Dispute erupts between Palms, nightclub operator N9NE Group

By Steve Green

Thursday, Oct. 14, 2010 | 2:38 p.m.

A simmering dispute between the Palms Casino Resort in Las Vegas and its restaurant and nightclub partner the N9NE Group has boiled over into an acrimonious lawsuit.

The Palms on Flamingo Road, west of the Las Vegas Strip and controlled by businessman George Maloof Jr. and his family, has been concerned for months about plans by N9NE Group principal Michael Morton to open his La Cave wine bar and restaurant at Wynn Las Vegas on the Strip. It's due to open in December and is described by Wynn as "an intimate, stylish wine and food hideaway."

The N9NE Group partnered with the Maloofs to develop and operate several popular restaurant and nightclub venues at the Palms that opened in November 2001. Those venues are the N9NE Steakhouse and Nove Italiano restaurants; Ghostbar, Rain, Moon and Playboy Club nightclubs; and the Palms' pool operations.

When word surfaced in January that Morton was opening a venue at Wynn Las Vegas, it immediately became clear the Palms had a problem with that and both sides wouldn't talk about the dispute. Until now.

Now, attorneys for both sides have plenty to say in a lawsuit filed in Clark County District Court on Sept. 30 in which the Nine Group LLC and three associated entities sued the Palms, charging the Palms had breached the parties' operating agreement when Palms President Paul Pusateri on Sept. 22 demanded that Morton fire Andy Belmonti as president of N-M Ventures and N-M Ventures II; the Palms-N9NE Group companies that developed the Palms restaurant and nightclub venues.

"It has come to my attention that Andy Belmonti has absented himself from his duties as president of N-M Ventures and N-M Ventures II to instead perform services on behalf of your venture at Wynn Las Vegas. This constitutes misconduct and clearly violates his duty of loyalty to N-M Ventures," Pusateri said in the letter. "As a consequence, please take all necessary steps to immediately terminate Mr. Belmonti from his position as president of N-M Ventures."

Morton replied the next day that Belmonti's work at the Palms venues had been "exemplary in all respects" and that his consulting on the Wynn restaurant for about five hours a week hasn't interfered with his duties at the Palms.

"It is plain from the tone of your letters and your actions that for some reason you are, or Mr. Maloof is, trying to create some sort of rift in our relationship or precipitate some crisis," Morton wrote in reply. "There really is no need to do so, and those actions are jeopardizing the continued profitability of NM. ... It is in both George's interest and my interest for NM to be as profitable as possible. ... Let's each do our best to restore civility and mutual respect to the relationship and to minimize any conflicts between us."

Replying the same day, Pusateri again demanded Belmonti be fired and barred him from the Palms' property.

"We invite him to sue us so that we may explore the full and complete story behind his outrageous behavior with what, we know now, was your consent," Pusateri told Morton.

"The notion that the person responsible for managing our venues is dedicating his time during the work week to the development of your personal project at a competing venue violates every established standard of fiduciary duty," Pusateri wrote.

"As to the so-called 'profitability' of N-M Ventures, you are apparently unaware of the decline in income which has been experienced during Mr. Belmonti's 'exemplary' service," Pusateri wrote. "This should come as no surprise given his preoccupation with your new venue and the likelihood that he stands to benefit handsomely from this involvement at the expense of his duty of loyalty to N-M Ventures."

In filing the lawsuit, N9NE named the N-M Ventures entities as plaintiffs, creating a situation in which some Palms entities are in essence suing another Palms entity.

The suit was followed by further legal fireworks, including Clark County District Court Judge Elizabeth Gonzalez issuing an injunction at the request of N9NE Group allowing Belmonti to at least for the time being enter the N-M Ventures offices near the Palms but to not communicate with Palms employees except executives who are part of N-M Ventures such as Maloof.

During that hearing, records show Palms attorney Donald Campbell of the Las Vegas law firm Campbell & Williams argued that Belmonti had used the services of additional N-M Ventures employees on the Wynn project and had them sign confidentiality agreements so "that our employees are not permitted to tell us what is going on in our own venues."

Court records show attorneys for the Palms are also strenuously objecting to a motion that attorney Mark Epstein of the Los Angeles office of the law firm Munger, Tolles & Olson LLP be allowed to represent Nine Group and N-M Ventures in the ongoing litigation since the Palms attorneys believe Epstein and his firm have conflicts including participating in preparing the confidentiality agreements.

"Mr. Epstein acts as Michael Morton's personal attorney as well as corporate counsel for N-M Ventures. It is clearly improper that Mr. Epstein and (law firm) MTO now seek to prosecute an action against George Maloof and (Palms owner) Fiesta Palms LLC on behalf of Nine Group and N-M Ventures," Palms attorneys said in a court filing.

The Palms filing said N-M Ventures paid MTO more than $180,000 for legal services over the past three years and "it is believed that some of the legal work billed to N-M Ventures was actually rendered for Michael Morton personally."

The filing charges "Morton's mismanagement of company assets and blatant self-dealing exposes him to liability to both N-M Ventures and Nine Group" and that Epstein "simply cannot represent all these parties under such circumstances."

Epstein has not filed court papers responding to these assertions and Gonzalez has not yet ruled on whether he can participate in the case.

The Palms is also complaining that N9NE, Morton and Belmonti concealed key information from Maloof -- for instance the filing and settling of several employment discrimination complaints.

For example, Maloof was not told about a discrimination action filed by eight Hispanic and black employees that was settled for $460,000 of "our money," Campbell told the court.

"And now we are facing yet another sexual harassment charge of enormous proportions in which Mr. Morton and Mr. Belmonti personally are accused of having participated in and encouraged vulgar sexual advances with one of our female executives," Campbell said during the hearing.

Campbell said the Palms is also concerned that "Belmonti has gone out of his way to make a number of viciously false accusations and disparaging comments regarding Mr. Maloof's operations of the Palms to other N-M Venture employees."

Campbell added that Maloof could have exercised a "nuclear option" of defaulting the N9NE Group on its Palms leases and terminating its involvement in the Palms' venues, but chose not to because he does not want to punish N9NE investors.

Saying N9NE Group has been "caught red handed engaging in gross malfeasance and in violation of" fiduciary duties, Campbell went on to say this is not the first time "they have engaged in such reprehensible actions."

He said the Illinois Court of Appeals in 2005 found that "Morton, with the assistance of Belmonti, was found to have cooked the books in another operations known as The Drink, and that he fleeced his partners ... out of millions and, most importantly, for this court to consider when they're proferring affidavits to you, that they obstructed justice and committed perjury."

Campbell said this and another case showed "it is chutzpah to a power of 100 to suggest that they are entitled to come in and suggest that they are entitled to continue on with this type of behavior and to be present with all of our other employees and to undermine everything we are doing at the Palms by either senior management and others and to engage in this type of reprehensible behavior and to do so and supplant the judgment of Mr. Maloof and Mr. Pusateri as to the core principles of which we must control that operation and our employees with respect to an ongoing and everyday business venture involving literally millions and millions of dollars in which they don't have one nickel of their own money invested."

N9NE attorney J. Stephen Peek of the Las Vegas office of the law firm Holland & Hart LLP, however, said some of Campbell's assertions amounted to a sideshow and "scurrilous comments" about the alleged disparaging remarks.

Peek noted that under his deal with the Palms, Morton has the right to conduct business at a venue other than the Palms so long as it's not a steakhouse or Italian restaurant and that it does not use the word N9NE.

What the case really is about for Maloof, Peek said, is "I relinquished my rights to management when I signed the operating agreement and I am now not happy with the decision I made at that time."

Officials at the Palms and the N9NE Group on Thursday declined comment on the litigation, which appears likely to continue for some time as N9NE's outside investors are now intervening and the Palms is suggesting it may file counterclaims.

Members of the Greenspun family -- owner of the Las Vegas Sun -- as well as Station Casinos Inc. are minority investors in the Palms.