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Wednesday, 29 July 2009 19:09

Investor in Jonathan Creek project claims he was wronged

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A Tennessee man claims he was defrauded of $328,000 by the players behind Cataloochee Wilderness Resorts, a planned mega development in Haywood County that is in the preliminary conceptual stages.

Plans for Cataloochee Wilderness Resorts call for a 4,500-acre development in Jonathan Creek. Five years into the project, however, the developers still do not own any land.

They have neither secured financing for the project nor lease agreements from retailers to occupy a massive shopping center. The project remains controversial due to its scale. Locals have expressed skepticism about it ever coming to fruition.

The lawsuit alleges that Dean Moses, a consultant for the project, got an investor to put up money for down payments on land but then diverted the money to other uses, including the personal gain of Moses and his wife, who live in Clyde. It’s not the first time Moses has courted investors for a speculative development in Haywood County. (see “Lawsuit echoes of past business dealings.”)

John Thornton, a developer from Chattanooga, is suing Moses for fraud, conspiracy, and breach of contract for diverting money earmarked for property purchases to other uses.

Thornton was courted by Moses to invest in the project in 2005. He was first introduced to Moses by a Knoxville attorney, Robert Worthington. Worthington was aiding Moses in the pursuit of Cataloochee Resorts and encouraged Thornton to invest in the project. After their introduction, Thornton met with Moses several times in Knoxville to structure the terms of a joint venture agreement.

The two forged a partnership, creating a corporate vehicle to acquire land for the development. Thornton put up $328,000 to be used for down payments on land, stipulating in the joint venture agreement that if the land deals didn’t go through, Thornton would get his money back, according to Thornton’s suit. The money was held in escrow by a title insurance agency, Investors Title.

After putting up the money, Thornton was told in 2005 that the purchase of property was “imminent.”

“Moses continually represented to Thornton that property was being acquired, that loans were being arranged, that contractors were being contacted, that the projects were moving along,” the suit alleges. But nearly a year later, land had still not been purchased.

In June and July of 2006, Moses arranged two separate transfers of Thornton’s money out of escrow and into a new account.

Moses failed to tell Thornton about the transfers, according to the lawsuit. When Thornton learned of the money transfer, Moses refused to tell Thornton how his money had been used, the suit alleges.

Thornton’s money was transferred into an account held by an entity called Cataloochee Companies. The original entity created by Thornton and Moses had been called Cataloochee Corporation.

Thornton claims the creation of a new entity constitutes another violation of the joint venture agreement. To protect his financial stake, Thornton had stipulated that no additional shares could be awarded that would dilute his 50 percent stake in the development, according to the suit. Moses denies agreeing to such a stipulation.

Along with the $328,000 earmarked for land purchases, Thornton loaned another $275,000 to cover operating expenses for the project. The expenditure of those funds are not contested in the lawsuit.

Arms length

Frank Wood, president of Cataloochee Companies, the entity currently pursuing the development, distanced himself from the lawsuit and from Moses.

“We have absolutely nothing to do with that,” Wood said. “I am not a party to it and absolutely don’t care about it.”

Wood said that Moses is “strictly a consultant” on the project.

In his lawsuit, Thornton objects to the characterization of Moses as merely a consultant, as he considers Moses a major player.

Meanwhile, Moses referred to himself as a “manager” of Cataloochee with the “authority to conduct, manage, and control the affairs and business of the company,” according to Moses’s response to the lawsuit. He also described himself as the primary agent for negotiating deals with property owners, arranging leases with retailers, and securing financing.

Wood said that the company Thornton originally invested in is no longer the developer of Cataloochee Resorts.

“That’s an entity that died,” Wood said.

However, Moses’s response to the suit described Cataloochee Companies as the successor to the original entity created by himself and Thornton, Cataloochee Corporation.

Moses responds

In response to the lawsuit, Moses claims that Thornton isn’t entitled to get his money back because the property deals are still pending. Just because the deals haven’t taken place doesn’t mean they fell through; therefore, there is no reason to refund the money.

At one point, Cataloochee developers had property options on just a few tracts. But those have since expired.

Moses claims that Thornton understood the speculative nature of his investment.

“Thornton was aware that Cataloochee owned no real estate and has no assets other than a business plan and the development plan,” Moses’ reply to the lawsuit states. Thornton “was fully aware of the status, nature, and risks associated with the proposed development.”

Further, Moses points out that Thornton’s loans were to be repaid out of excess funds available — of which there aren’t any.

Moses claims he didn’t need Thornton’s permission nor was it necessary to notify him if his money was transferred out of escrow into another account. He states that the funds were used appropriately “to pay debts and obligations of Cataloochee.”

“Moses denies any fraud or deceit in connection with such transfer,” Moses stated in his reply to the suit.

Moses points out the money in escrow was not actually Thornton’s, but belonged to Cataloochee and had merely been placed in escrow to facilitate property deals. Thornton’s original loan was funneled through Cataloochee on its way to escrow, so when it was no longer needed in escrow, it was appropriate to transfer it back to Cataloochee rather than back to Thornton.

Moses has countersued Thornton for breach of contract. Moses alleges Thornton hamstrung the project by failing to put up more money. Thornton also refused to use his personal credit to help guarantee loans or to help raise additional capital, Moses complained.

Moses described Thornton as “unavailable” and “uncooperative” in advancing the project.

“Moses was left with the task of running the day-to-day operations, as well as arranging for and obtaining loan commitments and all other tasks involved in trying to advance the project’s development,” Moses wrote in his countersuit.

Moses also sued Thornton for defamation for a comment made to the Knoxville newspaper about the suit.

Personal gain?

Thornton is also suing Moses’s wife, Colleen. The suit alleges that Colleen withdrew $52,000 of Thornton’s money from the Cataloochee account and deposited it into a personal savings account in her name at a Blue Ridge Savings Bank.

Colleen was listed as a signatory on the Cataloochee account in Knoxville. Thornton discovered that Colleen was writing checks out of the account and depositing them into her personal bank account, thanks to bank records obtained through his lawsuit.

“Substantial other funds were removed from such account for the personal living expenses of Colleen Moses and Dean Moses,” the lawsuit alleges.

Bankruptcy in the midst

Meanwhile, another player in the Cataloochee Wilderness Resorts development has filed for bankruptcy in Knoxville. Robert Worthington, the Knoxville attorney who introduced Thornton to Moses, has accumulated more than $75,000 in credit card debt and a $240,000 bank loan tied to Moses and Cataloochee Companies, according to bankruptcy filings.

Worthington listed more than $75,000 in debt on six credit cards that he claims were jointly used by Moses, who is listed as a co-debtor for the six cards. Worthington is disputing debt on those cards, with a citation in the filing that they were “used by Cataloochee.”

Moses is also listed as a co-debtor on a $240,000 loan from BB&T. Worthington used his name to guarantee the loan for Cataloochee Corporation.

Fraud lawsuit echoes of past business dealings

Does the name Dean Moses, the subject of a financial fraud lawsuit by an investor in Cataloochee Wilderness Resorts, ring a bell?

It should. Moses was the figurehead behind a string of failed business proposals for the closed-down Dayco factory in Waynesville — a saga that spanned several years and eventually ended in bankruptcy court.

Moses and his business partners created one company after another with plans to develop the dormant industrial site. They solicited capital from private investors and lending institutions, racking up debts on company credit cards in the meantime.

When one company hit a financial dead-end, it was dissolved and a new one created.

The third company in the chain actually landed in bankruptcy court. Undeterred, Moses and his partners created yet a fourth company touting an all-too-familiar development plan. They hoped to leave their debt behind in bankruptcy court while walking away with the property intact and trying again under a new entity.

The bankruptcy court balked and instead ended the cycle by foreclosing on the property. The Dayco site eventually became the property of the Haywood Advancement Corporation and is now a shopping center anchored by Super Wal-Mart.

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