Monday, June 23, 2008 | 2 a.m.
After two years of failed efforts to sell the Crazy Horse Too, the fate of the notorious topless club — and the $29 million in debt that is supposed to paid off by the sale — remains uncertain heading into an 11th-hour showdown in federal court this afternoon.
Everyone involved appears to be fed up and spoiling for a fight, even the judge.
Over the past two years, and particularly within the past few months, U.S. District Judge Philip Pro has been pushed and pulled by the various sides, all of which have stakes in the distribution of millions of dollars in proceeds from the club’s sale.
The federal government and attorneys for Rick Rizzolo, the felon who previously owned the Crazy Horse Too, are now pushing Pro to intervene to save a possible sale of the club. Pro is their last hope for getting the maximum price because the window for getting a liquor license for the club closes June 30.
Las Vegas Mayor Oscar Goodman said last week the city will fight any court order to extend the deadline.
Goodman says the federal government, his adversary when he was a defense lawyer, has had plenty of time to take care of its business — and botched it.
Rizzolo’s attorney, Mark Hafer, specifically blames the U.S. Marshals Service, which seized the Crazy Horse Too in September under an order from Pro. He says the marshals have “been negligent in allowing time to pass without a formal deal that could have been approved by the City Council.”
Pro last week sounded frustrated with everyone involved. In his written order scheduling today’s hearing, Pro noted: “The court has warned counsel for all interested parties at virtually every hearing conducted in this case that it is their collective responsibility to address the numerous issues raised before the value of the property at issue diminishes substantially.”
The federal government wants Pro to order the city to allow more time for a sale to come together, but the city opposes any effort to usurp its zoning laws.
“The government’s desire to increase the sales price of the forfeited property is an inadequate basis to ignore the principles of federalism and interfere with the city’s valid exercise of its police power,” an attorney for the city said in one of last week’s flurry of filings.
Rizzolo wants Pro to order the U.S. Marshals Service to seek a temporary liquor license from the city this week and briefly open the club so that it doesn’t lose its ability to get a license permanently.
Goodman suggested that solution weeks ago, noting that the IRS set a precedent for such a move when it ran the Mustang Ranch brothel in Northern Nevada to preserve the value of that property.
But the marshals don’t want to get into the topless club business, even for a few hours. Now it may be too late for them to change their minds. There’s no guarantee the city would have time to get the marshals licensed before June 30.
To approve a license before the end of the month, the City Council would need to call a special meeting. Two council members would have to call for the meeting, and the agenda would have to posted for three business days in advance.
If Pro tries to order the city to extend the deadline, the city would have the option of appealing Pro’s decision to a higher court, which could tie up the government’s efforts to unload the Crazy Horse Too for months.
Hafer sees irony in that.
“This sale could be stopped by government entities arguing against their own financial interests,” he said. The federal government and the city are each supposed to get millions of dollars from the sale of the club.
The City Council last week rejected a bid by two South Carolina businessmen for a temporary liquor license as part of their government-backed efforts to buy the Crazy Horse Too for $32 million. The two businessmen, David Dupont and Mahesh Patel, reported that they had trouble getting financing to complete the sale, in part because the club wasn’t up and running and they had no way to demonstrate its value. In its heyday, the Crazy Horse Too generated $1 million a month in revenue.
If Pro does nothing and lets the liquor license slip away, the value of the club plummets by about $23 million, according to the marshals.
That could leave a lot of people shortchanged.
As part of his June 1, 2006, agreement to plead guilty to a tax evasion charge, the government allowed Rizzolo to use proceeds from the sale to pay off his debts, including $7 million in fines and forfeitures he and his company owe the government.
Other Rizzolo creditors include Kirk Henry, a Kansas City-area man who suffered a broken neck in a September 2001 fight at the Crazy Horse Too. He’s supposed to get $9 million.
Security Pacific Bank is trying to recover a $5 million loan it made to Rizzolo several months before he struck his plea agreement with the government.
Even the city is owned $2.1 million stemming from an unpaid fine it levied against the club.
If the government has to sell the club for considerably less than $29 million, all eyes will be on Rizzolo, who hasn’t made it easy for anyone to gain access to his money.
A year before his plea agreement, Rizzolo came to an amicable divorce settlement with his longtime wife, Lisa, in which he turned over millions of dollars in joint assets to her, including posh homes in Las Vegas and Newport Beach, Calif.
Attorneys for Henry and his wife, Amy, raised concerns about that settlement in a federal lawsuit they filed last month, accusing the Rizzolos of conspiring to hide their assets from them. The Henrys want Pro to take measures to stop Rizzolo from moving his money.
But Pro has to try to sort out the larger mess first.
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