Opus settles claim it bled subsidiary

Opus Corp. has quietly settled another federal lawsuit involving accusations the onetime megadeveloper improperly stripped millions of dollars from a subsidiary, all to fatten the family trust funds of its owners, the Rauenhorst family, and make big donations to charities.

The subsidiary, Opus West, sued Minnetonka-based Opus Corp. in 2009, naming the developer, top brass as well as two trusts for the Rauenhorsts, accusing its owners of a "voracious appetite for self-dealing" and bleeding it dry. It took personal aim at the Rauenhorsts, calling the company's reputation for ethical leadership and charitable giving "a carefully-cultivated myth." The Rauenhorst foundations have been big donors, particularly to Catholic causes, including University of St. Thomas, whose business school is named for the company.

Opus West was once one of the most profitable of the Opus regional companies. It was seeking about $325 million to cover unsecured claims, according to two people familiar with the case.

The two sides secretly settled last month in Dallas for $45 million, days before the case was to go to trial, the sources said. Court records show the case was officially dismissed April 29.

About one-third of the settlement -- $15 million -- will go to lawyers, sources said. Most of the remaining $30 million will go to the two top creditors in Opus West's bankruptcy: Bank of America and Wells Fargo Bank. The two lenders were owed more than $260 million.

About $3 million will be shared among the roughly 150 Opus West employees who lost their jobs when the Phoenix-based company filed for bankruptcy in 2009, sources said.

Dennis Ryan, a lawyer for Opus Corp. and the Rauenhorst family trusts, would say only that the lawsuit had no merit.

The settlement comes as the liquidation of Opus West winds down in bankruptcy court in Dallas. Most of the projects it was left holding -- strip malls, shopping centers and office buildings spread across California, Texas and Arizona -- have been sold off.

Chris Akin, a lawyer for Opus West in Dallas, confirmed a settlement was reached but would only say that it was "mutually satisfactory."

Kelly Anderson, CEO of a Scottsdale, Ariz., electrical contractor called JENCO Inc., and an Opus West creditor, when told of the settlement, said it shows Opus was in the wrong. Anderson figures Opus owes him about $350,000. He had crews working on Opus jobs in Arizona when Opus West filed for bankruptcy in 2009, he said, and he had to lay off workers.

"It proves that our money -- little guys like me in the world -- is sitting in the foundation of a very wealthy family and they know they stole my money. They know that," Anderson said.

The company has held that the dividends Opus West paid to its parent were proper and part of the normal course of business. Company policy was that 10 percent of pretax income went to charity. After that, 75 percent of Opus West's income went to the parent, with about half of that designated for taxes, Ryan said. The parent company in turn transferred 60 percent of its profits to the trusts, with about two-thirds for taxes.

Opus remains under the control of the Rauenhorst family trusts, but it now employs about 275 people, down from more than 2,000 a few years ago. It owns a number of properties, including two downtown Minneapolis office sites, and is slowly returning to development. Currently, it's building a 120-unit apartment complex near the University of Minnesota called Stadium Village Flats.

Other lawsuits

It's the second settlement the fallen Opus has struck since 2009 involving claims it fraudulently transferred millions in profits to the two controlling trusts that Rauenhorst set up for his children and grandchildren.

In 2009, U.S. Bank and the old Opus parent company settled a $78.8 million lawsuit the bank filed alleging the developer defaulted on its line of credit. The bank argued Opus Corp. couldn't pay its bills because from 2003 to 2008 it fraudulently conveyed about $194 million in company assets up to the Rauenhorst family trusts. Terms of the agreement were never released, but sources said they settled for about $20 million.

The legal problems aren't over. A group of 16 former Opus West employees have accused headquarters of embezzling their pension funds for the family trust funds. The employees, most of whom are from California and Arizona, filed a federal lawsuit in California last year after they lost their jobs, alleging racketeering and saying the company owes them about $32 million in compensation and pension fund obligations.

The California lawsuit also accuses the old Opus parent and trusts of bank fraud. Opus headquarters would wire emergency money to Opus West just before lenders would come to see if the subsidiary was in compliance with loan covenants and ratios, then pluck the money back within a few days, the lawsuit alleges.

Part of the embezzled funds were used to bankroll the new venture that Opus founder Gerald Rauenhorst formed last year with Best Buy founder Richard Schulze, called Founders Properties, according to the complaint. The company owns more than 100 properties around the country, according to its website.

Ryan, Opus' lawyer, called the lawsuit "absolutely frivolous." He said officers of Opus West, such as Roberts, were in charge of their own compensation.

Charles Hill and Greg Hafif, lawyers for the Opus West employees, would not discuss the case. It is set for mediation on June 2 in Los Angeles, with a trial set for the fall.