By NEIL HARTNELL
Tribune Business Editor
Sarkis Izmirlian’s $2.25bn fraud and breach of contract claim against Baha Mar’s main contractor was yesterday given full clearance to proceed by a New York appeals court.
The mega resort complex’s original developer scored another comprehensive victory against China Construction America (CCA) and its affiliates in their preliminary legal battles as the court rejected all efforts by the state-owned contractor to either dismiss the case or have it sent into arbitration.
This represents the second appeals ruling won by Mr Izmirlian this year, as the same court in February also threw out the temporary “stay”, or injunction, CCA had obtained in a bid to stall legal proceedings until this latest matter was resolved.
Yesterday’s verdict now paves the way for attorneys representing Mr Izmirlian to begin the legal discovery process where both sides 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 have already speculated that former Christie government ministers may be called to give evidence as witnesses by both sides should the matter get to trial, although both this event - and the prospect of that happening - are still some way off and may have to overcome further legal hurdles that will be set by CCA.
Mr Izmirlian’s BML Properties vehicle, in a statement sent to Tribune Business yesterday, said: “The appellate division of the Supreme Court of New York today rejected the appeal of defendants China Construction America and its affiliates.
“The court ruled unanimously and entirely in favour of BML Properties, and determined that all of its claims for fraud and breach of contract must go forward in the Supreme Court, and not in arbitration.”
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.
The appeals court judgment found that Mr Izmirlian and BML Properties had produced sufficient evidence to support their fraud allegations, while CCA’s efforts to divert the case into arbitration were based on a contract that neither the original developer nor his company were party to.
“The [state Supreme] Court correctly denied the branch of the defendants’ motion seeking to compel arbitration because plaintiff was not a party to the agreement containing the arbitration clause and the claims at issue were, by separate agreement, required to be litigated in New York,” the three-strong appeals panel ruled.
“Plaintiff adequately stated a claim for fraud by asserting justifiable reliance on assurances alleged to have been false when made regarding the project’s status, and the workforce and resources available to meet the deadline for completion of the project, which were collateral to - and not duplicative of - plaintiff’s claims for breach of contract.”
Justice Saliann Scarpulla, in the original state Supreme Court ruling, found that Mr Izmirlian had provided enough evidence to “sufficiently plead” fraud thanks to the numerous e-mails, documents and meetings referenced. She also rejected CCA’s argument that the fraud claims duplicated the breach of contract allegation.
CCA had sought to push the case into arbitration through the mediation/dispute resolution clause contained in Baha Mar’s construction contract. This was amended in 2016 to facilitate the $4.2bn development’s completion under the temporary ownership of the China Export-Import Bank and its Perfect Luck vehicle.
While Mr Izmirlian and BML Properties were not signatories to the 2016 deal, CCA claimed they were still bound by it because New York courts “‘frequently’ impute the intent to arbitrate to a non-signatory”.
But, finding that CCA had misinterpreted the law, Justice Scarpulla found there was no intent for BML Properties to be bound as such. And its complaints stemmed from the investors agreements, not the construction contract.