Shopping mall giant sued over stake in Forum Shops

Jennifer Shubinski and Liz Benston

Monday, Aug. 30, 2004 | 10:45 a.m.

Simon Property Group, owner of the Forum Shops at Caesars mall on the Strip, has been sued by mall developer and former partner Sheldon Gordon, who alleges Simon violated federal and Nevada racketeering statutes and securities laws and that it withheld information to persuade Gordon to sell his share in the mall below market value.

Gordon filed the 124-page lawsuit Friday in U.S. District Court in Nevada and is seeking more than $1 billion in damages and relief. Simon Property Group officials said the lawsuit is baseless.

The Forum Shops, adjacent to Caesars Palace casino and hotel, has average annual sales in excess of $1,300 a square foot, making it one of America's best-performing shopping centers. Simon Property Group is currently undergoing a 175,000-square-foot expansion, which is scheduled to open this fall.

Simon Property Group and Gordon, through his G.K. Las Vegas LP, jointly owned the Forum Shops until March 2003. Simon owned 60 percent in the Forum Shops and was its managing general partner, and GKLV was the 40 percent limited partner. Gordon said his 40 percent stake was worth $400 million -- not the $174 million he was paid in March 2003. In addition to the $226 million difference in sale price, Gordon also said it is owed more than $700 million in revenue from the partnership that was not paid.

"Any allegation by Mr. Gordon that Simon Property Group coerced him into selling his interest in the Forum Shops at Caesars at below its value is baseless as it was Mr. Gordon who initiated the process," Les Morris, a spokesman for Simon Property Group, said in a statement. "Since Mr. Gordon voluntarily triggered the buy/sell provision of the partnership agreement, he controlled the timing of the transaction and the sales price of his interest."

"The company (Simon Property Group) will vigorously defend any lawsuit brought by Mr. Gordon based upon these meritless claims," Morris said in a statement.

The complaint alleges, among other things, that Simon systematically abused its position as managing general partner and exploited the Forum Shops for the benefit of other Simon wholly owned malls by skimming the joint venture's profits and coercing GKLV to forgo legitimate business interests.

The complaint also alleges that Simon schemed to acquire GKLV's limited partner interest in the Forum Shops at a price substantially below its true market value by repeatedly withholding material information from GKLV and repeatedly interfering with GKLV's attempts to exercise its buy-sell rights.

The suit claims that Simon offered sweetheart deals to tenants at the Forum Shops and other high-end malls in order to secure the execution of leases in other Simon malls from these tenants. These deals diverted profit from the partnership to other Simon malls in which Gordon had no interest, the suit claims.

"In short, Simon accepted kickbacks in exchange for the right to secure leases in the Forum Shops -- the most desirable mall in the United States," it said.

The suit also accuses Simon of establishing a separate legal entity for the purpose of developing the phase three expansion of the Forum Shops and diverting the property rights, development efforts and eventual profit of the partnership into this entity.

Simon also withheld distributions from a separate investment in a mall at the Stratosphere hotel and coerced Gordon's managing partner into selling its stake in the mall, the suit said.

In 1996 Gordon's managing partner and Simon became joint venture partners in a deal to develop and manage a retail mall in the Stratosphere hotel. The Stratosphere filed for bankruptcy in 1997 and the joint venture interests were liquidated. Prior to the liquidation, Simon withheld "numerous allocations owed to the joint venture limited partners, improperly claiming them to have been due Simon 'as accrued, but unpaid, management fees,' " the suit continues.

Gordon attempted to exercise its right to buy Simon's interest in the mall in 1998 when it approached Starwood Capital Group LLC as a potential business partner. Simon refused to allow Starwood access to the partnership's books and partner David Simon threatened to take action against Gordon for splitting with Simon, the suit said. The Starwood deal fell through and Gordon paid more than $3 million in breakup fees and other costs.

The suit alleges a pattern of similar conduct by Simon and its affiliates against business partners. Gordon cites a federal court finding in Minnesota last fall that Simon breached its obligations in a partnership with developer Triple Five involving the Mall of America in Bloomington, Minn., by failing to disclose negotiations, withholding material information and other things.

The suit also comes after a failed attempt last year by Simon to buy competitor Taubman Centers Inc. Gordon sought Taubman's help in his bid to purchase Simon's stake in the Forum Shops. Gordon invested in Taubman Centers as a result of his sale of the Forum Shops investment.

When Gordon offered to buy out Simon's interest in the mall, he triggered a provision requiring Simon to either sell its interest in the property to Gordon or to buy out Gordon's interest.