Minor sues Landmark developer

The owner of the stalled Landmark Hotel project on the Downtown Mall has sued the developer over eight allegations of fraud, breach of contract and breach of fiduciary duty.

Halsey Minor, owner of the planned 100-room high-end boutique hotel, filed suit this month against developer Lee Danielson, Danielson’s company, Hotel Charlottesville LLC, and the project’s Atlanta-based lender, Specialty Finance Group.

Minor is seeking $100,000 in compensatory damages, $350,000 in punitive damages and whatever else the court deems appropriate.

It also appears that Minor wants to sever ties with the project, according to the lawsuit. He is requesting the court’s permission to be released from all obligations outlined in the project’s development agreement, construction loan agreement and lease for the hotel’s restaurant.

Minor did not immediately return a call for comment.

The lawsuit alleges that Danielson conspired with Specialty Finance Group to hide the total cost of the hotel project, leaving Minor on the hook for more money than originally agreed.

Suit called ‘smoke screen’

Danielson, who is best known locally for building the Charlottesville Ice Park and Downtown Regal movie theaters, said Minor’s lawsuit is without merit. It is, he said, nothing but a “smoke screen” intended to let Minor escape from his commitments to the hotel project.

“This is just more Halsey Minor,” Danielson said. “Lob hand grenades. Blow everybody up. Create confusion.”

Danielson said he intends to sue Minor for breach of contract and other allegations.

The hotel project has stood dormant for weeks. In late January, crews removed the massive crane that had loomed over the construction site.

In November, Minor and Danielson offered conflicting reports about the Landmark Hotel project’s health. Danielson insisted that it was proceeding on schedule and within the allotted budget. But Minor said that construction would be delayed after Specialty Finance Group didn’t meet its loan obligations. At the time, the bank denied Minor’s portrayal.

The hotel was supposed to open in July. Its future is now unclear. Danielson said he was told Tuesday that the project is “dead.”

A spokeswoman for Silverton Bank, which is Specialty Finance Group’s parent company, said the company does not comment on litigation.

“I’m aware of the latest turn of events, but again, the bank cannot comment on individual projects or projects involving litigation,” spokeswoman Cristi Kirisits wrote in an e-mail. “We continue to stand by the terms specified clearly in the loan agreement between the borrower and Specialty Finance Group.”

According to the lawsuit, Danielson first approached Minor in late 2006 and eventually convinced the former Charlottesville resident — and dot-com millionaire — to invest in the Downtown Mall hotel project, which had been languishing for several years. Under the agreement, the hotel was to include 101 rooms, a restaurant, a private dining club, lobby bar, around 1,200 square feet of meeting space, an outdoor pool, an exercise room, vending areas and all “back of house” space.

No longer a good fit?

Danielson said he thought that Minor would be a good fit to own the hotel, though he doesn’t exactly think so now.

“He’s not really a guy’s guy, but I thought he was the right person because of his background, the fact that he’s from Charlottesville and the fact that he’s sophisticated, well, supposedly sophisticated,” Danielson said.

According to the lawsuit, Danielson had an existing relationship with a vice president of Specialty Finance Group, which has financed hotels and resorts in Georgia, Pennsylvania, New York and elsewhere. Danielson recommended that they obtain the Landmark project’s construction loan from Specialty Finance. Minor agreed. And in July 2007, Danielson presented Minor with a term sheet from Specialty Finance Group offering to finance the project and to limit Minor’s personal risk to no more than 20 percent of the project’s price tag.

In August 2007, Minor bought the hotel site from developer Oliver Kuttner for $4.5 million. Less than a week after Minor bought the property, however, Specialty Finance “made material changes” to the term sheet that “significantly increased Halsey Minor’s exposure to personal liability under the proposed loan,” according to the lawsuit.

Despite the changes, they continued to proceed with the project. In March 2008, Specialty Finance Group lent Minor $23.7 million for the hotel’s construction.

According to the lawsuit, Danielson and Specialty Finance Group colluded and “actively concealed” the cost of certain construction features to hide the project’s true price tag. “[Danielson] did so to induce Halsey Minor to accept the Construction Budget because [Danielson] and [Specialty Finance Group] knew that Halsey Minor would be required to personally guaranty the construction loan.”

Less than 45 days after the loan closed, Specialty Finance Group notified Minor that the loan was out of balance because of the omissions. The lawsuit says that Minor had to pay $1.8 million more for these items, increasing his investment to $6.8 million, over and above his originally agreed upon liability.

Additional features

In October 2008, Danielson told Minor that the project needed an additional $3.3 million to pay for features such as a penthouse lounge, plumbing fixtures, elevators, fire protection, an HVAC system, glass shower doors, structural steel, tile, wood flooring and more. The items, the lawsuit asserts, should have been included in the original budget. The additions resulted in a $5.2 million change order request by the project’s contractor.

Specialty Finance Group insisted that the project proceed, despite the higher costs, the lawsuit alleges. The bank wanted to protect its reputation by showing that the Landmark Hotel project was on schedule, the lawsuit says.

Minor fired Danielson in mid-November, after the project’s problems had gone public and both men made disparaging remarks about the other in the media.

Danielson says the project was working out and he wanted to continue. He criticized Minor for pulling the plug, leaving around 150 workers without a job shortly before Christmas.

Danielson said he offered to give Minor a “couple million bucks” to step back from the deal, possibly taking a backseat role in the project. Minor declined, Danielson said.

“We could have salvaged this thing very easily in September or October,” he said. “Halsey didn’t want to hear it. He just turned his back.”

Minor’s legal entanglements do not end with the Landmark Hotel project. He is also suing international auction house Christie’s for fraud and breach of contract. That lawsuit alleges that Christie’s failed to return artwork to him in a timely manner, harming his ability to sell the pieces worth an estimated $25 million.

For their part, Christie’s sued Minor on Feb. 2 for allegedly failing to pay for three paintings of horses — “A Rearing Stallion” by Anthony van Dyck, “Antinous” by George Stubbs, and “Flying Childers Held by a Groom” by Thomas Stringer — that cost than $7 million.

Another auction house, Sotheby’s, sued Minor in September after he did not pay $16.8 million for three paintings, including “The Peaceable Kingdom with the Leopard of Serenity” by Edward Hicks. Minor filed a countersuit that said Sotheby’s had hidden its financial stake in the paintings’ sale. Minor’s countersuit was dismissed Jan. 9.

Minor is also facing a lawsuit by a private finance division of Merrill Lynch Bank & Trust Co. The bank alleges that Minor failed to pay back $25.23 million he borrowed and that Minor sold off artwork that he had put up for the loan’ collateral.