Vegas Buyers Sue Developers After Condo Projects Cancelled

In this hot housing market, buyers claim they were kept out of condominium deals by companies behind two developments that were halted after deposits were accepted from potential homeowners.
By: Dan Ackman: The Wall Street Journal Online
With housing price growth slowing, home sales declining and interest rates and inventories of unsold homes rising, one might think buyers would be itching to exit condominium contracts any way possible. But in Las Vegas, a hot spot of the housing boom that has only recently started to show signs of cooling, some buyers are suing to stay in.

In one lawsuit, would-be condo buyers are suing the developers of the Vegas Icon condominium project - affiliates of the New York-based Related Companies - which announced plans to build and then cancelled the project. In another, filed by the same group of lawyers and settled last week, the plaintiffs had entered into reservation agreements, which involved putting some money down, to buy units in a project called Vegas Grand, just off the Las Vegas Strip, at specified prices. But the developers, Del American, based in Altamonte Springs, Fla., cancelled the reservations.

The plaintiffs allege the Vegas Grand developers needed pre-sales to obtain financing for the 880-unit project. In late 2003, they sold so-called reservations and then sent the buyers letters congratulating them on their new home purchases and urging them to tell their friends to buy as well. In April 2004, say lawyers for the plaintiffs, the developers issued a press release announcing they had "sold" 740 units and that sales were continuing at a brisk pace.

But in May 2005, the developers said they were canceling the reservations in order to get out of ballooning construction costs. David Oliver, lead lawyer for Del American, says condo reservations are generally cancelable by either party. But because Nevada has no intermediate appellate court, the issue has not been settled there as it has been elsewhere. Because there's no intermediate appeals court, "there is very little law on just about anything," he says. "It's the Wild, Wild West and it's not a good place to be a condo developer."

A settlement in the lawsuit was finalized on Friday, according to Thomas Foley, one of the plaintiffs' lawyers. The developers have agreed to pay the plaintiffs 2.5% of the sale price on each of the 880 units.

In the Related case, the condo buyers were geared up to buy units in the Icon Towers on the Las Vegas strip. These plaintiffs say they signed contracts to buy actual units (as opposed to reservations). But in January, the developer informed them that it was canceling the project and offered to refund their deposits. The plaintiffs allege that the land on which the towers would have been built, along with the related zoning variances, could be transferred to other developers, and that Related is seeking a buyer to do just that. The plaintiffs' implication: that Related could make more money by selling the land to other developers than it could by adhering to its contracts.

Lawyers for the Vegas Icon buyers say that their contracts are binding even if the project is not built. They say any substitute developer would be well-served dealing with their clients who remain eager to close a deal.

"If the new developer buys the property, builds it out, the class members should get to buy the units," Mr. Foley says, adding that his clients should also be able to collect damages from Related. Related and their lawyers declined to comment for this article.

The Legal Players:

The plaintiffs in both cases are represented by Craig Anderson of the Las Vegas firm Marquis & Aurbach; George West III of Las Vegas; Donahoo & Associates of Santa Ana, Calif.; and Foley Bezek Behle & Curtis, a class action firm from Santa Barbara, Calif.

Related is represented by Hilarie Bass, the national chair of the litigation department at Greenberg Traurig. Del American is represented by David Oliver, a partner in Greenberg Traurig's Orlando office.

The Vegas Grand case was assigned to U.S. District Judge James Mahan and then reassigned to newly appointed U.S. District Judge Brian Sandoval. The Vegas Icon case has been assigned to Judge Mahan.

State v. Federal:

Cases like these historically were litigated in state court. But because of the Class Action Fairness Act of 2005, putative class actions alleging damages of more than $5 million can either be filed in federal court or may be removed from state court to federal court by the defendants.

The Vegas Grand case was originally filed in a Nevada state court but was later removed. There remain a group of 35 individual actions in state court that have not been settled, Mr. Oliver says. The Icon Towers case was filed initially in federal court in Nevada.

Possible Resolution:

The Vegas Icon suit seems as though it, too, could be settled along the lines of the Vegas Grand case. The plaintiffs could buy if the project gets built, or seek damages from Related, or some combination of the two. But whether the plaintiffs will still want to buy luxury condos in Las Vegas six months or two years down the road remains, well, anyone's bet.