Florida Developer Strikes Back at Airbnb With Countersuit
Harvey Hernandez and his NGD Homesharing teamed up with Airbnb on a residential development deal that appears to have collapsed in dueling lawsuits.
January 31, 2020 at 03:59 PM
5 minute read
The original version of this story was published on Daily Business Review
A day after Airbnb Inc. sued a Miami developer claiming a breach of their partnership agreements, the developer responded by accusing the home-sharing giant of abusing its power and taking trade secrets to grow its own business.
NGD Homesharing LLC, led by Harvey Hernandez, and San Francisco-based Airbnb teamed up in a much-hyped venture promising more urban apartments. But the partnership went sideways, and Airbnb sued NGD and Hernandez in federal court in San Francisco, claiming they failed to deliver any of the seven projects promised for delivery last year.
NGD's response was a lawsuit filed in state court in Florida against Airbnb for allegedly making unnecessary demands and intentionally withholding its approval and input. The home-sharing company wanted to secretly take over NGD's business model, according to NGD's Miami-Dade Circuit Court complaint.
"This is a classic case of a big corporate player attempting to misuse its size and strong-armed legal tactics to improperly usurp an innovative business and technology from the hardworking" Hernandez and his NGD, filing attorney Michael Austin said in a statement.
Austin, a partner at McDermott Will & Emery in Miami, filed suit Jan. 24, the day after Airbnb sued in San Francisco federal court.
Airbnb maintains NGD and Hernandez didn't live up to the agreements on several levels, including lending $1 million from their joint business without approval.
W. Douglas Sprague, a partner at Covington & Burling in San Francisco, signed the federal complaint filed in California's Northern District and filed it along with firm associates Ethan Forrest and Annie Shi as well as David Buckner, a partner at Buckner + Miles in Miami.
They didn't return a request for comment by deadline. Airbnb corporate counsel Allison Hastings referred inquiries to the company's media relations division, which also didn't respond by deadline.
The two lawsuits say the two sides started collaborating in 2016 and expanded the partnership by signing an operating agreement in January 2019. Airbnb's lawsuit lists unit purchase and additional rights agreements as well as a collaboration agreement that allows Airbnb to end the partnership if NGD fails to build the seven projects promised in 2019 and the same number in 2020.
NGD, founded by Hernandez in 2016, said it created a unique branded concept and technology for residential communities allowing owners to list their units on home-sharing sites. The home-sharing capability is like a built-in amenity setting the projects apart from other buildings where short-term rentals often are banned by condominium associations.
NGD said Airbnb was attracted to NGD and became a majority member in NGD while Hernandez remained manager.
Airbnb alleged it was induced to make an $11 million investment in NGD based on misrepresentations that its interest would be protected from dilution when another investor exercised its warranties. In reality, Airbnb alleges NGD misrepresented how another investor's interest in NGD would be calculated, ultimately giving Hernandez more control over NGD and a larger stake in profits.
Airbnb also brought up a lawsuit filed by former NGD employee Cindy Diffenderfer against NGD and Hernandez accusing him of diverting company funds for personal use and cutting NGD members like Airbnb out from funds. Diffenderfer accused Hernandez of using NGD money to repay a former associate and then telling her she could be terminated if she spoke up, according to Airbnb's complaint. Diffenderfer allegedly was removed from the company, which Aibnb contends shouldn't have been done without its consent.
Airbnb also accused Hernandez of lending $1 million of its money to another company for Natiivo Miami. Once Airbnb started pressing Hernandez for details, fraudulently backdated documents were provided, according to Airbnb's complaint. It's asking for the return of its investment.
Airbnb's suit is an effort by the company to deflect attention from its own shortcomings, said Austin, NGD's attorney.
"It was filed by Airbnb in an effort to improperly exert leverage on NGD in connection with ongoing business negotiations," he said in a news release.
Austin wrote Airbnb attorneys Dec. 26 notifying them that NGD was concerned about Airbnb's "pattern of conduct," claiming it was damaging NGD and impeding its ability to move forward with its business.
NGD's complaint accused Airbnb of collaborating with Diffenderfer and a long-time NGD business partner to "subvert" Hernandez's company.
As for the $1 million loan, NGD said it was within its right to issue the loan under the operating agreement.
NGD blamed project delays cited by Airbnb for ending its NGD agreement on unnecessary demands before Airbnb went "radio silent."
"There is no reason for Airbnb's actions and omissions other than to advance Airbnb's clandestine goal of operating the same business as NGD, in competition with NGD, and without the participation of NGD and NGD's other members," the NGD complaint said.
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