By NEIL HARTNELL
Tribune Business Editor
Sarkis Izmirlian says Baha Mar’s contractor has “no good cause” to seal the $700 million deal that is central to its demand that his $2.25 billion fraud lawsuit be halted.
Baha Mar’s original developer, in legal filings obtained by Tribune Business, this week argued that China Construction America (CCA) was demonstrating “a pattern of misuse of the very notion of ‘confidentiality’” by requesting that the project’s construction completion agreement be kept secret.
That agreement, named ‘Amendment 9’ in previous legal filings, sets out the terms CCA agreed with Baha Mar’s financier, the China Export-Import Bank, and the latter’s Perfect Luck vehicle, to restart and finish the $4.2 billion project.
It is key to the Chinese contractor’s bid to persuade the New York State Supreme Court that Mr Izmirlian’s lawsuit be ‘stayed’, and the two sides ordered into mediation, as it allegedly contains the clauses compelling arbitration as a first means of dispute resolution.
Mr Izmirlian, though, is arguing that himself and his BML Properties vehicle are not parties to the construction completion, which was agreed between CCA and Perfect Luck. As a result, they allege they are not bound by any of its arbitration-related clauses - especially since it replaced the original deal agreed by Mr Izmirlian.
Besides dismissing CCA’s arbitration demand, Mr Izmirlian and his attorneys also argued that the construction completion agreement contained “no trade secrets” or pricing information that would harm the Chinese state-owned contractor.
They pointed out that CCA had no competition for the Baha Mar completion work, which was effectively a ‘no-bid’ contest, and added that the Bahamian Supreme Court’s rationale for sealing all documents related to the project - “to preserve the sales process’s integrity” - had fallen away following the purchase by Chow Tai Fook Enterprises (CTFE).
“It is especially important in this case for the contents of Amendment 9 to be revealed because this case turns on defendants’ [CCA] concealment of critical facts from plaintiff and the public, and because defendants intend to rely on it in seeking to compel arbitration,” Mr Izmirlian and his attorneys argued in March 19 legal filings.
“Defendants have failed to demonstrate it contains ‘confidential’ information or would even threaten any competitive disadvantage were it placed in the public file. Defendants’ motion to seal Amendment 9 continues a pattern of misuse of the very notion of ‘confidentiality’.”
Mr Izmirlian’s legal advisers said CCA had initially sought to designate “every one” of the documents produced during the ‘discovery’ process as ‘confidential’, but ultimately narrowed this to the construction completion agreement after they objected to such “overreach”.
“Defendants [CCA] offer no evidence as to why a document containing neither forward-looking financial information nor trade secrets should be kept secret,” Baha Mar’s original developer alleged.
“Nor do they identify any competitive disadvantage they might suffer if its contents were revealed. Defendants... ignore that there was, by definition, no ‘competition’ by any other entity for the work contemplated in Amendment 9 and now completed.
“Although defendants purport to rely on the order of a court in the Bahamas, defendants cannot definitively say that Amendment 9 was sealed by that order, and the reason for sealing considered by that court - in August 2016 - that it was key to an ongoing sales process no longer applies since the sale closed in December 2017.
“As a result, there is no good cause, and much less a compelling need, to take judicial action and the motion should be denied.”
Among the documents produced by CCA, and attached to Mr Izmirlian’s court filings, was a ‘Certificate of Substantial Completion’, dated July 31, 2017, to confirm that the contractor had effectively met its construction milestones and largely finished the Cable Beach-based resort campus.
The ‘Certificate’ reveals that $34.05 million, held by the original developer as “retainage” to ensure CCA performed, had been approved for payment by CTFE.
It also set out the remaining items for CCA to address, such as resolving “mold and condensation problems” in the five Rosewood villas, and correcting problems with elevator controllers at the Hyatt. Certificates of operation for the elevators from the Ministry of Works were still outstanding as at that date.
Another annex, meanwhile, exempted CCA from having to address issues such as the ‘structural reinforcement of roof steel work’ because they were not within its ‘scope of work’. Around 30-40 issues were deemed to fall into this category.
Also produced to Mr Izmirlian and his attorneys were a ‘Deed of Novation’ and ‘Deed of Release’, both dated September 27, 2016.
These agreements, which were signed by representatives for CCA, Baha Mar’s then-receivers, Deloitte & Touche, and Perfect Luck and were designed to facilitate the transfer of the project’s real estate and other assets to the latter vehicle.
The Deed of Release, in particular, is interesting in the context of Mr Izmirlian’s initial skirmish with CCA, as it stipulates that Amendment 9 “will amend the Main Construction Contract” that was agreed between the contractor and original developer.
Peter Sheridan, one of Mr Izmirlian’s attorneys, in an affidavit alleged that CCA’s Amendment 9 deal effectively replaced the original construction contract with his client.
Arguing that “Amendment 9 was solely between CCA Bahamas and Perfect Luck”, he alleged: “Amendment 9 and the documents preceding it cancelled and replaced the old Master Construction Contract in every material respect.
“Neither plaintiff (nor any affiliated entity) is or ever was a party to Amendment 9, or to any of the other agreements executed in 2016.” Hence Mr Izmirlian’s argument that he and BML Properties are not bound by Amendment 9’s arbitration clauses, and thus CCA should not be allowed to ‘stay’ his lawsuit.