A quick-witted bankruptcy judge reminded everyone in his courtroom Monday that the luxury Crystals shopping mall on the Las Vegas Strip is the entity that actually controls the fate of Eva Longoria’s Beso restaurant there.
During a hearing on a plan by Landry’s Restaurants Inc. of Houston to buy Beso’s assets out of bankruptcy for $1 million, an attorney for a disgruntled Beso investor opposed to the deal said there was no need for Landry’s to step in on an emergency basis.
That’s because Beso has shown it had the financial resources to continue operating despite earlier claims it was planning to shut down before Landry’s stepped in with a rescue package, attorney Gregory Garman said.
Garman said sales of distressed assets like the one proposed for Beso, under the Bankruptcy Code, are "to protect a melting iceberg."
And Beso is no melting iceberg, Garman said.
That prompted Judge Mike Nakagawa to say: "It’s really Crystals that has the blowtorch."
Crystals is part of the CityCenter casino-resort center developed by MGM Resorts International.
Throughout Beso’s nine-month journey through the bankruptcy process, Crystals has stood behind Longoria and Beso and chose not to evict Beso even after it fell behind on rent to the tune of $1.3 million since January alone.
Crystals is banking on Longoria’s celebrity status to help drive business to Beso and its mall and has insisted that anyone buying the business and seeking a new lease with Crystals include Longoria in their plans. It’s hoped that under the new ownership the business will reopen its closed Eve nightclub, a Beso attorney said Monday.
Landry’s is keeping the actress involved with a deal in which Longoria will hold 30 percent of an entity that will use the Beso assets, in which it will indemnify her, within limits, against lawsuits; and in which Longoria has agreed to make appearances at Beso.
The dissident investors say the entire arrangement is a sweetheart deal for Longoria – to the detriment of other investors and creditors -- and could have been accomplished outside of the bankruptcy case.
But by arranging the sale as part of the bankruptcy process, CityCenter will see its losses reduced with a $300,000 payment from the $1 million from Landry's while the Nevada Department of Taxation will receive $491,000 for past-due sales taxes, Beso attorney Lenard Schwartzer said.
Failure to pay those taxes could have resulted in tax claims against Beso’s investors.
And the deal doesn’t appear to be a windfall for Longoria, who stands to lose her $1.3 million investment under plans in which the existing Beso corporate entity will be liquidated after its assets are sold to Landry’s.
All the investors and some creditors under the Landry’s sales plan face steep losses as Beso's liabilities were listed as $5.68 million in its bankruptcy filing vs. the $1 million it’s to be sold for.
The acrimony that has marked the case is likely to continue well after the sale of the Beso assets, should Nakagawa approve the sale.
Investors who say they were wrongly removed from the company, Mali Nachum and her husband Ronen Nachum, are already litigating outside of bankruptcy court against Longoria and fellow Beso investor Jonas Lowrance.
Lowrance, who owns the Beso name, will receive a 20 percent stake in the new Beso entity and limited indemnification from lawsuits.
During Monday’s hearing, attorneys for the disgruntled investors said breach of duty claims may be filed against Longoria, Lowrance and William Braden, Longoria’s accountant in San Antonio who managed Beso during the bankruptcy before Landry’s stepped in.
The dissident investors are sharply scrutinizing Braden as they say he sat at both sides of the table during the Landry’s takeover talks, simultaneously representing the Beso bankruptcy estate while at the same time representing Longoria in her new deal with Landry’s.
The bankruptcy estate, on the other hand, may seek recovery of "preference" payments made to insiders within a year of the January bankruptcy filing, Schwartzer said.
Nakagawa indicated he may rule within a week or so on Beso’s request to sell its assets to Landry’s.
Beso, in the meantime, filed a financial report Monday showing that in August it lost about $123,000 on revenue of about $571,000.
That was an improvement from the loss of about $224,000 in July.
Since January, the business has lost $1 million on revenue of $6.1 million.