Burke, DeLaney implicated in new civil lawsuit

A Baldwin County property owners association (POA) recently filed a lawsuit against the developers and financiers of their subdivision, claiming its more than 200 homeowners were wrongfully encumbered with a $625,000 mortgage on a common lot encompassing their community pool, while the developers also carved out a separate common lot for commercial development and failed to credit the proceeds back to the community.

Lagniappe initially wrote about the circumstances at Daphne’s Bellaton subdivision in 2018 after homeowners organized a fact-finding effort regarding the POA’s finances. At the time, the POA was under the control of builder DR Horton, but the lots were initially platted in the mid-2000s by Country Club Development (CCD) LLC and financed in part by Alabama Capital LLC.

Both companies are named as defendants in the case, along with their respective managers, Clarence Burke and David DeLaney, and several other companies the two have owned or controlled during the relevant time period, including Pennstar LLC, Wolf Creek Industries Inc. and Small Business Management Corporation.

Another defendant company is AC3 Inc., which is owned by Baldwin County developer Albert “Trae” Corte, although the complaint notes Corte himself has not been named in an individual capacity because he filed for bankruptcy protection, “listing the POA and CCD as creditors.”

DR Horton is also listed as a defendant and although it relinquished control of the POA to the homeowners in November 2018, the complaint alleges between 2012 and 2018 it “refused to allow any homeowners to vote on matters involving the Bellaton POA,” while it also “ignored multiple requests by the Bellaton subdivision homeowners to take steps to either challenge the mortgage encumbering the pool property or to seek collection from the debtors on the mortgage.”

Early in Bellaton’s development, former County Commissioner Tucker Dorsey was listed as the POA’s incorporator. Dorsey is a former employee of Burke’s property acquisition company, Magnolia River Management, but has since joined Forestar Group Inc., a DR Horton subsidiary developing the 900-lot Jubilee Farms subdivision on the opposite side of State Route 181 from Bellaton. Neither Dorsey, Magnolia River Management nor Forestar are listed in the complaint. He resigned from the POA in 2011, according to probate court records.

DR Horton was not involved in Bellaton until 2012, when it purchased 45 lots at a foreclosure sale for $1.35 million after CCD defaulted on a $4.2 million mortgage from Peoples First Community Bank. Last December, Lagniappe reported that many of the same defendants ultimately were ordered to pay more than $36 million on defaulted mortgages at Peoples First, a Florida-based bank forced to close by the U.S. Treasury’s Office of Thrift Supervision in December 2009 after failing in the wake of the housing market collapse.

While the POA was incorporated as a nonprofit, the complaint claims DR Horton’s role was “solely profit-related — to completely control all matters involving the Bellaton subdivision while Horton developed more lots and built and sold houses in the subdivision.” It further lists as many as 75 “fictitious” defendants, noting the complaint will be amended to show their true names when their names and capacities are ascertained.

The complaint alleges the defendants, named and unnamed, “form an integral part of an intricate web of multiple concentric layers of companies that are intermingled around and intended, among other things, to conceal the interrelationships among and between, and to insulate from liability, the defendants DeLaney and Burke as the principal actors who have ultimately owned, controlled, managed or directed the operations and financial transactions of these defendants and non-defendants.”

According to an affidavit filed in the Alabama Supreme Court in 2017 as part of a separate fraud case widely reported on by Lagniappe, both DeLaney and Burke owned a 43.5 percent interest in Baldwin County Sewer Service (BCSS) at the time Bellaton was developed. BCSS billed itself as “Alabama’s largest private utility” in a federal court filing seeking a claim related to the 2010 BP oil spill, and its service rates and fees remain unregulated by state or local governments. BCSS is not a party to the Bellaton lawsuit, but it does provide sewer service to the subdivision and most others along the recently developed State Highway 181 corridor, including Jubilee Farms.

While the complex claims at Bellaton will not be repeated here, the complaint includes both previously known and recently discovered material.

READ OUR SERIES OF STORIES ON BALDWIN COUNTY SEWER SERVICE AND RELATED COMPANIES HERE

For instance, the plaintiffs allegedly discovered “within the past month” that in 2012, Burke and DeLaney signed an “Extension Capitalization Agreement” — which is not a public document — rolling accrued interest and attorneys’ fees into the original 2008 mortgage and inflating its balance more than $86,000. The POA claims the mortgage will take nearly two decades to pay off, at a cost of more than $1 million “all for a pool that was worth, when built, $300,000.”

The complaint lists 12 causes of action, including declaratory judgment, willful and reckless misrepresentation, fraudulent concealment or suppression of facts, breach of fiduciary duty, unjust enrichment and conspiracy.

The case has been assigned to Baldwin County Circuit Court Judge Jody Bishop, who has already denied separate motions to dismiss filed by Alabama Capital and DR Horton. As of June 2, only DR had answered the complaint, denying all claims and listing 46 defenses.

Rick Norman, a former U.S. Coast Guard investigator who organized the POA’s effort to research the debt, said although the lawsuit seeks compensatory and punitive damages against the defendants, the POA ultimately would like to be “made whole.”

“We just want our amenity to be an amenity and not a liability,” he said. “Since this has started we’ve paid attorney fees … I don’t think houses are selling as fast as they once were and it’s put a shadow over the community. What’s on paper is pretty damning … it’s outrageous to us and I don’t know if they’ve done this in other communities.”

Norman said if the POA was not encumbered by the mortgage, it could have used its dues over the years to pay for more weed control, repairing sidewalks, a termite bond on its piccolo house, a playground, a fishing platform in its pond or any number of other enhancements.

“We would like to put that back into the community,” he said.