Brothel developer wins first court round

VIRGINIA CITY -- A request for arbitration over the construction of a Storey County brothel was denied in Tuesday.

Attorneys for DP Properties, owners of a 143-acre real estate development in northern Storey County's Tahoe-Reno Industrial Center, hoped to halt construction of the Wild Horse Canyon Ranch and Spa, located near the center in northern Storey County, by forcing the issue into arbitration.

They argued Tuesday that construction of the brothel is a breach of the agreement with Tahoe-Reno Industrial Center.

Judge William Maddox pointed out the arbitration agreement covers the center, not the property in question.

"The brothel is an accepted use on that piece of property. It's zoned for that," he said. "What if someone didn't like the idea of a certain restaurant nearby? This agreement doesn't carry to the land in question and doesn't apply to this situation."

Arguing for DP Properties, Attorney Leif Reid charged that proposed brothel owner Lance Gilman misrepresented his position when he sold DP Properties the land at the center. Gilman is also part owner and developer of Tahoe-Reno Industrial Center.

"We believed, through representations Gilman has made, that this property would not be developed for a brothel. That land would become part of the park and subject to the CC&Rs (land-use regulations) that preclude construction of a brothel," he said. "We allege that putting a brothel just footsteps away from the park constitutes a breach of the implied covenant arising from every contract, specifically the development agreement."

Representing Storey County, attorney Chris Mackenzie likened the county's position to a Chihuahua between two large fighting dogs. He said the county's legal actions cannot be reversed through a writ of mandamus, or the effort to stop construction of the brothel.

"Apparently the CC&Rs do address brothels, but the county has no right or obligation to enforce those rules," he said. "We are not party to this debate, and we shouldn't be subjected to it."

The question remains as to whether the case will go to court. Plaintiffs must now prove irreparable harm to gain an injunction for a lawsuit and those arguments, which started Tuesday, continued at 8:30 a.m. today.

Greg McKendall, the first witness for DP Properties, owns a body and paint repair business. He purchased property at the Center last spring for expansion, choosing land less than a mile from the freeway for easy access. He didn't know the brothel would be nearby.

"My investors are asking serious questions, as to whether property values will be affected," he said. "I could lose everything I put into this project if the value of the property goes down. We will get by because we don't quit, but my working capital is gone and my ability to borrow from my supporters is in peril."

"It's not what I think, it's what the people that are investing in me think," he said. "It's already had an affect on property values and I've been getting negative phone calls from clients, employees and future investors."

Attorney Mark Gunderson, representing Gilman, argued that people's perceptions are just that.

"This man is not the plaintiff, and it doesn't matter what he thinks," he said. "The question goes to DP Properties. This issue is collateral at best, and doesn't go to the damages of the plaintiff E Dermody has not lost a single sale or lease since this issue was made public."

Aaron Paris, vice president of marketing for Dermody Properties, said it's difficult to pinpoint trends because the brothel issue has only come up in the past few weeks, but customers on Monday were put off by the idea of purchasing near a brothel.

He said companies look at a number of options in larger regions and he conceded that any number of issues, such as power lines, sewer plants or flooding in the area, could affect their decisions.