RaiderPark Sued for Fraud, Countersues Limited Partner

By: Alicia Keene and Abigail Arroyos

A financial investor of the troubled Raider Park parking garage came forward in June to accuse the development’s major players of fraud, embezzlement and breach of contract.

Sejala, LLC, a company based in Beeville, Texas, filed a lawsuit in state district court in Lubbock against local businessman and Texas Tech University alumnus Clayton Isom, his father Rex Isom, his uncle Ben Ralston, and his business partner Rashid B. Al-Hmoud, a Tech associate professor of economics.

raiderparkimageDocuments from the lawsuit accuse Isom and his associates of creating a lease agreement between Texas Tech and the TTU Alumni Association that “create[d] opportunities for Defendants to engage in a myriad of self-dealing transactions” and “improperly siphoned millions of dollars out of RaiderPark.”

Court officials said the plaintiff asked that the defendants not to be served with the lawsuit in hopes of working out a settlement. However, the defendants’ lawyer, Zach Brady, stopped all settlement talks last week after finding out about the lawsuit.

A court official said Brady seemed angry about the plaintiff not telling the defendants about the lawsuit during the negotiations and said Brady called the act “unprofessional.” Brady filed an official answer Sept. 11 and countersued one of Sejala’s key members.

According to the answer filed, the defendants deny all the allegations and demand proof of the plaintiff’s claims.

The defendants’ answer claims the plaintiff mistakenly identified four of the companies, including the plaintiff. The original petition identifies the plaintiff as “Sejala, LLC.”

“The Texas Secretary of State’s records do not include a limited liability company, or other entity, with this name,” the defendants’ answer stated. “It has been represented to various defendants that the correct name of the plaintiff entity is ‘Sejalah, LLC.”

The Sejala lawsuit also named RaiderPark, GP, LLC, RaiderPark Restaurant Group, LP, and Isom-owned Lubbock businesses Tao Development Group, C&B Interests, LLC, and R&N Investments, LLC, as defendants in the case.

The lawsuit claims Rex Isom is personally liable for acts committed by R&N Investments and also used the business to avoid legal obligations.

The defendants’ answer stated R&N Investments, LLC, does not own interest in any of the RaiderPark entities, but RaiderPark, LP, has a limited partner named R&N Investments II, LLC.

It also claims that C&B Interests, LLC, is an entity registered by an Austin-based agent and has no interest in RaiderPark, LP, but an entity called “CB Interests” used to have an ownership share.

According to the Sejala lawsuit, the defendants fraudulently persuaded Sejala to contribute $1 million of the nearly $6 million the developers needed to obtain bank financing for the project in 2010. The Isom group borrowed an additional  $18 million from American State Bank to finance the construction of the parking garage, according to records filed with the county clerk.

Sejala is an entity owned by the Hause Family Investors. Sejala claims the family is the project’s single largest group of investors. The three major contributors from the family were Sejala, DBK Circle and Sarah Hause Steves, but only Sejala is seeking damages.RPeast

Including Sejala’s contribution, the Hause Family Investors contributed a total of $2 million towards the project, according to claims made in the initial lawsuit. The contribution equated 34 percent of the project’s funding from the limited partners, according to the original petition, but Sejala alleged the Hause family only received 31.6 percent in ownership interest in the project.

In their response, the defendants claim Sejalah also received the carried interest on capital, as negotiated in the limited partnership agreement.

Sejala’s lawsuit alleges the RaiderPark affiliated partners paid a $1,035,000 development fee to an Isom-owned company, Tao Development Group. The lawsuit claimed the development fee resulted from “self-dealing” by Isom and his associates because $35,000 of the fee breached the partnership agreement, and Ben Ralston allegedly received the overpayment.

In their response, the defendants disputed all the plaintiff’s allegations of “self-dealing and conflicts of interest” because the original agreement between the two parties set the fees and payments made to the partners’ entities. This includes the development fee, they claim.

The original Sejala lawsuit claims the partners also paid Tao a $100,000 “pre-development” fee.

“This appears to be a completely fabricated fee and nothing more than a pure act of embezzlement,” the plaintiff’s petition said.

The partners paid Tao a third fee of $5,200 a month for “property management”, which was also not approved in the partnership agreement, according to the plaintiff’s original lawsuit.

The defendants denied the plaintiff’s claims of fabricated fees and embezzlement from the limited partnership because they claim the fees — including the pre-development fee — were set out in their original agreement.

RaiderPark General Partners’ paid nearly $700,000 of the RaiderPark, LLC, funds to their affiliate RaiderPark Restaurant Group, for the purpose of building a restaurant for additional revenue, according to the Sejala’s original lawsuit, which also claims the Isom- and Ralston-owned restaurant failed to make payments for two years, and the defendants allegedly kept the restaurant profits.

In their answer, the defendants asserted the plaintiff is not a third party beneficiary to the contract in this instance, and therefore, the defendants did not breach any contract with the plaintiffs.

RaiderPark, GP, paid Republic Hospitality, another Isom-controlled entity, nearly $600,000 for alleged goods and services provided to RaiderPark, according to the lawsuit, which further alleges that only around $200,000 in goods and services were actually provided.

The plaintiff’s original petition claims when they brought up the discrepancy, Ralston returned most of the missing $400,000 from the bank account of an unrelated, unknown entity he owned. The plaintiff complained the defendants never returned $17,000 of the funds.

The final petition complaint accused RaiderPark, GP, of embezzling legal expenses through a Ralston-owned entity called Q19 Holdings. When the plaintiff discovered the payment, Ralston returned the money without interest and claimed the payment was an “error,” according to the lawsuit.

In the defendants’ answer, Ralston denied that he owns or has ever owned interest in Q19 Holdings, LP, Republic Hospitality, LLC, or RaiderPark Restaurant Group, LP.

Tao and RaiderPark have made efforts to discuss the project’s operations, but Sejalah’s managers continue to make unsubstantiated statements, according to a written statement issued by the defendants’ lawyer, Zach Brady.

“Over a year ago, our company fully cooperated with Hause family representatives’ request for an audit, as our commitment to transparency is unwavering,” the statement claimed.

The defendants also allege they acted cooperatively with the plaintiff over the last 18 months. The investigations included the audit done by “Price Waterhouse Cooper forensic accountants,” according to the statement.croppedphoto-1

The defendants incorporated within their official answer a counterpetition against a member-manager of Sejalah.

According to the defendants’ petition, Sejalah is compromised of four member-managers from the Hause family, including Andrew Hause, a former Tao employee.

After Sejalah became a RaiderPark limited partner, Tao hired Andrew Hause as a controller, according to the defendants’ petition. In this role, Andrew Hause was responsible for monitoring all Tao accounts, including RaiderPark, LP, during the parking garage’s  construction phase, the countersuit states.

The RaiderPark, GP, LLC, statement claimed Tao fired Andrew Hause in 2012 because he was unable to perform his duties due to “serious personal issues.”

“His termination, and the personal issues leading to that termination, are obviously sources of great embarrassment for Andrew and his family,” the statement says. “The lawsuit seems to be motivated by that embarrassment.”

In their claims, the defendants stated that Andrew Hause’s wrongful conduct as an employee during the time period in question was a primary reason the project underperformed.

The defendants’ petition stated Andrew Hause was required to return all of his Tao-issued property after his termination, including a Tao-owned laptop containing information concerning RaiderPark, LP, and the project.

“However, Tao has recently discovered that Andrew Hause unlawfully appropriated the laptop computer and has no intention of returning the equipment to Defendant,” the defendants’ petition states.

As a result, the defendants are countersuing Andrew for conversion and civil theft, according to their counterpetition.

Sejala’s lawyers and some members of the Hause family, including Andrew Hause, could not be reached for comment. Other family members refused to comment.

The case was transferred from the 99th District Court to the 237th District Court on Aug. 21. According to a court official, a hearing for the case has been set for Sept. 27 to hear Brady’s motion requesting that the plaintiff put up $150,000 to cover the defendants’ potential litigation expenses.StateSeal

The accusations are the latest financial drama in the parking garage’s short history. In 2011, The Daily Toreador published several articles detailing the significant amount of money Texas Tech University and the Texas Tech Alumni Association have lost from the deal with RaiderPark.

The lease between RaiderPark and Tech and its alumni association require them to pay $750,000 a year to RaiderPark to lease 1,000 parking spaces and 18 RV spaces, but the actual parking revenue has fallen hundreds of thousands of dollars short of that, requiring the university and the alumni association to make up the difference. The lease agreement caps Tech’s and the alumni association’s total shortfall payments at $675,000 and $525,000, respectively. The renegotiated lease agreement states that Isom and Tao Development will make up any shortfalls the university incurs, and an alumni association official told The Daily Toreador in 2011 that Rex Isom has verbally guaranteed to make up any shortfall the alumni association incurs.

A Texas Public Information Act request has been filed with Texas Tech to determine the total revenue shortfall to date, but an answer has not yet been provided. The principal individuals in this matter will be holding their annual meeting today to discuss where the parties currently stand financially, according to Ronny Wall, associate general counsel for Texas Tech.

RaiderPark, GP, and Clayton Isom are also being sued by a local advertising firm known as Dark Puppet, LLC, for breach of contract regarding advertising deals on the garage, as detailed in another story on The Hub.

About Abbie Arroyos and Alicia Keene
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