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November 17, 2017

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N9NE Group exec scores early legal win against disgruntled investors

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King of clubs: Michael Morton, co-founder of the N9NE Group, is shown at Nove Italiano restaurant, one of his seven venues at the Palms.

George Maloof

George Maloof

Restaurateur and nightclub executive Michael Morton will remain at the helm of the N9NE Group in Las Vegas after a state judge on Monday rejected a request by N9NE Group investors and the Palms hotel-casino to remove him as manager of the company.

But the investors and casino will likely have another shot to remove Morton in January, when a preliminary injunction hearing is set in the acrimonious lawsuit pitting Morton and investors allied with him against Palms owner George Maloof Jr. and disgruntled N9NE Group investors associated with Silver Young Capital LLC of Chicago.

At issue in the lawsuit are charges that the Palms breached the operating agreement for N-M Ventures, the Palms-N9NE Group venture that runs their popular restaurants and nightclubs, when it ordered the firing of N9NE Group/N-M Ventures executive Andy Belmonti and banned him from the Palms because he had been working on a Morton wine bar restaurant project at Wynn Las Vegas.

N-M Ventures refused to fire Belmonti as president and Clark County District Court Judge Elizabeth Gonzalez last month allowed him to continue working, but only at an office and not at the Palms itself.

Also at issue are concerns by Maloof that Morton has been using their joint-venture Palms restaurant and nightclub assets to develop the wine bar restaurant called La Cave.

The disgruntled N9NE Group investors say Morton has harmed their interests by jeopardizing the N9NE Group's valuable deal with the Palms, a property on Flamingo Road west of the Strip.

They charge that since the litigation began in late September, Morton has been intimidating and threatening key employees and that earlier he diverted company assets to the Wynn project; failed to inform them about employment discrimination complaints and a lawsuit over such claims; and used the Palms restaurants/nightclubs as his personal playground -- for instance using company supplies and personnel to host lavish parties at his home and to stock his personal wine cellar.

Maloof and the investors also charge that Morton and his deputy, Belmonti, have been disparaging Maloof and the Palms; even charging in court papers the Palms is in a precarious financial situation and that Maloof has been acting erratically -- charges denied by Maloof.

But attorneys for Morton, Belmonti and N-M Ventures say the lawsuit is simply about an attempt by the disgruntled investors and Maloof to hijack the company and the Wynn wine bar project by removing Morton.

During a hearing Monday, Gonzalez denied the investors' motion -- a motion backed by the Palms -- to issue a temporary restraining order removing Morton. Gonzalez said the investors had not submitted evidence warranting such a dramatic action, but she gave both sides until January to interview witnesses and inspect documents in anticipation of a preliminary injunction hearing that would begin Jan. 24 and could last a week.

She also ordered attorneys for Morton and N-M Ventures to turn over to the investors' attorneys daily and weekly financial reports from the Palms venues managed by the N9NE Group.

That way the casino and investors can immediately object if they spot Morton spending money on something they disagree with, she said.

Another disputed issue is who would oversee handling of an employment discrimination complaint pending against Morton and N-M Ventures. Attorneys for the investors said it would be ridiculous for the target of the complaint to decide how it's dealt with -- but an attorney for Morton said it would be ridiculous for Morton not to be allowed to defend himself.

Gonzalez said the parties need to agree on a law firm to investigate and deal with that issue and that its findings would be shared with both Morton and Maloof.

She noted the N9NE Group deal with the Palms prevents N-M Ventures from recruiting employees to work on the Wynn project and added: "There shouldn't be any intimidation of witnesses."

While the investors lost their motion for a temporary restraining order ousting Morton, their attorney James Pisanelli of the Las Vegas law firm Pisanelli Bice PLLC said Gonzalez's order requiring N-M Ventures to turn over the daily and weekly financial reports "will help police what he's doing with other people's money."

Pisanelli had argued Morton should be removed immediately, particularly for allegedly lying to the court about when he stopped using key N-M Ventures employees for the Wynn project, for disparaging Maloof and the Palms and for "embezzlement" -- that is allegedly using company resources for various personal and business projects even if he later re-paid the company for those resources.

"There are lots of people in prison that did just what Mr. Morton did," Pisanelli charged as he re-alleged a complaint by the investors that by transferring tens of thousands of dollars worth of wine from the Palms to his home cellar, Morton may have dodged paying sales taxes in violation of the law and in the process jeopardized the N9NE Group liquor license.

He called Morton's actions "a serious breach of fiduciary duty" and charged: "He's simply not fit for this position."

But Morton attorneys J. Stephen Peek and Mark Ferrario said every charge the Palms and the investors had lobbed at Morton had been debunked and that they were eager to get Maloof and Palms executives on the stand to testify about the financial situation at the Palms.

While the Palms and the investors have complained that the acts of Morton and Belmonti have hurt the Palms' restaurant and nightclub operations, the Morton/Belmonti legal team is investigating whether a general slowdown in business at the Palms is behind the declining results.

"My clients have managed these venues successfully," said Ferrario, of the Las Vegas office of the law firm Greenberg Traurig LLP. He disputed the embezzlement accusation against Morton as simply a complaint that he hadn't re-paid N-M Ventures fast enough to satisfy the Palms and the investors.

"This is a very serious matter," Ferrario said the lawsuit, which he estimated could involve 15-20 depositions of witnesses as Morton is determined to fight in court to hold on to his position managing the Palms venues: N9NE Steakhouse, Ghostbar, Rain, Palms Pool, Nove Italiano, Moon and Playboy Club.

Gonzalez on Monday wasn't swayed by attempts by the N9NE Group investors to associate Morton's current behavior with his previous management of the Drink nightclub in Las Vegas. An Illinois lawsuit pitting investors in that club against Morton and a partner resulted in Morton and the partner getting hit with damages for breaching their fiduciary duties along with $1 million in punitive damages for filing a false affidavit with the court.

"I've seen it (the court ruling) and it doesn't matter to me, today," Gonzalez said, indicating there's a chance the previous case could be an issue later.

Gonzalez on Monday also rejected a motion by Morton that Pisanelli and Palms attorney Donald Campbell be disqualified from the case because they had been talking to N9NE Group/N-M Ventures executives under Morton.

Noting the acrimony in the case -- with charges of impropriety leveled against Morton, his wife Jenna called a self-proclaimed philanthropist and Maloof's conduct under scrutiny -- Gonzalez as part of an "interim management order" said Monday, "We are going to be nice to everyone, OK?"

The attorneys said they would do that.

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