Intelligence

Down and dirty in the Distillery

The Globe and Mail

Toronto's trendy Distillery District has been in such financial disarray that the property managers could not meet employee payroll last fall and the site has required almost weekly financial injections, court documents allege.

The documents were filed recently in a lawsuit by William Wiener, a Toronto businessman who financed the project and now wants it put up for sale to recover his $25-million investment.

Mr. Wiener's partners in the district fired the first legal shot in March with a lawsuit against Mr. Wiener. He has now hit back with a counterclaim against them and two prominent lawyers.

Mr. Wiener alleges that his partners have committed forgery, prepared fake budgets and called in police to kick the Wiener group off the site. He is also suing two senior partners at the law firm of Minden Gross Grafstein & Greenstein, alleging that they, and the firm, intentionally damaged his interests in the project. None of the allegations have been proved.

"Given these circumstances there was a complete breakdown of trust as between the parties," the suit filed by Mr. Wiener claims. "The Distillery project must be sold and the [rival partners'] management and involvement must end immediately."

The Distillery District opened a year ago to great fanfare as the city's new centre for arts and entertainment. Its 44 Victorian-era buildings on the old Gooderham & Worts site were billed as a unique setting for a collection of galleries, cafés and boutiques.

But the future of the project has been thrown into question as the six partners who developed the site battle for control in court. The feud has torn apart the partnership and divided families who have worked together for 40 years.

The legal wrangling pits Mr. Wiener's group, which includes his wife, Lillyann Goldstein, against Mathew Rosenblatt, John Berman, James Goad and David Jackson, who run Cityscape Development and are largely responsible for the district's design. Mr. Wiener has refused to provide any more financing until the legal dispute is resolved.

None of the parties will comment on the legal fight. But documents filed in court portray a project mired in financial trouble and haphazard management. There are also allegations in the original lawsuit that Mr. Wiener was spreading rumours that members of the Cityscape group were involved in drug dealing, secret deals and phony documents. Meanwhile, construction at the site has been shoddy, according to Mr. Wiener's suit, and several tenants are complaining the project has not lived up to billing.

The partners bought the site for $10.8-million in 2001 and expected to spend about $3-million on initial renovations. They all knew each other well and had worked together on several other developments.

Mr. Wiener alleges that he agreed to provide the financing because of his 40-year relationship with Mr. Berman's father, Jules, and Mr. Rosenblatt's father, Reuben, both of whom are partners at Minden Gross. Both men are being sued by Mr. Wiener.

The relationship between all sides was so tight that no one bothered with written ownership agreements. It was simply understood that Cityscape would manage the site, in return for a $200,000 annual fee, and Mr. Wiener would provide financing, in return for a 53-per-cent ownership stake.

The district was already in financial trouble when it opened in May, 2003, according to Mr. Wiener's suit. He alleges that he was shocked to discover the project required an extra $18-million, far more than what he had been told initially. He also claims he discovered that documents related to his initial financing had been altered and that Jules Berman was actively working against him.

When Mr. Wiener demanded more control in return for added financing, he alleges that Jules Berman stated that would happen only "over my dead body." Jules Berman also allegedly gave his son a cheque for $250,000 to launch a lawsuit against Mr. Wiener's group.

The other side alleges that costs increased because Cityscape was so successful in leasing space. They claim Mr. Wiener vetoed other avenues of funding and became jealous of the media attention showered on the Cityscape group.

Mr. Wiener alleges that in October, 2003, Cityscape ran out of money, faced up to $900,000 in debts and could not meet payroll. He agreed to provide emergency financing in return for an increased ownership stake and an agreement to sell the project within six months. He claims the other side agreed, took the money and then violated the deal. He also alleges that some of the Cityscape partners, who co-own three restaurants on the site with Mr. Wiener, have cut themselves sweetheart leases.

The Cityscape group claims Mr. Wiener breached the ownership agreement and knew all about the leases on the restaurants.

By February, 2004, relations had deteriorated so badly that both sides tried to lock each other out of a corporate boardroom and tampered with each others' computers. Mr. Wiener claims the others called in the police to kick his group off the site, and Cityscape alleges Mr. Wiener's group has ordered employees to state their allegiance or risk being fired. Both sides are now suing each other for more than $100-million in damages.

June 5, 2004 at 12:48 PM in UK | Permalink | TrackBack (21) | Top of page | Blog Home