Field of broken dreams

J. David Matthews came to Baton Rouge from Georgia promising big things. At a business lunch at French Market Bistro not long after his arrival in late 2005, he told the small group of landowners dini…

J. David Matthews came to Baton Rouge from Georgia promising big things. At a business lunch at French Market Bistro not long after his arrival in late 2005, he told the small group of landowners dining with him that he wanted to develop property in the area and had investors in California who would cough up $100 million if asked.

“He said, ‘I’ve got $100 million to spend, and if you want $20 million of it that’s fine and if not I’ll spend it somewhere else,’” recalls an attorney who was at the lunch but asked not to be identified. “He told us he had 100 investors and could get $1 million each from them in no time flat.”

While no one in Baton Rouge who has done business deals with Matthews has seen any firsthand evidence of those investors, the flamboyant businessman does have a knack for getting people to put up money for his projects. In just three years, he’s gotten well-known local investors, builders and businesspeople to buy into his projects, the most notable of which is a planned traditional neighborhood development in Zachary called Americana.

Where Matthews hasn’t had as much success is in bringing his projects to fruition. Instead, he’s ended up in dozens of lawsuits over Americana and other properties, many of which he has instigated. Matthews’ attorney maintains he’s a visionary developer who came here looking for post-Hurricane Katrina opportunities. Instead, he says, his client has become the victim of a smear campaign by a group of investors intent on squeezing him out of his own project.

But those who remember him from the small Georgia town where he lived prior to moving here aren’t surprised to hear of the troubles swirling about him. To them, it’s a familiar story.

“He was a man you didn’t want to do business with,” says Vicki Fossett, whose family sold property to Matthews in Barnesville, Ga., about an hour south of Atlanta. “He wasn’t very well liked in this town.”

Receptive ear

Nobody in Baton Rouge had heard of Matthews when he showed up one morning more than three years ago in the sales office of Copper Mill subdivision in Zachary. He wanted to talk about developing real estate in the area. He found a receptive ear in Chris Mestayer, who was working at Copper Mill at the time.

“I was at the sales office one Saturday morning, and he came in and we started talking and he knows some development lingo,” Mestayer says. “Before long he was talking about projects we could do together.”

Mestayer is a bald, stocky man and with years of experience as a developer. He cut his teeth working under Charlie Cole in the development of the Country Club of Louisiana and Santa Maria. Since then, he’s been associated with several other successful projects in Baton Rouge and North Carolina. But Mestayer has never been the lead guy on the really big deals. In Matthews, he saw an opportunity to change that. He introduced Matthews to the concept of TNDs, and the idea for Americana was born.

Not long after, the two formed a partnership called Shearwater Communities LLC for the purpose of developing Americana. Mestayer maintains they were equal partners in the deal. Matthews says he actually owned 51% of the entity compared to Mestayer’s 49%. Matthews has since sued Mestayer over the ownership dispute. He has also filed a malpractice suit against the two McGlinchey Stafford attorneys who drafted the Shearwater operating agreement, claiming they drew up the papers incorrectly. McGlinchey attorney J.P. Perrault says the suit is without merit but could not comment further.

In spring 2006, however, the Shearwater partners were on the same page, with a convenient division of labor as they shopped for investors. Mestayer used his local connections to make the introductions, while Matthews followed up with what everyone acknowledges was an impressive dog-and-pony show.

They found a willing party in Patrick and Michael Campesi. The Zachary-based brothers and business owners are second-generation Americans whose father emigrated from Italy and later founded the industrial services company they still run, Crown Enterprises. Though they didn’t know Matthews, they liked his concept and that he was a partner with Mestayer.

“The strong suit was Chris,” Patrick Campesi says. “Chris lent a lot of credibility to the thing.”

The Campesis helped lure businessman John Engquist to the table. The president and CEO of H&E Equipment Services, which sells and rents heavy machinery, is a longtime fixture on the Baton Rouge business scene with a commanding presence and a sterling reputation among his peers. Engquist now says he was skeptical of working with Matthews but, like Mestayer and the Campesis, was sold on the merits of the project.

“I had a level of discomfort working with this guy,” he says. “But I liked the project.”

Engquist agreed to join the deal, but he had a couple of stipulations. First, he and the Campesis would be the majority members of the partnership they would form. Second, Matthews and Mestayer would serve as developer at the pleasure of the board, which would be controlled by Engquist and the Campesis. Third, TND expert Richard Daigle, who developed Lafayette’s River Ranch, would be brought in as a consultant. Engquist wanted Daigle’s expertise, especially since Matthews had limited experience developing TNDs.

Engquist’s attorney, Ashley Moore, says Matthews agreed to those stipulations even though Daigle was not technically retained as a consultant by the partnership until several months later. Matthews now says he “strongly objected to the retention” of Daigle’s consulting firm, according to court documents filed by his attorney, John Wolff.

None of this was an issue in mid-2007 when Engquist and the Campesis bought into New Towne LLC, the corporate entity that would oversee the Americana development. Shearwater—the Matthews and Mestayer partnership—owned a 50% share of it. Engquist bought 30%, and the Campesis bought 20%.

That September, New Towne closed on the seven tracts of land in Zachary on which the 420-acre TND would be developed for $15 million. The group put $3 million down and financed the rest with a $12 million loan from BancorpSouth. The deal was especially sweet for Matthews and Mestayer, who didn’t have to put up any front money. Not only did they own half the project through Shearwater, but Matthews received a developer’s salary of $300,000, and Mestayer $250,000.

The first few months went smoothly, as the New Towne partners went through the entitlement and permitting process. But unbeknownst to Engquist and the Campesis, trouble was brewing between Matthews and Mestayer. Two months after New Towne closed on the property, it cut Shearwater a $200,000 check for reimbursables and management fees. Mestayer says Matthews was supposed to split the check with him evenly. He never received a penny.

“Checks come, and he starts rotating the money to his other companies,” Mestayer says. “I started e-mailing him and he would say, ‘Oh, it’s just an accounting procedure. My accountant told me to do it this way.’”

Matthews’ attorney disputes those facts. He says his client was entitled to keep the entire sum because he was being reimbursed for money he had spent in the planning and design of Americana.

“The money that was expended to get the project was well in excess of $200,000,” says Wolff, who represents Matthews in this particular case. “This was reimbursements to get the project to closing.”

In January 2008, when Daigle was officially retained as a consultant, he started voicing concerns about Matthews’ cost estimates. Daigle thought they were too high, and he feared that would drive the cost per square foot of available lots too high. He shared those concerns with Engquist.

“Robert was afraid we were going to get too high, and we were very, very concerned about hitting a price point,” Engquist says. “We had meetings on that, and Matthews just didn’t listen.”

Smear campaign?

The partners now say there was something else troubling them about Matthews. In early 2008, they got wind of legal problems he was having over a home construction project in the area. According to court documents, another of Matthews’ corporate entities, Custom Homes LLC, defaulted on a $300,000 loan for a lot in the Copper Mill subdivision, where he was building a custom home. The buyers of that home also sued Custom Homes for defaulting on its purchase agreement and failing to complete construction. Several subcontractors and vendors, all of which were owed several thousand dollars each, also filed liens.

The New Towne partners say they felt duped. Engquist says he had asked Matthews at the closing on the Americana property whether he was involved in any pending litigation. He says Matthews told him he was not.

“I kept asking him and he kept saying, ‘No, no, no,’” Engquist says. “If I had known, then I never would have gotten involved.”

Matthews’ attorney says the talk of other lawsuits is now part of a smear campaign to destroy Matthews’ reputation. He says no such issues were raised when the partners originally tried to distance themselves. It’s only now they’re bringing up the other legal matters.

“They’re now raising issues that have never been raised before,” Wolff says. “They’re just circling the wagon to try to get everyone on board to say what a bad guy David Matthews is.”

In any case, by last spring the partnership was on the skids. New Towne voted in April to terminate its agreement with Shearwater as developer of Americana, though Engquist and the Campesis did offer to buy out Shearwater’s interest. Matthews’ lawyer says such offers were not made in good faith and the terms were unreasonable.

“It was all part of an effort to wrest control of the project,” Wolff says, declining to disclose the amount of the offers that were on the table.

Mestayer, meanwhile, tried to distance himself from Matthews and told him he didn’t want to do any more business deals together. Matthews responded last May with a lawsuit, claiming Mestayer “breached his loyalty and fiduciary duty to Shearwater … causing it irreparable harm.” More recently, Matthews has filed a motion to amend the suit and name Engquist and the Campesis as defendants as well.

During a hearing earlier this month, however, the judge did not rule on the issue because the project is tied up in bankruptcy court, which puts everything else on hold. In the battle over control of the development, New Towne defaulted on its mortgage. Engquist and the Campesis formed a new group called Old Towne that purchased the mortgage and has since attempted to buy the property out of foreclosure, but Matthews has filed an involuntary bankruptcy suit—a move Engquist’s attorney says is designed to prevent them from buying the property.

“The move by Matthews and company is very reckless and irresponsible,” Moore says. “There are serious penalties for wrongfully filing an involuntary bankruptcy petition.”

The Old Towne partnership has asked the bankruptcy court to dismiss the proceeding. In the meantime, however, the project is stalled. Will it emerge from the quagmire of litigation?

“I know my client would like to say it will,” Wolff says. “But based on what I’ve seen, I don’t see how.”

Not the first time

While it will be up to the courts to sort it all out, one thing is clear: The Americana donnybrook isn’t Matthews’ first legal entanglement.

When he first came to Baton Rouge, he hired an experienced contractor named Jim Fussell to build his 7,000-square-foot, $2 million home on Perkins Road at the entrance to Santa Maria. Though he was working for Matthews, Fussell also decided to start working with him and soon thereafter they formed Custom Homes LLC—the company named in the lawsuits. Together, they bought three lots in the Copper Mill subdivision in Zachary.

But the partnership was short-lived. Fussell says there were certain things he didn’t like about the way Matthews did business. He says terms of their contract didn’t pan out, and at least one of the subcontractors working on Matthews’ home—State Roofing and Supply—wasn’t paid the nearly $10,000 it was owed. [The company filed a lien and just received payment last month, nearly three years later].

By spring 2006, Fussell wanted out and says he tried to “distance himself” from Matthews and Custom Homes. He has since filed suit against Matthews.

Even after they split, Matthews continued to use Fussell’s name. According to court documents, he entered into a purchase agreement on one of the Copper Mill lots with a local couple, Michelle and John Maher, who put a $10,000 down payment on a $370,000 home they believed Fussell and Matthews were going to build for them. Little did they know Custom Homes didn’t have a contractor’s license.

Matthews did have another builder on the job, but the project started to fall behind schedule. Subcontractors didn’t get paid, and eventually Custom Homes defaulted on its mortgage. The purchase agreement fell through, and the Mahers have since sued to collect their deposit. Fussell, meanwhile, has found himself named in various suits and liens because of his association with Custom Homes—even though he says he had nothing to do with the Mahers’ project.

“Probably the single biggest mistake I’ve made is meeting and doing business with David Matthews,” Fussell says. “I wish I’d never met the man.”

Another builder who ran into problems with Matthews was Pete Farrar, who became involved in building the Mahers’ house. For more than 20 years, he ran a small construction company called Pelican State Construction Inc. When disagreements between Matthews and Fussell arose, Matthews asked Farrar if he’d be interested in building the house. To capitalize on Farrar’s reputation, Matthews suggested the joint venture go by the similar name Pelican State Construction LLC.

According to court documents, the new partnership never took on debt through the Pelican State Construction LLC. Instead, Matthews used Farrar’s original company—Pelican State Construction Inc.—to secure building supplies on credit then failed to pay for them. Court documents also allege that Matthews refused to pay Farrar for $50,000 worth of work he did on the Copper Mill house. An attorney for Farrar says his client would not comment on the pending litigation.

But another builder did speak up. Al Ayala was a contractor who did work for Matthews on various projects in the area. Ayala came here from Texas after Matthews recruited him. He has since left in disgust.

“He would get supplies on credit and then would withhold money from his subs,” says Ayala, who left with Matthews owing him $7,000, half of which has since been paid. “He would find reasons not to pay them and go back after the fact and say, ‘This isn’t right’ or ‘You did this wrong,’ when in reality he’d already been paid for the job.”

Georgia on his mind

Matthews filed for Chapter 7 bankruptcy in Lamar County, Ga., in the late 1990s, after building a 10-bedroom mansion that totaled nearly 7,000 square feet on 70 acres in Barnesville. The mansion is grandiose, with a tree-lined entrance that stretches more than a quarter of a mile from the road.

Matthews’ local attorney says the bankruptcy filing was discharged from court, which is true, and therefore was never in bankruptcy. He says Matthews filed for Chapter 7 after a warehouse in Atlanta that was being leased by a warehouse business he owned burned down, damaging all the contents inside.

“The landlord would not fix it and was still making demands for rent and the tenants couldn’t pay, so the matter was taken into bankruptcy,” Wolff says. “I understand they worked it all out.”

According to bankruptcy court records from the Middle District of Georgia, Matthews filed for personal bankruptcy in January 1998, and among his dozens of creditors were subcontractors who did work on his Barnesville house. Court records show they, among others, had filed dozens of liens against him—liens that were all dismissed by the bankruptcy court because the case was a “no asset case,” according to the bankruptcy attorney in Macon, Ga., who represented Matthews at the time.

“All those judgments against him were abandoned by the bankruptcy court,” says Danny Akin, who does not remember the case specifically but recently reviewed the files again. “That’s because the trustee in the case determined there weren’t any assets.”

Court records show Matthews resolved his debt with the bank that held the mortgage on his house, however. He signed a reaffirmation agreement with the institution, and the case was discharged in August 1998. Current records from the Lamar County tax assessor’s office indicate that he still owns the house, which has an assessed value of more than $700,000.

Cary Bankston is a lifelong resident and business owner in Barnesville and remembers Matthews. His company, Bankston Lumber, supplied some of the materials used to build what he calls “the biggest house in the county.” He, like others, had a hard time getting paid.

“We got pretty aggressive about it,” says Bankston, who was owed around $10,000. “We put a lien on his house and finally got our money. But I know several other guys who didn’t.”

Among those others are a septic tank company, a plastering company and a cabinet shop. All are listed as creditors in the bankruptcy filing. Efforts to reach them, however, were unsuccessful.

Still making deals

Despite his various legal entanglements, Matthews continues to make deals in the local real estate market.

His latest venture involves a physician, J. Michael Burdine, who is fronting him money to develop 68 lots in the Springbrook subdivision off South Flannery Road. In December, Burdine bought the lots for $2.1 million from KB Home/Shaw through his limited liability corporation, Summa Professional Office Park.

According to records that were subpoenaed in connection with the New Towne lawsuit, Burdine has agreed to loan Matthews $600,000 and has already paid him $100,000. He’s paying the rest in monthly installments of $25,000 and has agreed “to fund any cash call needs as requested by J. David Matthews.”

In return, loan documents show Burdine will get “a large, minority interest in Shearwater Communities, when this percentage is available for purchase.”

Burdine, who has other real estate holdings in the area, says the Springbrook project is a good opportunity to develop starter homes for a market that badly needs them. He says he and Matthews have a good deal that “works well for both of us.”

As for Matthews’ legal problems, Burdine says he is unconcerned.

“I have no reason to mistrust him,” he says. “Besides, if you look around at all the developers in town I think you’d have a hard time not finding one who hasn’t had problems.”