Tax man goes after Mallegni property.
August 16, 2009
The founder of an embattled lending company accused in federal lawsuits of snatching control of real estate projects through strong-arm tactics is himself in danger of having a $5.2 million commercial building wrested away from him - by the tax man.
A Boston lawyer hired by Marlboro to go after property tax scofflaws has asked a Land Court judge to allow the city to foreclose on 896 Boston Post Road so the city can sell the large commercial building at auction to pay off $270,000 in back taxes that have been due on the property for more than a year.
Mr. Mallegni also runs LBM Financial LLC, a Marlboro-based lending company accused in federal racketeering lawsuits and bankruptcy cases of orchestrating "loan-to-own" schemes concocted to ensure the failure of the development projects that it finances so that it can take control of the projects through foreclosure.
Lawyers representing LBM and Mr. Mallegni as well as the firm's chief investor, David G. "Duddie" Massad, have accused the plaintiffs in those lawsuits of trying to recoup business losses through harassing litigation.
Boston lawyer Gerry D'Ambrosio, who was hired by Marlboro to go after tax delinquents, said the Land Court case he recently filed against 896 BPR LLC isn't the first time the city has had to resort to such tactics to collect taxes from a company controlled by Mr. Mallegni.
Mr. D'Ambrosio's law firm, on behalf of the city, made a claim against 181 Mill St. in February for $38,000 in back taxes, he said. The back taxes on that property, which is owned by Mr. Mallegni's Capital One Properties LLC, have since been paid, while those on 896 Boston Post Road have remained unpaid for over a year, Mr. D'Ambrosio said.
"Over the last year or so, we've noticed a trend of for-profit businesses that play somewhat of a shell game with their properties. The business entity pays the taxes on some properties and doesn't for others. Then they get caught up on those properties and stop paying on others," Mr. D'Ambrosio said.
Arthur C. Vigeant, president of the Marlboro City Council, said large commercial property owners who don't pay their taxes on time can cause temporary cash flow problems for the city.
"But, as long as the value is there in the property, we will get our money eventually," he said. "But we're paying the additional cost to go collect that money too."
Philip F. Coppinger, an in-house lawyer for Mr. Mallegni, disputed the city's $5.2 million assessment on the former stone fabrication building, saying the figure is way too high and prevents the mostly vacant building from being redeveloped.
The stone fabrication business, which cut and polished raw stone into countertops and floor tiles, that formerly occupied the building has been closed for some time, Mr. Coppinger said.
"It's significantly over-assessed for tax purposes," Mr. Coppinger said. "The over-assessment makes it hard to redevelop, which makes it hard to pay the taxes."
Mr. Coppinger said the company has been in talks with the city about reducing the assessed value of the building. Principal Assessor Anthony Trodella was out of the office last week and unavailable for comment.
For his part, Mr. D'Ambrosio said the actions of Mr. Mallegni and his companies speak for themselves. The back taxes on 896 Boston Post Road are the largest single overdue tax account being handled by his law firm for Marlboro, he said.
"They haven't paid. We're in Land Court on it. That says it all. There are outstanding taxes due, and we've threatened to foreclose on the property," he said.
If the city is successful in gaining control of the building in Land Court, the property would be sold at auction to the highest bidder.
"If push comes to shove, the city will take the property to satisfy the outstanding taxes," Mr. D'Ambrosio said.
The only thing that would prevent such an outcome, he said, would be for the owner to pay the property tax along with significant interest and legal costs. Barring such a payment, the foreclosure process could take anywhere from six months to a year to complete, he said.
Mr. Mallegni has lost at least one property to foreclosure recently.
Commerce Bank & Trust of Worcester sued Mr. Mallegni and others late last year seeking to collect on a personal guaranty signed in connection with a $1.1 million loan the bank made to 120 Southbridge LLC in June 2004.
Mr. Mallegni is listed as the agent and signatory of the firm in state corporation records. The loan was a mortgage on property at 120 Southbridge Road in Oxford. There is a commercial building at that address that housed Tri-State Stone Inc.
The lawsuit alleged 120 Southbridge LLC failed to make payments and owed $993,398 in principal, interest and late charges more than four years later. Commerce Bank President Brian W. Thompson said earlier this year that the bank foreclosed on the Oxford property and then sold it at an auction in January.
In addition to his tax woes, Mr. Mallegni's Capital One Partners this year has taken out two additional mortgages on 171 Locke Drive, the Marlboro headquarters of LBM and several of his other companies, according to property records.
One of those mortgages recorded earlier this month, in an unspecified amount, was granted to Stanley Piecewicz, a Framingham resident. The other mortgage, also in an unspecified amount, was granted to Riemer & Braunstein LLP, the Boston law firm that has been defending Mr. Mallegni and LBM against the various racketeering lawsuits in federal court.
Mr. Coppinger said the mortgage with Riemer & Braunstein was simply a means of evening out the company's legal bills, which are difficult to predict and can spike during certain parts of the litigation.
"The mortgage was part of an agreement with our counsel to help accommodate the litigation fees to cash flow," he said.
Last fall, Mr. Mallegni's Capital One Partners also took out a mortgage on the property with Susan Macdonald of Hudson, an investor in LBM loans who later sued the firm alleging - like some of the borrowers - that it engaged in "grossly fraudulent and unfair conduct."
In late June 2008, Ms. Macdonald was granted a $2.6 million attachment on 171 Locke Drive and other property by a Middlesex Superior Court judge, according to land records. The case was settled for an undisclosed amount a few months later, and she no longer holds a mortgage on the Locke Drive property.
Meanwhile, a lawyer from a Newton firm, Floyd H. Anderson, recently began representing LBM and Mr. Mallegni in some of the pending litigation. Mr. Anderson didn't return calls last week, but it was he who drafted LBM's appeal of a sharply worded bankruptcy court decision that went against the company in July.
In that opinion, U.S. Bankruptcy Court Judge Joel B. Rosenthal ruled against LBM in favor of two corporations controlled by area real estate developers David D. Depietri of Southboro and Robert Depietri Jr. of Worcester.
Judge Rosenthal, who awarded at least $1.1 million in damages to the brothers, declared that LBM and Mr. Mallegni used a variety of "unscrupulous, to say the least" tactics to ensnare the Depietri brothers' corporations, 201 Forest Street LLC and 219 Forest Street LLC, into a cycle of ever-increasing default interest and late fees.
Lawyers for the two companies have calculated the total damages, based on their interpretation of the judge's ruling, at $2.4 million. LBM and Mr. Mallegni have filed a motion disputing those calculations.
Meanwhile, U.S. Bankruptcy Court Judge Joan N. Feeney ruled earlier this month in another case against LBM's efforts to foreclose on a South Boston property owned by Shamus Holdings LLC.
Shamus Holdings' lawyer, Charles A. Dale III, said the judge's ruling removed any claim that LBM had on the South Boston property, although Judge Feeney's ruling also could be appealed. With the threat of foreclosure removed for now, Mr. Dale said Shamus Holdings will not need to proceed with its bankruptcy.
And Shamus Holdings might also choose to go after LBM in court for alleged wrongdoing as the Depietri brothers did, he said.
"Judge Rosenthal came down very squarely on the side of the borrower in the Forest Street case with respect to all kinds of alleged malfeasance by LBM. We have alleged many of the same kinds of malfeasance of LBM," Mr. Dale said. "My client feels very strongly that it was mistreated in many of the same ways as the borrowers in the Forest Street case."