The founders of a well-known development company in Tucson are in hot water after an arbitrator found they defrauded an investor.
And that’s not the end of the legal woes for the founders of the Gadsden Company. They are now facing two separate lawsuits alleging they committed fraud.
In both cases, investment companies allege in Pima County Superior Court they were defrauded by Gadsden Company founders Adam Weinstein and Gerald Dixon, and the companies they control. The lawsuits allege Weinstein and Dixon failed to contribute the agreed-upon assets to two different apartment developments, while still retaining majority control of the businesses.
The Gadsden Company maintains it never committed fraud.
“We don’t believe there was any fraud committed,” said Dennis Wilenchik, an attorney who represents the Gadsden Company.
Wilenchik did not represent the defendants during arbitration, which was required by an operating agreement governing claims like fraud and willful misconduct. He said the arbitrator’s ruling in August 2024 was flawed, but that there is no appeal process.
“The best we can do right now is try to settle the case and try to get them paid and resolve it … there was no fraud committed, and if that were relitigated in a court, we would succeed,” he said.
Court records show arbitrator Richard Mahrle reached a far different conclusion in his decision.
“Gadsden through Weinstein and Dixon committed acts constituting bad faith, fraud, willful misconduct, and intentional misappropriation of funds,” Mahrle said.
Who are the key players in the legal fight?
The arbitration and subsequent lawsuits center on the same key players.
On one side is investor Allen Sands. On the other side are the developers: Weinstein and Dixon. Their spouses, Kira Dixon-Weinstein and Marjorie Dixon, have been named in one of the lawsuits as defendants “solely” because Sands’ company alleges “Weinstein and Dixon’s actions were taken for the benefit of their marital community.”
Weinstein and Dixon founded the Gadsden Company, which has been developing the Mercado District since 2008. Located in the historic Menlo Park neighborhood, west of downtown, the vibrant and pedestrian-friendly Mercado District is nestled at the base of Sentinel Peak, known as A Mountain. It boasts retail shops, fine dining, cafes, a Mexican bakery and more.
Some of the company’s projects include the popular MSA Annex, the Mercado San Agustin, and a $110 million mixed-use project to build the Bautista, which is still under construction.
Weinstein, Dixon and their spouses are also managers of another company: Monier Investors Member, LLC. The company developed and now operates the Monier Apartments, a market-rate apartment building in the Mercado District in Tucson, according to court records.
Sands is the manager of a pair of investment companies that did business with Weinstein and Dixon: AWS Opportunity Funds I, LLC provided funding for a Gadsden development project, while IB New Ventures partnered with Monier.
Arbitrator ruled Gadsden defrauded investor
Mahrle, the arbitrator, awarded Sands’ AWS Opportunity Funds I, LLC more than $3.37 million, plus pre- and post-judgment interest and $1 million in punitive damages. He found the Gadsden Company committed fraud, intentional misconduct, and intentionally misappropriated funds.
The case centers on a 59-unit multifamily development called Menlo Park Towers, which was slated to be built at 115 S. Linda Avenue in Tucson.
Weinstein and Dixon approached Sands in 2021 with a proposal for the project. AWS and Gadsden became members of a third company, Block F Investors, for the project.
In Feb. 2022, AWS wired roughly $3.37 million to Block F, which Gadsden managed. Gadsden agreed to contribute land with a value of $2.3 million as well as $1.06 million in cash. But Mahrle found Gadsden never made that cash contribution and used AWS money to pay for the land.
As the months progressed, Block F didn’t provide AWS with monthly financial statements or progress reports of the project.
After a May 2023 court order to allow an inspection of financial records, AWS found that within three months of wiring the funds, the money was diverted to other projects or expenses. That left Block F “with nothing but raw land and no money to develop it,” AWS alleged in court records.
Court records show those funds were used to pay off a lien on the land for the project, as well as cover the salaries of Weinstein and his wife, personal expenses made by Dixon and Weinstein, and Gadsden’s payroll. Funds were also transferred to Weinstein and other related companies under the “guise” of loans, according to the attorney for AWS in court records.
The court appointed a receiver over Block F in February 2024. A receivership is a process where a court-appointed official is charged with taking control of assets to preserve, maintain, or sell them. And in September 2024, the court granted the receiver permission to sell the land to a buyer for just over $1.57 million.
While the arbitration case involved Block F and Gadsden, AWS is also suing Weinstein, Dixon and their spouses in Pima County to hold them personally liable for damages.
Weinstein, Dixon face second set of fraud allegations
Sands’ IB New Ventures alleges in a lawsuit filed in March 2024 with Pima County Superior Court that Weinstein and Dixon’s Monier has been mismanaged. The investment company also alleges that not all its funds have been repaid.
In 2018, IB New Ventures said it provided an initial $2.23 million loan to Monier and entered an agreement that the loan would be repaid before any other member of the company received repayments or distributions, according to court records.
According to the agreement, Monier had seven members, each contributing different amounts and each having a different percentage of control in the company. IB New Ventures alleges that it was the only member that completed its required contributions.
In its complaint, IB New Ventures claims Weinstein and Dixon contributed zero capital to the project despite agreeing to provide over $3.5 million.
Part of the contribution from Weinstein and Dixon was supposed to include land for the project. They allegedly said the land had a value of over $3.5 million.
However, court documents indicate Weinstein and Dixon didn’t have land to contribute. Instead of contributing the land themselves, they had Monier borrow a $2.4 million loan from special taxing district Rio Nuevo to buy a portion of the district’s land — a loan that was not disclosed to IB New Ventures, the company alleges in court records.
“They did not disclose to IBNV that they not only did not pay for the land, but that they were “marking up” the purchase price of the land by 46% to inflate their capital contribution,” said attorneys for IB New Ventures in the complaint.
The complaint also alleges that Monier failed to make monthly interest payments to IB New Ventures for two loans, accruing outstanding interest, and late fees.
To repay its creditors, Monier took out an additional loan from a finance company, making the lender a new member of Monier. In doing so IB New Ventures alleges Monier changed the operating agreement without its knowledge. Instead of IB New Ventures recuperating its money before other members, the operating agreement states the new lender is to be paid before other members.
“Dixon and Weinstein caused Monier to repay their personal debts and materially altered IBNV’s rights and membership interest … without IBVN’s knowledge or consent,” states the November 2023 application for appointment of receiver.
Monier paid back the IB New Venture loan and the accrued interest, but refused to pay back late fees, renewal fees, or attorney fees, court documents allege.
IB New Ventures is suing for damages, claiming breach of contract and fraudulent misrepresentation, among other claims.
Weinstein and Dixon maintained that Monier lawfully adopted the amended operating agreement, an amendment which the company says was necessary to obtain funding to pay back IB New Ventures, according to a motion to dismiss from January 2024.
What is happening now?
AWS is suing to hold Weinstein and Dixon personally liable for damages in Pima County Superior Court, a case which is currently pending in the court.
IB New Ventures is seeking to place Monier under a receivership.
Wilenchik, the attorney the Gadsden Company, maintains there is no basis for a receivership.
“There’s no money being removed or wasted, and they’re going to spend more money with a receiver than it’s worth,” he said, adding that the process could hamper his client’s ability to pay IB New Ventures.
A trial was held on April 1 and April 2 on IB New Venture’s request for a receiver.
From azcentral.com – Read the article here