Hotelier and nightclub impresario Sam Nazarian is heading toward trial next month in a dispute with a former investor that claims the SBE Entertainment Group chief executive bilked them out of millions when he sold the SLS Hotel South Beach for $125 million in 2015.
Plaintiff 4 Corners Holdings of Century City alleges earlier dealings between Nazarian and CIM Group, another partner on the project, were tantamount to self-dealing. While the case has been pared down since it was filed in April 2015, several “triable issues of material fact” remain, according to a Los Angeles Superior Court judge’s Nov. 30 ruling. The case was initially set for trial on Jan. 17, but that date was pushed into February.
The crux of the suit revolves around accusations that SBE and Nazarian breached their fiduciary duty to 4 Corners and gave favorable terms to L.A.-based CIM in exchange for lucrative hotel management contracts at Hollywood’s Redbury Hotel, which was sold by CIM in June. Both Nazarian and SBE are named as defendants.
While several breach-of-contract claims and other related allegations have been stripped from the case, the plaintiff’s attorney, Scott Gizer of Early Sullivan Wright Gizer & McRae in Mid-Wilshire, said its primary allegations remain intact.
“The core of this lawsuit is intact and going to trial,” Gizer said. “The case is about the defendant breaching his fiduciary duty and misrepresenting how much my clients would make (on the SLS deal). We are very confident that at trial our claims will be borne out.”
Nazarian could not be reached for comment. His lawyer, Alex Weingarten of Century City’s Venable, said the allegations leveled by 4 Corners are baseless and that the plaintiff’s case had already been crippled.
“We’ve taken a hatchet to their case,” Weingarten said. “They’re limping into trial.”
The conflict stretches back to 2008, when 4 Corners sunk $8 million into Nazarian’s SLS South Beach project on what it claims was the assurance it would see a 10 percent preferred return on investment with the hotel valued at more than $200 million. When the real estate market soured in the wake of the Great Recession, 4 Corners, along with another group of investors, agreed to reduce its equity stake from a total of $28 million to $4 million in 2010. That arrangement was part of a deal that also brought in $25 million from CIM to help finish the project. In addition, SBE took a write down as part of the deal, but 4 Corners alleges that it did so as part of broader negotiations that helped it secure the management contract at the Redbury. The plaintiff alleges that it received no money from the 2015 sale of the property to U.K.-based GoldenPeaks Capital Real Estate, and asked for $15 million in damages in its lawsuit.
Nazarian and SBE deny that a sweetheart deal took place, but Judge Marc Marmaro’s ruling said there is evidence that SBE materially benefited from the Redbury deal, which could be construed by a jury as a failure to represent the fiduciary interests of 4 Corners.
“These negotiations occurred at more or less the same time, and the parties continued dealing with each other thereafter,” Marmaro’s ruling reads. “There is sufficient evidence from which a reasonable trier of fact could infer that Defendants engaged in self-dealing for their own benefit and at the (plaintiffs’) expense.” ?
SBE closed a deal last month to purchase New York-based Morgans Hotel Group with billionaire Ron Burkle’s Yucaipa Cos. of West Hollywood for $805 million.
