Palo Alto Weekly

News - May 16, 2014

Zuckerberg sued for fraud in Palo Alto land deal

Developer claims Facebook CEO failed to deliver on promise of business referrals, but Zuckerberg denies 'agreement'

by Sue Dremann

Facebook CEO Mark Zuckerberg is being sued by a real-estate developer for fraud in a deal that allegedly included promises for business introductions in exchange for buying out a contract to purchase a property adjacent to Zuckerberg's home at a deep discount. But Zuckerberg's attorneys say he never had any such agreement, and the developer is just looking to extract more money and embarrass their client.

Developer Mircea Voskerician claims he made an offer on the property at 1457 Hamilton Ave. in November 2012, after learning it abuts Zuckerberg's backyard. He planned to build a large home on the site that would have been only 31 feet away from Zuckerberg's house, according to the lawsuit, which was filed on May 2 in Santa Clara County Superior Court.

He approached Zuckerberg with an offer to sell approximately 2,600 square feet of the property to increase a buffer zone between the two structures. Through his real-estate agent, Zuckerberg said he wanted instead to purchase the entire property.

Voskerician and Zuckerberg eventually did come to an agreement to buy out Voskerician's contract with the property owner — for $1.7 million plus $129,000 in deposits the developer had put down on the property. But the two have very different versions about how they came to that arrangement. Voskerician says he gave Zuckerberg a discount because he had an agreement to receive business referrals from Zuckerberg, who allegedly offered to help him build his business. But Zuckerberg's attorneys say they never agreed to those terms, and the written agreement they signed makes no reference to such promises.

Voskerician said in court papers that when he offered to sell Zuckerberg a strip of the property for a buffer, Zuckerberg originally offered $250,000 for Voskerician's contract, plus the amount Voskerician had advanced as a down payment, according to the lawsuit.

Voskerician wanted $4.3 million, which he claims was the highest offer he received from other interested developers. On Dec. 4, 2012, he met with Zuckerberg and his financial adviser at Facebook headquarters. Zuckerberg offered $500,000 for the property contract, but Voskerician rejected the offer, according to the lawsuit.

The financial adviser allegedly told Voskerician in front of Zuckerberg that the Facebook CEO gave his company business and introductions to new clients in return for discounted services. The agent asked if Voskerician would give Zuckerberg a discount. Voskerician asked Zuckerberg if he wanted a discount on the property. Zuckerberg allegedly said "yes," and that he could not pay $4.3 million for the property, according to the lawsuit.

Zuckerberg allegedly stated that he built Facebook on relationships and connections. In exchange for a discount he would introduce Voskerician to his friends, clients and associates and promote Voskerician's business by giving him referrals for new business and written references.

The lawsuit alleges that Zuckerberg also offered to help Voskerician build the home he intended for the site at a different location.

Voskerician accepted a $1.7 million contract buy-out on Dec. 5, 2012, in exchange for the promises of personal references and business promotions from Zuckerberg.

But after the deal, Voskerician tried to set up protocol for the business referrals. Zuckerberg was unresponsive, despite multiple attempts to contact him, according to court papers.

But Patrick Gunn, an attorney for Zuckerberg, tells a different story. Voskerician approached Zuckerberg about building the huge house so close to Zuckerberg's home, and the two did meet about buying out Voskerician's contract. Zuckerberg purchased the contract for $1.7 million, plus refunded Voskerician $129,000 for his other deposits. Zuckerberg then paid the property owner $4.8 million for the property.

But there was never any oral or written agreement regarding the promised business contacts, and the written contract-assignment agreement had the input of lawyers for both sides, Gunn said.

"We think this is a manufactured claim. The meeting he describes is not the meeting that took place. It appears to be a claim that has just been invented in order to extract even more money from our client. If the plaintiff's version of events were true and these alleged promises were actually made, I would think they would've been included in writing, and they were not," Gunn said.

In October 2013, Zuckerberg purchased three other properties neighboring his Crescent Park neighborhood home and said that he had done so after discovering that a developer was going to build a huge house directly behind his property and use Zuckerberg as a selling point to increase the sales price for the new home. Zuckerberg had wanted to thwart the use of his name and preserve his privacy, media reports at the time stated.

Voskerician said in court papers that he sent Zuckerberg a letter on Oct. 27, 2013, outlining their agreement. Zuckerberg had one of his financial advisers meet with Voskerician. But at the Dec. 27, 2013, meeting, Voskerician was essentially rebuffed, according to the lawsuit. No further contact took place with Zuckerberg or his advisers.

On April 27, Voskerician sent Zuckerberg a letter rescinding the deal and offered to return the $1.7 million and other escrow costs, but he did not receive a response, the court papers state.

He is suing for the balance of the $4.3 million he said he would have made had he sold to the highest bidder plus unspecified punitive and other damages.

Gunn sent a letter to Voskerician's attorney on May 1, prior to the lawsuit filing:

"The facts stated in your letter and draft complaint are so distorted as to be unrecognizable to our clients. They reject them and dispute that Mr. Voskerician is entitled to any compensation or relief whatsoever.

"Mr. Voskerician was in contract on the Hamilton property for a matter of weeks before he assigned his interest to SFRP LLC (a company set up for Zuckerberg). He realized $1.7 million from that assignment, a sum that can only be described as a windfall. It is disappointing to say the least, that he has chosen to distort the facts so grossly to manufacture a claim for even more money."

Voskerician and business partner Sam Sinnott recently settled a lawsuit with Menlo Park neighbors to add a driveway from the back of their Santa Cruz Avenue property that will exit onto Louise Street.

Staff Writer Sue Dremann can be emailed at sdremann@paweekly.com.

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