Disgruntled investors aim more complaints at N9NE Group chief

By Steve Green

Saturday, Nov. 6, 2010 | 2:05 a.m.

Disgruntled investors in the N9NE Group, which runs popular nightclubs and restaurants at the Palms hotel-casino in Las Vegas, this week unleashed new charges of wrongdoing against N9NE Group chief Michael Morton as they work to remove him from N9NE Group and the Palms.

Morton has been under fire from Palms owner George Maloof Jr., who says Morton has been using the Palms/N9NE Group joint-venture company assets to develop a wine bar restaurant at Wynn Las Vegas due to open next month.

A group of N9NE Group investors, in the meantime, has joined Maloof in trying to remove Morton, with the investors charging Morton’s behavior — including allegedly intimidating and threatening key employee witnesses — is jeopardizing the N9NE Group’s valuable deal with Maloof and the Palms.

The investors include Chicago-based investment firm Silver Young Capital LLC. Investors lined up against Morton say that along with the Palms, they control 66 percent of the ownership of N-M Ventures, the Palms/N9NE Group joint-venture.

Morton insists he has the right to open venues in Las Vegas outside of the Palms and has denied charges of wrongdoing by Maloof and the investors.

The parties are headed toward a legal showdown next week in Clark County District Court in their lawsuit pitting Maloof and the investors critical of Morton against Morton.

In anticipation of a hearing on their motion to remove Morton, the anti-Morton investors charged in court papers this week that Morton can’t be trusted to be honest with the court because he’s already filed a “perjurious affidavit” and has lied to the court, just as he did in a legal dispute with investors years ago involving the now-closed Drink nightclub in Las Vegas.

The investors submitted to the Las Vegas court a 2004 ruling from Circuit Court for Cook County, Ill., in a lawsuit pitting Drink investors against Morton and his longtime partner, Scott DeGraff. The Drink investors’ lawsuit charged breach of fiduciary duty and failure to account for funds due to investors.

The court ruling said investors put up $2.5 million for construction of the Drink at Harmon Avenue and Koval Lane, east of the Las Vegas Strip, that opened in 1995.

Judge Nancy Arnold found Morton and DeGraff breached their fiduciary duties to the investors by failing to disclose key information about a land deal involving the club that benefited themselves but not the other investors. She also found they had failed to substantiate costs and ran up “questionable expenses” that reduced cash flow.

She ordered the defendants to return to the investors more than $833,000 in management fees to make up for their breach of fiduciary duties and hit the defendants with $1 million in punitive damages for filing a false affidavit with the court.

Besides the Drink case information, the N9NE Group investors’ attorneys James Pisanelli and Debra Spinelli of the Las Vegas law firm Pisanelli Bice PLLC submitted declarations to the Las Vegas court from key managers of the Palms/N9NE Group joint venture — declarations they said show Morton lied to the Las Vegas court in a declaration saying N-M Ventures managers and employees worked on the Wynn wine bar project only up to July 2009.

“The truth is, Morton improperly utilized N-M Ventures employees and consultants for his wine bar into 2010,” charged the investors’ filing.

“Furthermore, Morton lied when he testified that their work was ‘minimal’ and was simply casual discussions over dinner,” the filing charged, also saying that key N-M chefs and wine experts “were, plainly, the talent and work force that developed the concepts, designs, menus and wine lists for the wine bar — all at the expense of N-M Ventures.”

The investors charged that Morton, knowing Maloof would be unhappy to know N-M Ventures employees were working on the Wynn wine bar restaurant, “coerced the employees into signing formal non-disclosure agreements so that he could keep the work they performed for the wine bar and Morton’s scheme a secret.”

“Morton repeatedly instructed the employees to lie to George Maloof and others if ever confronted on the topic,” the investors’ charged.

Declarations were submitted by:

• Christian Margesson, N9NE Group wine director.

• Eugene “Geno” Bernardo, executive chef at Nove Italiano restaurant at the Palms.

• Barry Dakake, executive chef at N9NE Steakhouse at the Palms.

• Michael Kornick, consulting chef for the N9NE Group and N-M Ventures and owner of mk restaurant in Chicago.

All of the executives said in their declarations that because of the controversy and legal problems putting them in the middle of the dispute between Maloof and Morton, they’ve retained their own attorneys. Kornick is represented by Chicago attorney Arthur Muchin while Bernardo and Dakake are represented by attorney Dominic Gentile of the law firm Gordon Silver in Las Vegas. Margesson said he hired attorney Ira Levine.

Some of the executives said that when it was initially discussed, the wine bar restaurant was being considered for either Wynn Las Vegas or MGM Resorts International’s CityCenter development.

The investors said these declarations show the three chefs prepared or reviewed menus for the wine bar — the same menus presented to the Wynn when the project was pitched. The investors said one of the chefs prepared the food and presentation from one of the menus for a Wynn executive and the executive chefs and N-M’s wine director traveled to New York, San Francisco and Napa, Calif., to explore ideas and concepts for the wine bar restaurant.

The investors went on to say that “having been caught with his hand deep into the cookie jar for the second time in six years, one would expect model citizenship from Morton during the pendency of this case.”

But instead, they charged, 16 days after Clark County District Court Judge Elizabeth Gonzalez issued an injunction barring N-M Ventures President Andy Belmonti from entering the Palms, but allowing him to work at the nearby N-M Ventures offices, Morton granted Belmonti a bonus of $10,605.

The investors complained granting the bonus was brazen, arrogant and reckless as “Morton took things into his own hands, presumably to let the parties and this court know who the boss really is.”

The investors went on to complain that attorneys for the N9NE Group, in one of their legal responses, “published written public statements and comments that are disparaging, critical, defamatory and otherwise not in the best interest” of Maloof and the Palms. These statements could jeopardize the N9NE Group’s valuable relationship with the Palms, including the N-M Ventures’ lease for the restaurants and nightclubs, the investors complained.

They also complained Morton is jeopardizing N-M Ventures’ liquor license because of “violations of liquor licensing laws and the tax code” when more than 700 bottles of wine valued at more than $35,000 were transferred from N-M Ventures to the wine cellar at Morton’s home.

“Morton fails to explain how and why he is using the N-M Ventures liquor license for his personal use and enjoyment in the first place. Public records indicate that N-M Ventures does not enjoy a package liquor license (i.e. a license that permits sales of unopened original containers for off-premises consumption). N-M Ventures is permitted solely to purchase wine for consumption on premises at the Palms. Morton’s direction to N-M Ventures’ employees to breach the restrictions and parameters of that license so that he can enjoy the benefits of wholesale purchase prices has put N-M Ventures at risk of forfeiture of its liquor license,” the investors complained, charging this amounted to circumvention of sales and use taxes.

Attorneys for Morton, in earlier responding to the Palms and the investor complaints, said that under his management, the Palms’ restaurants and nightclubs had earned strong profits for everyone involved — including the now-disgruntled investors.

Since 2001, the Palms’ profits have exceeded $56 million from the partnership’s venues N9NE Steakhouse, Ghostbar, Rain, Palms Pool, Nove Italiano, Moon and Playboy Club, Morton’s attorneys said.

The disgruntled investors have made another $7 million, they said.

But the disgruntled investors said this was only part of the story. Not mentioned by Morton were losses the investors suffered at what they called “failed” N9NE Group ventures in Dallas and with the Morongo tribe at its casino in Southern California.

“Morton is hardly the Midas he claims to be,” their filing said.

Maloof and the group of investors now trying to oust Morton lost about $8.5 million with Morton on these N9NE Group ventures, with total losses for all investors “upwards of $40 million,” the investors charged.

Nation’s Restaurant News reported in 2005 that just months after the Morongo tribe opened its casino that year on Interstate 10 in California, between Riverside and Palm Springs, four N9NE Group restaurants there closed suddenly and litigation erupted over their failed arrangement.

The Nove Italiano Steakhouse in Dallas closed in 2008 and the N9NE Steakhouse in Dallas closed in February 2009, with the company citing traffic and sales that did not meet expectations. A N9NE Group Ghostbar nightclub remains open there.

The investors, in their filing this week, also continued to insist that Morton had failed to inform investors about workplace discrimination complaints and a racial discrimination lawsuit settlement and that Morton had put the Palms’ gaming license in jeopardy by providing false information to Nevada gaming authorities about an incident in which a now-fired N9NE group executive tried to escort an underage woman into a Palms club. Morton has denied all these allegations.

Attorneys for Morton, Belmonti and the N9NE Group responded to these latest court filings on Friday, saying in their legal response that the investors’ new charges were “nothing more than a continuation of a wholly fabricated and increasingly hostile drive to strip Michael Morton of his interest in N-M Ventures and the Nine Group.”

The Morton/Belmonti attorneys said in their reply that since Morton and Belmonti had produced evidence in the form of checks and receipts disproving allegations they had stolen from the company, the investors had pulled back from their initial accusations of theft from the company.

Those accusations — all denied by Morton — involved lavish parties at Morton’s home the investors said were held at the expense of N-M Ventures, the alleged use of a company employee as a nanny for Morton and his family, Morton’s personal use of American Express travel points and Morton transferring a company bank account so he could get favorable terms on a personal loan.

An audit performed by the Palms involving N-M Ventures had initially been cited by the investors, but the Morton/Belmonti attorneys said it’s now clear the investors never saw the audit and that this “evidence” was “nothing more than rank speculation.”

The Palms now refuses to disclose the audit in the litigation, likely because it revealed nothing of substance, the attorneys wrote.

As for the declarations submitted by the investors’ attorneys from the N-M Ventures’ chefs and wine director, the Morton/Belmonti attorneys in their reply asked Gonzalez to strike them from the record as they were submitted so late (Wednesday) that the Morton/Belmonti attorneys wouldn’t have adequate time to deal with them — or in the case of Kornick expose him “for what he is in this case — a mouthpiece and a longtime business partner with the intervening (investors) who stands to gain financially” should Morton be removed from the N9NE Group.

They said Kornick has been selected by the investors as the successor to Morton and Belmonti should Morton be removed from the company.

A similar argument was made about Morton’s allegedly tax-free wine purchases jeopardizing the N9NE group’s liquor license, with the Morton/Belmonti attorneys saying the investors’ attorneys knew “full well that it will tax their counsel to analyze, respond and refute their baseless claims at the 11th hour.”

Nevertheless, the Morton/Belmonti attorneys offered arguments disputing some of the latest allegations.

They said Morton didn’t use N-M Ventures assets to develop the Wynn wine bar and that the expenses for the N-M executives to visit New York and California researching the project were reimbursed to N-M by Morton.

They noted Kornick’s declaration is the only declaration supporting the contention N-M Ventures employees worked on the wine bar in 2010, but that Kornick is a consultant, not an employee.

They said Morton has provided affidavits in the case showing Wynn employee William DeMarco developed the entire menu at the wine bar restaurant, La Cave, without the assistance of the N9NE Group executives.

The Morton/Belmonti attorneys noted there was nothing unusual about the bonus payment for Belmonti, as he has received a bonus on a quarterly basis since the fourth quarter of 2004.

They also disputed assertions that Morton had jeopardized the N-M Venture lease when in a court filing it was reported the Palms was in a precarious financial position, noting this information came from news stories and a public filing with the Securities and Exchange Commission in which Station Casinos Inc. had written down the value of its minority investment in the Palms last year to nothing. (The Greenspun family, owner of the Las Vegas Sun, is another minority investor in the Palms.)

“It is ironic that the Palms and the (investors) seek to silence Morton and N-M Ventures and to preclude them from defending themselves against the baseless claims leveled in this litigation after pursuing an obvious power grab staged and motivated by these financial struggles by relying upon a non-disparagement provision of the lease,” the Morton/Belmonti attorneys wrote. “The Palms and the intervening plaintiffs certainly have taken disparagement to a new level in this action, even sinking so low as to attack Morton’s family.”

That was a reference to charges that Morton’s wife, Jenna, is a self-proclaimed philanthropist and that puff pieces in the media were arranged about her. There were also complaints that money she was donating to causes in the name of the N9NE Group actually came from N-M Ventures, half owned by the Palms. Those charges were denied by Morton.

Morton and Belmonti are represented by attorneys Mark Ferrario and Brandon Roos of the law firm Greenberg Traurig LLP.

A separate filing by attorneys with the law firm Holland & Hart, representing N9NE Group and N-M Ventures, objected to the introduction into the case of the Cook County ruling against Morton and DeGraff, calling it “irrelevant” and “exceedingly prejudicial.”

“A civil case against Mr. Morton (and others) in Illinois from several years ago regarding different allegations of conduct, mostly occurring in the 1990s, relating to a different business is not relevant for purposes of this dispute over recent actions at the venues at the Palms,” those attorneys argued.