A Fortune Lost--Then a Legal Knot

He was the quintessential Newport Beach entrepreneur: owner of a flourishing Mercedes-Benz empire and a jet-setter who married six times, kept an 83-foot yacht at Newport Harbor and boasted a string of showplace homes.

Jim Slemons, whose name defined success in Orange County in the 1980s, told a Superior Court jury this year that any shred of the $87-million fortune he had amassed by 1988 was gone. He was so broke last year, he said, he had been living out of his car in Honolulu, sleeping in a park near Waikiki Beach.

It was a spectacular fall from grace--and a second one at that.

Slemons, 69, is now vowing to pursue the people he said duped him after his business empire collapsed in 1991, his first lost fortune. His second loss came years later, the details emerging over four months as he sat as a defendant in Orange County Superior Court.

It was only then, he said, that he discovered $4 million had come and gone in his name, without him knowing a thing about it. “I’m not going to lay down and say, ‘Poor me,’ ” he said. “I’m going to make a comeback somewhere.”

Roger Riddell, a marketing executive from Huntington Beach, sued Slemons as well as attorney Francis K. “Guy” Friedemann, father-and-son businessmen Merritt C. “Chuck” and M.C. “Chad” Horning and their company, Newport Federal Financial of Newport Beach, in February 2000, along with various corporations owned by the defendants. The suit accused them of concocting an elaborate scheme to manipulate Slemons’ assets while he allegedly ducked creditors from his earlier bankruptcy, including an unpaid $1.2-million fraud judgment that Riddell won in 1993.

In April, a Superior Court jury found that the defendants engaged in a conspiracy to defraud Riddell, awarding him $1.7 million in compensatory damages and $16 million in punitive damages. The jury held Slemons responsible for $2.5 million of the punitive damages.

“In a way, I feel bad about [the result], and in a way I feel good,” Slemons said from Honolulu, where he said he is living on Social Security payments and a loan from his 94-year-old mother. He said he was duped by his fellow defendants and will fight to get some of the money back. “Now, I feel there’s some hope in my life.”

Riddell’s attorney, Gary Dapelo, said he emerged from the trial sympathetic to Slemons, whom private investigators dogged throughout California, Hawaii and even Switzerland in the late 1990s trying to unravel what happened to his remaining assets.

“They played him like a piano,” Dapelo said of Friedemann and the Hornings. “He got into bed with cheats and they cheated him.”

Attorney Bill O’Hare, who represents the Hornings and Newport Federal Financial, said his clients got snared in sour business dealings with Friedemann and Slemons, losing about $1.5 million. During the trial, the Hornings, whose businesses have real estate and pawnbrokers’ licenses, contended that they took Slemons’ properties through legitimate transactions.

“Mr. Slemons has arranged to stick my clients with his debt,” O’Hare said. “My clients are lenders. They loaned money and didn’t get paid back. Believe me, there’s been no money made on our end.... We were set up to be the fall guy.”

The jury, however, disagreed that the transactions were legal and assessed $5 million in punitive damages against Newport Federal Financial, $2.5 million against Chuck Horning and $500,000 against Chad Horning.

Friedemann, a Long Beach resident who was slapped with $3 million in punitive damages, said the defendants expect “a very different outcome” on June 27 when they will ask Judge David A. Thompson to reject the jury award and grant a new trial on the Riddell lawsuit.

“There’s going to be a lot more coming out” in court, Friedemann said, declining to elaborate. “That’s when you’ll have the full story.”

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A Genesis in Bankruptcy

The story that unfolded this year in Thompson’s courtroom has its roots in the bankruptcy of Jim Slemons Imports in August 1991. A year earlier, the luxury lot--near John Wayne Airport--was the nation’s second-largest Mercedes-Benz dealership, with about $80 million in revenue that year. It and six other dealerships supported Slemons as he entertained at the Balboa Bay Club, held his annual Kings of the Court tennis tournament in Newport Beach and built a 9,500-square-foot Mediterranean-style home in Harbor Ridge, where nearly every room had an ocean view.

Slemons also had taken over Resort Commuter Airlines with a dream of cashing in on lucrative sportfishing charters to Baja California. But a plan to take the airline public failed and the planes it leased couldn’t handle the long-distance trips. Slemons lost $14.7 million in 18 months, defaulting on loans from Tokai Credit Corp., which he had secured with personal guarantees.

Riddell, an investor in the airline, had co-signed a $700,000 loan for it. A jury later found that Slemons, in taking over the business, reneged on repaying that loan. When Slemons declared bankruptcy, he couldn’t dodge the Riddell debt because fraud judgments can’t be discharged.

Riddell, a successful marketing executive who produced the “Endless Summer II” surf movie, said in an interview that he began hearing stories in the mid-1990s of Slemons “living large” despite pleading poverty. A friend of Riddell’s spotted Slemons in Switzerland; Riddell bumped into him at the airport in Las Vegas; he was spotted on his way to Hawaii and at a Chrysler dealership in Big Bear.

“Obviously, he still had money,” Riddell said. “My theory was to let him relax. I wanted him to be successful and think I’d disappeared.... I think when we started [the trial in January] he still thought he had a lot of money hidden away. To watch him find out that it wasn’t there anymore was very, very sad. It was sad for me because I would like to get my hands on it.”

Slemons testified that he went to Friedemann in late 1995 because of the attorney’s reputation as an “asset-protection specialist.” Friedemann owned Renta Finance Ltd., a company registered in the British Virgin Islands. Slemons said he hired Friedemann to represent him in resolving a $10-million Internal Revenue Service lien and then signed over everything he had to Friedemann through Renta Finance.

“Gus Friedemann said he’d protect me from creditors, my ex-wives and [Riddell],” Slemons said. “I wanted to protect my assets until I could get back on my feet. I didn’t realize I had enough to pay off [Riddell]. I thought I had about $300,000.”

He said Friedemann signed everything on his behalf, setting up and managing a trust account for him, which took in more than $4 million over the next five years, according to Friedemann’s testimony. The money came primarily from the sale of Slemons’ Mercedes dealership, a court settlement from a separate lawsuit, and cashing in Slemons’ life insurance and retirement accounts and interest.

Slemons said he never got an accounting of the trust fund’s assets and didn’t know how much had been collected. If he needed money, he said, he asked Friedemann.

In a brief interview last week, Friedemann denied that he was Slemons’ attorney and said he was only his business partner. In personal bankruptcy papers that Friedemann filed shortly before this year’s trial began, he said the trust account had only $1,000.

Faced with IRS problems, Riddell’s judgment and a nasty divorce from his sixth wife, Tajah, Slemons finally got a break in 1996. That year, Tokai Credit began unwinding its business in California and wanted to get the original $15-million note for the airplane business off its books. The bank had seized 17 of Slemons’ properties; four remained: houses in Avalon on Santa Catalina Island, at Big Bear Lake, in Rancho Mirage and a half-interest in an oceanfront condo on Maui.

Tokai agreed to forgive the loan and return the remaining property, selling its note to Renta for $5,000, according to trial testimony. Tokai also turned over to Renta the rights to more than $1 million in lease payments from Fletcher Jones Motor Cars Inc., which bought Slemons’ Mercedes dealership from Tokai in 1991.

Slemons, meanwhile, hoped to get back on his feet with a Chrysler dealership in Big Bear. Friedemann introduced him to the Hornings, who would put up money for new cars to fill the showroom floor while Slemons managed the business, Slemons and Friedemann testified.

The Hornings also had their eyes on Slemons’ four remaining properties. In July 1998, Newport Federal Financial paid Friedemann $10,000 for the Tokai note, which included the four houses, documents introduced at the trial showed. Under the deal, Slemons and Friedemann would be able to buy back the homes on Aug. 15, 2002, for $25,000. Six months after obtaining the note, Newport Federal foreclosed on the houses, records showed.

On the same day it bought the Tokai note, Newport Federal Financial lent Friedemann $190,000, secured against Slemons’ properties, at an annual interest rate of 60%. An additional loan of $100,000 followed two months later, secured by income from Slemons’ Volvo dealership in Honolulu--the only business he had left--and future proceeds from a lawsuit that Friedemann arranged to be filed on Slemons’ behalf against Honda Motor Corp.

That suit eventually was settled for $2.5 million, $1.25 million of which went into the trust account controlled by Friedemann. The other half went to the attorney who had filed the case in Santa Clara County.

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Loan Knowledge Denied

Slemons testified later that he didn’t know anything about the loans, which jumped to 120% annual interest upon default last year. As late as last week, the homes were still being rented--for $4,000 to $6,000 a month--through a Web site called thebestspots.com, which is owned by a subsidiary of Newport Federal. O’Hare said the homes have cost more to keep up than what they’ve earned through rents.

By late 1999, Riddell’s attorney, Dapelo, had begun reconstructing the financial web between Slemons, Friedemann and Newport Federal Financial. Armed with the 1993 Riddell judgment, he began taking depositions of the Hornings, Slemons and others. Friedemann repeatedly refused to be deposed, Dapelo said, but Judge Thompson ordered him to undergo one in the jury room before the trial started.

Slemons, who sat in on the deposition, said he became physically ill upon learning of the millions that had flowed through the trust account, including $1 million in lease payments from Fletcher Jones and $1.25 million from the Honda settlement. A week before the trial started, Slemons fired his attorney, a friend of Friedemann’s who was being paid with money lent to Friedemann by the Hornings. He got his own lawyer.

“It’s a travesty,” said Slemons attorney Joseph DuBois, who is challenging Friedemann’s bankruptcy application. “From where I sit, I have a client who didn’t have to go through that, he didn’t have to lose everything. He didn’t have to have people chasing him.”

A longtime Slemons friend, Anaheim hotelier Ben Harris, said Slemons got a “bad rap” over the years because of his many wives and well-documented social life. He said he has seen no evidence of recent wealth--Slemons drives a 1989 Chrysler while in Orange County. He wore the same jacket throughout the trial.

“He’s always been a complete gentleman and a straight arrow, as far as I’m concerned,” Harris said. “He’s just out there trying to put something together.”

Riddell, who became almost an afterthought during this year’s trial, said he is willing to see the case through after spending “six figures” to pursue his claim. He said Dapelo more than earned his contingency in the case, which they didn’t disclose, and will send the rest to his ex-wife and his children--a daughter, 16, who lives in Arizona with her mother and his son, 19, a Mormon missionary in Venezuela.

“I chased Slemons for 10 years and I’ll chase the Hornings for 10 years,” Riddell said. “I’m past the [anger] point. All of this could have been settled a long time ago, but because of greed, they didn’t want to. It was the arrogance that got me. It kept me going.”