Judge puts heat on Rarity developer Mike Ross

By Josh Flory knoxnews.com
It's been a rough few years for Mike Ross and Rarity Communities, but recent developments in a federal court case are turning up the pressure.

Scope readers will recall that Rarity at one time was among East Tennessee's most dominant residential developers, launching upscale communities across the region and building one of the area's most recognizable real estate brands.

The economic downturn stopped the company in its tracks, though, and left a string of foreclosures in its wake. One of the most contentious aspects of the Rarity collapse was the falling-out between Ross and Robert Stooksbury, who had partnered with Ross on the Rarity Pointe project in Lenoir City.

In 2009, Stooksbury filed a scathing lawsuit that accused Ross and others of engaging in racketeering activity, charges that Ross denied.

There have been all sorts of twists and turns in the case since then, but in recent weeks momentum seems to have turned against the Maryville developer. In September, U.S. Magistrate Judge Bruce Guyton filed a "report and recommendation" in the case, which said discovery requests had been pending for about a year with little or no response from Ross and other entities listed as defendants.

The report said production of material that did occur appeared to be a "document dump," which forced Stooksbury to hire a former FBI agent to examine thousands of pages of immaterial documents to determine what had been produced.

Guyton's report said the lags in producing answers were not "completely exceptional" in the court's experience, but that what was exceptional was "the Ross Defendants' total lack of forthrightness in this matter."

The result? Guyton recommended that a motion for sanctions be granted and that U.S. District Judge Tom Varlan enter an order of default on the issue of liability on all claims related to the Ross defendants.

For his part, Ross is looking to shift the blame to a guy from New York. Last month he filed an objection, which said that in February his former attorney withdrew from the case, prompting Ross to engage an attorney from New York on the advice of a potential purchaser for the residential project. The New York lawyer, Ross alleged, failed to provide appropriate responses or objections, and failed to tell the defendants about the need to do so.

The objection went on to say that Ross has been "diligently assembling documents requested by his attorneys, at great expense and effort," including hiring five people who worked for 800 hours at a cost of $20,000.

Attorneys on both sides of the dispute indicated they were unable to comment because the case is pending.

Stooksbury has filed multiple lawsuits against Ross, and since the federal suit was filed in 2009 Rarity Pointe has been caught up in bankruptcy court.

The ownership entity behind the Rarity project filed for bankruptcy protection this year, just before a scheduled foreclosure auction of 184 residential lots, vacant tracts, a golf course and other property at the site. A reorganization plan filed in the case projects that over the next four to five years more than $22 million in lots and tracts could be sold at Rarity Pointe, using new pricing and a new marketing effort.