Fujita Corp. USA was one of several Japanese companies that swarmed L.A.’s real estate market in the 80s.

Its flagship property was Santa Monica’s Miramar Sheraton Hotel, but Fujita grabbed other trophy properties like Encino Terrace Center along Ventura Boulevard and the former Champagne Towers in Santa Monica.

But things fell apart once the economy turned sour. All that’s left locally is a bitter legal dispute only now being resolved between the family-owned company and the two directors who set up its U.S. division in the early 1970s.

In a federal lawsuit filed in 1997, Fujita’s U.S. division claimed that two local directors conspired to defraud the company out of millions of dollars in real estate investments.

After a brief trial, Fujita settled on Aug. 20 with Eisuke Katsuna and William Wells. Fujita walked away from all claims and the two defendants paid nothing to Fujita as part of the settlement, said Wells’ attorney, Larry Jackson of Christa & Jackson.

Fujita’s attorney, Harriet Posner of Skadden Arps Slate Meagher & Flom LLP, could not be reached for comment. Katsuna’s attorney, Michael Magnuson, declined to comment about the case.

Fujita is now struggling to pay off its debtors.

“Fujita, like most other Japanese investors, did much of the investing during the height of the market,” said Kevin Dretzka, managing director of Eastdil Realty. “When the music stopped, they had positions that were pretty much at cyclical peaks. A majority of these buyers used debt. When a purchase is made at a cyclical peak and it’s debt financed, and the market values drop 50 percent or more, that doesn’t make for a solvent picture, does it?”

Katsuna comes to L.A.

When Fujita first entered the U.S. market, it brought Katsuna from Japan to start up the company. Its sole goal was to operate the Miramar Sheraton.

To help Katsuna, Fujita brought in Wells, an L.A. real estate investor who was best known for co-developing the Marina City Club but who came into contact with the Fujita family after helping develop a parcel of land near the City Club for Hughes Aircraft.

According to the Fujita lawsuit, Katsuna and Wells approved more than $20 million in loans toward a group of 15 companies that were owned and operated by Wells or Katsuna or both. Fujita claims in the suit that the formation of these companies helped Wells and Katsuna scam Fujita out of profits and benefit themselves. The suit also contends that the two charged for services that didn’t happen, or forced Fujita into expensive lease payments.

Fujita claims the two directors could approve these loans and leases without the Japanese companies’ knowledge because, as was typical with the international company, it gave the two control over all transactions in Southern California.

When the two directors began losing millions of dollars, they falsified the losses to Fujita’s headquarters and made a last-minute interest rate swap with Mitsui Trust & Bank Co. Ltd. that created an additional $46 million in losses, according to the claim.

An interest rate swap is a speculative transaction that involves a fixed rate player, like Fujita, and a floating rate player, like a bank. It involves no up-front capital investment but fixes the interest rate at a future date, relying on market conditions, which didn’t improve.

Fujita accused the two directors with racketeering, fraud, breach of fiduciary duty, conspiracy, aiding and abetting, unjust enrichment and other violations.

Fujita loses in verdicts

Wells’ attorney, Jackson, painted a different picture during the trial.

“When the real estate market turned a bit sour, as it did with many Japanese companies, there was a restructuring,” he said. “Mr. Katsuna was terminated, and then Wells, and within a year there was a lawsuit filed for their losses.”

In his opening arguments, Jackson said Wells did not officially work for the company until the late 1980s. Before that, he was only a consultant, advising Fujita on local properties to buy.

He bought properties in his own name or for one of his group of companies, which Jackson said he created for the purpose of managing his personal investment portfolio.

Jackson also said that all the loans and leases approved by Wells were also approved by Fujita. The company knew about them because it sent Japanese executives to L.A. on a regular basis, he said.

Jackson admits that Wells made a mistake by not terminating certain loans. But he also said Wells was not responsible for the finances at Fujita and never issued any checks in any transactions.

In 1999, Fujita’s president resigned amid falling profits and the company sold the Miramar to investment group Maritz Wolff & Co. for $90 million to cut its debt.

In the first phase of a three-phase trial, Fujita lost 51 of 67 jury verdicts, each of which ruled on particular loans, leases, payments and invoices made primarily to the group of 15 companies owned or operated by Wells or Katsuna.

Fujita opted to settle before the trial could continue.