Calling a lender’s actions “nefarious” and “sinister,” a bankruptcy court judge sided with the borrower in a commercial real estate saga out of Central Massachusetts that included loans with fees of 41 percent – and one alleged instance of a loan repayment demanded at gunpoint.
In a July 1 decision, federal Judge Joel Rosenthal ruled that real estate lender Marcello Mallegni of LBM financial made usurious loans to a sibling duo of real estate developers, getting them on the hook and steering them into a decade-long spiral of debt, deceiving them about loan terms, making repayment demands he knew they couldn’t meet, and collecting amounts above those agreed upon.
Rosenthal struck down LBM Financial’s attempts to collect default interest and late fees that added up to nearly 41 percent, disallowing more than $3 million in claims and awarding more than $1.1 million in punitive damages to the plaintiffs.
According to the ruling, Mallegni guided brothers David and Robert Depietri, owners of 219 Forest St. in Marlborough, toward foreclosure. Mallegni gained a controlling interest in the mortgaged properties, and then steered the owners to dig themselves out of debt by taking out more loans, most prominently from Worcester’s Commerce Bank.
Commerce was not a defendant in the case, but the judge was suspicious of the bank’s involvement, so much so that he wrote that Mallegni and the bank may have “an undisclosed relationship” in the business of squeezing borrowers.
The case, 201 Forest et al v. LBM Financial, is one of a slew of lawsuits filed in the past few years involving Mallegni’s various lending businesses and Commerce Bank chairman David G. “Duddie” Massad.
The formal complaints include a thicket of state suits and federal racketeering cases: the Massachusetts federal court shows about a dozen lawsuits in the past five years for both men or their businesses, respectively, about half of which have been dismissed.
For his part, Massad says he has nothing to do with the recent bankrupcty hearing; he has only a passing acquaintance with one of the Depietri brothers, and no business ties with them, he claims.
The other lawsuits that name him as defendant are similarly without merit, he said.
The bulk of those suits were brought by several Central Massachusetts developers – including the Depietri brothers, victors in the bankruptcy case – as well as three Eastern Mass. businessmen. Nicholas Fiorillo, a real estate developer in the area, appears to be a leader in the charge against Massad and Mallegni, even operating a Web site called “thetruthonduddie.com” which chronicles the suits against Massad.
All this is fairly common knowledge in Central Massachusetts, where Massad in particular is a major, and controversial, public figure.
He’s known for his charity work – an emergency and trauma center at the UMass Memorial Medical Center is named after him – but has also been painted as a shady figure with possible mob ties.
All In The Family?
This year, alleged mafia boss Carlo Mastrototaro stated in the Worcester Telegram that he had facilitated connections for Massad and Mallegni, but that the men had failed to pay for those services.
Get a little farther east, however, and Massad and Mallengi’s notoriety are nonexistent among the banking and lending community, much less the population at large.
For instance, Michael G. Gatlin, a Framingham attorney who often deals with banks and lending institutions, was surprised to hear the details of Central Massachusetts’ real estate drama, and intrigued – but he remarked that it was typical of the divide that keeps one half of the state largely ignorant of the other.
“Somewhere between Framingham and Worcester, there’s like a curtain that comes down … it’s like a different state out there,” he said.
Still, the ruckus from the lawsuits is an ongoing distraction for those involved.
Brian Thompson, CEO of Commerce Bank, emphasized that Commerce Bank had no relationship to Mallegni. He dismissed the other lawsuits against the bank’s owner as without merit.
“Do we wish it weren’t there? Yeah. But for $300, I could sue you, and that’s the way the system works,” he said.
Commerce doesn’t appear to be suffering as a banking institution. Thompson noted that deposits were up – FDIC data shows that Commerce’s deposits are at $807.8 million as of the first quarter 2009, compared to $603.7 million in 2008 – and he added that lending was up by 23 percent this year.
“We run a very successful company here, and it’s really not more than that,” he said.
For their part, lawyers for both Massad and Mallegni – David H. Rich and Jeffrey D. Ganz, respectively – declined to comment for this report on behalf of their clients. Calls to law firm of Seder & Chandler in Worcester, which represented LBM Financial in the recent bankruptcy filing, were not returned as of press time.
Fiorillo, a plaintiff against the two men, has no problem talking. He even says his life was threatened several years ago, when Fiorillo was reluctant to sign over ownership of a property in Worcester, known as the Airline Lewis building at 267 Shrewsbury St.
“They say, ‘If it was 10 years ago, 20 years ago, you’d have already been dead … either you sign over this building right now, or something’s going to happen to you.’”
Massad counters that Fiorillo is “the worst liar that I’ve ever known in my life,” and that his accusations are out of line.
The current bankruptcy case against Mallegni doesn’t get that dramatic, although it does outline one instance in which Mallegni and a gun-toting cohort arrived at the Depietri brothers’ business to demand loan repayment – and, the judge noted, the amount demanded of the brothers was much higher than they believed they actually owed.
Rosenthal was particularly harsh against Mallegni, saying he was not a credible witness, frequently not recalling important details and testifying inconsistently.
“As a result, the court has rejected much of Mallegni’s testimony,” he wrote.
