there. If you want to do business with them, beware. Just beware. I feel very sorry for the small investor who invested with these guys,” he said.

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