Deer roam the golf course unafraid of people at the Cliffs Resort, a roughly 1,150-acre, master-planned residential community perched 200 feet above Possum Kingdom Lake. The full-service marina offers watercraft for rent by the hour and boat slips for lease by the year. The natural canyons, rolling hills and picturesque views create an atmosphere of tranquility.
But the beauty and serenity of the Cliffs belie a battle that’s been brewing for years, pitting home, lot and timeshare owners and deep-pocketed Fort Worth pharmacy software pioneer Ken Hill against the wealthy Dallas developer and operator of the resort. Overseen by a weary judge, the power struggle has spilled from the scenic shores of Possum Kingdom Lake to the sandstone, 1940s-era Palo Pinto County Courthouse 20 miles down the road from the Cliffs.
At stake could be the resort’s ownership, more than $10 million in Property Owners Association dues, property values, the jobs of roughly 80 employees and possibly even drinkable water.
The trial will settle who holds the power in the struggle once and for all in this case: the executive and owner of the resort, or the individual property owners who believe it is their right to self-govern the development. The outcome could have a much broader impact that may provide more clarity in an often-opaque relationship between developers of resorts and property owners — specifically around when developers should reasonably be expected to hand over operational control of a resort.
According to a number of property owners at the development, an array of problems stem from how developer Michael Ward set up the Cliffs Property Owners Association from the outset.
Ward, who lives in Highland Park, is president, CEO, majority owner and chairman of Dallas-based Double Diamond Inc., a developer and operator of four gated golf and resort communities, including the Cliffs.
Ward also held the position of Property Owners Association president at the Cliffs from the mid-1990s — when he bought the development as a distressed property for about $2.3 million — through late last year, when a long-running effort to oust him and the board succeeded.
Now, many of the 1,000-plus property and timeshare owners who voted against Ward want him not only off the board, but out of the Cliffs and the resort’s business entirely.
Dan Dipprey, a Cliffs homeowner who was elected president of the POA after Ward was voted out, is one of them.
“The Cliffs Resort is truly a unique and beautiful community,” Dipprey said. “We want to keep it that way, and we want to protect our investments.”
Ward’s dual role with the POA and Double Diamond posed a conflict of interest and led to big problems at the Cliffs, his opponents allege in litigation, meetings and group and individual interviews with the Dallas Business Journal. Some of those problems include poor water quality, water shortages, sewer issues, inconsistent and overpriced golf course maintenance, inadequate roadway maintenance, and what Dipprey and others in the anti-Ward camp refer to as “taxation without representation.”
“Mike Ward maintained a continual 24-year dictatorial reign as the self-elected president of our Property Owners Association,” said Cliffs homeowner Bryan Harveston, a primary organizer of a grassroots campaign to wrest control of the POA from Ward and Double Diamond and a plaintiff in a lawsuit against Ward and his companies. “He wants 100 percent control and nobody [to] ask any questions.”
Ward calls the allegations of the dissident property owners “baseless” and their tactics “nefarious and dishonest.” He maintains that neither he nor Double Diamond breached fiduciary duty or did anything wrong.
“Opponents of Double Diamond at the Cliffs Resort have continuously besmirched Double Diamond and me with false allegations of theft of the Cliffs POA’s funds,” Ward wrote in an email to the Business Journal. “However, after over a year of litigation, none of Double Diamond’s opponents has presented any evidence that Double Diamond engaged in wrongdoing.”
The man behind the money
The “Come and Take It” flag that flies at the Cliffs may never have been more fitting. The famous cannon-bearing banner from the Battle of Gonzales that launched the Texas Revolution in 1835 has become a symbol of pride and defiance of power.
But some battles require a backer, and the property owners have found theirs in the founder and chairman of Fort Worth-based pharmacy software services firm PDX Inc.
Hill, who owns a home and two lots at the Cliffs and has five boats at the marina, said he’s spent well over $1 million to battle Ward and Double Diamond and to pay the property owners’ legal fees.
“At this point, I’ve spent seven digits on lawyers,” Hill said. “But I will not quit. That’s my personal money. I’m just not going to let [Ward] continue to treat people like this. He’s got a lot of money. But I’m not easily scared.”
Ward, though, sees a less-than-altruistic motivation for Hill’s deep-pocketed support of the dissident property owners. The developer said Hill made an unsuccessful $12 million attempt to buy Double Diamond’s assets at the Cliffs in 2015.
“Ken Hill is funding this lawsuit and concocting these false allegations against the Double Diamond Companies and myself in an attempt to compel the Double Diamond Companies into selling its assets at the Cliffs Resort to him,” Ward said in an email.
Hill confirmed that he made a roughly $12 million offer for the Cliffs, but says the failure of that deal to reach fruition is not his reason for backing the lawsuit against Double Diamond and Ward. He says he has loved boating and other activities at Possum Kingdom Lake since he was a child in the 1940s and 1950s, and he especially loves the Cliffs and its property owners.
About 10 years ago, when Hill saw the home at the Cliffs that he now lives in, it was love at first sight. He wanted the house — furnishings and all — and was willing to go above the $1.2 million asking price to get it, Hill said in an interview at the Cliffs.
“I said, ‘Ask these folks how much they’d charge me if they would just get their toothbrush and leave. I want everything,’” he told his real estate agent.
While attending the University of Texas in Austin in the late 1960s, Hill was introduced to the concept that all pharmacies would soon be controlled by computer systems. He was an early adopter of the then-new technology in the 1970s in his pharmacy in Granbury, where he was also mayor.
Hill founded PDX Inc. — one of the world’s largest companies of its type — in 1985 to serve the pharmaceutical and health care sectors. Today, NHC is the holding company for PDX Inc., National Health Information Network Inc. and Rx.com Inc. These three companies service nearly 10,000 pharmacies in the United States with standardized software, clinical databases and communications services. Collectively, the companies’ customers fill over 20 percent of all retail prescriptions in the country.
In referencing the Cliffs, Hill said, “If you think about it, this could be one of the nicest places anywhere. I attempted to buy it, but he shot down anybody who wants to buy it at all.”
Allegations of self-dealing
In July 2017, three property owners at the Cliffs sued Ward, Double Diamond Inc., Double Diamond Management Corp., Double Diamond Utilities and other related Double Diamond entities in state District Court in Palo Pinto County. A bench trial date of April 22 has been set. The number of plaintiffs in that suit has since grown to more than three dozen.
There have also been two recent lawsuits involving similar complaints at White Bluff Resort on Lake Whitney. One involved more than 1,000 plaintiffs. White Bluff was developed, owned and managed by Double Diamond at the time of the complaints, but the Dallas company sold it late last year.
The lawsuits have similar claims: Double Diamond collects maintenance fees on behalf of the respective POAs and does not adequately use the fees for promised maintenance of facilities.
With the Cliffs only 110 miles west of Dallas and White Bluff Resort 70 miles south of Fort Worth, a number of North Texas residents have either retired to one of the resorts or have a second home, lots or timeshares at the developments.
Double Diamond’s business model at the Cliffs (and previously at White Bluff) is to promote and sell lots to buyers who are not required to immediately build on their lots. But they are, as a condition of ownership, required to become a member of the property owners association, the lawsuits say.
All members of the association must pay annual dues, which at the Cliffs amounted to $1,000 for home and lot owners and $500 for timeshare owners.
The lawsuits say that prospective lot buyers at the Cliffs and White Bluff were told the association was controlled by property owners, but in reality, the group was controlled by Double Diamond and Ward.
In the case of the Cliffs, the lawsuit claims that Ward through the years has rigged POA elections and otherwise manipulated the voting process to keep himself, friends and Double Diamond employees in control of the POA. After collecting dues, the POA, which is a tax-exempt 501(c)4 not-for-profit corporation, channels the proceeds to for-profit Double Diamond entities by contracting for services such as golf course maintenance with its own entities, the suit claims.
Ward countered in an email to the Business Journal, “There will never be any evidence supporting my critics’ claims that I rigged elections or manipulated the voting process because it simply isn’t true.”
Ward further denied that POA dues were wrongfully channeled to Double Diamond entities.
“Double Diamond is affiliated with a group of companies through shared management and operating functions,” Ward said in an email. “In the normal course of business, Double Diamond utilizes a centralized disbursement system whereby available cash balances are transferred to centralized accounts from which disbursements are paid on behalf of [the POA] by Double Diamond.”
Ward said that this causes the POA to “incur related party debt that must be paid back when cash is available.” He said in the email that this practice is common with companies the size of Double Diamond that own and operate several properties.
“We utilize this system and make these cash transfers for all our properties,” he said.
In addition to claiming misuse of POA dues, the Cliffs lawsuit alleges breach of fiduciary responsibility, self-dealing, fraud and lack of financial transparency.
In court filings and emails, Ward specifically denied each of those claims.
“The books and records of the Cliffs Property Owners’ Association, Inc. were audited multiple times and none of those audits determined that any action taken by Double Diamond Management Corp. took any action with the Cliffs POA’s funds that was inappropriate,” Ward said in an email.
The Cliffs lawsuit seeks more than $10 million in POA funds that allegedly cannot be accounted for, as well as detailed financials that the plaintiffs claim have never been provided by Double Diamond or Ward to the new POA.
The property owners also seek the right to own and operate the water and sewer utilities and to solidify their rights to use the resort’s golf course, marina, restaurant and other amenities and ensure the amenities cannot be closed.
“Double Diamond does not have the interests of the homeowners or the community as its mission,” said Curtis Leonard, a homeowner at the Cliffs who is not a party to the suit. “They have only the interest of their business model, which is real estate lot sales, and not the proper administration or management of the resort.”
The property owners suing Ward and his companies characterize the Double Diamond business model using more colorful language: “taxation without representation.”
Ward vehemently disagrees with this characterization, and has stated so in nearly two dozen motions and multiple hearings in response to the lawsuit.
He says that, since 2006, at least half of the six POA board seats have been occupied by independent lot owners, and he rejects the argument that his longtime position as president of the POA poses a conflict of interest.
“It is in the best interest of Double Diamond and the property owners at the Cliffs Resort to be as successful as possible,” Ward added in an email to the Business Journal. “The more lots Double Diamond sells, the more members the [POA] obtains, which increases the amount of dues being paid to the [POA].”
Millions at stake?
The property owners’ lawsuit, however, says that, instead of using all the money transferred from the POA on improvements at the Cliffs, Ward kept some or spent it on other Double Diamond developments.
The lawsuit alleges that between 2013 and 2018, Ward transferred $10.2 million worth of property owners’ dues into Double Diamond entities not associated with the Cliffs.
The dollar figure was determined by forensic auditor Bryan Rice from Weatherford, who was hired by the plaintiffs’ law firm, Whitaker Chalk Swindle & Schwartz. Rice based his findings on a review of limited financial statements provided by Double Diamond. It does not include attorney’s fees that already top $1.5 million, and other economic damages the property owners are seeking in amounts not yet calculated.
Ward and Double Diamond say in court filings that the company has documentation to justify the roughly $2 million a year of transferred POA money, but the property owners and lawyers who oppose Double Diamond haven’t bothered to look at evidence that exonerates the company and Ward. The bulk of the money goes for golf course maintenance, Double Diamond executives have said in court hearings on pretrial motions.
Ward wrote in an email to the Business Journal that Double Diamond provided the plaintiffs with thousands of pages of financial information detailing what the Cliffs POA money was spent on, documenting expenses as small as rake handles and floor mats. The anti-Ward property owners then demanded invoices from each expense, Ward said.
In response, Double Diamond provided the plaintiffs with more than 1 million pages of documents, including invoices, supporting the entries. But “the plaintiffs’ attorneys were not interested in taking the time to match the invoices to the entries,” Ward wrote.
Ward added that the books and records of the POA were audited for 2016 and 2017 by the Dallas accounting firm Huselton, Morgan & Maultsby PC of Dallas and neither of those audits found improper or illegal transfers or any wrongdoing on the part of Double Diamond.
“There is simply no truth that any of the Double Diamond companies or I engaged in any sort of self-dealing or that any fiduciary duty was breached,” he said.
Ward provided the audited financial statements to the Business Journal. In both audits, the firm said that the statements present fairly the financial position of the POA and the results of its operations and cash flow, but didn’t express an opinion on “the effectiveness of the entity’s internal control” because that wasn’t the specified purpose of the audit.
Dipprey said documents turned over to the court by Ward were not germane to the issue of POA transfers and questioned expenses. Since Ward and his companies had control of the money belonging to the POA and had been responsible for spending that money, they are fiduciaries and have the “burden of proof” or obligation to show that the money was properly spent, a lawyer representing Dipprey and other property owners argued in a March 26 court hearing on pretrial motions.
“They have thrown half a million documents at us and said, ‘Find it,’” said Mack Ed Swindle of Fort Worth-based Whitaker Chalk Swindle & Schwartz.
The tug-of-war in state District Judge Michael Moore’s courtroom in Palo Pinto County continues as the April 22 trial date approaches, and several significant decisions have already been made.
For his part, the judge is ready to move on, he said March 26 in denying Double Diamond attorney Michael Myers’ request to push the trial date back.
“I want the case over with,” Moore said. “I’m tired of this case. It’s a hog of my time. We’re inundated with paperwork.”
Last fall, at the dissident property owners’ request and over Ward and Double Diamond’s objections, Moore ordered a new election of the POA board.
The Cliffs Resort is divided into roughly 2,520 lots. Ward, through Double Diamond, has about 580 lots in his inventory of unsold properties, and each of those comes with a vote in POA elections. The lots in Double Diamond’s inventory carry the same voting privileges and weight that home and lot owners wield in the elections.
In the weeks leading up to the Nov. 26 vote, Ward and Harveston mounted aggressive campaigns to capture the votes and proxies of undecided property and timeshare owners.
After a barrage of emails, door-knocking and impassioned debate by both sides, Ward and the existing slate lost the election by a 1,346 to 1,292 vote and Moore ruled in the plaintiff’s favor in proceedings held after the vote. The total vote number exceeds the number of lots at the Cliffs because roughly 480 timeshare owners voted in addition to the lot owners.
Ward and the other five existing POA members were out. Dipprey and five other Cliffs homeowners — none employed by Double Diamond — were in.
Later came a court order to transfer all POA funds held by Double Diamond to the new property owners’ association.
Ward initially said the courtroom developments would force him to close the Cliffs to close the Cliffs Resort effective Feb. 8, which could have put roughly 80 employees out of work.
“The effect of the court’s order, and the unwillingness of the association (under the direction of the new board), is that the operation of the facilities and amenities of the Cliffs can no longer be sustained and will close Feb. 8,” an email from Ward to employees on Feb. 6 said.
Moore ordered both sides into mediation and has repeatedly said in court that he would do everything in his power to avoid the closure of the Cliffs, a key asset in Palo Pinto County’s tax base.
The POA’s offer of $3 million for all of Double Diamond’s assets at the Cliffs falls far short of its worth of $9 million, Ward said, calling the $9 million price tag “a conservative estimate.”
Double Diamond is, however, looking to sell all of the Cliff’s assets to third-party purchasers, and is in negotiations with buyers for the marina and the water and sewer systems, according to Ward and his attorneys in a March 26 court hearing.
For more on this story, please visit the Dallas Business Journal.