The city of Mercedes has embroiled itself in a bitter legal battle with a man who once served as its chief legal counsel, lobbing multiple allegations against the man in a trio of lawsuits, including attorney malpractice, fraud and breach of contract.
The city filed the three suits in recent months against Juan R. Molina, who served as Mercedes’ city attorney for 14 years until his resignation in January 2019. Molina has fired back, calling the litigation “a political witch hunt, and an attempt to burn at the stake (Mercedes’) perceived enemies.”
The attorney also claims the suits are an attempt by the city to commit a fraud of its own in relation to two plots of land it sold in 2011 and 2012.
However, Molina isn’t the only defendant being sued by the Queen City.
In a suit first filed on April 6, the city named as defendants along with Molina a man named Rolando Arriola and two nonprofits for which Arriola served as representative: Texas Valley Communities Foundation and Texas Polytechnic Institute.
The suit also named a commercial land development company, Troy Investment Company No. 41 LP.
THE BROAD STROKES
Though the city has filed three separate legal actions in three separate state district courts, all the litigation is connected by an overarching assertion by Mercedes that Molina was derelict in his responsibilities as the city’s chief legal advisor — both during the 14 years he served as city attorney, and since his resignation.
The bulk of the allegations center around two land deals — a 12-acre plot of land in Mercedes which the city purchased, in part, with federal funds, and a 6-acre plot of land in Alamo that it acquired via an asset forfeiture process.
The city relied heavily on Molina to guide it through the process of selling or transferring ownership of the plots of land, including by preparing warranty deeds and memorandums of agreement, facilitating the real estate sales, and handling cash from the transactions.
Mercedes alleges that Molina failed to provide the city proper legal guidance and obfuscated conflicts of interest by also representing the buyer of the land in Alamo.
In regard to the 12-acre plot of land in Mercedes, the city alleges Molina led them to approve the transfer of ownership to a non-existent nonprofit corporation which later sold a portion of the land to a third party in what the city calls an illegal transaction.
The city also alleges that Molina breached his contract when he hung onto city-owned records in order to obfuscate his alleged wrongdoing regarding at least one of the land deals after he left Mercedes.
THE 12 ACRES
Mercedes made the focus of its first lawsuit against Molina the acquisition and transfer of ownership of the 12-acre land in 2012.
According to the city’s first amended petition, Mercedes purchased the 12 acres from the Mercedes Housing Authority in 2011 for $925,000.
More than half of that came via a $500,000 federal grant from the USDA, which placed conditions and restrictions on its use. Should those conditions be violated, the deed stated the land would revert to the city of Mercedes.
The city then entered into an agreement with Texas Valley Communities Foundation, which had agreed to operate an institute of higher learning on the property called Texas Polytechnic Institute.
Mercedes claims, however, that TPI never existed, though TVCF and TPI retained possession of the land. In 2016, Arriola, as a representative of the two nonprofits, agreed to break off a portion of the 12 acres when he sold just over 4 acres to Troy Investment 41, which later constructed a storage facility on the land.
The city claims that was a violation of the deed restrictions the parties had agreed to because of the use of federal funds in the land’s initial purchase. On March 16, Mercedes issued notices to both Arriola and Troy Investment 41, demanding they vacate the property by March 25.
THE 6 ACRES
Meanwhile, in 2011, Mercedes acquired 6 acres of land in Alamo via a criminal asset forfeiture process. The deal was approved and signed by then-Hidalgo County District Attorney Rene Guerra, and then Mercedes Police Chief Olga Maldonado.
The city immediately sought to sell the land, which they estimated to be valued at $100,000, according to tax records.
The hired Medina Real Estate to broker the sale, though in a second suit filed on May 7, the city now says it does not have the ability to use a third party to handle land sales.
Medina ultimately had little to do with the sale, though, as Mercedes alleges it was their former city attorney who found a buyer and negotiated a sale price of $65,000.
But the deal stunk, according to the city’s lawsuit.
“Defendant Molina failed to disclose material facts related to the sale of the Property,” the suit reads. “Defendant failed to disclose his conflict of interest, Defendant failed to disclose that Guadalupe Fujarte had already made a good faith deposit on the property, and Defendant failed to disclose that Texas law prohibited the sale of the property for less than fair market value,” it reads.
According to Mercedes, Molina represented Fujarte as a buyer, secured a down payment from him, and then proposed the $65,000 below market value sale price to then-City Manager Richard Garcia.
The city commission later approved the sale, but didn’t see the proceeds for years.
THE THIRD SUIT
Mercedes ultimately sold the 6-acres of land in Alamo in 2012. According to the lawsuit, Molina deposited the proceeds into his attorney trust account, known as an IOLTA account.
There the money sat for more than six years, the city claims.
As part of its third suit against the attorney — which was filed on May 12 and alleges that Molina has withheld 14 years’ worth of records from the city — Mercedes is seeking access to Molina’s IOLTA account records.
The city’s bid to see those attorney trust account balances is also part of its second suit against Molina.
Mercedes’ current city attorney Mark Sossi spoke of the bank records in a March 26, 2019 letter he sent Molina. “The City wants adequate assurance that you hold no other monies that belong to the City,” Sossi wrote.
MOLINA’S REBUTTALS
Molina has aggressively defended himself in the three causes of action, lambasting Mercedes for conducting a political witch hunt with him as the focus.
He has advanced several defenses in the suits, chief among them that he served not as Mercedes’ primary counsel, but as an ad hoc legal adviser.
“(Molina) was sued out of spite, because he had been formerly been (sic) retained on an ad hoc basis by Plaintiff’s prior administration, and therefore Plaintiff is seeking a pound of flesh,” Molina argues in a motion for summary judgment and severance filed in the first lawsuit on May 13 regarding the 12-acre land deal.
In the motion, Molina is asking the court to sever — or remove — him from the litigation because he was not a part of the subsequent sale of the portion of the land to the commercial developer.
Molina also objects to being sued by the city, instead of the entity which actually participated in the land acquisition and subsequent transfer of ownership to TPI: the Mercedes Economic Development Corporation.
In that regard, Molina notched a win when, on Thursday, the court agreed to abate the case for at least 90 days until Mercedes adds the MEDC as a plaintiff.
In the second suit, Mercedes has leveled seven distinct allegations against Molina: breach of fiduciary duty as city attorney, and in a real estate transaction, failure to convert to the city records it has rightful ownership of, negligence, and statutory and common law fraud, as well as fraud by nondisclosure.
Molina calls the suit — as well as a related subpoena of his IOLTA records, and a grievance filed against him with the State Bar of Texas — a “political vendetta.”
Molina also requests the court sanction Mercedes for what he calls a “factually and legally frivolous” lawsuit.
“This is one of the politically motivated lawsuits filed by the City of Mercedes against its former attorney, in an effort to recover land by fraudulent means,” Molina argues in the third lawsuit against him.
There, he has asked the court to consolidate the latter two cases.
In a separate court hearing Thursday, state District Judge Noe Gonzalez agreed in part, advising the two parties to pursue combining the three cases under one judge for any pretrial purposes, such as discovery.
