Parking Lot Company Battles Downtown Eviction

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One of the largest parking lot operators in downtown Los Angeles has declared bankruptcy and blames another company that recently emerged from bankruptcy for its troubles.

S.C. Prestige Parking is a four-year-old company that was formed to take over the operations of Prestige Parking, a company that topped the list of the city’s biggest deadbeat taxpayers in 2009. Prestige and its chief executive were convicted of nearly 300 counts of tax-related infractions; the company declared bankruptcy and transferred its operations to a new entity, S.C. Prestige, controlled by the same family.

In a filing last month, S.C. Prestige has sought Chapter 11 protection from its creditors, mainly companies with ties to Evoq Properties, formerly known as Meruelo Maddux Properties. S.C. Prestige blames its problems on Evoq, the name taken after Meruelo Maddux emerged from its own Chapter 11 last year.

The dispute centers on 12 parking lots in downtown. Prestige signed a licensing agreement with the Meruelo family in 1999 to develop the vacant land into parking lots. Prestige was responsible for improvements such as paving, fencing and gates, as well as the management of the parking operations. Profits would be split, with 60 percent going to Prestige and 40 percent to Meruelo Maddux-controlled companies.

Prestige paid a licensing fee to Meruelo Maddux, installed equipment and operated the lots. When the original Prestige ran into tax difficulties, “S.C. Prestige gradually received control and/or ownership of licenses that had formerly been controlled and/or owned by Prestige Parking,” according to a lawsuit filed by S.C. Prestige on April 19, the day before the bankruptcy filing. The suit alleges wrongful eviction, fraud and unlawful enrichment because on Jan. 23 Evoq gave S.C. Prestige 30 days to leave the lots.

Bruce Silberman, a parking consultant who is a co-defendant in the lawsuit, told the Business Journal he was hired by Evoq to study how to improve the company’s lot operations. He recommended taking them in-house, but he believes Evoq has since contracted another company to run the 12 lots.

He declined to comment further because he hadn’t seen the suit.

The suit doesn’t cite a specific dollar figure, but demands return of the operating licenses for the properties, warning that otherwise S.C. Prestige will become insolvent and would “be forced to institute a multiplicity of suits to obtain adequate compensation for injury.”

A lawyer for S.C. Prestige who filed the suit declined to comment for this article. Evoq also declined to comment.

Jeffrey Krieger, a partner in the bankruptcy practice at Century City law firm Greenberg Glusker who is not involved in the litigation but reviewed the suit for the Business Journal, said the case was unusual because Evoq recently emerged from its bankruptcy. Because contracts are reviewed and sometimes changed during a Chapter 11 reorganization, the question will come down to who made the original deal and whether it’s still in force.

“Usually these (parking lot bankruptcies) are economically driven, meaning their revenues drop because people aren’t parking as much,” Krieger said. “This case is a little bit odd because the company has litigation that parallels the bankruptcy.”

The first bankruptcy court hearing is scheduled for June 21. Krieger estimated it would take about a year to sort out the bankruptcy, but he said that little will happen in the next four months because a bankruptcy automatically triggers a freeze on debt collectors and legal claims on S.C. Prestige.

Companies can continue to operate under Chapter 11, so Krieger expected any lots still run by S.C. Prestige will remain open to the public. He said the reason the company filed for Chapter 11 is to protect the income that remains from the lots it continues to operate.

“These businesses are usually cash machines and that cash can disappear right away,” he said. “Even though they have other lots, once their licenses were revoked they didn’t have enough cash flow.”

Tax questions

In 2009, Prestige Parking and Chief Executive Sohrab Sahab were convicted by a jury of 295 tax infractions, including 135 counts of failing to remit parking occupancy taxes, 149 counts of failing to file parking tax reports and 11 counts of operating parking lots without a permit. The company paid $4.4 million in back taxes and a $600,000 fine. Sahab was sentenced to 18 months in jail and 10 years probation.

The tax evasion began in 2002. An investigation was launched in 2006. The Sahab family then formed S.C. Prestige and gradually switched its parking operations to the new company, which is controlled by different members of the Sahab family.

Richard Tefrank, executive director of the Los Angeles Police Commission, which controls permits for auto parking lots in the city, said the successor company, S.C. Prestige, has licenses for 37 lots, mostly in the downtown area but also on the Westside. He said that because S.C. Prestige is a different legal entity than the original Prestige, it has no liability for the previous company’s tax debts.

Tefrank said, in general, agreements between parking operators and landlords are much like leases, so it’s not surprising that Evoq could evict Prestige by giving a 30-day notice.

“If the lease runs month to month, then the landowner can end it at any time,” he said.

Kreiger, the bankruptcy attorney, said most lawsuits filed in conjunction with bankruptcy are settled out of court, but in this case, S.C. Prestige will have to present evidence in court on the question of how much money is at stake.

“We still don’t know the basis for Evoq terminating the agreement,” he said, “and the bankruptcy court would have to decide that issue.”

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