Amazon Files Appeal To Revive Claims Of Real Estate Kickback Scheme
Amazon is looking to revive racketeering claims against a pair of former real estate managers that a federal court dismissed earlier this year.
The world’s largest online retailer is asking the U.S. Court of Appeals for the 4th Circuit to reestablish its claims that former Amazon employees Carleton Nelson and Casey Kirschner unjustly received millions of dollars in kickbacks by steering it into inflated leases and land deals for data centers in Northern Virginia with a specific developer.
Amazon's appeal, which was first reported by Bloomberg, is of an April 6 summary judgment from U.S. District Judge Rossie Alston Jr., who dismissed many of the civil claims made by Amazon against Kirschner and Nelson, as well as former Northstar Commercial Partners CEO Brian Watson. Alston ruled that Amazon failed to prove financial damages sufficient to bring charges to trial because it didn't establish a value of the real estate at the time of the transactions, GeekWire reported in April.
The defendants have maintained their innocence throughout the case.
“Our clients have lived under the shadow of these sensational racketeering allegations for three long years,” Burr & Forman attorney Alex Little, who represented Nelson, told Law360 in April. “When Amazon was finally forced to prove its case, the court determined it could not do so.”
The $500M deal at the heart of the dispute occurred in 2017, when Amazon selected Northstar Commercial Partners to build nine data centers in Northern Virginia. Denver-based Northstar would build and own the data centers, leasing them to Amazon. To finance the projects, Northstar created a joint venture with IPI Partners, a financial firm with significant involvement in the data center industry. Northstar built a handful of data centers for Amazon over the next two years.
Alston did allow a claim of civil conspiracy against the duo and Watson, as well as a tortious interference claim against Watson and his related entities, to move to trial.
The arrangement led to an FBI investigation and a raid of Watson's home. The Securities and Exchange Commission charged Watson, a Denver-based developer, with misleading more than 350 investors in funds for unnamed real estate deals by telling investors that the firm was going to contribute up to 5% of the equity in those deals, then never doing so, Data Center Dynamics reported last year.
The Department of Justice dropped its investigation of Watson this summer, BusinessDen reported.
“Kickbacks operate as a tax on the transaction, inflating the employer’s costs. The employer may recover those costs as damages regardless of the market value of the underlying transaction,” Amazon attorneys Thomas Hungar, Patrick Stokes, David Debold, Claudia Barrett, David Casazza, Amanda Sterling and Jon Heyburn from Gibson, Dunn & Crutch, wrote in the appeal.
“The record overwhelmingly shows that the kickbacks Nelson and Kirschner garnered on multiple Amazon real estate projects directly increased Amazon’s costs,” the appeal says. “Amazon is not required to prove damages by means of market-value estimates.”
Amazon alleges Nelson, Kirschner and another Kirschner family member received more than $7M in kickbacks from the schemes.
“Amazon leadership relied on Nelson’s and Kirschner’s recommendations and on the information they provided in entering into transactions that would cost Amazon hundreds of millions of dollars,” the firm wrote in the appeal.
The alleged kickback scheme echoes another high-profile alleged real estate scheme involving Mattress Firm against two of its former employees and a former Colliers broker. The saga involved a swath of store leases the company alleged were inflated and store locations the defendants secretly owned. Those charges were settled out of court last December.
