Judge OKs foreclosure sale of Maxim

David Strow

Thursday, May 25, 2000 | 11:11 a.m.

A state judge cleared the way for the sale of the Maxim hotel-casino today, turning aside a request to indefinitely delay its foreclosure auction.

A preliminary injunction against the sale had been sought by three former shareholders in Premier Interval Resorts Inc., the Dallas-based owner of the Maxim.

"I am deeply concerned about (the impact of delaying the sale) to the loyal workers of the Maxim, its vendors and unions," said District Judge Nancy Saitta this morning. "It is the court's sincere belief the sale of the Maxim will enhance the ability of the Maxim to remain open."

With Saitta's refusal to enter the injunction, attorneys for the Maxim's mortgage holder said they will proceed with the auction June 1.

"We want to keep it open for the employees, vendors and tourists to Las Vegas," said John Curtas, attorney for Atlanta-based Meralex, which holds a defaulted $42 million mortgage on the off-Strip property. "This has very far-reaching effects for the city of Las Vegas and the people who depend on the Maxim for their livelihoods."

Tony Zmaila, another Meralex attorney, said Meralex intends to bid for the Maxim at the auction -- a typical procedure in foreclosure actions when the owner has little equity in the project.

The auction was originally scheduled to be held April 20. But Saitta issued an emergency temporary restraining order barring its sale following an April 19 lawsuit by former Premier shareholders Hillel Meyers, Don Saunders and Thomas Russell.

A variety of legal maneuvers led to four more delays in the Maxim auction -- delays Meralex said was costing it $20,000 a day. Meralex is operating the Maxim's hotel until the property can be sold -- and claimed it would be forced to shut down the property if a preliminary injunction had been granted.

In their lawsuit, the men claimed the sale of the Maxim was the last step in a "fraudulent scheme" that involved self-dealing between Meralex and Premier. Their lawsuit claimed the failure of the Maxim, just months after Meralex extended its loan, made no sense unless there was intent to cause its failure.

The plaintiffs argued that proceeds from the foreclosure sale will be spirited out of Nevada and divvied up between Premier controlling shareholder Gary Kornman and Meralex controlling shareholder Howard Jenkins -- making it impossible to collect on a judgment if they prevailed in their case.

The facts of the Maxim's closure, said plaintiffs' attorney Suvinder Ahluwalia, "are sufficient to support the notion that Meralex has committed fraud, and worked in concert with Gary Kornman to defraud the plaintiffs of their ownership in the Maxim."

Their claim was that Kornman intentionally sabotaged several attempts by the plaintiffs to put together financing to acquire the Maxim, forcing them to accept the last-minute offer by Meralex. But their ability to prove this in the injunction hearing Wednesday was severely handicapped by Saitta's ruling that testimony involving Kornman's actions or statements during these negotiations was hearsay and therefore inadmissible during the injunction hearing.

With this option gone, the plaintiffs were forced to rely on letters from alternative lenders expressing interest in the Maxim deal -- but defendants' attorneys argued there wasn't any proof these deals fell through because of wrongful actions by Meralex or Premier.

Though the defendants' attorneys acknowledged a Kornman-controlled company lended Meralex $26 million of the $42 million purchase price as a bridge loan, they characterized this as a legitimate "arms-length" transaction.