$250K settlement proposed after Dragul sues Brownstein Hyatt for $58M

11.30D Dragul happy canyon1

Gary Dragul‘s company previously owned the Happy Canyon Shopping Center along Hampden Avenue in southeast Denver. The property was sold last year. (Marcus & Millichap)

Embattled real estate executive Gary Dragul has gone after his former attorneys — and found the proposed payout lacking.

The founder of GDA Real Estate Services and GDA Real Estate Management, who faces more than a dozen counts of securities fraud, sued Denver-based Brownstein Hyatt Farber Schreck in state court in Nevada in early October, alleging malpractice and breach of contract.

In his lawsuit, Dragul said the firm represented him hundreds of times in transactions between 1997 and 2018 — years during which his operation is alleged to have been operated as a Ponzi scheme. He sought damages of at least $58 million.

Brownstein Hyatt, which denies wrongdoing, has agreed to pay $250,000 to settle the claims. But the firm hasn’t struck a deal with Dragul. Rather, it negotiated with Harvey Sender, the receiver appointed to liquidate Dragul’s businesses in 2018 in the wake of the criminal charges.

No party involved is particularly happy.

Brownstein Hyatt issued a statement: “Facing criminal indictments from the Colorado Attorney General, Gary Dragul tried to use a baseless and malicious lawsuit against Brownstein as part of his years-long effort to shift blame and responsibility.”

Sender spoke to BusinessDen: “The real problem that Dragul has is he lied to all his investors and defrauded them.”

Dragul objected to the proposed settlement in court documents: “Why then would the Receiver settle the claims by offering a sweetheart deal to Brownstein?”

Statute of limitations concerns prompted filing

In September, Dragul essentially asked a court to rule that he could personally pursue claims that Sender was not pursuing on behalf of his businesses.

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Gary Dragul

He named six potential parties of interest: law firms Brownstein Hyatt, Greenberg Traurig and Robbins, Kelly, Patterson & Tucker, environmental consulting firm Terracon, a New York accountant and Elizabeth Gold, his former in-house counsel.

On Oct. 1, the court denied the request, saying it appeared Dragul had not given Sender enough info to determine if the claims were worth pursuing.

Nevertheless, on Oct. 7, Dragul sued Denver-based Brownstein Hyatt and 41 of the firm’s current and former attorneys and paralegals in Clark County, Nevada. The lawsuit alleged malpractice, breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment and breach of fiduciary.

Justifying the decision to sue despite the court’s denial, Dragul said in an Oct. 26 filing that the statute of limitations for some claims was poised to expire, and that his attorneys quickly informed Sender of the lawsuit so Sender could decide how to pursue the claims.

‘Extremely weak’ case, receiver Harvey Sender says

In response, on Nov. 16, Sender asked the court to approve the $250,000 settlement agreement, saying he was “not aware of any facts” supporting Dragul’s claims.

Speaking to BusinessDen, Sender said Dragul’s lawsuit basically amounted to “you represented us, things didn’t turn out well, you must have screwed up.”

“Dragul’s case against Brownstein is extremely weak,” he said.

Contacted by BusinessDen, Brownstein Hyatt issued a statement highlighting Sender’s assessment of the lawsuit.

“While we were prepared to defend the firm and our people, after the Receiver intervened, it made financial sense to settle the case for less than we expected to spend on legal fees,” the firm said. “Furthermore, the Receiver expressly stated that based on his review of Dragul’s records, he believes that none of the claims asserted by Dragul are factually supported or meritorious. Importantly, none of the settlement proceeds will go to Dragul personally, but will instead be used by the Receiver to help make his investors whole.”

The proposed settlement specifically notes that it would not resolve claims Dragul’s businesses have against Benjamin Kahn, a former Brownstein Hyatt attorney whom Sender has described as a co-conspirator in Dragul’s scheme. The settlement states that Kahn left Brownstein Hyatt in 2012, and the claims against him pertain to actions he took after that departure.

The proposed settlement still needs to be approved by the court overseeing the liquidation of Dragul’s businesses, as well as the Nevada court where the lawsuit against the firm was filed.

Dragul has objected to the proposed settlement, arguing some of the claims in the Nevada suit aren’t specific to his businesses, and thus aren’t under the purview of Sender. He questioned why Sender took the effort to say he felt the case against Brownstein Hyatt was meritless, and questioned why the two sides would agree to a payment if that were the case.

“In reality, it is readily apparent from what transpired here that both the Receiver and Brownstein do believe the claims are meritorious, despite the Receiver’s statements to the contrary,” Dragul said in a filing last week.

Dragul has previously criticized Sender over the cost of his services.

Jones & Keller attorneys Christopher Mills and Paul Vorndran are representing Dragul in connection with the receivership. A separate firm, Shumway Van, filed the lawsuit against Brownstein Hyatt in Nevada.

Dragul was indicted on nine counts of securities fraud in April 2018, and five additional counts in March 2019. Trials on the separate batches of charges are slated for March and June, respectively, in Arapahoe County.

11.30D Dragul happy canyon1

Gary Dragul‘s company previously owned the Happy Canyon Shopping Center along Hampden Avenue in southeast Denver. The property was sold last year. (Marcus & Millichap)

No party involved is particularly happy, but the law firm said settling would be cheaper than legal fees.

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