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August 22, 2014

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Embattled restaurant, nightclub operator fires back at Palms

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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

Restaurant and nightclub operator Michael Morton made tens of millions of dollars for the Palms hotel-casino in Las Vegas since 2001, but now the Palms is engaged in a power grab to force Morton out of their lucrative venture.

That’s the latest charge filed in the hotly-contested lawsuit playing out in Clark County District Court pitting Palms owner George Maloof Jr. and certain investors in Morton’s N9NE Group business against Morton.

The N9NE Group partnered with Maloof and his family to develop and operate several popular restaurant and nightclub venues at the Palms, which opened beginning in November 2001 on Flamingo Road west of the Las Vegas Strip.

Those venues are the N9NE Steakhouse and Nove Italiano restaurants; Ghostbar, Rain, Moon and Playboy Club nightclubs; and the Palms’ pool operations.

Litigation erupted between Maloof and Morton in September over Maloof’s longstanding objection to Morton’s plan to open a wine-bar style restaurant called La Cave at Wynn Las Vegas.

Since the lawsuit was filed, the litigation has advanced to the point where Maloof is seeking to remove Morton and his lieutenant, Andy Belmonti, from N-M Ventures, the Palms-N9NE Group joint venture that runs the Palms restaurants and nightclubs.

Some investors in N9NE Group owner Nine Group LLC are separately trying to remove Morton and Belmonti.

Attorneys for the Palms and the critical N9NE Group investors in recent weeks have hit Morton and Belmonti with a laundry list of allegations ranging from theft of company assets to covering up a scandal over underage women in the casino resort.

Attorneys for Morton and the N9NE Group this week fired back in the lawsuit, which is headed toward a hearing next month on the investors’ request for a restraining order and injunction removing Morton and Belmonti from the companies.

Attorneys for Morton and Belmonti, Mark Ferrario and Brandon Roos of the Las Vegas office of the law firm Greenberg Traurig, this week said in a court filing the charges against Morton and Belmonti are “long on hyperbole and shockingly slim on facts.”

“The (counter) complaint filed by (Palms owner) Fiesta Palms, and verified by George Maloof, reads like a petty and grudging cheap shot at Michael Morton and his family rather than a contract dispute among sophisticated parties,” the attorneys wrote in a filing.

“This case is about a highly orchestrated and hostile power grab by Fiesta Palms and the intervening plaintiffs (investors) for exclusive control of N-M Ventures, the Nine Group and the profits those companies generate,” the Morton/Belmoniti attorneys wrote. “Fiesta Palms and the intervening plaintiffs want nothing more from this lawsuit than to destroy Morton and Belmonti, to take control of the N-M Venture entities and the Nine Group and to hijack Morton’s latest venture ‘La Cave.’”

Their filing said the first joint venture between the Palms and N9NE Group that opened in 2001 was wildly successful, with its N9NE Steakhouse, Ghostbar and Rain nightclub paying the Palms $43.8 million in distributions through the second quarter of this year.

That’s a 700 percent return on Palms’ initial investment of $6.25 million in the joint venture, or nearly a 100 percent rate of profit per year. On top of that, the joint venture paid the Palms $20.8 million in rent, the filing said.

The Nine Group investors involved in the lawsuit received similar profits, the attorneys wrote.

“All told, the intervening plaintiffs (investors) reaped more than $10 million in return on their investment in the venues run by the same individuals they accuse of destroying the business,” the filing said.

The second joint venture launched in 2006 includes Nove Italiano restaurant and the Moon and Playboy Club nightclubs and also has produced strong profits, the filing said.

The Palms invested $15 million in this venture and has so far received $7.575 million in distributions and $6.9 million in rent payments, while the investors in the lawsuit received $3.2 million through the second quarter, the filing said.

“If Fiesta Palms never makes another penny from the operation of N9NE Steakhouse, Ghostbar, Rain, Palms Pool, Nove Italiano, Moon or Playboy Club, it will have received in excess of $56 million in profits directly related to the operation of the venues managed by Nine Group,” the filing said. “Similarly, the intervening plaintiffs (investors) will have received in excess of $7 million in profits from the operation of the venues over the life of their investments in Nine Group.

“It is difficult to imagine a more successful business venture than Fiesta Palms’ and the intervening plaintiffs’ nearly 10-year relationship with Michael Morton and the Nine Group. Unfortunately, anger and greed have destroyed any modicum of perspective on their business success.”

The attorneys went on to dispute charges leveled by the Palms and the investors, for instance disputing that Morton and his wife had lavish parties at Morton’s home at the expense of the joint venture, that Morton used company assets to develop a wine cellar at his home, that the Mortons used a company employee as a nanny, that Morton used American Express travel points for personal benefit and that he and Belmonti provided excessive comps to customers.

The Morton/Belmonti filing and a separate filing by attorneys for N-M Ventures and Nine Group LLC — with the Las Vegas office of the law firm Holland & Hart — also dispute claims that the joint venture used company assets to develop the Wynn restaurant and other charges such as Morton moving a company account from one bank to another so he could gain favorable terms on a personal loan.

The attorneys also dispute claims the joint venture hid from Maloof and the investors a settlement of a racial discrimination lawsuit, saying this issue was spelled out in quarterly updates to the investors, that Maloof was aware of it and that Morton has denied all charges of discrimination.

As to the allegation of a cover-up of the incident in which an underage woman was alleged to be in the casino resort in the company of then-Nine Group Vice President Michael Fuller, the attorneys said this incident involved Fuller trying to escort an underage female into Moon Nightclub and that those efforts were thwarted by Nine Group security personnel.

The attorneys said the incident was appropriately handled in that it was immediately reported to the Palms, the state Gaming Control Board and the Clark County Department of Business Licensing and that Fuller was fired over the incident.

The Holland & Hart filing this week took aim at Maloof, charging “the Palms has found itself in precarious financial straits” and that “Maloof has become increasingly erratic.”

“Along with certain self-interested Nine Group investors (who are involved in the restaurant management business), Maloof began looking for an opportunity to seize control of the venues and oust Michael Morton from his management position,” said the filing by attorneys J. Stephen Peek, Justin Jones and Robert Cassity.

These attorneys submitted declarations from investors not involved in the lawsuit who are “completely satisfied with the management of the Nine Group.”

The declarations were filed by investors including Patti Anderson, John Triandafildis, Steve DeGraff, John Niemi, James Geier and David Blumenfeld.

“I support both Michael Morton and Andrew Belmonti in their roles in management of Nine Group. Particularly, in these difficult economic times, it is in the best interest of Nine Group to retain both Michael Morton and Andrew Belmonti in their roles in management of Nine Group,” the declarations say.

The Holland & Hart attorneys also took aim at a charge leveled by the Palms concerning Morton’s wife, Jenna.

The Palms had charged that “in furtherance of Morton’s desire to elevate his and his wife Jenna’s standing in the Las Vegas community,” Morton 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 Palms charged.

“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 Palms charged.

But the Nine Group attorneys fired back, saying Jenna Morton makes $29,500 per year as director of community relations and that “the work Mrs. Morton performs takes far more time and is far more valuable than is reflected in her salary.”

“Maloof has publicly recognized and praised Mrs. Morton for her contributions to the community,” the filing says, adding the Mortons never took credit for charitable contributions made by the joint venture.

“While intervenors (investors) may not understand the value of participating in the Las Vegas community, as they are interlopers from other states, N-M Ventures is not ashamed of its work in the community; to the contrary, it is downright proud of its charitable work in the Las Vegas community,” the filing said.

Outside of the court filings, both sides have declined comment on the dispute. Attorneys for the Palms and the critical Nine Group investors haven’t responded to the latest court filings in defense of Morton and Belmonti, but they’ll have plenty of opportunity to do so as the litigation continues.

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