Flywheel Capital’s property at the I-25/Evans Avenue interchange, as it appeared in October 2021. (BusinessDen file)
Ben Hrouda, owner of the Denver real estate firm Flywheel Capital, stole $218,000 from a former co-owner of that company, a judge has determined after a three-year saga.
Judge Stephanie Scoville’s 98-page decision Aug. 20 was critical at times of both Hrouda and Adam Hazlett, his ex-business partner, and gave both men much to laud or lament. On a dozen occasions, her decision doubted the credibility of either Hazlett, Hrouda or both.
“At the end of trial,” Scoville recalled of a contentious two-week proceeding this year, “the court’s primary observation was that the facts and claims remained as tangled as ever.”
Hrouda, a certified public accountant, founded Flywheel in 2017 after stints at Sage Hospitality and elsewhere. Hazlett joined the next year and the two became 50-50 partners.
The company thrived in its earliest years, converting a former assisted-living facility at 4550 W. Colfax Ave. in Denver into condominiums and building an apartment complex by the I-25/Evans Avenue interchange. Between 2017 and 2019, Flywheel’s assets grew in value from $7 million to $125 million and it expanded from one employee to six.
But in spring 2019, Hazlett grew concerned after Hrouda admitted moving investor funds from one project to the I-25 and Evans project, to cover a shortfall. Then, a lender backed out of another Flywheel project because it found Hrouda to be dishonest, and Flywheel defaulted on a loan for an Estes Park project because Hrouda had moved money around.
Ben Hrouda is the founder of Flywheel Capital.
So, Hazlett left and Hrouda agreed to buy his half of the company. But attempts to appraise Flywheel’s many investments “proved to be exceptionally difficult,” in Scoville’s words. “Each party claimed that the other party’s models were unrealistic.” Talks broke down.
Hazlett went on to start his own company, Victory Investment Partners, and Hrouda created Flywheel II, an identical company, and then moved Flywheel’s assets to it. Flywheel II’s portfolio is now worth between $250 million to $300 million and the company employs 10 people.
Hazlett sued Hrouda in October 2021, accusing him of theft, fraud and nearly a dozen other claims. Hrouda and Hazlett both testified at length during the trial, which played out downtown over nine days in January of this year, ending with closing arguments on Jan. 26.
“Mr. Hrouda has taken millions of dollars for himself in the partners’ shared businesses and he has taken the last four years of Mr. Hazlett’s life,” Hazlett attorney Lauren E.M. Thompson told Scoville then. She called Hrouda’s commingling of company funds “criminal.”
“Mr. Hrouda has no excuse for his years of fraud and deceit, perpetuated not only on Mr. Hazlett but on all of Flywheel’s investors and business associates,” she went on to say.
Hrouda’s attorney, Peter Gergely, called it “a fairly simple case” in which Hrouda wanted to buy Hazlett out and Hazlett refused to take part in the buyout, breaching their contract.
“Mr. Hrouda has been trying to get Mr. Hazlett bought out since Feb. 1, 2020, at fair market value and that is all he has wanted to do these past few years,” Gergely said.
“All of this alleged misconduct — Mr. Hazlett wasn’t damaged by any of it.”
Scoville sounded exhausted at times by what she called “very dense testimony” during the trial and “two years of what I would call close to scorched earth litigation.” In January, she sanctioned Hrouda and his lawyers for an 11th-hour attempt to avoid the trial by moving the case to federal court. They were fined $5,347 for wasting the court’s time.
Seven months later, she issued her nearly 100-page decision in the trying case.
On 26 occasions from early 2018 to early 2020, Hrouda transferred money from a Flywheel bank account to his personal account without Hazlett’s permission or knowledge, the judge determined. Those transfers totaled $435,708, half of which belonged to Hazlett.
Because Hrouda was found to have committed civil theft, the damages were tripled and interest was added. Scoville ordered Hrouda to pay $780,000 to Hazlett for his thefts.
“While Mr. Hazlett is grateful to have emerged successful from this bitter dispute, he is also disheartened by the years of Mr. Hrouda’s financial impropriety and mishandling of funds that have come to light,” Hazlett’s attorney, Thompson, said in a statement last week.
Adam Hazlett
Hrouda takes issue with the $780,000 tally but notes that it could have been worse.
“While this is substantially less than the several million dollars in damages the plaintiff sought, we disagree with the factual findings related to this award,” he said in a statement. “As a result, we are exploring our options in filing a post-trial motion or possible appeal.”
Scoville found that Hrouda also moved investor capital between Flywheel’s hundreds of bank accounts, which the judge called “a bewildering succession of internal transfers” and “a dizzying array of activity.” She said that behavior is “inconsistent” with his background as a CPA.
But, in a loss for Hazlett, Scoville awarded him no money as a result of Hrouda’s commingling “for the simple reason” that it was harmless: “Hazlett conceded that there were no demonstrated losses to investors and Hazlett failed to establish that he suffered any other harm.”
Elsewhere in the order, Scoville determined that Hazlett borrowed $30,000 from Flywheel and didn’t repay the promissory note. After interest, she ordered Hazlett to pay $48,378.
Rather than decide how much money Hazlett’s half of Flywheel is worth, Scoville instructed the two sides to restart the appraisal process and work it out among themselves.
“While we’re still reviewing and analyzing the court’s order, we were successful in obtaining an order of specific performance,” Hrouda said Friday, referring to Scoville’s demand that the two finish the appraisal, “as well as an order declaring that the plaintiff was removed from Flywheel management several years ago, which is what we’ve sought from the outset.”
After three years of highly accusatory litigation, the appraisal process may prove awkward.
“It’s fair to say,” Gergely noted in his closing argument, “there is no love lost between them.”
Flywheel Capital’s property at the I-25/Evans Avenue interchange, as it appeared in October 2021. (BusinessDen file)
Ben Hrouda, owner of the Denver real estate firm Flywheel Capital, stole $218,000 from a former co-owner of that company, a judge has determined after a three-year saga.
Judge Stephanie Scoville’s 98-page decision Aug. 20 was critical at times of both Hrouda and Adam Hazlett, his ex-business partner, and gave both men much to laud or lament. On a dozen occasions, her decision doubted the credibility of either Hazlett, Hrouda or both.
“At the end of trial,” Scoville recalled of a contentious two-week proceeding this year, “the court’s primary observation was that the facts and claims remained as tangled as ever.”
Hrouda, a certified public accountant, founded Flywheel in 2017 after stints at Sage Hospitality and elsewhere. Hazlett joined the next year and the two became 50-50 partners.
The company thrived in its earliest years, converting a former assisted-living facility at 4550 W. Colfax Ave. in Denver into condominiums and building an apartment complex by the I-25/Evans Avenue interchange. Between 2017 and 2019, Flywheel’s assets grew in value from $7 million to $125 million and it expanded from one employee to six.
But in spring 2019, Hazlett grew concerned after Hrouda admitted moving investor funds from one project to the I-25 and Evans project, to cover a shortfall. Then, a lender backed out of another Flywheel project because it found Hrouda to be dishonest, and Flywheel defaulted on a loan for an Estes Park project because Hrouda had moved money around.
Ben Hrouda is the founder of Flywheel Capital.
So, Hazlett left and Hrouda agreed to buy his half of the company. But attempts to appraise Flywheel’s many investments “proved to be exceptionally difficult,” in Scoville’s words. “Each party claimed that the other party’s models were unrealistic.” Talks broke down.
Hazlett went on to start his own company, Victory Investment Partners, and Hrouda created Flywheel II, an identical company, and then moved Flywheel’s assets to it. Flywheel II’s portfolio is now worth between $250 million to $300 million and the company employs 10 people.
Hazlett sued Hrouda in October 2021, accusing him of theft, fraud and nearly a dozen other claims. Hrouda and Hazlett both testified at length during the trial, which played out downtown over nine days in January of this year, ending with closing arguments on Jan. 26.
“Mr. Hrouda has taken millions of dollars for himself in the partners’ shared businesses and he has taken the last four years of Mr. Hazlett’s life,” Hazlett attorney Lauren E.M. Thompson told Scoville then. She called Hrouda’s commingling of company funds “criminal.”
“Mr. Hrouda has no excuse for his years of fraud and deceit, perpetuated not only on Mr. Hazlett but on all of Flywheel’s investors and business associates,” she went on to say.
Hrouda’s attorney, Peter Gergely, called it “a fairly simple case” in which Hrouda wanted to buy Hazlett out and Hazlett refused to take part in the buyout, breaching their contract.
“Mr. Hrouda has been trying to get Mr. Hazlett bought out since Feb. 1, 2020, at fair market value and that is all he has wanted to do these past few years,” Gergely said.
“All of this alleged misconduct — Mr. Hazlett wasn’t damaged by any of it.”
Scoville sounded exhausted at times by what she called “very dense testimony” during the trial and “two years of what I would call close to scorched earth litigation.” In January, she sanctioned Hrouda and his lawyers for an 11th-hour attempt to avoid the trial by moving the case to federal court. They were fined $5,347 for wasting the court’s time.
Seven months later, she issued her nearly 100-page decision in the trying case.
On 26 occasions from early 2018 to early 2020, Hrouda transferred money from a Flywheel bank account to his personal account without Hazlett’s permission or knowledge, the judge determined. Those transfers totaled $435,708, half of which belonged to Hazlett.
Because Hrouda was found to have committed civil theft, the damages were tripled and interest was added. Scoville ordered Hrouda to pay $780,000 to Hazlett for his thefts.
“While Mr. Hazlett is grateful to have emerged successful from this bitter dispute, he is also disheartened by the years of Mr. Hrouda’s financial impropriety and mishandling of funds that have come to light,” Hazlett’s attorney, Thompson, said in a statement last week.
Adam Hazlett
Hrouda takes issue with the $780,000 tally but notes that it could have been worse.
“While this is substantially less than the several million dollars in damages the plaintiff sought, we disagree with the factual findings related to this award,” he said in a statement. “As a result, we are exploring our options in filing a post-trial motion or possible appeal.”
Scoville found that Hrouda also moved investor capital between Flywheel’s hundreds of bank accounts, which the judge called “a bewildering succession of internal transfers” and “a dizzying array of activity.” She said that behavior is “inconsistent” with his background as a CPA.
But, in a loss for Hazlett, Scoville awarded him no money as a result of Hrouda’s commingling “for the simple reason” that it was harmless: “Hazlett conceded that there were no demonstrated losses to investors and Hazlett failed to establish that he suffered any other harm.”
Elsewhere in the order, Scoville determined that Hazlett borrowed $30,000 from Flywheel and didn’t repay the promissory note. After interest, she ordered Hazlett to pay $48,378.
Rather than decide how much money Hazlett’s half of Flywheel is worth, Scoville instructed the two sides to restart the appraisal process and work it out among themselves.
“While we’re still reviewing and analyzing the court’s order, we were successful in obtaining an order of specific performance,” Hrouda said Friday, referring to Scoville’s demand that the two finish the appraisal, “as well as an order declaring that the plaintiff was removed from Flywheel management several years ago, which is what we’ve sought from the outset.”
After three years of highly accusatory litigation, the appraisal process may prove awkward.
“It’s fair to say,” Gergely noted in his closing argument, “there is no love lost between them.”
