By NEIL HARTNELL
Tribune Business Editor
Baha Mar's original developer yesterday won a second legal victory against the project's main contractor to reignite his $2.25bn fraud and breach of contract lawsuit.
The New York State Supreme Court's appeals court, in a short but pointed verdict, dismissed China Construction America's (CCA) bid to have Sarkis Izmirlian's claim against it either thrown out or sent into arbitration proceedings.
And it also removed the temporary "stay", or injunction, that had been imposed on Mr Izmrilian's lawsuit to allow CCA's appeal to be heard. As a result, all obstacles to the progress of his legal action have now been removed.
"Upon reading.... the papers with respect to the motion [CCA appeal], and due deliberation having been had thereon, it is ordered that the motion is denied and the interim stay granted by an order of a Justice of this court, dated February 13, 2019, is hereby vacated," the New York appeals court confirmed.
No reasons for the court's decision were given, but the significance of yesterday's decision lies in the fact it effectively gives renewed impetus to Mr Izmirlian's lawsuit and restarts the legal process associated with it.
The outcome means that CCA will now have to file a defence to Mr Izmirlian's claims, which it had managed to put off doing by filing its appeal. Both sides will also now have to go through the judicial "discovery" process where they are required to exchange documents, and subpoena/interview witnesses, relevant to their respective cases.
This, in theory, could result in the production of papers that shed light on both CCA and Christie administration decision-making during Baha Mar's Chapter 11 bankruptcy case, and subsequent receivership, liquidation and sale, and the nature of contacts between the two parties as they worked to remove Mr Izmirlian and complete the $4.2bn mega resort.
Some observers were yesterday even speculating that former Christie government ministers may be called to give evidence as witnesses by both sides should the matter get to trial, although both trial and the prospect of this happening are still some way off.
CCA had originally been due to file its defence to Mr Izmirlian's action on February 26, 2019, and start the discovery process a day later, so the only effect of its failed appeal has been to delay this by just over one month.
The New York Appeals Court's ruling also ensures that Mr Izmirlian's claim will continue to be heard in a forum that is open to the public, namely the state court system, rather than being pushed into the closed setting of arbitration.
CCA, which owns downtown Nassau’s British Colonial Hilton and the adjacent Pointe project, dislikes the publicity associated with events it is anxious to put behind it. This was previously revealed in transcripts filed with the New York State Supreme Court where its attorneys expressed the company’s displeasure at continued coverage by Tribune Business.
Had the New York Appeals Court ruled in favour of the Chinese state-owned contractor's arbitration bid, Mr Izmirlian’s case would have been transferred out of the court and into mediation/dispute resolution hearings that are typically held behind closed doors and thus more private. Few to no details are made public.
Mr Izmirlian and his family lost their entire $845m equity investment in Baha Mar, along with “expected future profits”, after the project’s secured financier, the China Export-Import Bank, took possession of the mega resort and ultimately sold it to current owner, Chow Tai Fook Enterprises (CTFE).
With the March 27, 2015, completion deadline missed, and the two sides further apart than ever, Baha Mar filed for Chapter 11 bankruptcy protection at end-June 2015. This was ultimately dismissed to be followed by Baha Mar being placed into liquidation and receivership, from where the China Export-Import Bank and its agents ensured its ultimate sale to CTFE.
In the initial New York State Supreme Court verdict, trial judge Saliann Scarpulla ruled that Mr Izmirlian’s BML Properties could use the investors’ agreement with CCA to invoke New York as the appropriate location to resolve their legal disputes.
She found that there was nothing that bound Baha Mar’s original developer to arbitration, and rejected CCA’s argument that Mr Izmirlian and BML Properties could not bring “direct claims for a loss in the value of [their] equity investment as the loss simply reflects damages incurred by the company (Baha Mar)”.
Justice Scarpulla said an action could be brought where one shareholder suffered a disproportionate loss in comparison to others, noting that a CCA affiliate held $150m worth of preference shares in the Baha Mar project.
The New York court also found that the original Baha Mar developer had provided enough evidence to “sufficiently plead” fraud thanks to the numerous e-mails, documents and meetings referenced. It also rejected CCA’s argument that the fraud claims duplicated the breach of contract allegation.