Adelson not likely to cut losses in legal fight with club operators

By Jeff German

Published Wednesday, April 9, 2008 | 2 a.m.

Updated Thursday, April 10, 2008 | 11:41 a.m.

Nightclub operators Marc Packer and Richard Wolf are finding out what happens when you stir up the fury of the third-richest man in the nation.

The New York business partners are locked in a bitter legal dispute with their landlord, casino mogul Sheldon Adelson, over their development of a 16,000-square-foot nightclub and restaurant in the main lobby of the 74-year-old billionaire’s Palazzo megaresort on the Strip.

Packer and Wolf, who so far have come out on top in court, are well known to Adelson. They run the popular Tao nightclub and restaurant at Adelson’s adjacent Venetian. According to The New York Times, Tao was named the highest-grossing independent restaurant in the United States, earning $55.2 million in its first year of operation in 2006.

Buoyed by the success of Tao, Packer and Wolf and their company, Strip View Entertainment LLC, signed a 10-year lease in October to build a nightclub at the upscale Palazzo, which opened in January. The 61-page lease called for Strip View, which planned to invest $10 million developing the club, to pay $66,562 in monthly rent, along with 7 percent “of the excess of gross sales” to Phase II Mall Subsidiary LLC, the company that runs the Shops at the Palazzo for Adelson.

But when the club’s progress moved too slowly for Adelson, he soured on the project, igniting the high-stakes legal battle that has pitted two politically connected Nevada law firms against each other — Lionel, Sawyer & Collins for Adelson and Kummer, Kaempfer, Bonner, Renshaw & Ferrario for the nightclub operators. The fight has erupted as the IRS is investigating other nightclubs on the Strip.

Adelson, who has a net worth of $28 billion, according to the September issue of Forbes magazine, is known for being combative and strong-willed. He has beaten back Culinary Union organizing efforts at the Venetian for nearly a decade, challenged the legality of the Las Vegas Convention and Visitors Authority as part of a long-running feud with the taxpayer-financed agency, sparred publicly over parking spaces with his hard-driving Strip neighbor and competitor Steve Wynn and tenaciously pursued libel lawsuits against journalists to the point of forcing one local columnist into bankruptcy court.

Adelson turned up the heat on Packer and Wolf on March 8, informing them through his attorneys that he was terminating the lucrative nightclub lease. The locks were changed that day, prohibiting further construction at the club.

On March 12, Strip View Entertainment, with the help of attorney Mark Ferrario, obtained a temporary restraining order from District Judge Mark Denton to get back inside the club and resume construction. That same day, Strip View filed a lawsuit seeking damages against Phase II Mall Subsidiary and Adelson’s Venetian Casino Resort LLC.

Denton later granted a more permanent preliminary injunction ordering the two companies to stop interfering with the club’s development.

In the 12-page order filed Thursday, Denton found that the record suggested Adelson’s companies had terminated the lease as part of an “attempt at summary ouster” of the club from the Palazzo lobby site.

Denton sided with Ferrario, who had alleged in court papers that Phase II Mall Subsidiary had “manufactured” claims that Strip View was defaulting on the lease so that the nightclub could be replaced with a tenant more to Adelson’s liking.

Attempts to reach Adelson for comment were unsuccessful. Spokesman Ron Reese said the casino owner does not comment on legal matters. Attorney Charles McCrea, the lead Lionel, Sawyer & Collins attorney representing Adelson’s companies in the case, did not return phone calls.

McCrea, who contended in court papers that the nightclub lease was properly terminated, has the option of appealing Denton’s ruling to the Nevada Supreme Court. Based on Adelson’s track record, that’s likely to happen.

Packer says in a sworn affidavit that his legal troubles with Adelson began Jan. 16, the day before the Palazzo’s festive grand opening, at a meeting with Adelson and other Palazzo executives.

During that meeting, Packer alleged, Adelson “screamed” at Strip View officers and threatened to “take back” the nightclub space. A top Palazzo executive told the nightclub operators that luxury goods retailer Louis Vuitton was willing to pay a “substantially higher monthly rent,” Packer said.

The following day, according to an affidavit from Strip View principal Noah Tepperberg, Adelson confronted him at the grand opening and yelled, “We are pulling your lease.”

Tepperberg said Adelson told him several times that he did not want Strip View’s business in his lobby and suggested the company relocate at the Palazzo.

Between Jan. 22 and March 8, Adelson’s attorneys sent Strip View a series of letters accusing the company of defaulting on the lease.

Among other things, the letters accused Packer and Wolf of failing to complete tenant improvements and open the club by March 15. Packer and Wolf, the letters charged, also did not comply with requests to submit “personal and business history forms” so that Adelson’s companies could do a background investigation of his business partners that met the standards of state gaming regulators.

But in granting the preliminary injunction against Adelson, Denton found that Strip View did make a good-faith effort to open the club and that Packer and Wolf never received the financial forms from Adelson’s companies.

The judge ordered the companies to provide Packer and Wolf with the business forms, and he instructed the nightclub operators to fill out the forms and deliver them to Adelson’s attorneys in a timely manner.

Ferrario said his clients want to put their rift with Adelson behind them and move forward with the club’s opening.

Adelson, however, has yet to weigh in on those plans.

(Editor's note: This story has been corrected. In an earlier version, Adelson was referred to as the third-richest man in the world, rather than the nation.)

Jeff German is the Sun’s senior investigative reporter.