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Co-Founder Sues Tzadik Management for $8M in Unpaid Proceeds from Multifamily Portfolio Sale

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Co-Founder Sues Tzadik Management for $8M in Unpaid Proceeds from Multifamily Portfolio Sale

Edited by: TJVNews.com

In a significant legal battle within the real estate sector, Alex Arguelles, co-founder of Tzadik Management, has filed a lawsuit against the company and its CEO, Adam Hendry, alleging a breach of a settlement agreement involving millions of dollars. According to a recently published report on The Real Deal web site, the lawsuit, filed in March, claims that Arguelles has not received any payments from the sale of a vast multifamily property portfolio, despite contractual agreements stipulating his compensation.

Founded in 2007 in Hollywood, Tzadik Management grew under the leadership of Arguelles, Hendry, and David Runyon into a prominent investment firm specializing in multifamily units. The Real Deal reported that while Runyon, the former chief visionary officer, has since departed from the company and is not involved in the current legal dispute, the fallout between Arguelles and Hendry has escalated into the public and legal arenas.

The properties at the center of the lawsuit encompass nearly 7,000 units, valued at over $400 million. This expansive portfolio includes more than 3,600 apartments across Florida, over 1,000 units in South Dakota, and additional properties in Georgia, as was indicated in The Real Deal report. The size and value of the portfolio call attention to the substantial nature of the dispute and the significant financial stakes involved.

According to court documents, the disagreement between the former partners began to unravel in 2020 when Arguelles decided to divest his interest in the company. A settlement agreement was subsequently signed, where Arguelles transferred his ownership stakes in the multifamily portfolio to Hendry. The information in The Real Deal report indicated that in return, he was promised a $100,000 upfront payment and further disbursements following the sale of the apartment complexes. These payments were to include both lump sum amounts and percentages of the profits realized from the sales.

While Arguelles received the initial $100,000 payment as agreed, he claims that no further payments have been made post-sale, leading to the current lawsuit.

This award follows intense arbitration proceedings under the American Arbitration Association, highlighting deep-seated conflicts within the real estate firm over financial agreements related to the sale of a substantial multifamily property portfolio.

The arbitration, which took place in February, involved arbitrators Jerald Bagley, Manuel Farach, and Norman Gerstein, who collectively ruled in favor of Arguelles, granting him approximately $8 million in overdue payments from the property sales and an additional $937,204 to cover attorney fees and costs, as was noted in The Real Deal report.

Raul Morales, Arguelles’ attorney, stated, “Mr. Hendry has made millions of dollars” from the portfolio sale, The Real Deal report said. However, he added, “he has not paid a dollar to my client.”

Following the favorable arbitration outcome, Arguelles took legal action to enforce the arbitration court’s award, filing a lawsuit on March 15 in Miami-Dade Circuit Court against Hendry and 19 other entities associated with the ownership of the apartment complexes, as per the information provided in The Real Deal report.

During the arbitration, a key point of contention was the timing and method of disbursements due to Arguelles. Hendry contended that payments to Arguelles should be made only after covering various other costs from the sale proceeds, such as escrow holdbacks and liabilities. Indicated in The Real Deal report was that the arbitration panel, however, supported Arguelles’ position that he was entitled to payment within 10 days following the complete disbursement of all sale proceeds, aligning with the original settlement terms.

Furthermore, the panel revealed that after selling three property portfolios for a combined $299.3 million, Tzadik’s accounts were nearly depleted, holding only $5,000, far less than the $8 million owed to Arguelles, as was revealed in The Real Deal report.

An additional complication arose concerning a shared private jet. Arguelles had transferred his ownership stake in the aircraft to a Tzadik affiliate, retaining the right to use $50,000 worth of flight credits, the report on The Real Deal affirmed.  However, following the sale of the jet, Tzadik is now obligated to compensate Arguelles the equivalent amount in cash, as per the panel’s decision.

During the arbitration proceedings, Hendry presented several counterclaims that complicated the case. Notably, the arbitration panel found in favor of one of Hendry’s claims, determining that Arguelles had been overpaid by $52,000 in salary, as was noted in The Real Deal report. This amount was subsequently deducted from the final arbitration award. However, the complexities of the arbitration did not end there.

Hendry also accused Arguelles of violating a settlement confidentiality agreement. This accusation was partially based on an incident where Arguelles allegedly disrupted a company gathering at Fuego by Mana, a restaurant in North Miami Beach. The Real Deal report also said that according to testimony from Tzadik staff members, Arguelles spoke openly about Hendry owing him money and expressed anger towards him. However, the arbitration panel found no evidence that Arguelles discussed the specifics of the settlement agreement at the event, leading to this particular claim being dismissed.

The dispute has now escalated back into the courts with Hendry challenging the arbitration outcome. His legal team argued that the arbitration was “plagued by significant procedural and other lapses.” Specifically, Hendry’s motion to vacate or modify the award points to the panel’s repeated recalculations of the monetary award—adjustments that shifted the total by approximately $2 million, The Real Deal report explained.  This instability in the arbitration award calculations forms a central pillar of Hendry’s challenge.

Additionally, Hendry revisited the issue of confidentiality, alleging that Arguelles breached the settlement agreement by disclosing details to his wife. The report in the Real Deal said that Arguelles defended this action by stating the information was shared for tax purposes—a permissible disclosure under the terms of the settlement. Hendry’s attorneys counter that this explanation was a “last-minute defense” and asserted that Arguelles’ wife was not involved in handling the couple’s taxes.

Moreover, Hendry’s legal team alleged bias within the arbitration panel, criticizing the denial of their request for a second deposition of Arguelles’ wife and their unsuccessful push to postpone the final hearing. These aspects, Hendry argued, indicate a prejudiced approach against him and Tzadik affiliates during the arbitration process.

According to Hendry’s motion, the arbitration panel, which included highly respected jurists from Miami-Dade County, allegedly failed to conduct the arbitration with due diligence. Hendry’s attorneys argue that the awarded damages were inconsistent with the evidence presented during the arbitration and even deviated from the amounts initially sought by both parties. “The arbitrators were grossly negligent in how they conducted the arbitration,” Hendry’s motion stated, as was reported by The Real Deal.

This legal challenge has sparked a robust defense from Arguelles’ camp. Raul Morales, Arguelles’ attorney, expressed confidence in the integrity and capability of the arbitrators involved. He highlighted the reputations of the two arbitrators, describing them as “some of the most respected jurists in Miami-Dade County,” and criticized Hendry’s efforts to overturn the arbitration award as an attempt to undermine their judicial decision, according to the information in The Real Deal report. “Now they are trying to undo all of that,” Morales remarked, indicating the perceived injustice of Hendry’s legal maneuvers.

The disagreement touches on fundamental issues concerning arbitration in business disputes, particularly the extent to which arbitration decisions are final and binding.

Legal analysts and business leaders are closely monitoring the outcome of this dispute, as it could influence future arbitration practices and the approach of business executives toward resolving conflicts through arbitration. The resolution of this case will likely resonate beyond the parties involved, potentially affecting arbitration norms and practices in the competitive real estate investment sector and beyond.



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