Last fall, after his arrest on charges that he defrauded the city of Windcrest and Rackspace Hosting Inc. in a real estate deal, San Antonio developer Gary Cain was taken to the then-Texsan Heart Hospital complaining of chest pains.
Cain says he had a heart attack — something he blames on the stress caused by defamatory statements allegedly made by Windcrest officials. So he’s now suing the city for at least $400 million in damages.
The action is part of a tangled web of litigation filed in the wake of a civil lawsuit Rackspace filed against Cain, his companies and partners over the ill-fated deal.
“It has gotten kind of wild, hasn’t it?” said Barry Snell, Rackspace’s lawyer.
Rackspace sued to, among other things, recover about $2.8 million it alleges Cain fraudulently took from a $5 million escrow account created for Windcrest to pay for infrastructure improvements around the company’s headquarters in the former Windsor Park Mall.
Rackspace’s suit sparked a criminal probe that led to the arrest of Cain, 55, and his brother, former Windcrest City Manager Ronnie Cain, 61, who is accused of participating in the scheme. The Cains deny any wrongdoing.
The pair is scheduled to go to trial on the criminal charges next month, though it likely will be postponed. They could spend the rest of their lives in prison if convicted.
Meanwhile, a battle royale is shaping up on the civil side in Bexar County District Court, where a combined half-dozen claims, cross-claims and counterclaims have been filed since Rackspace first sued in late summer 2009.
Randall Pulman, Gary Cain’s lawyer, said he had to draw a diagram to keep track of all of the disputes.
“I think what it does is exemplify what we’ve been saying all along: This is a civil dispute,” Pulman said. “Like most real estate developments that (go) bad, it’s digressed to litigation between all the principal parties.”
Rackspace and Windcrest, in summer 2007, entered into an agreement to bring the tech company’s headquarters to the abandoned mall. Windcrest agreed to work with Gary Cain to acquire the mall property after Ronnie Cain made assurance he had no affiliation with his brother’s companies.
Gary Cain was promoting a mixed-use development that would include apartments, townhouses, condos and retail outlets. The entire project would be worth more than $1 billion when completed, according to his lawsuit against Windcrest.
Gary Cain financed the Windcrest Economic Development Corp.’s purchase of the tracts that make up the mall property. Rackspace reimbursed Gary Cain in the form of an up-front lease, though title to the property remained with the economic development agency for tax abatement purposes.
Gary Cain submitted to both the city and Rackspace a sworn affidavit that the tracts cost a combined $26.9 million. According to an affidavit that Texas Rangers used to obtain a search warrant of Gary Cain’s office last year, the amount was $7 million more than the combined prices reflected in the deeds.
Ronnie Cain, who the affidavit indicated had knowledge of the purchase price, never said anything when Gary Cain presented the cost certification to the city.
Rackspace sued Gary Cain for fraud, along with his companies and Buddin Properties LLC, partners with a Gary Cain-controlled entity in the project. Rackspace seeks unspecified damages.
“Gary is of the firm belief that there was full disclosure of all of the transactions that he is now accused of hiding,” said Pulman, Gary Cain’s lawyer.
Buddin sued Gary Cain in December 2009, a cross-claim that was amended in June 2010 to include Ronnie Cain. In the complaint, Buddin essentially asserts it was a victim — not a participant — in the Cains’ alleged scheme. A lawyer for Buddin, which seeks unspecified damages, declined to comment.
Windcrest jumped into the fray in November, a week after the Cains were indicted. Windcrest filed its own lawsuit against Ronnie Cain, demanding the return of at least $2.8 million that it claims was fraudulently taken from the escrow account created by Rackspace for infrastructure improvements.
In May, Ronnie Cain countersued the city claiming it has refused to pay him severance benefits. Cain’s suit didn’t say how much he’s owed, but last year he sent the city a letter saying he was owed about $200,000 in unpaid salary and benefits. His lawyer, John Blair, declined to comment.
Troy “Trey” Martin III, Windcrest’s lawyer, said Cain voluntarily terminated his employment and isn’t entitled to severance. Further, Martin said, Cain’s alleged actions, which have since come to light, would have been grounds for his termination.
A month after suing Ronnie Cain, Windcrest intervened in Rackspace’s lawsuit by leveling similar claims against Gary Cain, Buddin and related parties.
Buddin responded in March with a cross-claim against Windcrest, charging that the city, through Ronnie Cain and others, made promises that convinced the company to enter into the real estate deal. Those were fraudulent or negligent misrepresentations, Buddin states in its suit. Buddin wants the city to repay the money that was allegedly stolen from the escrow account.
Said Charles Frigerio, a lawyer representing Windcrest in the Buddin claim: “It was their own illegal activity that brought about the whole situation. We deny any and all liability.”
Frigerio also is defending the city against Gary Cain’s $400 million defamation suit. The figure represents the value of the stake Gary Cain-related entities would have had if the former mall property and surrounding land had been developed, according to Pulman.
Frigerio denied the city had anything to do with Gary Cain’s heart troubles. “It was because of his own actions and the stress he brought upon himself,” Frigerio said.
Last month, Windcrest asked the court to consolidate the disputes into one proceeding. Rackspace’s suit is slated to go to trial in January if it’s not resolved in court-ordered mediation before then.
In the meantime, Gary Cain has another legal headache looming. In April, his wife of six years filed for divorce.
Express-News archives and New Researchers Kevin Frazzini and Mike Knoop contributed to this report.