|Lennar Homes Sues County
Suit also names George Johnson — Lennar claims fraud, negligence
By Jill Jones
The News March 21 - March 27, 2005
FLORENCE- Details of a
filed last month against the Pinal
County Board of Supervisors by Lennar Communities Development,
Inc. include accusations of negligent misrepresentation, fraud, anticipatory
breach of contract and breach of fiduciary duty. Other defendants
in the suit include Scottsdale developer George Johnson, Johnson's wife, Sonoran
Utility Services, Boulevard Contracting, and the Water and Wastewater Improvement Districts
formed by Pinal County.
The lawsuit alleges that the defendants acted intentionally, willfully,
with an "evil mind" and with a callous disregard towards Lennar. The claims relate to the
defendant's capacity in relation to the formation and operation of Water Improvement District #387
and Wastewater Improvement District #387 in early 2003 by the Pinal County Board of Supervisors
and Johnson subsequently receiving a 30 year renewable contract
for water and wastewater services.
Johnson allegedly made false material representations and fraudulently
omitted to disclose information in order to induce Lennar into petitioning into the 387 Improvement
Districts. The suit further claims that Johnson knew the statements and omissions he was making
to Lennar were false or misleading. Included in the alleged omissions was his partnership with
Connelly Wolfswinkel, who was previously convicted of fraud in the savings and loan scandal in the
Lennar claims they were unaware that Johnson was fraudulently omitting relevant information of his
partnership with Wolfswinkel, which he did not divulge to them until March 2004, and as a direct
result has sustained damages in an unspecified amount to be proven at trial.
It is Lennar's contention that they expressed their concerns about entering into a contract with a utility
provider that was also a landowner in the service area. Johnson reportedly represented to Lennar in December,
2002 that his interest was solely as a utility and that neither he nor his company owned any
property in the service area.
They claim that Johnson told Lennar and the other landowners in the area that he had a good rapport
with the board of supervisors and Pinal County Manager Stan Griffis and he indicated that the
Pinal County Board of Supervisors would support him as the utility provider for an improvement district.
Lennar claims they later learned that Johnson fraudulently omitted to disclose that Wolfswinkel was
a substantial landowner and controlled significant land holdings in the service area. It is Lennar and
the other landowners' contention that at all relevant times, through affirmative conduct and statements,
Johnson led them to believe that he was the sole owner of Sonoran and that he alone was responsible
for the provision of services.
Lennar claims that had they known Wolfswinkel was a partner in Sonoran and/or the wastewater
and water contracts, they would have never entered into an agreement or otherwise become involved
with either Sonoran or Johnson.
According to Lennar, a petition for the formation of the new districts was signed on January 14,
2003, providing that "qualified electors of the proposed district" would make up the five-member board of
directors. However, on February 3, 2003, Johnson reportedly advised Lennar and other landowners that
new petitions needed to be signed. These new petitions reportedly removed Lennar and the other
builder's ability to serve on the board of directors for the district and instead provided for the Pinal
County Board of Supervisors to act as the 387 District's Board of Directors.
Lennar claims that in order to secure approval of the modified petition, Johnson made assurances
and representations that he had no intention of following through on, including assurances that the treatment
facilities and infrastructure would take a maximum of nine months to complete and that it
would be built with his own money at his own risk.
He also reportedly agreed to reimburse Lennar and the others for all on-site improvements.
After the petitions were signed, the supervisors, acting as the board of directors for the 387 Districts,
entered into a 30-year renewable wastewater treatment collection and management services
agreement with Johnson's Sonoran Utilities on June 25, 2003.
Lennar claims their repeated requests to be a party to the contract negotiations between Sonoran and
the Pinal County Supervisors were denied and that the contract was negotiated without Lennar and
other district members' concerns being addressed. In fact, they claim, neither Lennar nor the other district
members were even permitted to see the agreement prior to its execution.
When by July 2003 there had been no progress on the wastewater treatment facilities, Lennar notified
the board that they intended to de-annex from the 387 Districts. They claim they received no formal
response from the 387 Districts Board and that the only response they received was from Pinal
County Manager Stan Griffis, who reportedly advised them that the de-annexation would not be allowed
because it would impair the financial viability of Sonoran Utilities.
Johnson reportedly tried to sweeten the deal in an effort to encourage Lennar into remain in the
Districts. He reportedly offered Lennar a personal guarantee of Sonoran's performance under a
Master Utility Agreement along with a nine hundred dollar hookup fee (HUF) reduction per lot
through Boulevard Construction (owned by Johnson), if Lennar would drop their de-annexation efforts.
Lennar subsequently withdrew the de-annexation.
The Master Utility Agreement was negotiated, which included a promise for the completion of the construction
of the facilities on or before May 15, 2004. A 90-day extension to complete Phase One construction
was granted on January 15, 2004, with Sonoran being required to complete construction
and have Phase One operational by August 15, 2004.
Shortly thereafter, Johnson reportedly advised Lennar that neither he nor his construction company,
Boulevard, would abide by the agreement entered into and allegedly manifested his and
Boulevard's intent not to perform as required by the Consulting Agreement.
According to Lennar, neither Sonoran nor Johnson posted a performance bond as required by the
Master Utility Agreement and they failed to meet the construction schedule as set forth, resulting in
the cancellation of a $3.96 million escrow.
In March, 2004 the 387 Districts and Pinal County Board of Supervisors were advised that these defaults
were "serious and threatened Lennar's current investments and expenditures in Pinal County."
Lennar asked that immediate action to be taken to rectify the defaults and to "remove Sonoran as the
manager/operator and replace Sonoran with a competent, qualified, adequately funded operator
who does not have an interest in any property located with in the district."
According to Lennar, no action was taken in response to their request and in mid-September, 2004
Lennar served the Districts and Pinal County Board of Supervisors with a Notice of Claim., which also,
they say, generated no response.