Anthony and Domenick Cipollone, both residents of New York, filed a lawsuit in Richmond County claiming the people involved in Virginia True’s acquisition of Fones Cliffs conspired to aggressively obtain their money through fraud.
On April 27, 2017, the Cipollones paid $5 million for a 32 percent stake in Virginia True.
That same day, Virginia True acquired its first asset, 977 acres of land in Richmond County along the Rappahannock River. The company paid $5 million of the $12 million due to close the deal, court documents reveal.
Virginia True had peddled a vision of transforming Fones Cliffs into an elaborate mixed-use property that included 718 homes and townhomes, 18 guest cottages, an 18-hole golf course, a 116-room hotel and a restaurant, among other things.
To date, the property is still undeveloped and Virginia True has filed Chapter 11 bankruptcy.
The Cipollones claim “everyone benefitted” from the deal except them. Their complaint points to Benito Fernandez and Howard Kleinhendler, Virginia True’s only two remaining shareholders. It also names Allen Applestein, the Florida resident who sold Fones Cliffs, and Diatomite, the company that the property was held under.
Virginia True acquires Fones Cliffs
Kleinhendler formed Virginia True specifically to acquire Fones Cliff, court documents state. When the Cipollones bought their stakes in the company, Kleinhendler and Fernandez were the only two shareholders. Each owned a 34 percent stake.
When Virginia True purchased Fones Cliffs from Applestein, he claims he was suffering from a “major neuro-cognitive disorder” and was “infirm and unaware.” Applestein has also filed a lawsuit that includes charges of fraud and elder abuse.
In his lawsuit, Applestein alleges that Kleinhendler was playing multiple roles in this scheme. Klienhendler was representing Virginia True, but he was also the lawyer representing Applestein and Diatomite.
At the time, Applestein wasn’t aware that Kleinhendler was also closing a $5 million investment deal with the Cipollones, court documents say.
When Kleinhendler closed the portion deal with Applestein and paid the man the $5 million, he allegedly borrowed $500,000 back. That loan came directly from the Cipollones investment money, their lawsuit alleges.
Cipollones want out
Eventually, the Cipollone’s concluded that Kleinhendler and Fernandez “proved entirely incapable of managing and developing the Fones Cliffs project.”
Kleinhendler and Fernandez failed to obtain financing from investors or lenders, “as was their primary responsibility” and refused to properly escrow any obtained funds. “They alienated relationships with investors and caused an extremely negative perception for Virginia True within the community and among businesses,” the Cipollones’ lawsuit alleges.
Compounding matters, on November 30, 2017, a stop-work order was slapped on the project after it was found that Virginia True conducted activities violating Richmond County’s Erosion and Sediment Control Ordinance.
By September 28, 2018, with no significant progress made on the project, the Cipollones were done. They gave notice that they wanted a buy-out.
Under the terms of their shareholder agreement, the Cipollones could recover their investment from Kleinhendler, Fernandez or Virginia True. But they didn’t receive a response from anyone about the buy-out, they claim.
Two months later, the Cipollones had their attorney send a letter demanding confirmation of their buy-out request, but that also went unanswered. On December 4, 2018, the Cipollones filed a lawsuit.
Days later Kleinhendler, Fernandez and Virginia True gave the Cipollones a promissory note for the $5 million and a deed of trust. Per the shareholder’s agreement, the Cipollones then surrendered their shares.
But when the promissory note matured on April 27, 2019, the Cipollones weren’t paid. About a week later, before the Cipollones could exercise their rights under the deed of trust, Virginia True filed Chapter 11 bankruptcy.
According to the Cipollones’ lawsuit, Applestein and Diatomite jumped into the matter, and threatened to have the deed of trust voided if they tried to foreclose on Fones Cliffs.
The Cipollones claim they were unaware that Kleinhendler and Fernandez had also entered a side letter agreement with Applestein, which prohibited Virginia True from transferring assets or encumbering Fones Cliffs without Applestein’s consent.
“Had the Cipollones known about this side letter agreement, they never would had invested a dime in Virginia True,” their lawsuit says. “All defendents knew the side letter would be a deal breaker to the Cipollones, which is why they intentionally concealed its existence,” the documents add.
On September 4, 2019, Virginia True initiated an adversary proceeding that aims to void the Cipollones’ promissory note and the deed of trust.
The two investors claim that those involved not only conspired to get their money, but also to “frustrate any and all efforts… to exercise their contractual rights to recoup that $5 million investment.”
In their lawsuit, the Cipollones allege fraudulent inducement to contract, tortious interference with a contract and conspiracy. They are seeking at least $5 million in compensatory damages, treble damages, prejudgment interest, attorney fees and court costs as well as any other necessary and appropriate relief.