Stalled Scott’s Addition project prompts $15M lawsuit

The Quality Inn & Suites building at 3200 W. Broad St. sold for $5.9 million in September. (BizSense file photo)

Claiming one of its big projects is stuck in limbo because of a dispute with a local developer, a Richmond housing nonprofit has sued to regain control of its plan to convert a shuttered Scott’s Addition hotel into income-based apartments.

Better Housing Coalition filed a $15 million lawsuit Friday against Henrico-based Dominion Diversified Real Estate Group, alleging the firm is holding hostage the nonprofit’s plan to redevelop the former Quality Inn & Suites building at 3200 W. Broad St.

BHC claims that Dominion Diversified’s threats to refile a separate and recently withdrawn lawsuit, which alleged the nonprofit stole the idea for the hotel conversion from Dominion Diversified, continues to loom over the project and prevent it from proceeding.

The 60-page suit, filed in Richmond Circuit Court, seeks to recoup damages that BHC chief executive Greta Harris said the organization sustained not only in financial costs but also to its reputation.

“As a nonprofit organization that has served this community for nearly 30 years, beyond our people and the housing that we provide, our most valuable asset is our reputation of doing public good, and that has been questioned because of all of the notoriety of what we think is a completely ridiculous lawsuit that occurred earlier this summer,” Harris said Friday.

“The reason we’re doing this is so that, once and for all, we can resolve the legal issues that are now hovering over this development so we can move forward with what we think is one of the most exciting developments in the region.”

A rendering of what BHC had planned for the hotel property.

The lawsuit, which also names as defendants a related LLC and three principles of Dominion Diversified, including founder Spilman Short, alleges malicious civil prosecution, tortious interference with contract or business expectancy, defamation and unlawful conspiracy to injure BHC and Pineapple Acquisitions LLC, the entity BHC used to purchase the property.

Short, who said Friday he had not yet seen or been served with the suit, called it a scare tactic to try to get his firm to completely drop its lawsuit, which was nonsuited last month but can be refiled.

“It’s frivolous and just attacking to make us cow down and quit, and that’s not going to happen,” Short said.

“We’re well within our rights to refile, and our plan is to do so, unless the matter can be resolved amiably between both parties.”

Dominion Diversified sued BHC in late 2016 claiming the nonprofit stole its concept for the old hotel after it approached BHC about collaborating on an affordable housing development on the site. That suit, which sought more than $6 million in damages, claimed BHC violated a non-disclosure agreement, and the firm has since said BHC withheld information about the litigation against it when it applied for grants for its project.

BHC says the plans Dominion Diversified shared were for an earlier proposal to develop the property as a hotel and market-rate housing, not the low-income housing concept the firm had pitched to BHC. In its suit, BHC says Dominion Diversified approached it only after the firm had failed to secure $8 million it needed for the market-rate project after shopping it around to 16 investors.

According to BHC’s suit, Dominion Diversified had signed a letter of intent to purchase the property for $5.6 million and needed the $8 million to finance the project. When those efforts failed, the firm approached BHC with the affordable housing concept, offering to sell the property to BHC for $7.1 million in hopes of a $1.5 million profit and a $154,000 sales commission, the suit says.

Harris said Dominion Diversified pressured BHC to commit to the project, and when the nonprofit decided against it, the firm opted out of its contract for the property. BHC later purchased the Quality Inn through an entity called Pineapple Acquisitions LLC from seller Midtown Hospitality LLC for $5.9 million. In September 2016, BHC announced a $30 million project to convert the hotel property into a mixed-income, mixed-use development – different, Harris said, from the concept and plans Dominion Diversified had pitched to them.

Harris said the non-disclosure agreement includes language that allowed BHC to explore options with other parties, but she acknowledged that BHC violated terms of that agreement by not notifying Dominion Diversified and not requiring those other parties to sign non-disclosures. In an effort to own up to that, she said BHC has offered a $15,000 settlement that Dominion Diversified has rejected.

Meanwhile, Harris said enthusiasm about the project has chilled and BHC has been unable to secure financing from investors. She said the plan is to fund the project with a mix of tax credits, debt instruments, philanthropy and private equity, with Markel Corp. vice chairman Steven Markel signed on as a lender, along with Union Bank. The project has also been awarded a $2.25 million state grant.

Harris said it is costing BHC nearly $40,000 to hold onto the property, with no end in sight so long as the project’s legal status remains uncertain. While BHC had countersued Dominion Diversified in response to the original lawsuit, Harris said that case became nullified when the original suit was withdrawn.

Harris said this latest suit is intended to take back control of the project, which she said was planned to start the first half of next year but remains 18 months out until a resolution is reached. She said it is also intended to restore BHC’s reputation, with PR firm Padilla enlisted to help with that effort.

“They have us in a hostage situation,” Harris said. “We feel strongly if we can get inside of a courtroom for this case that we’ll be completely vindicated, with the exception that we acknowledge we didn’t get the additional disclosures executed, and we offered to pay for that infraction.”

The suit seeks a jury trial and declaratory judgments on issues such as whether Dominion Diversified shared trade secrets with BHC. BHC is represented by Bill Baldwin of local firm Meyer Baldwin Long & Moore. Dominion Diversified is represented by Brad Marrs of the Marrs & Henry Law Firm.

Short, who is named in the suit as a defendant along with the firm, fellow principals William Hampton Carver and Michael J. Melton and an affiliate company, Dominion Diversified Real Estate Advisors, said he remains committed to the firm’s legal challenge but is open to talks with BHC.

“I’m open to negotiations for a settlement,” Short said. “We have done nothing wrong.”

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William Willis

It would be a shame if this project ends up not happening. It would be a great addition to the Scott’s Addition area with some affordable housing with rents and property values in that area going through the roof it may start hurting the grow of Scott’s Addition.