Developer Suing JV Partner Over $500M Amazon Data Center Deal
A data center developer is suing its joint venture partner on a $500M Amazon data center development, saying its partner used allegations of fraud to force it out of the deal.
Colorado-based developer Northstar Commercial Partners alleges that financial firm IPI Partners conspired with Amazon to level false allegations of fraud against Northstar in order to effectively squeeze the company out of a lucrative 2017 development deal between the three firms in Northern Virginia.
The suit is the latest in a tangled web of litigation between the three companies involving counteraccusations of fraud and kickbacks and an FBI investigation. The Delaware Court of Chancery agreed to hear the suit last week, Data Center Dynamics first reported.
“[Northstar contends] that IPI Partners wanted to own 100% of the economic rights associated with the Joint Venture and used the alleged kickback scheme as a pretext to cut out Northstar and its affiliates,” Vice Chancellor J. Travis Laster, who is overseeing the case, wrote in a ruling.
In 2017, Amazon selected Northstar to build nine data centers in Northern Virginia's Loudoun and Prince William counties. Northstar would build and own the data centers, leasing them back to Amazon. To finance the projects, Northstar created a JV with IPI Partners, a financial firm with significant involvement in the data center space. Over the next two years, the partnership built a handful of data centers for Amazon.
Yet in 2020, both Amazon and IPI concluded that Northstar had only been awarded the development contract after paying a series of kickbacks worth millions of dollars to the Amazon employees evaluating their bid. FBI agents raided Northstar’s CEO and the agency launched an investigation into the deal, while both Amazon and IPI launched a series of civil suits against Northstar and its leadership.
“[Northstar] obtained all of their business with us by fraud, and specifically by paying bribes and kickbacks to corrupt insiders within our company,” said Elizabeth Papez, an attorney representing Amazon during a 2020 courtroom appearance, according to Bloomberg.
Following the FBI raid, IPI moved to dissolve its joint venture with Northstar, using language in their contract and the allegations of fraud to effectively cut the Colorado company out of the Amazon developments.
Now, Northstar is arguing to a Delaware court that it is, in fact, IPI that acted fraudulently in the wake of the kickback allegations. The company says that IPI and Amazon conspired to falsely implicate Northstar’s leadership in the kickback scheme in an opportunistic effort to seize full control over the Northern Virginia portfolio. According to Northstar, IPI attempted to terminate the contract before any allegations against Northstar were substantiated because they would benefit financially from Northstar’s removal. Northstar argues this constitutes a breach of contract.
In legal filings, IPI denies the allegations.
While the Delaware court declined IPI’s request to dismiss the suit, Laster indicated in his ruling that the outcome will hinge on the facts established in the multiple lawsuits filed between the three companies that are working their way through the legal system. He points specifically to an Amazon lawsuit alleging Northstar's leadership was complicit in the initial kickback scheme.
"The Amazon litigation will address facts that go to the heart of this case," Laster wrote in his decision. "Two central issues in the Amazon Litigation are whether there was a kickback scheme, and, if so, whether Watson knew of or was involved in it. The Amazon Litigation likely will provide answers to both questions, and those answers will bind Watson and Northstar."