David Colton Removed as Manager of Investment Funds Controlling Millions of Feet of Office Space

SANTA ANA, Calif., April 14, 2015 /PRNewswire/ -- On April 10, 2015, the Honorable Robert J. Moss in Department CX-102 of the Orange County Superior Court, Civil Complex Division, ruled that David Colton and his related entities be removed as Investment Fund Manager for funds that he created to own and operate millions of square feet of office space in Orange County.  Judge Moss effectively ratified the prior ruling of Judge Taylor (Ret.) in an arbitration brought by over 300 investors against Mr. Colton and his related entities for breach of fiduciary duty, fraud and an accounting. 

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Santa Ana-based Callahan & Blaine and Irvine-based Cadden & Fuller represent these 300 investors.  The investors invested in six different commercial real estate funds that eventually purchased 74 office buildings, mostly in Orange County, constituting approximately 4,000,000 sq. ft.  The investors in four of these funds are in an arbitration and are governed by Judge Moss' ruling.  The other two funds are not subject to arbitration, but have filed their own lawsuit before Judge Moss, making similar allegations against the Colton Group.

According to Daniel J. Callahan of Callahan & Blaine, the claims of breach of fiduciary duty arise out of numerous acts of mismanagement and alleged fraud.  Callahan said that with no documentary support, Colton took deferred commissions totaling approximately $9,279,000 in the four investment funds that are involved in the arbitration.  He said that Colton also took commissions in excess of the amounts otherwise authorized by the operating agreements.  In addition, Callahan noted that despite Colton's promise to sell these properties within 5-7 years, very few of the properties have been sold since acquisition commenced in 1996, thus putting financial strains on the elderly investors who relied on this money for their retirement. 

"After placing these investors in a difficult financial bind, Colton would then seek to purchase their interests back at 50% of its value," said Callahan. "Many elderly investors had no choice but to sell to Mr. Colton, allowing him to accumulate super-majority interest in each of the funds at substantial discounts.  In the arbitration alone, several hundred million dollars is at stake. 

"What is remarkable is that Colton accumulated these vast holdings despite filing for bankruptcy in 1995 following his participation in a real estate Ponzi scheme that found him liable for a $23 million non-dischargeable judgment.  Colton subsequently has paid off this judgment, allegedly using the money that otherwise rightfully belonged to the investors in the funds."  

Callahan added that, "In a desperate attempt to remain as manager of these funds and continue to reap substantial unauthorized fees," Colton and its counsel, Michael Yoder of O'Melveny & Myers, allege that Judge Gary Taylor (Ret.), formerly a state court and later federal court judge, should be disqualified from hearing any further disputes between the parties.  In the April 10 hearing, Judge Moss rejected Colton's plea for several reasons, including that Judge Taylor had been the arbitrator on this dispute for nearly two years and had made numerous prior rulings.  Judge Moss found that the fact Judge Taylor was ruling against the Colton Group was not grounds for disqualification affecting Judge Taylor's neutrality, but rather demonstrated Judge Taylor's view of the facts in the dispute.

For further information, please contact Daniel J. Callahan at 714-241-4444, ext. 309.

Contact:    
Daniel J. Callahan
Callahan & Blaine
Santa Ana, California
www.Callahan-law.com
(714) 241-4444 ext. 309
(949) 584-4434 Cellular
Email

SOURCE Callahan & Blaine

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