Rhodes leaves trail of disappointed business partners

Las Vegas developer Jim Rhodes, back in the headlines with his plan to develop housing on a 1,700-acre mesa overlooking Red Rock Canyon, is no johnny-come-lately to controversy.

Rhodes has been involved in at least 53 state civil lawsuits, just in Clark County.

A case filed in 1995 and decided by an arbitrator in 2000 was a brutal revelation of Rhodes' business practices. The findings of arbitrator James Armstrong listed 20 instances in which Rhodes' actions were detrimental to Marshall and Louis Goldman.

The Goldman brothers were his partners in a housing development, Palm Gardens. They brought to the partnership 135 acres appraised at $4.5 million. Rhodes brought his skills as a developer.

The plan was to put 600 homes on the acreage near Sam Boyd Stadium.

Rhodes estimated in 1993 he and Marshall Goldman would split $8.9 million in profits. The homes sold briskly in 1995, 1996 and 1997, yet Rhodes told the brothers the project might lose money.

Goldman's ownership interest was reduced to 30 percent and earned him and his brother Louis a scant $209,000.

Rhodes started the legal action, suing the Goldmans for not telling him about a $750,000 bank credit negotiated earlier. The arbitrator agreed he should have been told, but awarded him no money.

The arbitrator was blunt about why the project didn't make a profit.

"The decline in profits was due primarily to Rhodes' mismanagement and negligent cost projections," Armstrong wrote. "His breach of the (partnership) agreement, his breach of his fiduciary duties and his mis-apportion of profits to his various related entities and partners in other developments were contributing causes."

Armstrong cited specific examples.

Rhodes allowed the partnership to pay his company Rhodes Design and Development Corp. more than $1 million in excess supervision fees. The partnership paid excessive fees to his framing company. Rhodes didn't put the partnership money in interest-bearing accounts. He failed to ask the brothers' permission before transactions with 16 of his companies. He loaned money from their partnership to his other companies, without telling the Goldmans. He "loaned" money to the partnership and charged excessive fees, again without telling the Goldmans.

Based on expert testimony, the partnership should have earned more than $4 million. Instead, it lost more than $3.5 million, Armstrong wrote.

The arbitrator concluded Rhodes should pay the brothers nearly $1.3 million. With costs and interest, the award crept up to about $2.1 million, according to the Goldmans' attorney, Al Marquis. After unsuccessful appeals, Rhodes paid the judgment.

But wait. There's more. A second case involved similar allegations of siphoning profits to his other companies to the detriment of another partner, this time John Midby and Rainbow Development Corp. That case was sealed so neither Midby nor his attorneys, Randall Jones and Bill Coulthard, are allowed to comment on it. Let's just say, Rhodes wouldn't have liked that arbitration decision either.

Marquis was one of three arbitrators in the Midby case, which was resolved in 2007. He said the two cases demonstrate a pattern by Rhodes.

"The pattern is that he doesn't keep his word, even if it's in writing, even if there's a contract. He's still going to screw over his own partners."

Rhodes placed at least 14 of his businesses into Chapter 11 bankruptcy in 2009, declaring about $400 million in liabilities. He did not file personal bankruptcy.

Does Rhodes have the financial wherewithal to build that Red Rock project? Would he have trouble getting investors?

"He doesn't need investors," said his spokeswoman Terry Murphy. The site is owned entirely by a family trust and is debt-free.

Based on the experience of the Goldmans and Midby, Rhodes not needing investors is a good thing -- for investors.

Jane Ann Morrison's column appears Monday, Thursday and Saturday. E-mail her at Jane@reviewjournal.com or call (702) 383-0275. She also blogs at lvrj.com/blogs/morrison.