A Charitable Pursuit Leads Beyond Grave
By ALEXA HYLAND • Los Angeles Business JournalRoland Arnall became known as one of the wealthiest Angelenos thanks to the subprime mortgage industry he helped create with his company, the former Ameriquest Mortgage.
He was also known for giving money to his favorite causes, particularly the one he had championed more than three decades – Chabad of California Inc.
But when he died at 68 in March 2008, his fortune had been decimated by the collapse of the subprime industry. And now Chabad, headquartered in Westwood, has sued Arnall’s estate for a hefty $17.5 million – the alleged balance due on an $18 million pledge Chabad claims Arnall made in 2004.
Although there’s no formal document of any agreement, Chabad officials said that Arnall pledged the $18 million when he asked the organization to build an Arnall Family Center on property it owns on Pico Boulevard in the South Robertson neighborhood, where organization leaders envision a blocklong Chabad village.
An attorney for Arnall’s widow, Dawn Arnall, said that the suit is frivolous and “a misguided attempt to publicly embarrass the wife of the late Roland Arnall.” His client will fight it.
“There is no merit to the claim that Mr. Arnall made an oral promise at an unspecified date to make a multimillion-dollar gift of an indeterminate amount to Chabad over an unspecified period of time,” downtown L.A. trust and estate attorney Robert Sacks said in a statement to the Business Journal. “This claim is sad and unfortunate given the family’s well-documented history of supporting Chabad and other philanthropies.”
Chabad’s attorney, high-profile litigator Marshall Grossman, said the organization has taken the legal action now because Arnall’s estate is going through the probate process.
“The estate is quite complex,” said Grossman, a partner at Bingham McCutchen LLP in Santa Monica, who filed the suit in Los Angles Superior Court earlier this month. “There are time limits that cover various proceedings in probate cases, and we want to make sure that the court will honor this pledge if the estate doesn’t elect to do so voluntarily.”
As evidence of the pledge, the suit states that Arnall made three payments of $180,000 each toward the $18 million pledge between 2004 and 2008. The organization is demanding to be paid the $17.5 million balance. Under Jewish tradition, donations are often made in multiples of 18, the number that corresponds to the Hebrew word for life.
“It was an oral pledge, which has been paid in part, and well-documented in the plans for the building, the deferral to sell the property and expending substantial amounts of money in carrying out Mr. Arnall’s wishes,” Grossman said.
“And clearly, when one makes payments of over a half-million dollars on a multimillion-dollar gift, that is compelling evidence that the pledge was made.”
Billion-dollar fortune
When Arnall allegedly made the pledge, he was a freshly minted billionaire. He landed on the Business Journal’s list of Wealthiest Angelenos in 2004 with an estimated net worth of $1.2 billion. In 2005, Arnall saw his fortune skyrocket by 75 percent to $2.1 billion.
But in 2006, the Business Journal estimated that his net worth dropped by 14 percent to $1.8 billion as problems arose in the subprime lending sector. In 2007, he fell off the list as his company collapsed with the rest of the industry and was swallowed by Citigroup Inc.
Arnall’s wealth dwindled as Ameriquest faced accusations of predatory lending practices. State prosecutors and lending regulators began investigating claims that Ameriquest overcharged and defrauded consumers, and the company agreed to pay $325 million in 2006 to settle the allegations without admitting any wrongdoing.
Arnall, whose campaign contributions to President Bush led to a U.S. ambassadorship to the Netherlands, found his confirmation delayed in the Senate until his company agreed to the settlement.
The suit acknowledges that, as Arnall faced his financial problems, he became unclear about the exact amount of the pledge, and he delayed payment. But the organization “agreed to stand by and await the certainty of the amount of the gift and its payment in full” because of its longstanding relationship with Arnall.
Arnall began working with Chabad in 1974, five years before he founded Long Beach Savings & Loan, Ameriquest’s predecessor company.
His parents were Eastern European Jews who fled to Paris during World War II. Arnall later moved to Canada and came to Los Angeles in the late 1950s. When he was small, his family pretended to be Roman Catholic due to the Holocaust; Arnall learned he was Jewish when he was 6. As an adult, he became a backer of Jewish causes.
Chabad of California is part of the worldwide Chabad-Lubavitch network, and established itself in the state more than 40 years ago when Rabbi Boruch Shlomo Cunin opened the first Chabad house in Westwood. Since then, the organization has grown to 200 community centers, 25 elementary and day schools, 30 summer camps and a residential drug treatment center in Los Angeles.
Chabad solicits private donations to fund its programs, and each year stages its famous Chabad “To Life” telethon. The televised fundraiser, which brought in more than $8 million in September, features dancing rabbis joined by politicians and celebrities such as Gov. Arnold Schwarzenegger, Earvin “Magic” Johnson, Adam Sandler, Jon Voight and Bob Dylan.
Battle begins
The contested pledge dates to 2004, when Chabad planned to sell a block it owns on Pico Boulevard in the South Robertson neighborhood of Los Angeles.
That property, between Crest and Wetherly drives, had been the site of three schools, which were moved at the time to a new campus at Rabbi Schneerson Square on Pico Boulevard and Doheny Drive.
When the organization made plans to sell it, Chabad claims that Arnall asked the organization to keep the property and turn it into a community center bearing his name. In exchange, he made an alleged pledge of up to $40 million.
The suit states that Chabad agreed “in justifiable reliance on the oral promise” of Arnall and did not sell the property.
Chabad claims that on Feb. 28, 2008, less than a month before his death, Arnall informed the organization that the gift would be $18 million, and he made his third payment of $180,000.
Meanwhile, Chabad claims it had moved forward with the project, and paid more than $750,000 for architectural services and renderings, attorney’s fees, building permits, and traffic and environmental studies for the community center.
Nearby residents have balked at the size of the proposed complex: an 108,000 square-foot building standing 80 feet tall with two levels of subterranean parking, seven retail stores, a junior high school, dormitories and residential condos.
The Jewish Journal reported that in August and September, neighbors and community advocates met with the South Robertson Neighborhood Council to voice concern over the size of the project, and the noise, traffic and trash they claimed it would create.
The old building that would have to be razed to make way for the center remains standing.
The project is on hold, said Paul Michael Neuman, a spokesman for Councilman Paul Koretz, who represents the district.
But the relationship between Chabad and Arnall’s family has crumbled.
“To have the relationship deteriorate to the point you have to take it to court is really unfortunate,” said Regina Birdsell, president and chief executive of the Center for Nonprofit Management in Los Angeles.
“Individuals choose to give to a cause because they care about it, and what you hope for is a two-way relationship: The individual has the opportunity to invest in solving a problem that the non-profit is focused on addressing.”