$1.2M settlement reached over development of Palazzo club

By Steve Green

Thursday, Sept. 3, 2009 | 4:15 p.m.

A $1.2 million settlement has been reached in a lawsuit over problems in the development of the Lavo restaurant and nightclub at the Palazzo resort on the Las Vegas Strip.

General Growth Properties Inc. of Chicago, owner of the Shoppes at the Palazzo mall, filed a motion Wednesday asking the judge in its bankruptcy case to approve the settlement that calls for a Las Vegas Sands Corp. subsidiary to pay the $1.2 million to Lavo's owner.

The Palazzo and the adjacent Venetian resort are hotel-casinos with a combined 7,100 suites and are owned by Las Vegas Sands.

The lawsuit, filed in 2008 in Clark County District Court, pitted Lavo developer Strip View Entertainment LLC against General Growth's Palazzo mall and the Las Vegas Sands subsidiary.

Strip View is controlled by restaurateurs Marc Packer and Richard Wolf, who also own the high-grossing Tao restaurant and club at the Venetian.

Strip View's lawsuit complained the defendants interfered with the company's efforts to construct the Lavo restaurant and nightclub, failed to allow Strip View to timely occupy office space that was included in the lease, tried to put a luxury goods retailer into the space planned for Lavo and that they "intended to pull plaintiff's lease and that they did not want plaintiff's business in the lobby of the Palazzo."

The lawsuit claimed the defendants attempted to "manufacture" a breach-of-contract claim against Strip View by claiming the Lavo developer was moving too slowly on development of the business. The Las Vegas Sands subsidiary was also accused of breaching an agreement to loan Strip View up to $3 million to assist with development, start-up and other pre-opening costs.

District Judge Mark Denton last year found that the record suggested the defendants had terminated the lease as part of an "attempt at summary ouster" of the club from the Palazzo lobby site.

Packer said in an affidavit that his legal troubles with Las Vegas Sands Chairman and Chief Executive Officer Sheldon Adelson began Jan. 16, 2008, the day before the Palazzo’s grand opening, at a meeting with Adelson and other Palazzo executives.

During that meeting, Packer alleged, Adelson "screamed" at Strip View officers and threatened to "take back" the nightclub space. A top Palazzo executive told the nightclub operators that luxury goods retailer Louis Vuitton was willing to pay a "substantially higher monthly rent," Packer said.

The following day, according to an affidavit from Strip View principal Noah Tepperberg, Adelson confronted him at the grand opening and yelled, "We are pulling your lease."

Tepperberg said Adelson told him several times that he did not want Strip View’s business in his lobby and suggested the company relocate at the Palazzo.

But in an affidavit filed in May 2008, Adelson focused on construction delays.

He said his anger about the situation stemmed from a lack of urgency on the part of Packer and Wolf.

Lavo, which opened one year ago, sits across from the Palazzo’s busy registration desk. Adelson accused the restaurateurs of repeatedly changing their designs, which he said delayed the opening for months and hurt the Palazzo’s upscale business.

General Growth, in its motion to have the bankruptcy court approve the settlement, said the Shoppes at the Palazzo assigned its interests in the Strip View lease in 2008 to Las Vegas Sands subsidiary Venetian Casino Resort LLC.

General Growth said that under the settlement, the Las Vegas Sands subsidiary will pay Strip View $1.2 million and that the Shoppes at the Palazzo will pay nothing. The settlement says the $3 million loan agreement will be canceled.

"The settlement agreement will minimize the risk and uncertainty associated with litigation and enable the debtors (General Growth and the Shoppes at the Palazzo) to avoid protracted discovery related to the alleged breach of the lease" and the assignment of the lease, General Growth said in court papers.

The settlement also will reduce legal costs, the mall owner said.

There is no admission of liability by any of the parties in the settlement.

The settlement says that after Las Vegas Sands credits the Strip View account the $1.2 million, Las Vegas Sands will immediately deduct $462,000 to cover architectural work performed for Strip View.