Investor in 205 Osborn Avenue wins $5.4 million judgment against G2D, brings new action against company officers and outside law firm

One of the financial backers of Gregory DeRosa, the developer of two mixed-use buildings in downtown Riverhead who’s racked up tens of millions of dollars in judgments, liens and and pending lawsuits, won a  $5.4 million judgment against DeRosa and his company, G2D Development Corp., last week.

Investor John Paci sued DeRosa and G2D, alleging that they swindled him out of a $4.6 million investment in a Huntington commercial development, by misappropriating the funds he invested and stripping the Huntington property of its equity with a $2.5 million mortgage loan DeRosa obtained on the property without Paci’s knowledge.

DeRosa since last August has had more than $14 million in judgments entered against him or his companies and was named as a defendant in pending lawsuits with total claims of more than $50 million, including a $5.3 million lawsuit brought by  Dime Community Bank in January to collect the debt after DeRosa’s alleged default.

DeRosa and G2D did not appear or respond in Paci’s lawsuit. A default judgment was entered against both defendants in Suffolk County Supreme Court on March 25.

G2D had two mixed-use development projects in Riverhead: the already-completed Shipyard at 331 East Main Street and a second one at 205 Osborn Avenue, on the corner of Osborn Avenue and Court Street, where construction ground to a halt last May and did not resume until late in the year when Paci and another investor, Jerome Wood, took control of the limited liability company that owns the property.

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G2D received financial assistance from the Riverhead Industrial Development Agency for both of its projects in Riverhead. The agency warned G2D it was in danger of losing its financial benefits on the Osborn Avenue project because of the liens filed against the property which have not been satisfied or bonded as required by its agreement with RIDA. G2D did not respond to the agency’s letters. RIDA said in a press release in October that it was in direct contact with the projects’ “economic owners, and it expects both projects to “make their full contribution to the town’s development.”  

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In December, Paci brought a second lawsuit against G2D Development, two of its corporate officers and a law firm that represented G2D, claiming that the parties had conflicts of interest, undisclosed to Paci, and their “conflicts of interest were the proximate cause of Mr. Paci’s investment losses.”

Paci alleges his money was utilized for other purposes, including personal expenses, instead of specific real estate projects he was led to believe the money was invested in. 

In the complaint, Paci says G2D Chief Operating Officer Philip Foote, an attorney, drafted “key legal documents” and “knew or should have known that G2D Development was not utilizing [his] funds for the stated investment purposes.” G2D’s Vice President of Accounting and Finance Scott Haegele, a CPA who maintained G2D Development’s financial books and records and reconciled its accounts,  “knew that G2D Development was not utilizing Mr. Paci’s funds for the stated investment purposes,” according Paci’s complaint.

Both officers “undoubtedly knew from their preparation of various legal documents and their maintenance of G2D books, records and financial information, that they had breached their duties to Mr. Paci and were the proximate cause of his losses,” the complaint states.

Paci alleges DeRosa was conducting “a real estate ponzi scheme.”

G2D’s outside counsel, the law firm of Certilman Balin Adler & Hyman, “acted as the attorney in connection with a multitude of real estate transactions,” Paci’s complaint states. The firm “knew or should have known that it could not properly represent Mr. DeRosa, G2D Group and the special purpose entities Mr. Paci invested in,” it says.

“Certilman Balin never disclosed its decade-long, preexisting relationship with Mr. DeRosa. Its attorneys did not inform Mr. Paci of close, personal ties to G2D Group, or the fact that several partners at the firm were also investing in real estate alongside Mr. DeRosa and Mr. Foote,” according to the complaint.

The law firm represented the DeRosas for a decade before Paci began investing in G2D’s projects, Paci says in the complaint. Certilman Balin also represented G2D Development and other G2D Group entities in acquiring real estate, including both of its properties in Riverhead, the complaint states. 

Certilman Balin attorneys also invested in real estate alongside Mr. DeRosa, such as an investment in a commercial office building located at 576 Broadhollow Road, Melville, according to the complaint. “Certilman Balin had a vested interest in ensuring the continuation of G2D Group because its attorneys had invested in property developed and managed by G2D.”

Foote and Hegele have filed motions to dismiss Paci’s complaint. Certilman Balin’s time to answer or file its own motion to dismiss has been extended by stipulation till May 9.

Certilman Balin was hired by the Town of Riverhead last February to represent both the town and the Riverhead IDA in the lawsuit brought against both entities by Triple Five affiliate, Calverton Aviation and Technology, to enforce its $40 million land purchase agreement with the town for 1,644 acres of vacant industrial land in the Calverton Enterprise Park. 

Certilman Balin did not represent G2D before the Riverhead IDA.

The firm represents various developers with applications pending before the town. It also sued Riverhead over the 2003 comprehensive plan, seeking to have some of the zoning codes adopted pursuant to the plan struck down. That litigation had the town in court for more than a decade. Riverhead ultimately prevailed.