Trust and Betrayal
“Regardless of how well you know someone, treat any business arrangement with due diligence. Motives can be hidden, even with the best of friends.”
—Elaine Eisenman, Ph.D., and Susan Stautberg
It is a terrible thing to say but I believe my biggest failing in life and business was being far too trusting of people, especially business associates.
My first disappointment was Buddy Wallen, who was my partner on the first Châteaux we built in Aspen. One night in Chicago, I declined his invitation to a hockey game and stayed behind with our accountant, Stan. As soon as the door closed behind Buddy, Stan took a deep breath and began “spilling the beans” about how Buddy was cooking the books and I was being cheated. This led to the dissolution of our partnership. While I was disappointed to find out that Buddy was less than honest, I have been forever grateful for him because he introduced me to Aspen and the development business.
My next disappointment was José Montes, the man Dale Eubank and I hired to manage a large development in Puerto Vallarta. At first, we were impressed with José's enthusiasm and ability, then we decided to sell the project. The crooked things that were revealed could fill a juicy crime novel.
José had reported one of our dump trucks stolen but later we found that he had sold it. When we found a cement mixer missing from the inventory, he claimed it had been damaged and scrapped. We could not prove this was not true, however we knew the Mexican mentality was to fix things, not junk them.
When we hired José, he proposed that instead of paying him a salary we should hire him as an independent contractor since that would give him certain tax advantages. We did this and paid him his contractor fee until the day we sold the project. José went to the labor board and claimed he was due vacation pay for the entire time he had worked for us and several months termination pay. He even claimed he was due a commission on the sale although he had had nothing to do with it. We had to make a substantial payment to complete the sale, and he still made claims against us in the labor court.
The real blow came when José produced a forged note claiming that I owed him the equivalent of $500,000 USD. In the U.S. this would have been easy to resolve as he would have had to show the court the bank records where the money had changed hands. Under Mexican law you cannot use the lack of an exchange as evidence – the signed note stands on its own. A forgery claim is settled by each party appointing an expert witness and the court appointing an independent expert witness. This was done and the court appointed experts to testify that it was a forgery. José appealed and lost, appealed again and lost, but at the final appeal the court ruled in his favor. I will never know if my attorney was bought off or the court was bribed because their decision against me made no sense. They ruled in favor of José because the expert appointed by the court had testified from a photocopy of the note and not the real note. Of course, the obvious ruling would be to have that expert, or another court-appointed expert, examine the real document. Instead they ruled against me and, because there was no further appeal, I had to pay José the $500,000.
And even this did not stop him as, to this day, he is trying to place liens on my Mexican properties claiming compensation awarded by the Mexican labor court. I have had to engage an attorney to fight this, and it appears that the statute of limitation may have run out.
My next and probably greatest disappointment was with my San Miguel partner, Jim Dolan. When Jim returned to San Miguel from overseas services in the Army, I hired him to oversee the construction of our San Miguel home since Betty and I were busy with other projects and could not be there on a day-to-day basis. Although we went over budget, he did a good job, so we started looking for other business opportunities. A large, 119-hectare ranch outside of San Miguel became available and we purchased it in Jim's wife's name as I understood she was the only one with the right immigration papers to own farmland in Mexico. Since I had put up all the money, I drafted a brief document outlining the ownership and management of the property that we all signed. I was too trusting to hire a lawyer.
Jim and I went on to buy adjacent properties using my money without being titled in my name. Then we purchased a large tract of land on the outskirts of San Miguel to do a large residential subdivision. We spent money on the planning of the subdivision, a wall around it, etc. before we had actually closed on the property. When it came time to close, we did not have the funds, still we were optimistic about the project as sales were strong. Jim arranged the loan through a mutual friend, and we would have had no trouble paying it off had sales continued at even close to their present pace. Unfortunately, our timing was terrible. 2008 came along, and sales stopped. (The 2008 Great Recession, the worst crisis in nearly eight decades engulfed the global financial system, bringing Wall Street's giants to their knees… While the Great Recession officially ended in 2009, many people felt its effects for years to come as the job market and home prices remained depressed.)
Our lenders wanted their money and rightly so and I suggested we sell the ranch property, which had appreciated, pay off a big portion of the note and buy some time for the economy to recover. That never happened; since Jim didn’t want to sell, he made no real effort. In the meantime, I had loaned Jim and Ann the funds to build a large home without securing a formal note, much less a mortgage.
As my daddy always said about partnerships—it is much easier to divide up the profits than to share the losses.