A Hamilton County Circuit Court jury on Monday added $11.5 million in punitive damages to a whopping compensatory damage verdict for Chattanooga developer Duane Horton. However, a hearing is set on Thursday morning on whether the punitive damages should be thrown out due to "attorney misconduct."
The jury on Thursday awarded $20,599,000 to the developers of Canyon Ridge on Lookout Mountain against a financial firm that allegedly secretly started working on a rival project. The jury at the time also said the plaintiffs were due punitive damages.
The jury late Monday morning awarded $10 million against Sterne Agee & Leach Inc. in favor of Canyon Ridge Resort LLC. It awarded $1 million against one of Sterne, Agee & Leach's former agents, Edmund J. Wall of Atlanta, in favor of Canyon Ridge Resort LLC. It awarded $250,000 against the two plaintiffs in favor of Scenic Land Company LLC.
However, the defense was asking that the punitive award be thrown out because Dallas attorney Robert Manley allegedly asked a witness a question he had been instructed by the court not to ask. Attorney Manley asked Sterne, Agee & Leach CEO Eric Needleman how much money he is paid by the firm. Defense attorneys said it was "part of a continuing pattern of attorney misconduct."
Judge J.B. Bennett said attorney Manley had been told not to ask the question "and you asked it."
Attorneys said the compensatory damage is believed to be the largest verdict award in Hamilton County history.
The lawsuit said some agents involved in a hotel and conference center project at Canyon Ridge on Lookout Mountain began working for a rival project, and neither major project ended up going forward.
The awards are in favor of Canyon Ridge Resort LLC, Singing Sisters Falls LLC and Scenic Land Company LLC.
Another defendant, Grove Street Partners LLC, settled out of court earlier. The firm is based in Atlanta.
The jury last Thursday awarded $8,700,000 to Singing Sisters Falls LLC, $6,899,000 to Canyon Ridge LLC, and $5 million to Scenic Land Company LLC. Developer Horton heads each of the entities.
On Monday morning in the courtroom of Judge Bennett, the jury heard closing arguments from both sides as well as some testimony concerning punitive damages.
Mr. Needleman took the stand and acknowledged that the company lists millions of dollars in assets. Judge Bennett directed that his answer on how much he was paid not be published.
Attorneys for Sterne, Agee & Leach asked for a quick hearing on the punitive damages issue, noting that time is of the essence. The firm announced in March that it was selling its institutional equities business.
The lawsuit initially claimed $35 million in damages.
Judge Bennett declined to award "treble damages." He will rule later on whether the defense will have to pay attorney expenses for the plaintiffs.
Developer Horton, owner of the Scenic Land Company, was initially involved with Randy Baker at Canyon Ridge on a project to build a $100 million Starwood Golf Resort at the location south of the Trenton-LaFayette Highway.
Mr. Horton and other investors in Singing Sisters Falls LLC bought over 400 acres adjacent to the resort site as an investment.
The suit says, "Despite serving as Canyon Ridge's investment banker, its bond underwriter and as one of Canyon Ridge's managers at different times, Wall and Sterne worked at odds with Canyon Ridge and in support of a competing project for their own benefit.
"Grove Street conspired with and, on information and belief, employed Wall and Sterne and joined in their work at odds with Canyon Ridge."
It says a group led by Mr. Baker decided to build a less expensive project featuring a Sonesta Hotel.
Mr. Baker was not a defendant. He was called as a witness by the defense.
The suit says by January of 2010 "everything had fallen into place for Canyon Ridge's project. Canyon Ridge had acquired the land and signed an exclusive Luxury Collection Franchise License with Starwood Resorts. Starwood's outside consultant, Paul Wischermann, performed a financial analysis indicating that the project would be highly profitable, a projection verified by two independent feasibility studies conducted by leading industry experts.
"The Canyon Ridge team was rounded out by the additional support of Ryan Companies, ESG, River Street Architecture and Hart Howerton, a world-class development team.
"Through Singing Sisters, the Canyon Ridge team had also acquired land surrounding the hotel to develop or sell after the hotel opened. Finally, Walker County, Ga., was behind the project, lending its financial support and credit rating to the project's bonds."
The suit says Mr. Baker "fell onto hard financial times and, desperate for funds that the Canyon Ridge project would not provide him, recruited Wall to develop a project more lucrative to himself, Sterne and Wall, to compete with Canyon Ridge's project.
"On information and belief, Wall contacted Grove Street, a commercial real estate development company Wall and Sterne had previously worked with, and enlisted them to assist in creating and promoting a competing project that would be more lucrative for both Baker and Sterne.
"Grove Street, with Wall's, Sterne's and Baker's guidance, planned to build a Sonesta hotel on the same site where Canyon Ridge's Starwood hotel would have stood."
The suit says Walker County eventually backed away from the initial Starwood proposal due to the competing project.
It says Sterne and Wall resigned as Canyon Ridge's bond underwriter on Sept. 15, 2010, but nine days later joined Canyon Ridge's board of managers at Mr. Baker's request "assuming fiduciary duties to CRR despite their clear conflict of interest."
The suit says Mr. Wall's "first act as a Canyon Ridge manager was an unsuccessful attempt to oust Horton as president of Canyon Ridge."
The complaint says, "Next, Wall - while simultaneously serving as a Canyon Ridge manager and working for the competing Grove Street project - reduced the amounts of recovery zone bonds that Canyon Ridge had received from the state of Georgia as part of the hotel development plan. Wall had helped Canyon Ridge execute the request for the RZBs, but did not inform Canyon Ridge of the reduction in the bonds' size because he intended to use the bonds for his competing Grove Street project, which was smaller in size and required a smaller RZB allocation."
The suit says Wall and Sterne "began simultaneously working as Walker County's 'financial advisor'. Accordingly, by late October, Wall and Sterne were serving in, or had served in, conflicting roles as 1) a Canyon Ridge financial advisor and bond underwriter, or a Canyon Ridge manager; 2) Walker County's financial advisor, and 3) on information and belief, working for Grove Street supporting and promoting the competing project. Wall and Sterne repeatedly used their influence in all three positions to thwart Canyon Ridge's efforts."
The case did not involve the Canyon Ridge development and golf course on Lookout Mountain. After Randy Baker left that development, it was taken over by Darryl Mims of Shelby, N.C., whose father had been involved in it earlier.
The trial started after the jury was picked on April 21.