Opus Corp. Quietly Settles Suit Filed by Subsidiary
Once-prominent developer Opus Corporation quietly settled a lawsuit brought by subsidiary Opus West, which claimed that it siphoned vast portions of Opus West earnings and kept the subsidiary in a constant state of financial dependency that ultimately led to bankruptcy.
The case, which dates back to 2009, was officially dismissed April 29, according to court documents.
The parties aren't revealing the terms of the settlement. But the Star Tribune, citing “two people familiar with the case,” said that they secretly settled last month in Dallas for $45 million. The case was set to go to trial within a matter of days.
About one-third of the settlement-or $15 million-will go to lawyers, the sources told the Minneapolis newspaper. Most of the remaining $30 million will reportedly go to the two largest creditors in Phoenix-based Opus West's bankruptcy case: Bank of America and Wells Fargo Bank. The two banks were collectively owed more than $260 million.
Approximately $3 million will be shared by about 150 Opus West employees who lost their jobs when the subsidiary filed for bankruptcy in 2009, according to the unnamed sources.
Opus West's lawsuit claimed that Minnetonka-based Opus Corporation routinely engaged in “self-dealing transactions, blindly siphoning tens of millions of dollars that left Opus West with almost non-existent levels of working capital…”
It went on to call the once-sterling reputation of the Rauenhorst family-which owns Opus Corporation-a “carefully-cultivated myth, an appealing veneer specifically designed to hide the true guiding ethos of the Rauenhorst business empire: to make sure the Rauenhorst family and their ultra-rich friends got rich and stayed rich.”
According to the suit, 10 percent of Opus West's pretax income went to charity-and three-quarters of the subsidiary's remaining income went to Opus Corporation. Opus Corporation and its executives knew that the payments were leaving Opus West “chronically undercapitalized,” according to Opus West's complaint.
Dennis Ryan, a lawyer for Opus Corporation and Rauenhorst family trusts, confirmed with the Star Tribune the funds transfer process outlined by Opus West, adding that they were part of the normal course of business. Opus Corporation transferred 60 percent of its profits to the trusts with about two-thirds for taxes, he said.
“There's a point at which it's cheaper to settle something, even when you're right, than continue to litigate,” Ryan told the Star Tribune, contending that the Opus West lawsuit had no merit.
The Opus group of companies was once a real estate powerhouse that employed at least 2,000. But that group was hit hard by the downturn in commercial real estate markets amid the recession. In 2009, three of Opus' five regional subsidiaries filed for Chapter 11 bankruptcy protection or Chapter 7 bankruptcy liquidation and stopped doing business. Opus Corporation has since shut down and reorganized under a newly restructured parent company-Opus Holding, LLC. The assets of the two remaining subsidiaries were later bought by Opus Holding.
The Opus Group now includes Opus Holding, LLC, and Opus Holding, Inc., and their operating subsidiaries-Opus Development Corporation; Opus Design Build, LLC; and architectural arm Opus AE Group, Inc.
Legal battles for Opus haven't ended with the recent settlement. The company still faces a lawsuit filed in July 2010 by 16 former Opus West employees who claim to be collectively owed $32.4 million in deferred compensation, bonuses, and pensions.
According to the complaint, Opus Corporation transferred more than $193.8 million of former subsidiary Opus West's assets into family trusts linked to Opus founder Gerald Rauenhorst while failing to compensate Opus West employees.