Piney Point deal spills out in lawsuit: HRK Holdings being sued over $30M sale gone awry

dgulliver@bradenton.comJuly 24, 2011 

MANATEE -- A Chicago development firm is suing the owners of the Piney Point phosphate site, claiming that HRK Holdings is illegally holding a $250,000 deposit on a failed deal and repeatedly deceived and undercut the developers during their negotiations to buy the site.

Providence Logistics hopes to build a rail hub and industrial park near Port Manatee, and approached HRK in October 2009 about extending road and rail access through the former phosphates plant to land it has a contract to purchase.

Over the next 18 months, the deal swelled to a buyout of the entire site, from the closed gypsum stacks to the fledgling industrial park.

After the near-failure of a reservoir formed from the gypsum stacks, Providence now is relieved at how it turned out.

“Now, in hindsight, are we better off not having bought that portion of HRK?” said Providence’s Jim Mikes, who is a partner and attorney. “It’s certainly not worth what we would have paid.”

That number was $30 million, according to the lawsuit. Instead, the deal collapsed in acrimony just a few months before the problems surfaced, as recounted in hundreds of emails and conversations quoted in the lawsuit.

HRK has refused to comment on the lawsuit. Jordan Levy, HRK’s chief executive, said the company does not comment on pending legal action.

In the beginning

The deal took form in December 2009 when Providence met with HRK’s managing partner, Gary Kania. Providence proposed extending Port Manatee’s dock road and a rail line across the north side of the gypsum stack parcel. Kania agreed it was feasible and asked Providence to prepare the preliminary terms of the deal. HRK would draft the full agreement.

In January 2010, HRK signed off on the terms and Providence wired the company a $100,000 security deposit, according to the lawsuit.

The terms call the deposit “non-refundable” and that it would be applied to the deal. But it also said HRK would retain the deposit only if Providence failed to negotiate in good faith.

Any lack of good faith was HRK’s, the lawsuit alleges.

HRK insisted it would handle all discussions with the Florida Department of Environmental Protection about development near the gypsum stacks, but it never sought the agency’s approval of the plans.

HRK never provided Providence with due diligence materials, such as the value of leases on the site, technical reports on the gypsum stacks or the DEP-mandated costs of maintaining the stacks, the suit said.

HRK mishandled the security deposit, putting it into a general account and eventually using it to pay its fast-growing expenses, the suit said.

By March 2010, HRK had looming bills, the lawsuit claims. Its $16.5 million mortgage with Regions Bank was coming due, it was about to take over gypsum stack maintenance from DEP, it had a $4 million bill from the construction of a fertilizer warehouse, and the contract to accept the port’s dredging materials had to be put to bid again.

HRK first suggested Providence buy an additional $300,000 option for the road and rail access, then in April suggested changing the initial terms to a full buyout of the site or of HRK itself.

The deal unravels

In June 2010, HRK proposed the $30 million deal. By August, the parties had a new set of preliminary terms, and Providence wired another $75,000 in security deposits to HRK.

Through the summer and fall, the lawsuit said, the two parties wrangled over finances. Providence tried to work with Regions Bank while the bank re-worked its mortgage with HRK.

HRK and Regions pressed Providence to find more financial backers, and it lined up real estate investors. In October, it sent another $75,000 to HRK.

But in November, HRK changed the terms of the deal, and continued to refuse to provide due diligence, the lawsuit said.

Meanwhile, HRK was working out its finances. It secured another $1 million when Regions amended its mortgage. Port Manatee paid $500,000 on the dredging contract. HRK paid off a $1.3 million lien related to the warehouse construction.

And with no financial pressure to sell, the lawsuit said, talks slowed to a crawl in January and February 2011. The next month, attorneys for both sides traded email after email about who actually negotiated in bad faith.

Still, Providence kept trying to make the deal, telling HRK that was preferable to a lawsuit. But talks ceased in March, and Providence filed its lawsuit July 11.

According to the lawsuit, Providence is seeking triple damages, or $750,000, and unspecified damage related to the delays in its deal. The firm still hopes to develop its rail hub and presented plans to the Manatee County Commission in June.

Mikes, the Providence partner and attorney, said he believes HRK is still in financial straits, and is unsure what, if anything, the lawsuit can accomplish. “We don’t know if there’s anything in the bank that we can collect.”

HRK has had major expenses and probably has more to come. State and county officials say the firm is responsible for all costs of cleanup after the reservoir leak and subsequent release of some 169 million gallons of water. And Port Manatee officials say the firm is responsible for any costs stemming from the delay of the dredging project, possibly thousands of dollars a day for the six-week duration.

But it also has money coming in. Last week, the site again began accepting dredged materials from the port. This week, it will receive another $150,000 on that contract, giving it $2.5 million to date, port officials said.

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