A Chicago federal appellate court has upheld the dismissal of a suit brought by one of the developers of Chicago's Ritz-Carlton skyscraper, who alleged his onetime partners cut him out of the profits, saying the disgruntled developer's failure to turn over financial records to his ex-partners for their defense preparation justified razing his case.
The Dec. 21 decision was issued by Chief Judge Diane Wood and Circuit Judges Daniel Manion and Michael Kanne, of the U.S. Court of Appeals for the Seventh Circuit. Their ruling favored Bruce R. Schultz and Jon K. Rodgers in a suit brought against them by Kenneth E. Nelson.
Nelson lives in Delafield, Wis., with Rodgers in Chicago and Schultz in suburban Lake Forest, according to court papers.
The case goes back to 2005, when the three men formed a corporation to develop the Ritz-Carlton Residences, a mixed-use luxury skyscraper with 89-residential units at 118 E. Erie St., along Chicago's Magnificent Mile.
In late 2005, Schultz and Rodgers voted to remove Nelson as a manager of the project, per the corporation's operating agreement, alleging he had a negative $15 million net worth that prevented the team from getting construction loans. Nelson sued in 2015 in Chicago federal district court, alleging his onetime partners bounced him to pad their pockets, which caused him to lose $1.1 million in development fees after the skyscraper was eventually built.
Schultz and Rodgers obtained financing after the split with Nelson, breaking ground in 2008. The Ritz-Carlton's condominiums are some of Chicago's most expensive condo properties, according to a March 10, 2016, story by Crain's Chicago Business.
To fight Nelson's litigation, Schultz and Rodgers demanded he turn over personal and business tax returns and bank statements for a period of several years. Nelson refused, maintaining he did not guarantee his “creditworthiness” when he signed on with the Ritz-Carlton project. Further, Nelson contended many of the requested records were irrelevant to the matter at hand.
Schultz and Rodgers filed a motion to compel Nelson to furnish the records, which U.S. District Judge Harry Leinenweber granted. The judge repeatedly warned Nelson his suit would be thrown out if he did not supply the documents, but Nelson never satisfied Leinenweber's demands, and the judge tossed the suit.
In dismissing Nelson's action, Leinenweber said Nelson had engaged in a “pattern of dilatory conduct” and exhibited a “failure to cooperate.”
Nelson then appealed, arguing Leinenweber's decision to trash the suit was out of proportion to Nelson's alleged misconduct, and if any penalty was called for, it should be milder than dismissal.
Nelson found no sympathy for his views with the appeals court.
“Despite three orders and two last-chance warnings, he did not produce the documents or provide a declaration stating that he could not find them after a diligent search,” the appeals panel observed.
The appeals court found Leinenweber acted correctly.
Nelson has been represented by the Chicago firm of Rifkind Patrick.
Schultz and Rodgers have been defended by the Chicago firm of Goldstein & McClintock.