Warner Ridge Suit Alleges Loan Default, Fraud : Real estate: Morgan Guaranty says the developer violated federal racketeering law to obtain $43 million for office construction.

Developers of the Warner Ridge property are in default on a $43-million real estate loan and were accused in a lawsuit this week of violating federal racketeering statutes to obtain the money.

The Warner Ridge developers have been in default since last October on the loan to finance the planned construction of seven mid-rise office towers on 21.5 acres in Woodland Hills, according to a lawsuit filed by Morgan Guaranty Trust of New York.

The lawsuit by Morgan, the nation’s fourth-largest bank, seeks recovery of the funds and accuses Johnson Wax Development Co. of fraudulent practices in borrowing the money.

Johnson Wax and The Spound Co. are co-owners of Warner Ridge, and their partnership is known as Warner Ridge Associates. However, the lawsuit, filed in San Jose in July, names only Johnson Wax.

But Morgan amended its lawsuit Monday to allege that Johnson Wax violated the federal Racketeer-Influenced and Corrupt Organizations law. RICO was originally established to facilitate the prosecution of organized crime but was amended in 1988 to encompass bank fraud. If Morgan wins a RICO judgment against Johnson Wax, it would be entitled to recover its attorney fees and triple damages.

Johnson Wax has not formally responded to the Morgan lawsuit, but company attorney Richard Levy denied the allegations.

Morgan’s lawsuit says that Warner Ridge partners have very little of their own money in the ill-fated Warner Ridge investment. Johnson Wax contributed only $10,000, and The Spound Co. and Spound family members only $100, according to court documents filed by Morgan.

The lawsuit also offers the first concrete evidence that Warner Ridge Associates’ finances are in disarray, and news of the suit is being welcomed by foes of the commercial project.

The future of Warner Ridge has been the subject of a bitter dispute between city officials and the owners, who claim they were misled by the city into believing they could build a high-rise commercial project. The city opposes that proposal.

The lawsuit “exposes Johnson Wax . . . as not very nice people,” said Robert Gross, president of the Woodland Hills Homeowners Organization, which opposes the commercial development of Warner Ridge. “It points out the quality of the people we’re dealing with--they’re speculators.”

Councilwoman Joy Picus, who has led the fight against Warner Ridge, said the lawsuit also raises questions about the credibility of arguments by the project’s developers, who have insisted that bureaucratic delays have harmed them financially.

“Jack has been crying since Day 1 that he’s losing so much money on this,” Picus said, referring to developer Jack Spound. “But he’s not losing a damn thing but Morgan’s money.”

Picus wants only single-family houses on the site, which is sandwiched between Pierce College and Warner Center.

But Spound said his family’s company has incurred “several million dollars” in out-of-pocket expenses and has lost millions of dollars in missed business opportunities because it has devoted so much of its resources to this project.

Even as Johnson Wax and Morgan battle each other on one front, Morgan and the Warner Ridge camp, which includes Johnson Wax, have joined forces on another.

Morgan recently joined a lawsuit filed by Warner Ridge Associates against the city last year after the Los Angeles City Council voted to allow only residential development in Warner Ridge. The suit alleges that the city illegally blocked the commercial project and ruined the value of Warner Ridge Associates’ property.

Morgan joined the Warner Ridge Associates lawsuit “to maximize the value of the Warner Ridge property,” which is collateral for its loan, said Morgan attorney Thomas Bourke.

And on Wednesday, Morgan agreed to pay the fees--which have already exceeded $1.5 million--to continue the legal fight against the city.

Meanwhile, city officials say Warner Ridge Associates’ fiscal problems and its infighting with its creditor could benefit the city as it continues to defend itself against the Warner Ridge Associates lawsuit.

Deputy City Atty. Tony Blain, who is involved in the lawsuit, said: “These two big corporations had been working together, now they are divided. . . . It can’t be that bad for us.”

But Warner Ridge Associates and Morgan dispute this analysis. Morgan’s entry into the Warner Ridge lawsuit actually “strengthens the coalition” against the city, said Bourke, whose law firm is headed by Richard Riordan, an extremely influential developer with strong ties to Mayor Tom Bradley.

“This is actually bad news for the city, because now we’ve got bigger money involved in this,” Spound said.