In the summer of 2009, the end was near for Opus East.
The Maryland company had landed a lucrative deal to build a research center for the National Oceanic and Atmospheric Administration in College Park, but construction disagreements arose, and Opus ended up suing the U.S. government. The Rockville firm, the eastern arm of a Minnesota-based real estate empire, was running short of cash.
Frustrated at what they termed in court papers as abusive behavior by the government, owners of Opus East tried to salvage the NOAA deal. They had already spent millions of dollars of their own money on the project and borrowed another $55 million. So they sold their interest in the NOAA project, including a 268,762-square-foot lease, to a new company. They called the company GAMD LCC, short for “Government A--holes in Maryland,” according to lawyers involved in the dispute.
Two days later, on July 1, Opus East filed for Chapter 7 bankruptcy, liquidating its holdings and leaving more than 2,000 creditors out as much as $600 million, court records allege.
Nearly five years later, the actions of the Opus East owners in the weeks and days before the company vaporized are simmering in bankruptcy court in Delaware. Some creditors have been repaid, but others are appealing to the trustee for the Opus estate to reclaim as much as $300 million, alleging that the owners of Opus East, founded by Minnesota magnate Gerald Rauenhorst, ferreted away as much as $85 million in cash and assets, leaving Opus East unable to pay drywallers, landscapers, painters and concrete companies that had worked on projects in the District, College Park, Manassas and elsewhere on the East Coast.
Lawyers for the defendants, companies controlled by Rauenhorst family trusts, say Opus’s owners acted in the company’s best interests, that the economy caused unexpected losses and that the claims are without merit. They argue that the transactions were appropriate and properly managed. Gerald Rauenhorst had retired at the time the transactions occurred. The trial is scheduled to resume Monday.
During flush times, Opus East was highly profitable, in large part because of the big bets it made on some of the Washington area’s up-and-coming neighborhoods.
At the peak of the market, cranes were at work on Opus projects across the region: In Manassas, Opus started building a shopping center, Hastings Marketplace, anchored by a Harris Teeter supermarket. In the District, Opus broke ground on a 10-story office building at 1015 Half St. SE, near Nationals Park.
When the markets turned, however, Opus East was one of the few major Washington area developers to go belly up, and evidence of its woes was strewn around the region during the financial collapse. The Half Street office building, for instance, was left as a skeleton outside Nationals Park.
The NOAA project has become a main component of the case, not only for its raw visibility in College Park — where construction lingered for four years — but also for the central role it played in the viability of Opus East during the company’s waning days.
Court records show that the NOAA project was sold to GAMD for $100,000, plus the rights to $400,000 of any damages recovered in the suit against the government (none were ever ordered). The lease rights carried more than $50 million in liabilities related to a construction loan, attorneys said.
A trustee for the former company’s estate who is one of the plaintiffs, Jeoffrey L. Burtch, alleges in the lawsuit that the project was much more valuable than that, and alleges that the transfer was an example of how the company’s ownership saw the storm clouds gathering and quickly drained Opus East of assets, protecting family interests before filing for bankruptcy.
Among the other allegations are that ownership improperly transferred $33.5 million from Opus East to companies owned by two Rauenhorst family trusts and that another $35 million was improperly transferred to the two trusts, benefiting Gerald Rauenhorst’s children and grandchildren. The plaintiff, Burtch, also says the NOAA project was actually worth as much as $16 million, for a total of $85 million that he says should have remained with Opus East.
Attorneys for the defendants take issue with the valuation and insist that the terms of the deal were fair.
Patrick Coffin, an attorney for the trustee and managing member of the Dallas law firm Coffin & Driver, said in an e-mail that the actions of the former Opus East owners were even more egregious because they quickly reorganized their real estate business in Minnesota.
“Prior to dumping Opus East into bankruptcy, the Opus insiders cherry-picked the most valuable assets and left hundreds of millions in unpaid claims. After shedding these obligations, the same group of people continue to do business today as the Opus Group,” he said, summarizing claims made in the court documents.
A similar suit against Opus West, another unit of the Opus Group, was settled for $45 million shortly before going to trial in 2011.
An attorney for the defendants in the Opus East case, John Gordon, partner at Faegre Baker Daniels in Minneapolis, said “the substance of this complaint is absolutely without merit.”
Gordon argued that Opus East ownership did everything it could to save the company. Payments in the form of dividends and charitable contributions were part of the normal course of doing business, before Opus East became insolvent.
“This was a real company that developed real estate successfully for 15 years as the entire real estate development industry did,” Gordon said. “It took a terrible hit when the recession occurred and it went into bankruptcy. But that does not prove that anybody did anything wrong and it doesn’t prove that the complaint in this case has any merit.”
“We have not seen a single creditor march into this courtroom, swear to tell the truth, and say that they got cheated by any of the defendants. That has not happened,” Gordon added.
According to court records, the creditors seeking payment include a concrete company from Lehigh Valley in Pennsylvania, which claimed $992,826 in unpaid foundation work. Owners of an electrical firm claim they are out $303,424 for their work installing lighting, a fire alarm system and other features. The grocery chain Harris Teeter alleges it is owed money for improvements it was forced to make to open the store in Manassas.
Today, the Opus Group, based in Minnetonka, Minn., shows more than 75 real-estate projects on its Web site. It lists offices in seven other locations nationwide, but none on the East Coast.