Former Top Executive Hits Baldwin Builders With Lawsuit : Litigation: Ex-division president is seeking at least $35 million in his fraud and breach of contract action against the Newport firm.
In what promises to become an acrimonious and embarrassing lawsuit, a former top executive of Baldwin Builders is seeking at least $35 million in a breach of contract and fraud claim against the company and owners James and Alfred Baldwin.
Robert B. Burns, a corporate vice president and head of Baldwin’s Los Angeles-Ventura division since it was formed late in 1988, maintains in the suit that the Baldwin brothers repeatedly made verbal assurances that he was a 10% partner in all company projects within his division but unilaterally voided the agreements in January.
Burns was one of three division presidents and all three have left the company in the last 45 days: Burns and Orange County Division President Geoff Fearns resigned and San Diego County division president Greg Smith was terminated, according to the suit, which was filed Jan. 25 in Los Angeles Superior Court.
Burns could not be reached for comment but an associate who asked not to be identified said the executive has vowed to “conduct a scorched earth campaign” against the Baldwins.
In support of that assertion, Burns alleges in the suit that the Baldwins attempted to engage Fearns and Smith in a scheme to avoid federal income tax payments in 1993 and intentionally failed to disclose Burns’ partnership agreement to investors in a successful $155-million bond issue that the company sold last year. Fearns’ partnership agreement and at least one of Smith’s partnership pacts were disclosed, however.
If Burns’ claims are upheld, Baldwin’s failure to disclose that Burns had a claim to 10% of the profits from projects in his division could be grounds for suits against the company by bondholders.
Fearns, now an executive with Lowe Enterprises, a Los Angeles pension fund management company, declined to offer specifics about his decision to leave Baldwin but said Burns’ suit “speaks very well for itself.” The suit says that James Baldwin told Burns in November that he and his brother had begun “papering Geoff Fearns’ file” with reprimands and complaints in order to establish grounds to fire him for cause and void his partnership interests. Fearns resigned before he could be fired, however.
Smith could not be reached for comment and officials at Baldwin did not respond to a request for comment on Burns’ allegations.
Although Burns does not offer a reason for the company’s alleged actions, Baldwin revealed its substantial financial problems--including defaults on more than $100 million in debt--in conjunction with its July bond offering. The company is privately held and doesn’t file regular financial statements, but reportedly used almost all of the money raised in the bond offering to repay bank debt.
In his suit, Burns claims that the Baldwins recruited him from his position with a Boise, Idaho, law firm in 1988 by promising, among other things, to make him a 10% partner in the projects under his control. Similar partnership agreements, the suit says, already had been extended to Fearns and Smith.
He said the Baldwins repeatedly put off executing a formal, written partnership agreement, however, and in January told him that a 10% partnership and profit participation “was excessive compared to industry standards.” Instead, the suit says, Burns was offered a 4% “discretionary” bonus and was told that instead of being a partner he was considered an employee who could be terminated at any time with no claim on the profits from projects in his division.
The value of his 10% profit participation in the seven large housing projects in Baldwin’s Los Angeles-Ventura division, Burns alleges in his suit, is at least $35 million.
John Olson, a Newport Beach attorney representing Burns, said he and co-counsel Gary Waldron, also of Newport Beach, intend to seek double damages under a section of California’s labor code that provides for doubling a claim if it can be shown that an employer used false promises to cause someone to quit a previous job and to relocate.
Olson said neither he nor Burns has talked to the Internal Revenue Service about the alleged attempt to avoid taxes that is detailed in the suit. “We haven’t done that, but we are anxious to use discovery to find out more about it,” he said.
In the suit, Burns claims that the Baldwin brothers had asked Fearns and Smith to participate “in a sham tax transaction” that involved the Baldwins transferring to the two certain properties that had been used to secure large loans. In exchange, Fearns and Smith were to sign over their partnership interests in the company projects within their divisions.
As a result, Burns’ suit maintains, the Baldwins and their companies “would be able to avoid (reporting) substantial taxable income” but would later regain ownership of the properties by foreclosing on the loans they secured. Fearns and Smith, the suit continues, would have been “allowed to continue secretly to retain their partnership interests in the projects within their divisions.”
Burns claimed in the suit that such an alleged effort to cheat the IRS is an example of actions that made Burns decide that his bosses “were untrustworthy, dishonest and would be willing to break any promise to employees for their own immediate gain.”
