Friday, June 22, 2001 | 11:08 a.m.
Though the Maxim will soon close its doors, a web of complicated lawsuits and accusations surrounding the property's 1999 sale and bankruptcy continues -- and will likely go on for years.
On Friday, the new owner of the Maxim -- a Houston company called Revanche LLC -- told the nearly 300 employees of the Maxim that the hotel would close in August, as losses continued at the 22-year-old Flamingo Road hotel.
One year ago, the owner of the Maxim -- Revanche LLC -- saw its attempts to acquire the property delayed for several weeks by a lawsuit filed by the former shareholders of the Maxim's former owner -- Premier Interval Resorts of Dallas.
They claimed that the property's latest bankruptcy had been intentional -- a scheme between Premier and its lender, a company called Meralex, to wipe out the property's obligations to vendors, unions, employees and shareholders in an auction sale. If the sale was allowed to proceed, they argued before a Nevada judge, Premier's Gary Kornman and Meralex's Howard Jenkins would secretly divvy up the proceeds and shuttle them out of Nevada.
Meralex responded that the hotel was losing $300,000 a month, and blocking the sale would force the Atlanta company to shut its doors. In the end, Judge Nancy Saitta agreed, and refused to block the Maxim's sale at auction.
That lawsuit has been stalled in court for months, as decisions on motions to dismiss and jurisdiction remain pending.
"Until the judge rules, there isn't much that's going to happen," said Paul Hejmanowski, attorney for the plaintiffs. "Nobody's pushing it very hard these days. We can't even start discovery."
More questions remain than answers.
Premier, then owned by businessmen Hillel Meyers, Donald Saunders and Thomas Russell, signed a pact to buy the Maxim from West Coast Mortgage LP in November 1998 for $36.5 million. West Coast, ironically, had acquired the property after foreclosing on it. The group envisioned a conversion of the Maxim into a timeshare complex.
The partners, unable to come up with all of the $750,000 deposit required, turned to Kornman, who kicked in $375,000 for a 24.5 percent stake in Premier. Kornman claimed he'd been told by the partners that financing had already been arranged for the balance, but that he was later compelled to provide two additional deposit payments. In all, Kornman said he invested more than $1.5 million.
"Thus, (the) acquisition of the Maxim was ultimately transformed from an ostensibly lucrative, but practically unworkable prospect, to a bonafide and workable real estate transaction by (Kornman's) significant capital infusion and financing contacts," said AE Marketing, a Kornman-owned company, in a lawsuit filed against Meyers, Saunders and Russell in Texas.
"Any well-run timeshare does a lot for a property or enterprise ... but that property is a tough timeshare," said David Atwell, a Las Vegas hotel-casino broker. "What do you timeshare, hotel rooms? It could be done, but it would be very tough. You're looking at a $20 million conversion. It would be a lot of work."
Several deals that would have provided the balance of funds necessary to complete the deal fell through, including deals with a timeshare operator and West Virginia-based MTR Gaming Group, now the owner of North Las Vegas's Speedway Casino. As part of its deal to lease 300 hotel rooms and the casino for $4.5 million per year, MTR agreed to pre-pay $11 million to Premier.
The three partners claimed Kornman intentionally sabotaged each transaction. Kornman responded that the deals were financially unworkable, that they didn't provide the full balance needed to buy the Maxim, and that MTR's pre-payment was actually a loan -- and that MTR wanted to place a lien against the property to guarantee payment.
Within hours of a final deadline in May 1999, Kornman told his partners in Premier he'd arranged a $42 million loan that would allow the sale to proceed. Russell and Saunders signed off on the agreement; Meyers, owner of 50 percent of Premier's stock, did not. Meyers saw it as an effort by Kornman to squeeze him out of the company, while Kornman claimed Meyers demanded a $1 million cash payment to sign.
The loan, provided by Jenkins' Meralex, was provided -- and Kornman promptly launched a restructuring of Premier that gave Kornman more than 99 percent of the stock of Premier. Kornman filed suit against Meyers, Saunders and Russell in Texas, asking for a judge's ruling that the restructuring had been done legally.
Kornman and Jenkins weren't strangers. In 1995, a Kornman-owned firm, the Heritage Organization, agreed to assist Jenkins with his financial planning. This led to the formation of Meralex.
Meralex's loan was structured in an unusual fashion. Because Meralex didn't have enough funds available to immediately loan $42 million to Premier, it borrowed $26 million from the Heritage Organization -- an entity controlled by Kornman. (Meralex said in court documents it repaid this loan within three months with interest.) Meyers, Saunders and Russell then said Kornman "pocketed" $2.7 million in proceeds from the transactions.
Shortly after, things started falling apart. The operator of the casino, Max Gaming LLC, requested in November 1999 $300,000 in funding from Premier. Premier had committed to provide Max Gaming with up to $2 million in financing, but Kornman allegedly refused the request. Max Gaming's Ed Nigro, saying Premier had breached his lease agreement, shut the Maxim down Nov. 21, 1999. Almost simultaneously, Meralex sued Premier and foreclosed on the Maxim, saying it hadn't received its loan payments.
The three former Premier shareholders said Kornman wasn't acting in his best interest as a shareholder. The only way to explain that, they said, was that Premier was intentionally trying to kill the Maxim's business so Meralex could foreclose.
But Premier apparently did try -- unsuccessfully -- to stop the property's sale. In May, Premier President Michael Kornman -- Gary Kornman's son -- said in a bankruptcy court filing that Jenkins had signed an agreement to provide Premier with $25 million in equity financing, but had failed to provide these funds. Michael Kornman said this failure kept the property from being able to make its loan payments, and tried to convince the court to stop the foreclosure sale, but was unsuccessful.
Premier also blamed its failure to make payments on Nigro, saying he'd failed to make $6.25 million in lease payments to Premier. Premier filed for bankruptcy in Texas, and Max Gaming filed for bankruptcy in Las Vegas. The hotel re-opened two weeks later under court-appointed receiver Larry Bertsch, but the casino remained close, since Nigro and Max Gaming held the property's gaming license.
Kornman said in his Texas lawsuit that Meyers and Russell had agreed to "outrageous additional terms" with Max Gaming without his knowledge, including doubling Max Gaming's credit line and providing Max Gaming with an interest in the Maxim's gaming equipment. In addition, Kornman claimed "significant sums of money were apparently being siphoned from the Maxim's casino operations," though he didn't say who was taking the money. Both factors 'forced' Kornman to discontinue funding for the Maxim, Kornman said.
As a result, Kornman amended his Texas lawsuit. Now, instead of merely asking for a ruling that his takeover was legal, Kornman demanded damages for breach of fiduciary duty, fraud, conspiracy and state security law violations from the former Premier shareholders.
The property continued to lose money, and Meralex pumped more than $1 million to keep it afloat. Meyers, Saunders and Russell were able to delay the property's sale for several weeks, but Saitta's refusal to issue a restraining order against Meralex opened the door for the property's sale to Revanche for $10 million on June 1 -- $32 million less than Meralex was owed.
In September, Bertsch stepped down as court-appointed receiver, but was appointed the new manager of the Maxim by Revanche. Premier moved to dismiss the Meralex lawsuit, Meralex did not object, and the lawsuit was closed.
Revanche officials said they have talked with parties interested in buying the Maxim over the past 10 months, but nothing came to fruition.
Maxim employees were told last Friday the hotel would be closed in 60 days, a move Revanche attorneys said was prompted by continuing losses.
A year after the sale, little is known about the company that bought the Maxim, who owns it, or why Meralex was willing to let the property go for $10 million when it was owed $42 million.
All that is known about Revanche is that it was incorporated in April 2000, just weeks before it bought the Maxim. The Nevada Secretary of State's office lists its manager as James McPherson Howard of Houston.
Questions about Revanche were referred to its Texas attorney, Larry Stevens, who couldn't be reached for comment.
When asked last year why Meralex had agreed to sell for $10 million, Meralex attorneys said the company had reached an agreement with Revanche to share in revenues from the Maxim's operations, but provided no details.
Nor is it known why no effort was made to reopen the Maxim's casino. Nevada Gaming Control Board officials said Thursday that no application to reopen the Maxim's casino was ever filed by Revanche.
Jenkins, the owner of Meralex, believed this would have been the only way to make the Maxim a success.
"(The Maxim) will not operate at a profit until the foreclosure is completed and unless and until the Maxim commences gaming operations in conjunction with the hotel and restaurant operations," Jenkins said in an April 2000 affidavit.
Though Jenkins and Meralex were once called central figures in a scheme to defraud Premier's former shareholders, Meralex no longer faces legal action. Last September, the former Premier shareholders dropped Meralex and Jenkins from the list of defendants; Hejmanowski declined comment as to why this was done, and the court documents do not elaborate.
The Texas lawsuit filed by Kornman against Meyers, Saunders and Russell is proceeding, however, and the case is set to go to trial before a Dallas County district judge on Oct. 1.
What is known is that Revanche will continue trying to sell the shuttered Maxim while the web of lawsuits between its former owners proceeds. Revanche attorneys have said in the past they were seeking more than $40 million for the property.
"A closed property is just not worth what an operating property is worth. That's psychological to a great degree," Atwell said. "I would say it's not going to make a big difference at this point. Generally, it does make a difference, but in (the Maxim's) case, probably not."