Las Vegas Sun

March 28, 2024

Nightclub operator ordered to pay $3.9 million tied to investment loan

Las Vegas restaurant and nightclub figure Scott DeGraff has been hit with a $3.9 million judgment in a lawsuit charging he failed to repay a $3 million loan from a group of investors.

DeGraff and longtime business partner Michael Morton operated the now-closed Drink nightclub in Las Vegas and later the N9NE Group, which operated restaurants and nightclubs at the Palms hotel-casino in Las Vegas as well as in Chicago and Dallas.

Palms owner George Maloof Jr. is taking over management of the Palms venues under a settlement of litigation between Maloof and Morton that was announced this week.

As part of that litigation, investors in the N9NE Group who were trying to remove Morton as head of the group charged he had been defrauding investors -- something they said he and DeGraff did earlier to investors in the Drink.

Attorneys for Morton and the N9NE Group said what happened at the Drink was not relevant to the legal dispute at the Palms.

Morton and DeGraff have been friends since the age of 9, which is how the N9NE Group got its name. The pair grew up in Chicago where they opened a Drink and Eat, Too venue in 1992 before expanding to Las Vegas.

October's Colorado lawsuit judgment against DeGraff, a copy of which was filed in federal court in Las Vegas on Thursday, relates to a loan he received in 2008 from a company called D & R's Aspen Retirement Plan LLC.

Attorneys for DeGraff argued the $3 million didn't need to be paid back because it was an equity investment in various ventures DeGraff was developing with D & R.

DeGraff said D & R consisted of New York investors David Blumenfeld, his father Edward Blumenfeld, David's brother Brad Blumenfeld and Richard J. Mack, CEO of Apollo Real Estate Advisors.

In answering the Colorado lawsuit in 2009, DeGraff said he was a successful entrepreneur and that through the N9NE Group and related entities he had interests in about 20 hospitality venues including the nightclubs and restaurants in Chicago, Dallas and Las Vegas.

"DeGraff was the creative force behind the design and realization of these restaurant and nightclub venues," his Colorado court filing said.

In 2006, DeGraff said in a court filing, he started discussions with his University of Michigan college roommate David Blumenfeld about various ventures and Blumenfeld and the other New York investors later agreed to work with DeGraff on ventures including "Fun Worldwide."

"Fun Worldwide" would create, design, develop and operate hotel, restaurant, nightclub and other hospitality venues, DeGraff said in his filing.

In reliance on the creation of this partnership, DeGraff said he leased office space in Las Vegas in 2007 to work on the venture and that he later moved to Aspen, Colo., and leased space there for the same purpose.

DeGraff said in his reply that he leased retail space for a "laboratory" in Aspen that would be a test site or test kitchen for restaurant concepts and later developed the concept of "Camp Hotels and Resorts" as a high-end, themed hotel and resort brand.

DeGraff conceptualized models for a Snow Camp, Beach Camp, City Camp, Desert Camp, Jungle Camp and Dream Camp; came up with a Junk restaurant brand; and worked on various other proposed projects around the country for the partnership and incurred most of the expenses of the partnership, he said.

When the investors failed to make promised capital contributions, his Junk restaurant in Aspen failed and he received negative press because of liens and lawsuits, said DeGraff, who had also opened a LiquidSky Slopeside ultralounge in Snowmass, Colo.

"The public reputation of the Junk brand and DeGraff were damaged as a result," attorneys for DeGraff said in their response.

While DeGraff said he and the investors were in a partnership, the New York investors insisted in their lawsuit against DeGraff that their company had loaned him $3 million and that he had failed to repay the money.

U.S. District Judge Lewis Babcock sided with the investors and ordered DeGraff to pay back $3 million in principal, $941,000 in interest and additional interest at the rate of $1,068 per day until the debt is paid off.

"No partnership documents were ever drafted, circulated or executed. The alleged oral partnership agreement was never memorialized in writing," Babcock wrote in his ruling. "I find and conclude that no partnership was formed."

DeGraff and Morton remain defendants in a Las Vegas lawsuit filed last month by Leslie Culler alleging sexual harassment. Culler was art director of the N9NE Group and said she was fired in July after rejecting sexual advances from male executives and complaining about a hostile work environment.

So far, none of the defendants have filed responses to that suit.

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