Rhodes Cos. creditors sue former owner

The creditors that took over the bankrupt Rhodes Cos. Inc. have sued former owner Jim Rhodes for improperly pulling $132 million out of the company before its collapse.

According to a 64-page complaint filed in U.S Bankruptcy Court Friday evening, Jim Rhodes engineered a $500 million loan from a consortium of banks to the company and several affiliates - going under the umbrella name of Rhodes Homes - in late 2005, then pulled out cash for other ventures, to pay personal income taxes, cover divorce obligations and refinance properties held by nonrelated Rhodes companies. Attorneys for the litigation trust that brought the action said the move weakened Rhodes Homes to the point of insolvency.

"James Rhodes and his affiliated entities acted intentionally and out of disloyal self interest in causing (Rhodes Homes) to incur the debt," according to court papers filed by the consortium of lenders. "There was no legitimate business justification for causing the (companies) to incur such massive debt."

Besides a refund of the money, creditors seek to reclaim 99 percent ownership of 2,000 acres next to Red Rock Canyon, where Rhodes proposes a 4,600-home development.

In a statement, Rhodes defended the transactions as valid.

"None of the (financial) transfers the lenders are challenging were secrets," Rhodes said. "The company was generating unprecedented profits and everyone thought Las Vegas real estate was a sure thing."

He depicted the complaint as an attempt to rewrite the loan to insert personal and corporate guarantees to make good on any shortfalls.

According to court papers drawn up in late 2009, Rhodes Homes had run up
$417 million in debt. The acreage owned by the companies, including the unfinished portion of the massive Rhodes Ranch, was turned over to lenders in early 2010, and Jim Rhodes' ownership was reduced to zero. Still, plummeting land values left the lenders with a $302 million deficiency claim, not including approximately
$15 million in other debts.

The Rhodes Homes reorganization plan included a clause that allows lenders to reduce their losses by collecting what they could though legal claims against Jim Rhodes.

The allegations that Rhodes had helped himself at the lender's expense have long overshadowed the Chapter 11, which began as 32 separate cases on March 31 and April 1, 2009. The lenders had commissioned an audit several weeks earlier that cataloged what they considered misappropriation of funds and other abuses.

Jim Rhodes countered with his own audit, showing he had run the business affairs legitimately.

Salt Lake City attorney Kevin Anderson, representing Jim Rhodes, said settlement talks have been under way for months with little headway. Another negotiating session was scheduled for next week, he added, but the lenders abruptly shifted course and filed the complaint.

Besides the other charges, the lenders claim Rhodes started Harmony Homes, his current company, to the detriment of the other companies, something he also denies.

Contact reporter Tim O'Reiley at
toreiley@reviewjournal.com or 702-387-5290.