Tom Scott’s CA Ventures strikes back against QuadReal fraud claim

CA Ventures CEO Tom Scott isn’t backing down from a $100 million fight with a former partner, Canadian investment giant QuadReal, over a River North office lease that went south.

Last week, the Chicago-based developer filed a motion to dismiss QuadReal’s allegations that Scott and CA Ventures committed fraud by signing it up to pay for a 70,000-square-foot office lease at 448 North LaSalle Street.

CA Ventures’ response is the firm’s latest attempt to diffuse litigation initiated over the past year by its partners, lenders, investors and institutional backers. It claims that QuadReal, rather than getting defrauded, simply regrets entering a lease that it no longer needs due to the hybrid working arrangements for its employees.

While Scott denies QuadReal’s allegations that it was duped into entering the lease at above-market rents for a building that Scott had a personal ownership stake in, there’s also an escalating court battle between former CA Ventures executives over settlements they say they’re owed by the firm. Their dispute continues to jam up the planned takeover of CA Ventures’ industrial development arm by New York-based investors Davidson Kempner and Monarch Alternative.

QuadReal, meanwhile, has alleged that it wasn’t properly notified it would be on the hook to pay for the LaSalle Street office lease during negotiations for its $100 million purchase in 2020 of a 50 percent stake in CA Ventures’ student housing business. QuadReal last year absorbed the rest of the student housing business from Scott’s firm, and is now alleging the $100 million purchase price was obtained by fraud due to the nature of the lease not being properly disclosed.

But the Canadian firm’s complaint was described as “bloated with superfluous and irrelevant allegations that are a transparent attempt to somehow embarrass” CA Ventures, in the Chicago-based firm’s motion to dismiss.

Specifically, the defendants have said the other legal fights it’s facing shouldn’t impact the dispute over 448 North LaSalle and that QuadReal is wrong to imply that CA Ventures Chief Investment Officer John Diedrich recently moved to London to escape the hot seat. Rather, CA Ventures has a large apartments portfolio in Europe and overseeing its management was why Diedrich relocated, the firm’s lawyers said.

CA Ventures agreed to lease 448 North LaSalle with a plan to make the 12-story, 172,000-square-foot building its new headquarters. But the deal was struck just before the pandemic, and CA Ventures never ended up moving into the property. Worse for the building, WeWork is its other tenant and it previously hadn’t paying rent for the space as the coworking giant muddled through a complicated bankruptcy, the LaSalle Street landlord alleged. But WeWork this week announced plans to restructure the LaSalle Street lease with the landlord and has resumed paying, a spokesperson for the cowokring company said.

Still, the student living unit that QuadReal bought into was made a guarantor of the CA Ventures lease, meaning it had to make the monthly rent payments — and in the past year it has fended off several eviction complaints filed by the LaSalle Street landlord, which QuadReal claim is a venture of Scott and fellow developer Jay Javors.

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In another lawsuit that has paused a transition of the CA Ventures industrial platform Centris to its would-be new owners Davidson Kempner and Monarch Alternative, a judge this month ruled that Centris executives, including CEO Michael Podboy, can intervene in a fight between former CA Ventures executive Nishant Bakaya and Scott’s firm.

Podboy and his partners in the industrial business allege CA Ventures affiliates owe them millions of dollars in separation agreements and want to jump ahead of Bakaya to get paid out by the firm; Bakaya is owed a $6 million separation agreement by CA Ventures, he has claimed, and tried to prevent Podboy from joining the lawsuit.

A hearing in the dispute between QuadReal and Scott is scheduled for Thursday, while Podboy and Bakaya’s disagreement is set to be litigated over the coming weeks.