Commercial developer Scott LaFavre on Tuesday won a $3.8 million default judgment against Medford-based general contractor Niles-Wiese Construction Co. Inc. and its owners.

The company was hired almost six years ago to transform the former century-old 18-hole Albert Lea Golf Club into the Eagle’s Rest housing development.

LaFavre alleged that an owner made false and defamatory statements against him and argued those comments directly affected the sale of lots in the development. This, he said, ultimately led to the foreclosure of the property. He also claimed that the Niles-Wiese owners diverted funds that were supposed to have been paid to subcontractors and instead used them for unrelated purposes.

Freeborn County District Court Judge Steve Schwab wrote in the order that the owners did not file an answer to LaFavre’s claims, and the construction company did not defend two of the four counts against it. The owners and their lawyers have not appeared for the case since February 2012.

“I’m just glad that all the facts can finally be presented, and I appreciate the court’s ruling,” said LaFavre, who now lives in Bloomington, during a Thursday interview.

“My intentions from day one were only for the best for the community to develop this project and for it to be a successful development project for the community and for myself. A lot of things happened that were out of my control.”

Officials at Niles-Wiese could not be reached for comment.

LaFavre hired the company in 2007 after purchasing the golf course for $1.07 million in May 2006 from its Des Moines-based owners. The contract stated once LaFavre paid Niles-Wiese for work completed, Niles-Wiese was supposed to pay its subcontractors for work.

According to court documents, LaFavre paid the construction company for work completed, but Niles-Wiese never in turn paid its subcontractors.

Because subcontractor Rud Excavating never received its payment, it placed a mechanic’s lien on the property in September 2007 and ceased work on the project. This, LaFavre argued in court papers, had a negative effect on the ability to sell lots and the public began questioning the project. Because of the loss in unexpected income, the developers were unable to make payments on their mortgage, which ultimately led to the foreclosure.

LaFavre had made his living as a commercial developer, and Eagle’s Rest was his first foray into residential development.

 

Breach of contract

Schwab stated in the order that Niles-Wiese failed to complete the work on the property as outlined in the contract, and as a result LaFavre was entitled to consequential damages, or damages that would have been realized had the contract been completed.

The court document stated at the time of the breach, Eagle’s Rest had commitments for 22 single-family home lots for $125,000, one single-family home lot for $140,000, one 20-acre parcel for $2 million on which a senior housing complex was slated to be built and five single-family home lots for $100,000 each.

Eagle’s Rest also owned 36 wetland credits attached to the property that were valued at $30,000 per credit. Those credits would have been sold to third parties.

In total, the expected revenue from the sale of the completed lots and the wetland credits was about $6.47 million.

Subtracting from that the expected expenses, Schwab found Eagle’s Rest suffered losses of profits of $3,050,871. Schwab entered a judgment against Niles-Wiese for this amount.

 

Non-payment for improvements

Schwab stated LaFavre had paid about $726,000 to Niles-Wiese to be held for the benefit of the subcontractors. Of that amount, Rud Excavating should have been paid $438,300 but was ultimately only paid $97,110.

The judge said there is sufficient evidence to prove that Niles-Wiese used the payment for a purpose other than to pay the subcontractors, despite knowing that the improvements remained unpaid.

He ordered a judgment against the company as a whole and its owners, Daniel Niles, Gary Wiese and Joseph White for $341,190, representing the amount paid to Niles-Wiese for Rud Excavating that still remains unpaid.

“The court finds that Mr. Niles, Mr. Wiese and Mr. White knowingly absconded with the money and shall also be held liable for the damages,” the order states.

 

Fraud or misrepresentation by omission

The court document stated Niles-Wiese and Niles reportedly knew they did not intend to pay the subcontractors and that they would instead abscond with the money.

Eagle’s Rest claimed the company and Niles misrepresented their true intentions during contract negotiations and that Eagle’s Rest relied upon those misrepresentations when it entered into the contract.

For this, Schwab ordered a judgment against Niles-Wiese and Niles for $385,246.

 

Defamation

Schwab, who was the Albert Lea city attorney before becoming a judge in August 2008, ordered a judgment in favor of LaFavre for $50,000 for defamation by Niles.

According to the ruling, Niles made statements that Eagle’s Rest was not paying Niles-Wiese Construction sufficient funds to pay the subcontractors even though LaFavre had done so.

LaFavre argued the statements injured his reputation and the reputation of the development, which in turn affected the ability to sell lots.

Citing defamation, the court documents quote Niles as telling subcontractors: “LaFavre has only paid us $100,000. He’s screwed us over on this, and I don’t know what to do.”

LaFavre said he lost about $2.1 million of his own money on the development and wishes it could have been a successful development.

Though it is unclear whether he will be able to collect the money from the judgment, he noted he is pleased that something positive is happening with the former back nine holes to be developed by St. John’s Lutheran Home into senior housing that overlooks Fountain Lake and Edgewater Park. He is also happy to see the development of Wedgewood Cove Golf Club on Pickerel Lake in the aftermath.

“I wish I could have been a part of it all,” he said.

“I still believe without a question that the country club property was the crown jewel of the city. With the typography of that, just the location, it would have been, in my opinion, a superior location in town.”