A Cochise County judge has denied requests to dismiss a lawsuit filed by a German investor who claims he was defrauded into investing with a company that owns commercial property in a historic section of Bisbee.
Judge Timothy Dickerson ruled last month that Marcel Mattle’s lawsuit can move forward to trial against Border Cities Land Corporation and the company’s current and former presidents. The next step will be for the parties to present Dickerson with a proposed scheduling order of deadlines leading to a trial in 2021.
According to Mattle’s November 2018 lawsuit, then-Border Cities president Scott Ries sought out an investor in 2017 who would fund a partnership between the company and Historic Hospitality Group LLC, which Ries formed in 2007. The purpose of the funding was to maximize the value of Border Cities through improvements to its real estate holdings in Bisbee.
Border Cities was formed in 1995 by several investors, including Douglas attorney Ruben Teran. The company purchased of two undeveloped lots in Old Bisbee but ended up in an extracted lawsuit with the city from 2006 to 2017 related to plans to build a small hotel on the lots.
Court records show the parties agree Mattle, a German citizen, pledged in 2017 to contribute $200,000 so Historic Hospitality could partner with Border Cities. Two agreements were signed, which Mattle says promised him full repayment of his contribution, along with a guaranteed payment of $300,000 and as much as another $270,000 if Border Cities sold two holdings for $3.25 million.
In the end, Mattle only provided $70,000 before Teran replaced Ries as Border Cities’ president and informed Mattle that the company would not honor the capitalization plan. The reason, according to Teran, was that Ries acted outside his corporate authority in committing Border Cities to such an arrangement.
However, Mattle contends Ries and Teran never planned to honor the agreements. He also alleges fraud and breach of contract by Border Cities, Reis, and Teran, as well as unjust enrichment by the company. The lawsuit does not name Historic Hospitality, which paid back the unused portion of Mattle’s $70,000 contribution.
For damages, Mattle is asking for the remainder of his investment as well as the $300,000 he says was promised. He is also seeking punitive damages based on alleged “evil intent” of the defendants.
Border Cities, through attorney Teran, filed a counterclaim against Mattle, but Dickerson dismissed the company’s filing Feb. 10. Teran was also unsuccessful in getting himself dismissed as a defendant.
According to Teran, Arizona’s corporate shield law presumes an officer “is not liable for any action taken as an officer or any failure to take any action if the officer’s duties were performed in compliance” with state law.
The shield statute puts the burden of proof “by clear and convincing evidence” on Mattle to challenge an officer’s action. But in denying Teran’s motion for dismissal, Dickerson ruled “there exists a question of fact concerning whether defendant Teran is entitled to the protection.”
A key question for trial will be what Teran knew about the Mattle deal before becoming Border Cities’ president, and what involvement he may have had as a corporate officer and the company’s legal advisor.
Ries filed his formal answer to Mattle’s lawsuit in January. He admits the German investor agreed to provide $200,000 in capital, and that two written agreements contemplated Mattle “would have his investment reimbursed and then receive some share of the profits” if Mattle “fully performed” his part of the pact.
The answer also notes several affirmative defenses Ries may use, such as prior breach of contract by Mattle and the economic loss doctrine which Ries contends may preclude Mettle from recovering damages.
In addition to his roles with Border Cities and Historic Hospitality, Ries founded the Greater Bisbee Economic Council LLC in 2016. Public records show Ries is the only member of the for-profit company, which doesn’t appear to have a website.