How a fight over high-end development could cost Delaware more than $10 million

Karl Baker
Delaware News Journal

Sweetwater Point was supposed to be a simple Sussex County land deal, a transformation of a lush piece of Millsboro-area waterfront into a community of luxury homes. 

Planned during the height of an economic boom, before anyone knew of an impending Great Recession, it was supposed to return millions in profits to a secretive venture, then-owned by crooked Wall Street money managers and a soon-to-be doomed investment bank.

But 15 years later, the land, which sits next to a Delaware ecological preserve, remains largely untouched.

In between, the money managers have served time in prison, the investment bank has gone under, and a more than decadelong land dispute has trudged on in Delaware court. 

And it could end next year with taxpayers on the hook for more than $10 million.

A judge’s final ruling, following a trial over damages claimed by Sweetwater Point LLC, should also settle a still lingering question of whether the land with the million-dollar vistas and priceless habitats will become a site for stately new homes or a new state highway.

Peter O’Rourke, the Delaware developer behind Sweetwater Point LLC, declined to answer questions about the venture's current ownership or about why in 2018 he revived the company’s business registration shortly after receiving a loan from a prominent Wilmington politician. 

He said he doesn’t trust the media to tell a tale too complicated to understand.

RULING: Long-disputed Millsboro land belongs to state, not developer

Sweetwater Point in Millsboro.

It was 2005 when O’Rourke announced his deal to purchase two contiguous parcels of forest and wetland that sit on a boot-shaped peninsula jutting into Millsboro pond. The project has been referred to as both Sweetwater Point and Sweetwater Pointe.

While O’Rourke was the public face of the venture, court receivership documents have since revealed its ownership at that time was a 50-50 split between Lehman Brothers investment bank and a money management firm led by Stephen Walsh and Paul Greenwood, both former owners of the New York Islanders hockey team.

Each side invested $3 million for their equity share. Lehman added a $6 million loan to the venture. 

Their plan was to build 49 high-end homes and an access road on land that a century ago sat among a bustling community of saw and grist mills.

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Century-old claims

The venture launched amid a southern Delaware building boom that had directed hundreds of millions of dollars into a rural flatland to transform it with strip malls and subdivisions into a destination for beach-loving retirees who wished to live a few hours’ drive from several major cities.  

In those years before the Great Recession, Delaware officials generally approved such projects quickly. Yet, shortly after O’Rourke made his plans public in 2005, the state said the pending sale of one of two parcels might not be legitimate.

While the seller of the land claimed a deed to the 63-acre parcel, so did the state, eventually. 

An official from the Delaware Department of Natural Resources and Environmental Control told O’Rourke in 2005 that the state "had interest in that area and that (it) might own something out there,” according to court documents.

Despite the warning, O’Rourke moved forward and finalized his roughly $8 million purchase for the two parcels, paying more than $80,000 in real estate transfer taxes. His attorneys said he relied on a title trail dating back to a sheriff's sale in 1879.

Soon after, the sound of logging sparked action from the state. 

Delaware environmental officials had been walking through the neighboring Doe Bridge Nature Preserve, recording the presence of rare and endangered species, when they heard chainsaws. They reported the discovery to their bosses, which prompted the state to assert that Sweetwater Point crews were cutting timber on Delaware land.

Sweetwater Point's attorney, in response, called Delaware's claim to the land "vague at best."

Previous owners had cut timber on the property for decades, he said – and also had paid taxes on it.

Initially, both sides agreed to seek a third party to review the property claims and sometime later, Delaware's transportation officials joined the dispute.

They arrived as the state prepared controversial plans to build a section of a massive new highway bypass – at that time estimated to cost $839 million – across the Sweetwater Point parcel. The highway would allow beach-bound tourists to sweep around the rapidly developing Millsboro area, avoiding summer congestion. 

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A News Journal illustration from a DelDOT map of a proposed new north Millsboro bypass connector between Del. 24 and U.S. 113. It crosses Millsboro Pond on land (orange) that has become the focus of a multimillion-dollar Chancery Court ownership fight between Delaware and a development company, Sweetwater Point LLC. Part of a state nature preserve (bright green) overlaps the disputed parcel. Red marks the other parcel owned by the developer that is not in dispute.

By early 2009, an apparent resolution to the percolating dispute appeared, according to court receivership documents, which described a pending sale of the land to DelDOT.

While the documents do not disclose a sale price, Sweetwater Point's attorneys have at various times valued the disputed parcel at $22 million, if developed.

But as the year progressed and Delaware's finances deteriorated under the Great Recession, the deal apparently dissolved. 

By October, the state filed a petition in Delaware’s Court of Chancery to "quiet," or nullify, Sweetwater's claim to the postcard-worthy land.

At its core, Delaware's petition asked the judge, Vice Chancellor Sam Glasscock III, to declare its century-old claim to the Sweetwater property the rightful one, based upon its deed purchased in 1931, and dating back to 1776.

Seven more years of litigation followed, featuring thousands of pages of documents that traced title claims back centuries. There was a 10-day trial that was later reargued after new evidence appeared. 

Glasscock even trekked across the disputed land and its wetlands as part of the deliberations. By 2017, he ruled that Delaware's claim was the superior one, though he noted the state "had acted as if it did not have title" to the land. 

Still, the judge's determination didn't end the case.

Next was a damages phase with Sweetwater Point demanding Delaware pay it millions for the cost of planning the development, as well as for taxes paid on the property, among other costs. Or, the state could simply relinquish its claim to 63 acres of the pristine land, company attorneys argued.

Sweetwater Point also subsequently filed a lawsuit against the seller of the properties it purchased in 2005. That lawsuit is ongoing.

In its case against the state, Sweetwater Point took aim at DelDOT, saying the agency's refusal to issue a permit for the subdivision was the reason Sweetwater Point defaulted on the $6 million loan from Lehman Brothers.

"Owner was induced to purchase Sweetwater Pointe, and Lender was induced to make the loan, secured by the mortgage on Sweetwater Pointe, by acts and omissions of the state," attorneys argued in court filings.   

Delaware Department of Transportation spokesman C.R. McLeod declined to comment, citing the ongoing litigation. He did say DelDOT still plans to build the highway, called the Millsboro Bypass, across the land.

"DelDOT is proceeding with the North Millsboro Bypass project with construction currently estimated to begin in 2023," he said.

Today, plans for the highway have been scaled back considerably from the nearly billion-dollar initial cost estimate. Recent plans call for a 2.75-mile bypass to cost around $50 million.

While the Chancery Court case became the biggest complication to snag the Sweetwater project and leave the pristine land undeveloped, other issues sprang up.

Sweetwater Point in Millsboro.

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The developer

O’Rourke has been a player in proposed property deals throughout northern Delaware and Maryland for several decades.

There was the Reserve at Iron Hill that proposed 86 new homes near Newark in the 1990s, according to The News Journal archives. 

There also was a sale to the state of Bear farmland that previously had been the site of an FBI sting to uncover public corruption. The operation resulted in the conviction of then-Delaware Transportation Secretary Kermit Justice, among others. It occurred just before O’Rourke had purchased the property.

A New Castle County official told The News Journal in the 1990s that O’Rourke typically formed limited partnerships for his projects, which allows investors participating in the deal to avoid liability. 

O’Rourke first purchased the Sweetwater Point land with a company called Oriskany Inc. before transferring it to Sweetwater Point LLC. 

An image of a court receivership document outlines the ownership of Sweetwater Point LLC.

At that time, Walsh, Greenwood and Lehman Brothers were its owners as limited partners through another company, called Delaware Land Associates LLC, according to court receivership documents. 

At some point during the past decade, Sweetwater Point’s Delaware business registration lapsed. O’Rourke revived it in 2018, though today the company owes Delaware $1,135 in unpaid business taxes, according to a state official.

Four months before he rescued the venture, O’Rourke received a $30,000 loan, recorded as a mortgage on a home near Newport, from Wilmington Mayor Mike Purzycki.    

In a statement emailed by a spokesman, Purzycki said he has known O’Rourke for 50 years, beginning when they lived at the same University of Delaware fraternity in the 1960s.  

“Peter needed funds for an investment and I gave him a short-term loan which he has since re-paid,” Purzycki said.

The spokesman did not reply to a follow-up question about the nature of that investment. 

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The financial backers

It is unclear who the beneficial owner of Sweetwater Point will be following a likely Delaware court ruling next year. 

Lehman Brothers declared bankruptcy in late 2008, an event remembered as the trigger of the Great Recession. 

In 2014, the New York investment duo of Walsh and Greenwood each went to prison.

When their firm had invested in Sweetwater Point in 2005, the duo also were in the midst of a massive scheme to misappropriate hundreds of millions of dollars, according to federal investigators. 

Both were let out of prison last year. 

When asked whether Walsh and Greenwood still were involved with Sweetwater Point, O’Rourke rhetorically said, “What do you care?”

The U.S. Securities and Exchange Commission froze Walsh's and Greenwood's assets following the launch of their criminal investigation in 2009 to prevent "the defendants from destroying, altering or concealing documents," according to court records.

Greenwich investor Stephen Walsh enters the Daniel Patrick Moynhan U.S. Courthouse in Manhattan after being arrested by the FBI on securities fraud charges Feb. 25, 2009. His business partner North Salem Town Supervisor Paul Greenwood was also arraigned.

Brick Kane, a California fiduciary appointed to oversee the assets, said the ownership stake in Sweetwater Point will not return to Walsh and Greenwood when his firm relinquishes control of the asset next month.

Asked who will become the new owners of Sweetwater Point, he said his team is “working out a program with the other stakeholders.”

He mentioned Lehman Brothers as among the stakeholders, but declined to name others. 

“There are a couple of other interested parties,” said Kane of Robb Evans and Associates. “We should have a resolution in the next month or so.” 

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Litigation grinds on 

When declaring Delaware to be the rightful owner of the Sweetwater land, Glasscock also said state officials for decades had "seemingly forgot" about its deed.

While Delaware won the key victory, the judge noted that he would wait to rule on the legal issue, called acquiescence, which involves Sweetwater Point's argument that Delaware should relinquish its claim because it had failed to actively use the land. 

"Sweetwater's assertions of acquiescence," Glasscock said in his 2017 opinion, "are by no means trivial." 

His decision will arrive during the ongoing damages stage of the case.  

Over the past year, the legal odyssey has featured a failed mediation, stifled subpoenas for government documents and a stated desire by all sides to bring the grinding litigation to a close.

Currently, the two sides are fighting over disclosure of state documents. Following a motion for discovery filed last year, Delaware turned over flash drives containing scans of documents that had been sitting inside more than a dozen boxes within government storerooms.  

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View of Sweetwater Pointe in Millsboro.

Despite the volume of pages they received, Sweetwater Point attorneys demanded to know what had been withheld, asking the state to produce a so-called "privilege log."

By March, it produced one that was too "confusing" to readily comprehend, Sweetwater Point attorneys said. Months later, the state turned over 200 additional pages, apparently linked to work done on the property by Delaware's real estate appraisal manager.

Still, Sweetwater Point said it believes Delaware's failure to hand over documents in a timely way amounts to "fraudulent concealment and intentional misrepresentation." 

"The persons whom (Sweetwater Point attorneys) seek to depose, the order in which such depositions are taken and the subject matter of (state officials) depositions may be significantly affected by whether and to what extent (the state) is entitled to claim privilege and redact materials," Sweetwater Point attorneys argued in a July filing.

By summer, the temperature of the case appeared to have decreased as Glasscock ordered monthly status update hearings to hasten a resolution.

At one hearing in August, both sides stated categorically that they are working in good faith to quickly end the case, which has entered its 11th year.

At the hearing, Gerald Street, the attorney for the state, told the judge that he still was actively receiving documents from state transportation, environmental and health officials. He still expected another 278 files from DNREC to arrive in the coming weeks, he said.    

"It's just a lot of documents still to come in," Street said. 

Sweetwater Point attorney Richard Beck then told the judge that the state now is "making an effort to be responsive," even as the process has been "almost painfully slow."  

"Some of what we have already seen have been eye-opening," Beck said.  

Beck is holding two depositions with state officials this month.   

Contact Karl Baker at or (302) 324-2329. Follow him on Twitter @kbaker6.