Construction at the former Trolley Car Diner property is stalled amid a RICO lawsuit brought by developers alleging “a fraudulent, coordinated lending scheme perpetrated” by asset manager Saluda Grade Holdings and Builders Capital, a construction loan company.

The developers behind the five-story, 114-unit residential complex at 7611-17 Germantown Ave., Trolley Car Development, L.P., under Blake Development and Main Street Development, are plaintiffs in the case, filed in the U.S. District Court’s Eastern District of Pennsylvania.

“We have temporarily shut the project down and filed suit in federal court against our construction lender,” Sam Blake, owner of Blake Development, said in a statement to the Local. “As the case and negotiations are ongoing, I am not able to provide any further comment at this time.”

He added, “We look forward to settling the matter very soon and finishing our beautiful new building shortly thereafter.”

In an amended complaint filed May 11, the lawsuit alleges that the defendants “fraudulently induced” the developers into construction loan agreements by “materially misrepresenting the loan terms, with promises of prompt funding of construction draws and by-right maturity extensions that would not carry interest increases or other penalties.”

The plaintiffs allege that the lender “failed and refused to honor these obligations” when the developers attempted to access the negotiated funding. They argue that under “economic duress,” the developers were coerced into “agreeing to materially different terms than originally negotiated” for the more than $33 million loan.

This month, the defendants filed a motion to dismiss the case for “failure to state a claim upon which relief can be granted.”

The defendants’ lawyers say the plaintiffs filed the complaint “attempting to plead around the clear holes in their claims. Plaintiffs are sophisticated real estate developers who each defaulted on loans totaling approximately $85 million,” and that “despite the fact that the loans were each heavily negotiated, documented and subsequently amended, Plaintiffs now claim they should be excused from their defaults” because the defendants “allegedly violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”) in providing and administering these loans.”

The defense motion argues that the developers’ “RICO allegations are based entirely on Defendants’ lawful enforcement of their express contractual rights.”

Amid the lawsuit, the Trolley Car development site, near the border between Mt. Airy and Chestnut Hill, has been cited for violations from the city’s Department of Licenses and Inspections as work on the project paused. L&I issued a Site Violation Notice for construction on the project blocking the sidewalk without providing a walkway. Shemeka Moore, a spokesperson for L&I, said that as of June 10, the balance remained unpaid.

“As the next step,” Moore said, “this outstanding balance will be applied against the contractor’s license record. As a result, the contractor may be unable to renew their business license or obtain new permits until the balance is resolved. This is part of a recently implemented enforcement measure designed to ensure that contractors address outstanding obligations before continuing business operations.”

On Monday, Blake said workers cleared the blocked walkway.

District Judge Harvey Bartle III has ordered Blake and the other plaintiffs to respond to the motion to dismiss by June 23.