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April 21, 2014

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Palms, N9NE Group investors seek ouster of restaurant, club manager

Click to enlarge photo

King of clubs: Michael Morton, co-founder of the N9NE Group, is shown at Nove Italiano restaurant, one of his seven venues at the Palms.

George Maloof

George Maloof

Chef Barry Dakake

Chef Barry Dakake

Theft of company assets. A cover-up in a scandal over underage women being allowed in adult areas of the casino. Arranging for “puff pieces” in the media to polish the image of a hotel and nightclub executive’s wife.

These are just a few of the new allegations leveled this week by the Palms Casino Resort in Las Vegas and investors in the N9NE Group as they seek to force restaurant and nightclub king Michael Morton out of his roles with the N9NE Group at the Palms.

The allegations were made in a lawsuit pending in Clark County District Court that was filed Sept. 30 after Palms owner George Maloof Jr. moved to block Morton from using their joint-venture Palms restaurant and nightclub assets for development of Morton’s new restaurant at Wynn Las Vegas.

Neither side is commenting on the litigation.

But court records paint a picture of a partnership gone bad — and employees consulting their own attorneys as they are pressured to take sides — over tensions involving Morton’s restaurant preparing to open at Wynn Las Vegas and operations of the popular Palms nightclubs and restaurants.

“The situation at N-M Ventures (operator of the Palms restaurants and clubs) has become dire over recent weeks,” attorneys for Nine Group investors wrote in a court filing Wednesday.

Nine Group, also known as N9NE Group, is managed by Morton and besides its Las Vegas operations has a restaurant in Chicago and nightclubs in Chicago and Dallas.

N-M Ventures entities at the Palms such as Rain nightclub and N9NE Steak House are 50-50 partnerships of the Nine Group and the Palms. Morton manages the partnerships.

The investors’ attorneys said that since receiving witness lists in the litigation, “Morton has gone down the lists, checked off names and aggressively approached the witness/employees to intimidate, silence, threaten, harass or cajole them to his favor.”

“To say that the key employees of N-M Ventures are now fearful for their jobs is an understatement,” the attorneys said.

An attorney for Morton, however, responded that the allegations against Morton are “contrived” and that his concern is that it’s Maloof and his attorneys who are doing the intimidating of employees.

The litigation began with the N9NE Group lawsuit against the Palms complaining that the Palms had wrongly ordered the firing of Andy Belmonti as president of N-M Ventures and N-M Ventures II because he had been working on the Wynn restaurant project.

The Palms, in its counterclaim this week, appeared to throw the book at Morton.

The counterclaim begins by charging that as early as August 2004, Morton and Belmonti conspired to “purloin, usurp, seize, convert, embezzle, steal and/or wrongfully exploit the assets” of N-M Ventures to “enhance their personal, economic and social status, as well as the economic status and social standing of Morton’s wife, Jenna.”

The complaint alleged Morton has thrown “a number of lavish parties” at his home in which he used N-M Ventures food, liquor and staff, including models working as greeters, bartenders, cocktail and food servers, chefs, cooks and banquet server, and that Morton didn’t fully reimburse the N-M Ventures entities for these resources.

“Instead, he directed Belmonti to engage in a financial cover-up of the stolen goods and services in order to defraud N-M Ventures of assets and resources,” the complaint charges.

Attorneys for the Palms also allege Morton had the wine cellar at a Palms restaurant, Nove Italiano, replicated for his home and then had it stocked with wine from the Palms at a cost of tens of thousands of dollars.

The complaint alleges Morton and Belmonti conscripted the services of numerous N-M Ventures employees to develop the restaurant at the Wynn, called “Project W,” in violation of the employees’ noncompete agreements.

The complaint charges Morton arranged for a Yeliz Akkus to be hired as an apprentice member of the N-M Ventures staff when Akkus actually worked as a nanny for the Mortons’ children and was provided a company vehicle to transport the children in.

In charging breaches of fiduciary duty, the counterclaim alleges Morton also “plundered” nearly 3 million American Express travel points to pay for tickets to Europe for he and his family and moved the N-M Ventures bank accounts from a well known financial institution of national standing to local regional bank Service1stBank “in order to obtain a personal loan on terms more favorable than he could have acquired elsewhere.”

The counterclaim charges that “in furtherance of Morton’s desire to elevate his and his wife Jenna’s standing in the Las Vegas community,” he arranged for her to be employed as director of customer development.

Charitable gifts represented by the Mortons to be from the N9NE Group were actually funded by N-M Ventures (half owned by the Palms), the claim says.

“Having engaged in this charade for the past several years, Jenna Morton has now recently adopted the self-proclaimed title of ‘philanthropist’ and has arranged for numerous ‘puff pieces’ to be published in order to enhance her own personal reputation, public perception and standing in the community,” the complaint says.

The Palms went on to complain that Morton and Belmonti have been hiding information from Maloof, have been overly generous with comps in order to enhance their financial and social standings and have engaged in activities that could jeopardize the “reputation, business or licenses” of the Palms and Maloof.

In one instance recently discovered by Maloof, N-M Ventures paid $460,000 to settle a discrimination complaint filed in behalf of numerous black and Hispanic security guards who said they were fired based on their race or ethnicity, the complaint says.

Underage women

The complaint also charges that Palms President Paul Pusateri “serendipitously” learned that N9NE Group Vice President Michael Fuller “had escorted a 19-year-old female through adult venues in the Palms Casino Resort.”

The Palms claims that when security informed Fuller that the woman he was escorting was only 19 and that she had produced a fraudulent driver’s license, Fuller retrieved the license, handed it back to the woman and informed security they “did not see or hear anything.”

As this was an event that had to be reported to the state Gaming Control Board and Clark County licensing officials, an investigation discovered this was not an isolated incident, “but one of many that Fuller had engaged in,” the claim says.

“It was disclosed that identical behavior with young females had occurred within days of the event involving the 19-year-old,” the complaint alleges.

But, the Palms complaint alleges, Morton provided false information to his attorney about Fuller and that the attorney on March 5 “erroneously” informed the Gaming Control Board that the event was Fuller’s first offense and that he had been reprimanded and suspended with pay.

“Morton’s attempt to conceal and cover up Fuller’s outrageous conduct from the Palms and from licensing authorities has put the Palms and Maloof’s license at risk,” the investors’ court filing charged on this issue.

The Palms also complained that in one instance Fuller had gotten into a confrontation with a venue manager and punched him in the head; and that in another instance Fuller had been drunk and “muscled his way onto a 21 game reserved for VIPs” and when he was politely asked to leave the table, he “verbally assaulted the pit manager with a stream of vulgarities” heard by numerous high rollers and VIPS and had to be removed by security.

Las Vegas Weekly, a sister publication to the Las Vegas Sun, reported March 19 that Fuller had left the company for undisclosed reasons.

The Palms’ counterclaim goes on to allege irregularities at a Morton venue in Chicago called “Eat & Drink Too” and at the now-closed “The Drink” nightclub in Las Vegas and says these exhibit a pattern of Morton and Belmonti engaging in “despicable, reprehensible and illegal acts.”

The counterclaim seeks a return of money paid to Morton and Belmonti, that a constructive trust be imposed on assets derived from their association with the Palms, that an accounting of financial transactions involving them be conducted and that they lose the authority to act for or on behalf of the N-M Ventures entities.

The counterclaim was filed by Palms attorney Donald Campbell of the Las Vegas law firm Campbell & Williams.

Improper communications alleged

A transcript shows that during a hearing last week, attorneys argued over whether attorneys for the Palms have the right to talk with N-M Ventures employees about problems in the relationship between N-M and the Palms.

“I understand that perhaps Mr. Campbell’s office has been talking to the witness employees of N-M Ventures, which I find most improper,” Nine Group LLC attorney J. Stephen Peek of the Las Vegas office of the law firm Holland & Hart told the court. “I recognize that (Palms owner) Fiesta Palms is a member of N-M Ventures, but it is also an adverse party. And Mr. Campbell represents an adverse party to N-M Ventures and should not be permitted to interview my employees.”

Records show that Campbell said he has been talking to N-M employees and has the right to do so.

“Mr. Maloof is the owner of (the) Palms. He owns 50 percent. They are his employees, as well,” Campbell said.

“These employees have told us that they have been told to lie to Mr. Maloof, repeatedly told to lie,” Campbell said. “We have told them they should not be lying to anyone and we have told them to consult their own lawyers on this. We believe that some of them have actually gone out and consulted their own lawyers because they don’t want to be involved in any sort of further obstruction.

“These witnesses are going to come into this courtroom and they’re going to tell you that they have been told repeatedly to lie to Mr. Maloof throughout the last many months, and they are frightened for their jobs,” Campbell told Judge Elizabeth Gonzalez.

Disqualification motion

A few days after that hearing, Peek filed a motion in the lawsuit to have Campbell and N9NE Group investors’ attorney James Pisanelli disqualified from the case.

“One of the most fundamental rules of professional conduct with which every attorney is familiar is that it is professional misconduct to engage in ex parte (one-sided) communications with senior management of corporate parties represented by counsel,” Peek’s motion said.

Peek complained that key N-M Ventures executives now won’t talk with Morton or Morton’s attorneys about the case without their lawyers present.

“It appears clear that Messrs. Campbell and Pisanelli have interfered with plaintiffs’ counsel’s ability to communicate with management-level employees of N-M Ventures by engaging in ex parte communications and advising each of these individuals to retain the services of counsel before agreeing to speak with N-M Ventures’ attorneys,” the motion said.

Three such executives are Barry Dakake, described as corporate executive chef or executive chef for the Nine Group; Eugene “Geno” Bernardo (executive chef of Nove Italiano restaurant) and Christian Margesson (N-M’s wine director), Peak’s motion said.

Campbell and Pisanelli haven’t yet responded to the motion that they be disqualified.

Pisanelli, an attorney with the Las Vegas firm Pisanelli Bice PLLC representing investors in N9NE Group, said during last week’s hearing that not only have N-M employees been told to lie, they’ve been intimidated by Morton personally.

Pisanelli this week filed a separate action in the dispute to have Morton and Belmonti removed from management of N9NE Group, as Pisanelli said Morton “is self dealing and in the process of destroying it.”

“This company is now at peril in his hands. And if we don’t do something to remove him, I and my equity investors are very fearful that it will not exist when Michael Morton is done scorching the earth,” Pisanelli said. “The employees will be gone and the assets will be gone.”

“The witnesses and documents demonstrate that Morton has engaged in a systematic abuse of his authority and position. He has regularly used N-M Ventures staff and inventory for personal use, including new business ventures,” the investors’ complaint against Morton says, adding Morton is paid “millions of dollars a year” for running N-M Ventures through a company he created, Nine Group Management Inc.

“He has attempted to cover up his behavior with accounting maneuvers and witness intimidation. Now he is engaging in a scorched-earth campaign to all but destroy N-M Ventures,” the complaint says. “He is harassing and intimidating key employees, depleting and wasting assets of the companies and intentionally destroying the goodwill and reputation of the Nine Group and N-M Ventures.

“That he is doing so on the eve of the opening of his new restaurant and bar should come as no surprise. It certainly appears that it is not beneath Morton to destroy N-M Ventures from the inside out before he departs for greener pastures,” the complaint charged.

The investors want N-M Ventures’ operations to continue under existing senior management, including Michael Kornick, N-M’s executive chef, but “without Morton or Belmonti as figureheads.”

“In short, Morton and Belmonti must step aside. If they do not, in all likelihood N-M Ventures and the Nine Group are at the beginning of the end of their very existence,” the investors’ complaint says.

Peek, however, called the allegations “contrived” and suggested Morton’s critics will “overpromise and underdeliver at trial” as the only way to remove Morton as manager is to prove willful misconduct or gross negligence.

A hearing is set for next month on the N9NE Group investors’ motion against Morton and Belmonti seeking a temporary restraining order and preliminary injunction against them.

Morton’s side

As for Morton’s side of the underlying dispute with Maloof over him opening a restaurant — originally described as a wine bar — at Wynn Las Vegas, here’s what Morton told Maloof in responding to a Maloof letter of Jan. 18, according to court documents:

“I know you are unhappy that I am opening a venue outside of the Palms and with which you are not involved. I am sure you will recall that I initially wanted you to invest in the venture, but you declined,” he wrote.

“Please be assured that I value our friendship and our professional relationship, and my work for N-M Ventures will in no way be diminished by any other ventures with which I am involved. N-M Ventures has been extremely profitable for us both, and I am sure that the same will be true in the future,” he wrote.

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  1. Hope he has to pay a very LARGE FINE. And I think everybody that lied to the Gaming board lose there licence for one to three years plus a cash fine .

  2. There are no good guys here. They all stink on ice. They'd cut your throat to make an extra buck. They deserve each other.

  3. This article is almost comical at best. First of all Sun, get some facts from both sides. Whatever happened to the moral standard of objectivity? Anyone who reads, just a little, knows that Mr. Maloof is in a world of financial difficulties. The Palms, or The Maloof's for that matter, are not doing that great, financially speaking. I find it odd that there are a few different companies that want to "position" themselves by gobbling up The Palms debts. Future takeover anyone? I believe it was a company affiliated with Harrah's. It makes "fudiciary" sense, no pun intended Mr. Campbell, who kind of likes to hear himself talk in case you didn't ever notice.
    In this economic environment, having been in The Palms on several occations, it appears to me, that The Nine Group is doing just fine. After walking past the "blue hairs" and other nefarious looking characters, the only reason to be in The Palms are The Nine Group venues. They are consistantly packed, which means to me, somebody must be doing something right. Maloof wants to tear apart the only good, and apparently profitable part of his floudering hotel? Isn't this somewhat strange? So, after reading the last couple of articles on this entire nature, I came to the conclusion that enough is enough all ready. Sun, normally you give both sides, and sometimes sprinkle a little spice on top. What gives these days? I like this publication, but come on guys, read between the lines a little.

  4. @Glory Days: You are right on target. But for now, George is only doing what the other casinos are doing: Reigning in control of the nightclubs on their properties. Steve Wynn did it by firing the management at XS and Surrender, The Hard Rock did it by bringing in Angel Management Group to run Rehab and Vanity the way they want it run and MGM Mirage arranged for Angel Management Group to buyout Pure Mgt Group because of all the dirty, sleezy, and shady things going on with those nightclubs in MGM casinos.

    Two things may happen with N9NE Group: 1) Angel Management buys them out or 2) George will settle out of court with N9NE and they will vacate the Palms at which point George will buy them out and run the clubs himself or bring in Angel Management Group to run the operation for him while NOT leasing any space to them.

    It is my belief this will change things for the Palms. Remember, they are also $360 million in debt which is owned by Harrah's. Harrah's is owned by a private equity company. They are watching closely.

    Your thoughts?

  5. Women under 21 in a bar, nightclub or casino?! Let's all feign surprise.

    Time to lower the drinking age to 18 or raise the voting and military age to 21.

  6. James, if you are going to that POV. You might as well get millions of people that are 18-21 years of age to protest and file age discrimination class action lawsuits on every state and federal government law pertaining to gambling & alcohol consumption. Not likely these kids would do anything, since they do it anyways illegally.