Trial Traces Personal Feud Between Top Developers
He’s one of the nation’s 50 wealthiest men, a prominent philanthropist and a land baron whose empire stretches farther than Southern California itself. He tried to bring pro football back to Los Angeles, counts the mayor among his confidants and regularly hosts Bill Clinton when the president comes to town.
But today, he’ll do what thousands of ordinary people do at the Los Angeles Superior Courthouse: raise his right hand, swear to tell the truth and take the stand to settle an old score.
Eli Broad, founding chairman of Kaufman & Broad Home Corp. and chief executive of SunAmerica, is scheduled to testify over the next two days in a lawsuit involving a failed partnership agreement between SunAmerica and multimillionaire real estate investor Jeffrey M. Gault.
SunAmerica has accused Gault of double-crossing the company by concealing key information on real estate investments, including one involving the Buena Park Mall in Orange County. In addition to punitive damages, the company is seeking $126 million--which it says is how much Gault and other parties profited on the investments.
Yet both sides agree the fight involves much more than the money, which is tantamount to less than 3% of Broad’s estimated net worth of $4.3 billion.
“There’s personal animosity,” admitted Robert L. Clarkson, Gault’s attorney. “Let’s put it this way: They’re not on each other’s Christmas list.”
While it isn’t unusual for industry chieftains to make court appearances, this will be only the third time that Broad, 66, has taken the stand since 1957. That’s because SunAmerica’s legal strategy attempts to keep top executives out of time-consuming courtroom testimony, said a company spokesman.
Broad’s appearance underscores a bitter legal feud that has dragged on for four years and filled 54 volumes to date.
The trial is also plowing new technological ground. Judge Judith C. Chirlin has been forced to rearrange her courtroom so attorneys from both sides can use a large video projection screen, a battery of computers and new software that will allow them to plumb business memos with electronic markers and enlarge contract language line by line.
SunAmerica has gone so far as to hire the trial consultant who helped prepare the government’s visual presentation against Timothy McVeigh, who was convicted of killing 168 men, women and children in the 1995 bombing of the Alfred P. Murrah Federal Office Building in Oklahoma City.
Despite the high-tech glitz, the trial, which began Oct. 6, features a timeless story. One man, Broad, hires another, Gault, to help him expand his business. They become friends. Then either because of miscommunication or intent, the trust between them comes unraveled and both feel betrayed.
The 55-year-old Gault, chief executive of Solus Property Co. and JMG Properties Inc., was hired by SunAmerica in 1990 to scout the country for potential real estate investments. At the time, SunAmerica, an insurance and financial services firm, was eager to expand its portfolio and reach.
According to opening arguments and testimony so far, Gault and SunAmerica got off to a good start. Gault presented the company with 18 potential investments, 10 of which SunAmerica bought into for $300 million.
By the end of 1992, the relationship had gone sour after SunAmerica lost money in a separate investment fund arranged by Gault. After that, the firm passed up 11 proposals by Gault.
Gault testified that the cold shoulder prompted him to pay a personal visit in early 1994 to Broad, with whom he had become friends. Gault said he asked the billionaire if he could be released from his obligation to give SunAmerica the right of first refusal on opportunities he scouted.
That request, he testified, drew a sharp rebuke from a disappointed Broad.
“You’re not of the SunAmerica mold,” Gault testified Broad said to him. “You’re just not my type of guy.”
SunAmerica agreed to release Gault from that obligation effective Oct. 1, 1994. But it later filed suit when company officials discovered Gault had failed to mention two promising investments before the Oct. 1 date.
One opportunity was to buy, fix and sell the Buena Park Mall. As it happened, Gault put his own money into the project with the Chicago-based Pritzker family, which owns the Hyatt hotel chain.
Gault contends he didn’t mention the investments because they weren’t ripe for the picking before the release date. However, SunAmerica accuses him of concealing the deals. The company has also sued the Pritzkers.
Gault and his attorneys are accusing Broad’s company of using the lawsuit to “hammer” Gault until he “breaks” and agrees to sign away an estimated $30-million partnership interest in five hotels he still owns with SunAmerica.
“It’s a squeeze play--a power play--by a big company,” Clarkson said in opening statements last month.
For his part, though, Broad is eager to take the stand not for revenge but to speak on behalf of SunAmerica shareholders, a spokesman said.
“Mr. Broad feels obligated to the shareholders, given the amount of money that’s involved,” the spokesman said.
