Engelstad sued by would-be buyer of casinos

Grace Leong

Wednesday, Jan. 10, 2001 | 11:10 a.m.

A Texas real estate investment trust filed a lawsuit accusing hotel-casino owner Ralph Engelstad of blocking its attempt to buy several of his properties including his two Imperial Palace gambling resorts in Las Vegas and Biloxi, Miss.

Palace REIT, which first filed suit in June 2000 against its former president, Arthur Lorentzen Jr., and three Engelstad companies in a state district court in Dallas County, filed an amended complaint in U.S. District Court in Las Vegas last week to add Engelstad as a defendant.

Palace REIT accused Lorentzen of stealing its opportunity to manage Engelstad's entire real estate portfolio and inducing Engelstad to refuse to provide seller financing by offering to personally manage his portfolio using REIT's trade secrets.

The defendants include three Engelstad companies: Southpark Ltd. of Midland, Texas, and two Dallas-based companies, Heritage Loraine Inc. and Nobody Inc. They won a motion in November to transfer the case to U.S. District Court in Las Vegas from a Texas federal court.

Palace REIT said it had initially intended to sell its stock to the public to fund its acquisition of 12 to 15 office and warehouse buildings in several states including Texas, Nevada and Florida that are owned by Engelstad's companies and eventually the two casinos.

Palce REIT, which said it was forced to postpone its plans for an initial public offering of its stock due to adverse market conditions, said its attempt to buy the properties with borrowed funds was blocked by a "belated and surprising refusal" by Engelstad to provide limited seller financing.

The suit claimed Lorentzen, who resigned on March 30, 1999, allegedly violated his one-year non-compete agreement dated May 1, 1998, when he was hired by Engelstad to manage and sell his entire real estate portfolio.

REIT also accused Lorentzen of misappropriating its trade secrets to "obtain employment, enhance his fee income ... and enhance the value ... and profitability of Engelstad's real estate portfolio."

Since Palace REIT could not immediately finance the acquisition of Engelstad's portfolio, Lorentzen allegedly proposed that the REIT manage Engelstad's properties until market conditions improved enough for the REIT to launch its IPO, the suit said.

Lorentzen then allegedly advised David Merker, Palace REIT's chief executive, who said he had managed Engelstad's properties through his company, Merker Inc., for more than 12 years, to give up the management contract in order to "open the door for REIT to step into his shoes as manager," or for Engelstad to provide financing, the suit said.

But Lorentzen allegedly told Merker, after he gave up the work, to not present the management proposal to Engelstad because it was "too late," the suit said.

The defendants could not be reached for comment on the allegations.