Bank of Indiana is suing The Estridge Cos. for allegedly failing to repay a $1 million investment the Indianapolis-based bank provided to the Carmel-based home builder.

The lawsuit filed Sept. 9 in Marion Superior Court charges that Estridge, along with Indianapolis-based Indiana Securities LLC, committed securities fraud in connection with an offering the bank says was due to be paid off June 30.

The complaint further accuses Indianapolis-based law firm Krieg DeVault LLP of malpractice and breach of fiduciary duty by representing Bank of Indiana, as well as both Indiana Securities and Estridge, during the offering and without the knowledge of the bank.

Bank of Indiana is seeking to recoup its investment, as well as all damages available under the Indiana Securities Act, punitive damages and attorney fees.

Owner Paul Estridge said in an e-mail Wednesday that he has referred the lawsuit to his legal counsel, who advised him not to comment.

Estridge, however, went on to say that he expects the disagreement to be resolved in “very short order.”

“The claim is absurd,” he said. “We’re home builders, not securities dealers. As such, we’re focused, like all home builders in this nation, on strengthening our company and building great neighborhoods in the communities we live in and love.”

The bank asserts in its suit that, throughout 2009 and into 2010, the financial condition of Estridge was deteriorating, and the likelihood of a return on its investment was in decline.

In June, IBJ reported that the once-formidable home builder had received a $10 million investment to help it weather the severe housing downturn.

That infusion was unusual on two fronts. Few companies in the out-of-favor home-building industry are able to raise capital these days. And the source of the Estridge funds wasn’t a traditional investor—it was subcontractors with a long-standing relationship with the custom builder.

Then, owner Paul Estridge said the company was in no danger of becoming the latest casualty of the meltdown. Yet he acknowledged the difficulties of securing traditional bank financing at a time many have restricted lending.

About 25 investors agreed to chip in from $25,000 to $500,000 in exchange for ownership stakes. Collectively, the subcontractors own 35 percent of the company.

Estridge, the area’s largest custom builder based on homes constructed, expects to build 250 homes this year ranging in price from $300,000 to more than $1 million.

The launch of its most ambitious project, the proposed Symphony development in Westfield, hinged on the investment from the subcontractors, Estridge said.

The home builder, though, sought outside funding long before this year, according to Bank of Indiana’s suit.

On Dec. 29, 2006, Estridge filed paperwork with the U.S. Securities and Exchange Commission to raise funds through a private security offering. Indiana Securities served as the underwriter for the offering, the complaint said.

Less than two weeks later, the bank purchased $1 million worth of three-year subordinated notes paying 11 percent interest. Later in 2007, however, the bank charges that the defendants added several amendments to the offering without its knowledge.

Chief among them was a change to the due date of the notes, from June 30, 2010, to “a date several years later,” according to the suit.

“Upon maturity, the Estridge defendants have failed and/or refused to pay the $1 million due and owing to the plaintiffs, despite repeated demands to do so,” the complaint said.

Bank of Indiana also names in its suit Frank Neese, owner of Indiana Securities, who also served as board chairman of Bank of Indiana at the time it purchased the notes, and Dawn Barringer, an Indiana Securities partner. Calls to Indiana Securities were not returned.

Krieg DeVault partner Karen Woods is named, as well.

John C. Trimble, a lawyer at Indianapolis-based Lewis Wagner LLP, is representing Krieg DeVault.

He said in an e-mail that the firm believes the allegations are without merit, and it intends to vigorously defend the case. Because the matter is in litigation, he declined to further comment.

Bank of Indiana is represented by Mark Waterfill, a partner at the Indianapolis office of Cleveland-based Benesch Friedlander Coplan & Aronoff LLP.