Scarsdale home builder Howard Blitman has partnered for three decades with brothers Alex and James Goren, based on a simple oral agreement: Profits and losses would be shared equally.
“The oral agreement was the source of millions of dollars of profit, and sometimes millions of dollars of loss,” the Gorens assert in a recent lawsuit, “but it was always ratified and confirmed by words and deeds.”
But that trust collapsed over their latest project, in Saratoga County, and with a bankruptcy filing by Blitman”™s namesake business, Blitman Saratoga LLC, White Plains.
Blitman lost control of the Saratoga development, according to an affidavit filed Nov. 6 in U.S. Bankruptcy Court, White Plains, when he turned the project over to his stepdaughter, Robin Winter.
The Gorens were harsher in a lawsuit filed this past August in Suffolk County.
“Howard, now 94 years of age, tragically lost control of his business and can no longer discharge his ”¦ duties,” the complaint states, due to his infirmities and the “undue influence of his daughter.”
In the Gorens”™ telling, they met Blitman in the 1980s when he was building 300 homes in Montville, New Jersey and turned to them for funds to finish the project.
Their original agreement to share profits and losses equally became the “umbrella” for future collaborations with Blitman Development Corp., White Plains, including projects in Beacon, Cortlandt, Fishkill, Rye and Somers.
The umbrella agreement was “based upon trust, good faith, honor and a handshake,” according to the Gorens”™ lawsuit, “and has withstood the test of time until now.”
In 2012, Blitman Saratoga bought 149 acres in Saratoga Springs for more than $5 million. The plan was to create Beaver Pond Village, with Blitman”™s Changebridge Construction Corp., White Plains, building 77 homes.
Initially, Blitman owned half of Blitman Saratoga, and the Gorens ”“ Alex of East Hampton and James of the Caribbean country Jamaica ”“ owned the other half.
Blitman managed the business, but at some point, the Gorens allege, he delegated management authority to his daughter, failed to supervise her and abandoned oversight of the project.
They claim, for instance, that Winter was paid nearly $1.3 million in “disguised salary” that she was not entitled to, and that she mismanaged the business.
When the Gorens became aware of the alleged wrongdoing, they claim, they discovered that subcontractors had not been paid, construction had stopped or was “exceedingly slow,” and buyers who had deposited $190,000 for homes were complaining about the apparent abandonment of the project.
By then, Blitman owned 15% of the company, having allocated 35% to others. On June 26, the Gorens and minority partners Gary Peresiper, Scott Varley and Thomas P. Keaney voted to remove Blitman as the managing member. Keaney replaced him.
Winter, according to a bankruptcy affidavit filed by Keaney, refused to turn over the business records.
In August, Ballston Spa National Bank served a default notice on two loans, citing “the construction status of Beaver Pond Village” and “corporate governance issues.”
The Gorens and Blitman Saratoga LLC then sued Howard Blitman and Robin Winter for $10 million.
White Plains attorney Eric J. Mandell, representing Blitman and Winter, filed a motion Nov. 6 to dismiss the complaint.
First, he argues, a member of the LLC cannot be held accountable for fraud, bad faith, gross negligence or breach of agreement, under the operating agreement, if the member has not been given an opportunity to cure the fault. No such notice to cure was given.
Second, the operating agreement is the entire agreement and cannot be modified without written consent, thus precluding the purported oral umbrella agreement.
Third, the Gorens are trying to hold Blitman liable for half of the company”™s losses, but he only owns 15%.
Fourth, Winter is not a member of Blitman Saratoga, and therefore does not owe a fiduciary duty to the corporation.
At this point, 56 homes have been built and sold, another eight are under contract, and 12 lots could be developed.
Keaney cited the mortgage default, struggles between Howard Blitman and the other investors, and Robin Winter”™s stewardship of the project in filing a Chapter 11 bankruptcy reorganization petition.
He said bankruptcy will enable Blitman Saratoga to compel Winter to return company records and allow the corporation to reconcile claims by contractors.
The corporation declared nearly $5.9 million in assets and $2.8 million in liabilities. It owes Ballston Spa bank nearly $2 million, and contractors and suppliers at least $686,844.
The company”™s majority members, Keaney says in the bankruptcy affidavit, “are prepared to loan funds necessary to complete construction on the remaining eight contracts.”
Manhattan attorney Kevin J. Nash represents Blitman Saratoga in the bankruptcy case. Massapequa attorney Edmond Russ represents Blitman Saratoga and the Gorens in the Suffolk lawsuit.
