Station sues lawyer over voided deal

Grace Leong

Monday, Nov. 26, 2001 | 10:50 a.m.

Station Casinos Inc. has sued its former high-powered gaming attorney in Missouri, claiming his illegal conduct cost the Las Vegas company an opportunity to buy the Flamingo Hilton riverboat casino in Kansas City.

Station last week sued Michael Lazaroff, who was its well-paid lawyer who helped Station establish two big riverboat casino operations in Missouri -- one in Kansas City and the other in the St. Louis area.

The lawsuit, which was filed in Las Vegas' Clark County District Court, also named Lazaroff's former law firm, Thompson Coburn LLP of St. Louis.

Station, which said the defendants "owed Station a duty of care and loyalty to ... comply with all applicable ethical, administrative and legal rules," said its proposed $22.5 million purchase of the Flamingo Hilton was voided after disclosure of an investigation by the Missouri Gaming Commission into alleged questionable payments by Station to Lazaroff.

The company is seeking damages for "the loss of the Flamingo Hilton transaction and the lost profits and opportunity from that transaction."

Station said Lazaroff had represented that all his communications with the Missouri commission were "legal under applicable rules," but said he may have breached his legal obligations to Station, "if any of (his) contacts with the commission were improper."

The payments to Lazaroff came to light during an audit of Station's books as part of its bid for the Flamingo. The investigation found that Station had made $500,000 in bonus payments from 1994 through 1996 to Lazaroff, payments he later admitted hiding from Thompson Coburn.

The Missouri Gaming Commission found Lazaroff had made numerous improper contacts with former commission Chairman Robert Wolfson to secure licenses for Station's two Missouri riverboat gambling complexes. The commission claimed there was evidence that Station executives should have known about the relationship between Lazaroff and Wolfson but chose to do nothing about it, and that the bonuses were based on Lazaroff's influence with Wolfson.

Station disputed these allegations in its lawsuit, saying it paid the bonuses to Lazaroff based on his alleged representations that his law partners had agreed to allow the bonuses to be paid directly to him. But the suit said the law firm was completely unaware of the bonuses and had not agreed to allow the bonuses to be paid to him.

Station, which agreed to pay a $1 million fine to settle the commission's allegations, didn't admit to wrongdoing in the settlement. The settlement allowed the company to sell its casinos in Kansas City and St. Charles, near St. Louis, to Ameristar Casinos Inc. of Las Vegas for $475 million.

Hilton Hotels Corp. -- sister company to casino resort operator Park Place Entertainment Corp. of Las Vegas -- ultimately sold the Flamingo Hilton riverboat to Isle of Capri Casinos Inc.

Station also seeks to recover from Lazaroff and Thompson Coburn what it said were "substantial legal fees, expenses and costs from the investigation and proceedings in Nevada and Missouri."

In its 2000 annual report, Station said it absorbed $4.4 million in "costs related to litigation and fines stemming from investigatory proceedings in Missouri and Nevada." It did not specify how much of these charges came directly from the Lazaroff case.

Station said it is also entitled to "exemplary damages for the sake of example and to punish these defendants so that they do not engage in similar activities in the future."

Nevada regulators looked into the Lazaroff affair, but ultimately did not act against Station over its problems in Missouri. Direct contact between gaming regulators and licensees is banned under Missouri gaming regulations, but is condoned and encouraged in Nevada.

Station is the biggest locals' casino-hotel operator in Las Vegas with seven big properties.

Shannon Bybee, executive director of UNLV's International Gaming Institute, doesn't believe Station is taking a risk in Nevada by reopening the Lazaroff matter.

"The problem was he (Lazaroff) talked to people that he wasn't supposed to talk to," Bybee said. "If that's all there is, that's not going to get Station in trouble here (in Nevada)."

Bybee said he doubts the case will actually go to trial.

"My guess is they'll try to settle something with (Lazaroff's and Thompson Coburn's) insurance," Bybee said.

Lazaroff, who pleaded guilty last October to two counts of mail fraud for falsely billing clients and hiding revenue from his law firm, was sentenced to 30 days in jail, 90 days of house arrest and 120 hours of community service.

The defendants could not be reached for comment on Station's lawsuit.

Sun reporter David Strow contributed to this report.