Four years ago, Paul Lambert built one of the biggest luxury houses in Douglas County, a 9,100-square-foot tribute to Vegas excess that was the buzz of the 2002 Parade of Homes. Despite lawsuits and other setbacks, he's even managed to live in his dream house, the Villa Bellagio, following a complicated $4.5 million sale of the property that had his creditors' attorneys shaking their heads in disbelief.
But last week, Lambert took up temporary residence in the cramped confines of a true big house: the Douglas County detention facility. He was arrested on a single charge of felony theft, the result of an unusual criminal investigation triggered by one of the civil cases that have dogged the builder in recent years.
A former restaurateur who launched the Paul's Place chain of gourmet hamburger joints, Lambert began building semi-custom spec and pre-sold houses in the late 1980s. He had a knack for acquiring desirable lots on the fringe of established suburbs and erecting outsized manses in the $400,000-to-$700,000 range. His crowning achievement was the Villa Bellagio, with its three kitchens, eleven bathrooms, designer furniture, "casino," Roman spa, 27,000-gallon swimming pool and waterfall, all squeezed on a half-acre lot.
The VB's $4.1 million asking price made it the gaudiest by far of all the Parade baubles featured in Daniels Gate that year. But its over-the-top luxury also drew fire from Lambert's subcontractors and suppliers, several of whom filed suit over unpaid bills, and from homebuyers who felt shortchanged in their dealings with Lambert's company, Dorian Homes ("Viva Las Villa!," October 3, 2002).
Some customers accused Lambert of taking hefty deposits for custom homes and then diverting the money to other uses. A woman named Marty Rohrs sued him, claiming that a $510,000 deposit she'd paid for a Dorian home was used to pay other creditors and that the home she'd been promised wasn't completed on time. (The parties reached a confidential settlement in 2004). According to court records, Lambert borrowed extensively from his company, as much as $30,000 in a single month, and company funds were used to subsidize personal vacations and even to pay off a gambling marker at a Las Vegas casino.
Lambert blamed his cash-flow problems on the post-9/11 slump in high-end home sales. He insisted it was a common practice among custom builders to use deposits "any way we want." But last April, the Colorado Court of Appeals ruled against him on that point, affirming a judgment awarded to a Dorian subcontractor and citing case law that "a homebuyer's advance payments must be held in trust for payment of subcontractors."
In a separate case decided a few months ago, homebuyers Bryan Nakagawa and his wife, Veronica Driscoll, were awarded $150,000 in an arbitration against Dorian Homes. The couple paid a $110,000 deposit up front and even paid off a $17,709 IRS lien on Lambert's behalf, in return for promises of special discounts from Dorian in the construction of their $837,000 home. But Nakagawa and Driscoll claim that Lambert failed to pay suppliers and subcontractors, took draws on the construction funds for other uses -- and threatened to walk off the job, injure Nakagawa and damage the property. The couple's underlying allegations concerning Lambert's use of their funds are the basis for the current criminal case. Nakagawa and Driscoll are also suing Lambert individually and his other business entities.
"We sent out debtor interrogatories to which we got inadequate responses," says Cinthia Manzano, Nakagawa's attorney. "Because Paul Lambert used the money for himself and his other entities, we're piercing the corporate veil."
Released after posting a $25,000 bond last week, Lambert said he had "nothing to hide." He referred questions about his troubles with Nakagawa to attorney Jeff Wittebort, who represented him in the arbitration. Wittebort says his client cooperated with the criminal investigation, providing documents last year to county officials.
"We thought the matter had been resolved," Wittebort says. "We consider this to be a civil dispute."
The arbitration award against Dorian Homes was confirmed by a district judge last fall. Wittebort says the company has "very limited assets." It's his client's position that he doesn't owe Nakagawa and Driscoll any money and that the couple breached the contract by failing to authorize legitimate draws on the construction funds. "There were some heated arguments, but Mr. Lambert has denied that he ever threatened Mr. Nakagawa," Wittebort says.
Nakagawa says he doesn't want to get into the specifics of his discussions with Lambert, noting that Lambert accused him of libel in the arbitration. (The claim was rejected by the arbitrator.) He insists that Lambert took funds expressly designated to pay subcontractors and used them for other purposes, compelling Nakagawa to pay subs out of his own pocket and ultimately to find another contractor to finish the house. His total damages are well in excess of the $150,000 award, he adds.
"The wheels of justice turn slowly," he says, "but the district attorney found merit in our complaint."
Wittebort says the criminal charge comes at a time when Lambert's business is doing much better than in previous years. "Due to the market conditions, Paul had some financial issues," he says. "He's been working fifteen or twenty hours a day to get out of debt. He has paid hundreds of thousands of dollars back to his creditors. He's pretty much debt-free."
But Lambert is still facing other legal hurdles, from a $21,766 judgment in favor of the Colorado Department of Revenue for state taxes to a lawsuit filed by his ex-wife, Doron Kleinman, over the 2004 sale of the Villa Bellagio to Golden real-estate investor Michael Keiter for $4.5 million.
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According to the sale documents, the purchase was funded through a $2.7 million first mortgage and a $1.8 million loan from a second lender. The second loan was repaid the day of sale, with interest, from the proceeds of the closing. Keiter put no actual cash into the purchase; in fact, a company he owns was paid $165,000 out of the sale proceeds. In addition, Lambert was given an option to repurchase the property for $2.9 million and was allowed to live there as a renter ("Back at the Villa," July 1, 2004).
Kleinman contends that the deal took equity out of the VB that should have gone to Dorian Homes and its creditors. Lambert has denied any wrongdoing in the transaction, saying that he went out of his way to satisfy lienholders he wasn't required to pay.
No trial date has been set yet in the criminal case. Nakagawa suggests that there might be a lesson for others in his ordeal. "If you're going to build a custom house, you must have an attorney look at the situation," he says. "I never wanted to build a house this way."