Suits fly over who brought down Warner Ridge project - and why.

Was the move that killed the controversial Warner Ridge office development project in Woodland Hills a calculated conspiracy or a legitimate business decision?

That's the question a court will apparently have to answer now that the earliest of what seems destined to be masses of lawsuits have been filed in connection with a real estate mega-deal gone awry.

A local development team led by the Spound family and associates has accused its primary financial partner in the project (an affiliate of New York banking giant J.P. Morgan & Co., Inc.) of conspiring to keep a huge office building development deal "alive" only to maximize damages it might recover in a tangentially related suit -- and then pulling the plug on the deal once it reached a settlement in that suit.

A Morgan spokesman characterized the allegation as "outrageous."

The project was slated to be the new headquarters of 20th Century Industries, the big auto and property insurer based only a few blocks from the Warner Ridge site in Woodland Hills.

Once the litigation -- between Morgan and the Spound team's former Warner Ridge development partner -- was settled, Morgan reneged on a key financial commitment that would allow the 20th Century build-to-suit office building project to proceed, according to a 72-page amended complaint recently filed by the Spound team in Los Angeles County Superior Court.

In turn, that enabled 20th Century to walk away from its lease deal -- which it did, leading to the project's collapse.

(The original 12-page suit filed in early July sought dissolution of the Warner Ridge development partners -- Warner Ridge Partners L.A. -- and an accounting of its affairs. The mid-September amended complaint details the alleged "conspiracy.")

In April 1993 -- eight years after the Spounds got involved with the 25.5-acre "Warner Center-adjacent" site -- the insurer signed a lease for 412,000 square feet of office space in three buildings to be custom-developed as the Warner Ridge project's first phase. The deal was billed as one of the biggest lease transactions in L.A. history.

The insurer committed to rental payments totaling about $300 million over 20 years. But the deal was contingent on the Spound-Morgan team's ability to secure project financing.

The amended complaint alleges Morgan agreed to guarantee repayment of the proposed $100 million phase-one construction loan. But, the suit alleges, as the already-extended date 20th Century set for the construction financing approached early this year, Morgan "suddenly" reneged on its promise.

The insurer had the right to scrap its lease commitment if Warner Ridge Partners failed to meet the construction financing deadline, and that's just what it did on Jan. 7 - 10 days before the Northridge earthquake socked 20th Century with what eventually became more than $800 million in damage claims from its customers.

That early-January shakeout has since reverberated into a heated dispute between the team led by Jonathan A. "Jack" Spound and J.P. Morgan, Warner Ridge's would-be co-developer.

The Superior Court complaint notes that Spound, a Morgan affiliate and others had formed the WRP limited partnership to develop the complex on 21.5 acres at the northeast corner of Oxnard Street and DeSoto Avenue in Woodland Hills.

Following a legal dispute with L.A. -- and related battles with local homeowners -- over the scope of the project, the partnership has entitlements to develop 690,000 square feet of office and retail space in five buildings, along with 125 multi-family residential units.

At the heart of the dispute between the Spound and Morgan teams is how -- and why -- WRP failed to secure the financing commitments to keep the big 20th Century deal alive.

Spound and associates allege in the amended complaint that Morgan and affiliates "conspired" to "keep the 20th transaction alive" simply to gain "strategic advantages and benefits" related to a legal dispute with the Spounds' former Warner Ridge development partner. The complaint claims Morgan had a "secret intention not to perform its promises" upon which the project's construction rested.

Morgan denies the lawsuit's primary allegations.

Even as attorneys representing Spound and Morgan interests endeavor to give L.A. County Superior Court Judge Florence-Marie Cooper their respective explanations of the fallout, however, other parties are staking out claims against the development partnership's assets.

Dozens of creditors that provided materials, services, capital, etc. as Warner Ridge planning proceeded -- and which were to be paid after the expected construction loan was funded -- remain unpaid. While a Morgan affiliate has paid and/or acquired some claims -- and as such asserts in court documents that it is now a WRP creditor -- at least four creditors are each owed more than $1 million.

One consequence is that both Jack Spound and his father Albert M. "Bud" Spound as individuals have each been forced to file involuntary Chapter 7 bankruptcy petitions. Each lists liabilities exceeding $9 million. Jack Spound claims assets totaling $327,700; Bud Spound $11,463.

Meanwhile, the real estate brokerage that negotiated the Warner Ridge lease for 20th Century is seeking to take title to the Warner Ridge site through foreclosure. Travers Realty Corp. holds a deed of trust secured by the property in connection with an unpaid $3.1 million commission. But the Spounds and some Warner Ridge associates are fighting back with the suit seeking damages resulting from Morgan's alleged fraud, breach of contract and other improprieties.

While Morgan's attorneys were still preparing responses for the court at press time, Morgan spokesman Richard Mahony denied the lawsuit's primary allegations.

He stated, "There is no basis whatsoever for (the amended complaint's) outrageous claims." Morgan "will make a complete and vigorous response to the court in due course," Mahony said.

The complaint notes that a partnership known as Warner Ridge Associates purchased the Warner Ridge property in 1985. WRA, the complaint explains, had two partners: Spound Warner Ridge Associates, which included Jack and Bud Spound; and JDWR Limited Partnership, an entity formed by S.C. Johnson & Son Inc. Milwaukee-based S.C. Johnson makes Johnson Wax home and floor care products.

The amended complaint states that WRA financed the acquisition with a loan from Morgan subsidiary Morgan Guaranty Trust Co. The loan's initial principal amount was $27 million, but increased "over time" to $43.5 million, the complaint specifies. The loan was "arranged and procured" by Johnson officials, according to the complaint.

Morgan Guaranty Trust filed suit in May 1991 against S.C. Johnson and affiliate Johnson Wax Development Corp. in U.S. District Court for the Northern District of California.

A source familiar with the litigation explained that the loan to WRA was a "non-recourse" loan secured by the Warner Ridge site alone. However, Morgan Guaranty alleged that S.C. Johnson officials had given Morgan officials verbal guarantees to repay the entire amount of the loan.

Hence, if the court had sided with Morgan in that dispute, S.C. Johnson would have been liable for damages beyond the value of the property -- which transferred to the WRP partnership in early 1993 -- in the damage phase of the litigation, the source continued.

Thus, the source added, it was in Morgan's best interests to keep the site valuation to a minimum -- in order to maximize the difference between that value and the amount of any damage award the court would specify.

A valuation based on comparable land sales had pegged the site's value at $37 million. But one that factored in the 20th Century lease would specify a substantially lower value, the source noted. As long as the 20th deal remained in place, the court would use the latter calculation formula.

And once they agreed to settle the federal court litigation with S.C. Johnson, Morgan officials determined to abandon the 20th Century lease, the amended complaint alleges. It states that just after Morgan officials "had decided to settle, or had settled in principle" that litigation, Morgan "killed" the 20th Century deal by refusing to keep the key guarantees Morgan representatives had allegedly promised to provide.

The amended complaint was filed by Ridge Properties Ltd. and RD Management Inc. Ridge is a limited partnership including Jack and Bud Spound, and a general partner of the development team that owns the property, WRP.

RD is a corporation and the sole general partner of Ridge, and the Warner Ridge development's expected property manager. Spound associate Kenneth N. Berns is RD's majority shareholder. Among the defendants are J.P. Morgan, Morgan Guaranty, WRP, Morprop Inc. and UT-WRP. Morprop is a wholly owned subsidiary of Morgan Guaranty and a general partner of WRP.

UT-WRP is a limited partner in WRP. 20th Century is a limited partner of UT-WRP, and Jack Spound is its general partner. The complaint also notes that 20th Century holds a trust deed through which WRP pledged the Warner Ridge property to secure the developers' performance under the lease agreement.

Morgan attorneys are expected to file a response to the amended complaint later this month. A hearing on the matter is scheduled for Nov. 7.

Is this how it happened?

The following chronology is gleaned from the amended complaint recently filed in L.A. Superior Court by Ridge Properties Ltd. and RD Management Inc., partners in the entity that owns the Warner Ridge property in Woodland Hills.

1985: Warner Ridge Associates, a partnership including Jack and Bud Spound and an affiliate of S.C. Johnson & Son Inc., buys 21.5 acres in Woodland Hills for a multi-building office development. Morgan Guaranty Trust Co. finances the acquisition through a loan with an initial principal balance of $27 million.

February 1990: City of L.A. downzones the property to a luxury single-family residential development.

April 1990: WRA files suit against the city in L.A. County Superior Court.

June 1990: Court invalidates the downzoning ordinance.

May 1991: Morgan Guaranty sues S.C. Johnson and affiliate Johnson Wax Development over repayment of the 1985 loan, in U.S. District Court for the Northern District of California.

December 1991: Second District Court of Appeal upholds L.A. Superior Court ruling.

March 1992: City and WRA reach settlement resulting in entitlements to develop five office and retail buildings totaling about 690,000 square feet, parking and related improvements, and 125 multi-family units.

May 1992: 20th Century Industries signs letter of intent to lease the three office buildings, totaling 412,000 square feet, contemplated for Warner Ridge's first phase.

December 1992: A Morgan affiliate -- which will become a partner in Warner Ridge the following month -- "announces" it has not yet completed sufficient due diligence to execute definitive leases detailed in the letter of intent. Morgan requests an option to lease the planned buildings to 20th Century. 20th agrees subject to various conditions.

January 1993: New partnership headed primarily by Morgan affiliate Morprop Inc. and Spound/RD-led group called Ridge Properties Ltd. -- collectively Warner Ridge Partners L.P. -- takes title to the property. WRP acquires an option to lease phase one to 20th, but with a stipulation requiring a $100 million construction loan commitment to exercise the option.

April 15, 1993: Written notice of WRP's exercise of option is delivered to 20th -- with construction loan commitment from Canadian Imperial Bank of Commerce.

April 22, 1993: Developer and tenant execute leases for the three phase-one buildings.

April - December 1993: Ridge Properties, on WRP's behalf, completes phase-one construction plans and contracts and ordering of construction materials.

Summer/Fall 1993: After Morgan insists WRP retain Morgan affiliate J.P. Morgan Securities Inc. to act as WRP's co-agent to procure bond-backed "take-out" financing to guarantee repayment of the construction loan, Morgan Securities pursues phase-one bond financing through Daiwa Securities.

Oct. 18, 1993: Morgan notifies 20th Century it would "guarantee" lien-free completion of phase one.

Dec. 22, 1993: Morgan unilaterally notifies 20th Century it is considering terminating the Daiwa financing and requests extension to Jan. 21, 1994, to decide whether Morgan would provide a take-out commitment satisfactory to CIBC. Morgan "admits" to Ridge that requesting such an extension constitutes a breach of Morgan's fiduciary obligations to Ridge and its partners.

Dec. 23, 1993: Morgan informs Ridge it would provide the takeout commitment required by CIBC and Morgan would "cause" WRP to close the construction loan by Jan. 7, 1994. Morgan and Ridge fax 20th Century a letter confirming this schedule.

Dec. 23, 1993 - Jan. 4, 1994: Affected parties "work around the clock" finalizing all of the documentation for the construction loan to close and fund.

Jan. 5, 1994: Morgan "repudiates" all its prior commitments, promises and assurances to 20th Century, Ridge and CIBC, refusing to provide the take-out commitment and the completion guarantee.

Jan. 7, 1994: 20th Century informs WRP it won't go forward with the Warner Ridge project.

Jan. 21, 1994: Litigation between Morgan and S.C. Johnson is dismissed.