Arbitrator says Point Ruston must pay $11.5 million to lender that sued in Superior Court
Editor’s note: This story published inadvertently over the weekend while some facts were still being verified. Some new information developed earlier this week that is now included in the story.
A judge ruled regarding a $11.49 million arbitration award against the Point Ruston project Friday as part of a lawsuit that accused the project of trying to defraud a lender.
That lender, AURC, represents 132 immigrants who invested a total of $66 million in the project as part of a visa program that would allow them to get green cards.
“It’s individual human beings that are not being repaid,” who each invested $500,000, said Russell Knight, an attorney who represented AURC.
Point Ruston Phase II initially made interest payments as part of the agreement but then stopped and transferred properties to various other limited liability companies, court records alleged.
Point Ruston needed the lender’s consent for such transfers, the lawsuit argued.
“They happened secretly,” Knight said. “They happened without AURC’s consent.”
Point Ruston developer Loren Cohen told The News Tribune last year the project had $600 million in total financing and $450 million in ongoing construction projects. The 97-acre residential and retail development straddles Tacoma and Ruston along Commencement Bay.
The properties at issue are essentially the movie theater, grand plaza, restaurants that face the grand plaza, and the parking garage, Knight said.
The court ultimately sent AURC’s lawsuit to arbitration, and the arbitrator awarded $11.49 million, finding Point Ruston “had actual intent to hinder, delay, or defraud AURC.”
Pierce County Superior Court Judge Timothy Ashcraft ruled Friday on a motion to confirm that arbitration award against eight entities that own the project.
Knight said the judgment is the largest entered against the Point Ruston project so far and pointed out that it only represents the interest AURC is owed. Point Ruston still has to pay the $66 million, which is due in 2024.
Jack B. Krona Jr., an attorney who represented Point Ruston, said in a statement about the ruling Friday: “... there was a dispute over an interest calculation and amounts owed to a construction lender for Point Ruston Phase II, LLC. Although the court has not yet entered any order or judgment, the interest-calculation issue will be resolved by court soon, and then we will decide whether to appeal the calculation. Either way, a math-and-interest issue is likely not a matter of much interest to your readers. Nevertheless, Point Ruston Phase II, LLC plans to pay-off any monies related to this matter at some point early next week even if Point Ruston Phase II decides to appeal.”
Knight said in a statement to The News Tribune: “An $11.4 Million judgment is not a ‘dispute over an interest calculation.’ Point Ruston adamantly fought this case, arguing that it did not have to pay any interest on the loan. The Arbitrator rejected that argument. As a result, Point Ruston now has to pay the full $5.6 Million due under the loan plus an additional $5.2 under a penalty default interest provision that could have been avoided had Point Ruston just paid the interest from the beginning. With the attorney’s fees and costs awarded to my client, the total judgment is over $11.4 Million. Point Ruston’s failure to honor its contract resulted in a judgment well over twice the original interest due.”
Then Krona filed a motion to dismiss the lawsuit Monday that argued in part: “Both sides agree that the total amount due under the final Arbitration Award is $11,499,489.57. ... Tendering payment of this amount ends the controversy as there is nothing left for the court to decide.”
In another court filing Monday Krona argued: “This matter is time sensitive and of great importance to defendants and they request hearing on the matter before the court enters any order confirming the award or entering judgment. ... Judge Ashcraft indicated that he was working on his own order using Word versions of the submitted proposed orders and would enter an order this week.”
A court filing from Knight that followed said the defendants handed over a check Monday and called Point Ruston’s motion “a thinly veiled attempt to reargue the Motion to Confirm the Arbitration Award and enter judgment, which this Court ruled on last Friday. ... Once the funds are verified, the proper procedure is to file a full satisfaction judgment, not to seek dismissal of the case.”
It went on to say: “Plaintiff asks that the Order Confirming the Arbitration Award and Judgment ruled last week be entered.”
Another one of Point Ruston’s recent court filings in the case argued in part: “Here, Defendants were forced to arbitration on a quick fuse and forced to defend a number of transactions without the benefit of the Manager who made the decisions, because he died of cancer during the middle of this dispute. Defendants do not believe many of the ‘reasons’ for the award are supported by substantial evidence; they are contrary to the great weight of the evidence; and the Arbitrator made a number of fundamental errors in the ‘evidence’ he considered, including hearsay ‘evidence’ ... .”
The brief went on to say: “due to the limited nature of an appeal, and the purpose of arbitration, an Arbitrator’s award is not required to be supported by substantial evidence and there is no real opportunity to appeal bad decisions.”
Knight said it was significant that the arbitrator issued that award against all the LLCs that own the property, not just Point Ruston Phase II.
The arbitrator noted the transfers were made from entities controlled by the Cohens to entities also owned by the Cohens.
“... the transfers and obligations resulted in it (PR II) becoming essentially a shell entity, unable to satisfy its obligations to AURC except as it may receive funds from the entities to which the properties were transferred, an uncertain prospect that does not secure AURC,” the arbitrator wrote in part of the decision.
Another part of the decision explained: “... after the transfers, the debtor’s remaining assets were unreasonably small; and the debtor reasonably should have believed it would incur debts beyond its ability to pay as they became due, since after the transfers, PR II was left with no assets from which to pay AURC.”
‘Point Ruston itself won’t go anywhere’
Knight said earlier this month that it was likely the property would be sold at auction or that there would be a sale by agreement.
A judgment means that the lender could foreclose and that if Point Ruston didn’t pay, the properties would be sold at auction.
“The other option is that maybe Point Ruston just pays the judgment,” he said.
A subcontractor owed money for work on the parking garage previously foreclosed on that part of the project in a separate case. A three-judge panel of the Washington state Court of Appeals affirmed the arbitration award and trial court’s judgment in that matter last week.
After a one-year redemption period expired without Point Ruston paying to reclaim it, Knight said the subcontractor, Serpanok, is the title owner.
“Serpanok is the title owner of the garage as a result of its foreclosure,” Knight said. “That does not change the first position deed of trust that AURC has on the garage, so if the garage is ever sold, AURC will be paid before Serpanok.”
However, he said visitors to the garage and other parts of Point Ruston won’t see a difference as a result of Friday’s ruling.
“Point Ruston itself won’t go anywhere,” he said. “The project will still be a public space that people can go.”
Jurors previously found that Cohen’s father, Point Ruston developer Mike Cohen, violated state securities law by making misrepresentations or omissions to investors, The News Tribune reported in 2015.
In that lawsuit, jurors awarded investor William Newcomer more than $2.3 million, not including interest or attorneys fees.
Newcomer invested in a luxury apartment and condominium project near the Tacoma Mall.
Among the allegations in his lawsuit was that Cohen didn’t properly disclose that he borrowed money from the Point Ruston project and put it into the apartment project, charging as much as 20 percent interest, The News Tribune reported.
Newcomer said investors lost their money, but that Point Ruston got its money and the interest back.
Loren Cohen, legal adviser to the family business, told The News Tribune at the time that his father was among the six investors in the project that lost their money.
Mike Cohen, who died last year, argued the Great Recession played a significant role in the apartment project’s troubles.
This story was originally published September 28, 2021 at 12:45 PM.
