Kluge v. Trump: Lawsuit alleges land-deal fraud
John Kluge, Jr. wants his land back. That would be the 217-acre front yard of Albemarle House, the mansion his mother, winemaker Patricia Kluge, lived in until the bank foreclosed on the property in 2011. Both land and mansion are now owned by Donald Trump. A lawsuit filed April 5 in Albemarle Circuit Court contends that Trump "fraudulently acquired" the separate front yard and is now stiffing John Kluge's trust for more money promised if Albemarle House sold within two years.
Kluge's father, billionaire John W. Kluge, put the 217-acre parcel into a trust for his son in 2000.
When Patricia Kluge ran into financial difficulties in 2010 and saw her winery and house go into foreclosure, her buddy Donald Trump swooped in and bought Kluge Estate Winery and Vineyard at auction for $6.21 million.
He also had his eye on the 23,000-square-foot Albemarle House, once listed for $100 million, but eventually acquired by Trump Virginia Acquisitions LLC for $6.5 million.
To persuade Bank of America to sell Albemarle House on the cheap, Trump approached the John W. Kluge Jr. Trust and offered to pay $150,000 for the 217 acres, and up to $350,000 more if the mansion sold within two years, according to the lawsuit. The trust sold the property in March 2011 and Trump posted no-trespassing signs to discourage would-be buyers gazing out from Albemarle House, and by September 28, 2012, Trump sealed the deal on the house.
Within a few days, Kluge's trustee contacted Trump's Virginia Acquisitions LLC and asked for the additional compensation.
The lawsuit asserts that Eric Trump responded in a November 13 letter and informed the trust that the Trumps "never intended to perform the obligation to pay additional consideration as required...," according to court documents.
In the letter, Eric Trump, executive VP of development and acquisitions, expresses surprise that Kluge wants more money and denies the additional compensation portion of the sales contract made it to the closing on the property.
Trump also complains in the letter that the Kluge Trust provided a bogus right of first refusal– ROFR– that the Trumps had planned to use to score Albemarle House after Bank of America foreclosed. Even if the bank found a buyer for Albemarle House, Donald Trump insisted he had the right to match the price.
Bank of America sued Trump, and in U.S. District Court, Judge Norman Moon "invalidated" the right of first refusal. That, in turn, invalidated the Trump company's obligation to pay additional compensation to Kluge, Eric Trump maintains in his letter, which also demands that the Kluge Trust reimburse Trump Virginia Acquisitions for the "tremendous fees and expenses Acquisitions incurred in connection with its failed attempt to exercise the ROFR."
Eric Trump did not respond to a phone call from the Hook.
The additional compensation clause after the sale is unusual, says Hook legal expert David Heilberg. "It sounds like rich people's problems. This lawsuit uses two of the three examples I use– Mr. Rockefeller, Mr. Trump or Mr. Kluge– who can afford to litigate principle," he says.
"The Trumps fraudulently induced the trust to sell," says the plaintiff's Middleburg attorney Edward MacMahon. "This is Trump's modus operandi." Not only does Trump not want to pay, but he still wants to keep the land, says MacMahon.
The Kluge Trust will put the $150K purchase price in an escrow account, according to the suit, which asks that the March 2011 deed be rescinded and conveyed back to the Kluge Trust.
John W. Kluge, Jr. declined to comment on the lawsuit.
Forbes listed the 29-year-old former Albemarlean on its "Ones to Watch" of the 400 richest Americans. Kluge calls himself "a committed toilet hacker" dedicated to providing sanitary facilities for the 2.8 billion people in the world who don't have access to a bathroom. He co-founded a private, for-profit venture philanthropy company called Eirene, and has co-written a book coming out called Charity and Philanthropy for Dummies.
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