Meridian lawsuit may be expanded

A lawsuit filed by 16 owners of units at the upscale, troubled Meridian condo project may be expanded to a class action, according to attorney Michael Mushkin. Approximately 40 more owners have signed retainers, he said.

Yet another Meridian owner recently received word that the Nevada Real Estate Commission has assigned an investigator to her complaint, filed in June, that the Meridian violated state laws on how homeowner associations are to run. The Meridian, 250 E. Flamingo Road, lies a block east of the Strip.

And, the Meridian paid Clark County $598,000 in early October for room taxes, fees and penalties owed on its now-suspended hotel operation, county spokeswoman Stacey Welling confirmed.

The county shut down the Meridian's illegal hotel in July, but short-term rentals may be continuing. In early October, one plaintiff encountered Meridian guests who told her they had paid for a three-night stay, according to an affidavit filed in the case.

Turmoil at the near-Strip condo project, some observers say, is simply the residue of a real estate investment gone sour. But the original plaintiffs have compiled stacks of their own research to support the claim that several types of fraud, including mortgage fraud, took place at the 16-acre, lushly landscaped property.

Plaintiffs are asking the court to rescind their purchase contracts, as well as punitive and other damages.

"If (defendants) had dealt straight up, and it was a bad investment -- then, buyer beware. But orchestrated fraud is simply wrong," Mushkin said when he filed the complaint last month.

But Ken Morgan, a Michigan attorney, said, "The allegations of the complaint are largely false. And the conclusions that the plaintiffs' counsel would have anyone draw from an inaccurate set of statements are largely invalid." Morgan is defending Koval Flamingo LLC, a company that was formed to purchase the Meridian to convert it from apartments to condos.

As to the belated payment of room taxes, Morgan contends the Meridian tried to pay a portion as early as March 2008 because it believed it held the proper permits to run a hotel. Morgan said Eric Lynn, another defendant, went in person to the county's Business Licensing Department, but was rebuffed at a counter. Morgan said Lynn didn't know the name of the employee who refused to take the payment.

Local attorneys Kirk Lenhard and Nancy Allf are also involved in the litigation. Lenhard is defending American Invsco -- a high-profile Chicago-based company that converted the mid-rise complex to condos in 2005 -- and five related businesses. Allf is representing a Michigan limited-liability company called Meridian Private Residence CH. In August, a Meridian representative described it to the Review-Journal as "an "affiliate" of a Detroit-based venture capital fund that was bankrolling the hotel's start-up.

That representative, Michael Mackenzie, is one of four individuals named as defendants. Based in Las Vegas, Mackenzie is a senior vice president of American Invsco. Also named are Lynn, who ran the hotel operation, and Rebekah DeSmet, American Invsco's project manager at the Meridian.

"I believe the lawsuit is totally without merit and I have no comment for the press," Mackenzie said in late September. He is also president of Mac Realty, another defendant.

District Court Judge Elizabeth Gonzalez will decide whether to convert the lawsuit to a class action, as Mushkin desires. On Oct. 27, Gonzalez will hear arguments about why plaintiffs want a preliminary injunction to oust commercial businesses, such as Mac Realty, from the non-commercial Meridian site.

They also want to stop the Meridian developer, operator, related companies and key individuals from moving or taking owners' private property, and from removing or destroying financial records.

As to the fraud allegation, some plaintiffs claim the seller, Koval Flamingo LLC, steered them into mortgages designed for buying a home to live in, rather than hold as an investment. Residential loans come with a lower interest rate, because they are considered less risky than investment property loans. Most of the Meridian's 678 units have absentee owners.

Defendants "created an investment opportunity, and sold it to the financial community as .. a residential community," Mushkin said.

Many of his clients also now believe they paid inflated prices for their units. Henderson investors Mary and Victor Heldt, paid $643,000 in 2006 for their two-bedroom unit at the Meridian. Like other plaintiffs, the couple says the seller required them to use its designated appraiser.

The Heldts say they were never told, and their transaction papers never showed, that the seller took approximately $120,000 from the purchase sum, and transferred it to a related business, Condominium Rental Services. That company is also a defendant in the lawsuit.

Only later did the Heldts obtain documents from their lender detailing that transfer. Their commercial mortgage came from a lender that wasn't on the Meridian's preferred lender list.

CRS was the company the Heldts, along with many Meridian buyers, selected to rent and manage their unit. They signed with CRS because it agreed to pay them incentives: monthly rent for two years -- whether the unit was occupied or empty -- plus property taxes and association fees. The total value of the promised monthly payments comes curiously close to the amount of the Heldts' secret transfer.

Such transfers did not go into a reserved fund, because it was not legally required, according to Mushkin. But CRS stopped paying incentives to owners, in most cases around early July, when Clark County zoning and business license officials closed the hotel.

Owner Robert Vance, who actually lives in his Meridian unit, is not a party to the original suit, but told the Review-Journal he, too, believes he paid an inflated price -- yet never benefited because he didn't enroll in the rental program.

The Meridian is currently classified as a residential condo community, which means leases must be for a month or more. Hotel, or transient lodging, status allows for overnight leasing. Welling said the county recently terminated a pending application for a business license to run a hotel at the Meridian, at the applicant's request. A separate legal process is still under way to see if all owners will sign a document required to convert the Meridian from residential condo to resort condo, so the hotel can be reinstated.

Two additional couples who own units at the Meridian are represented by lawyer Albert Marquis in a separate suit against multiple defendants, including American Invsco, for misrepresentation and breach of contract. The case is assigned to Judge Mark Denton.

DeSmet is also a defendant in another legal case connected to the Meridian. She faces a Nov. 6 bench trial on misdemeanor charges of violating business license and zoning laws by operating a hotel.

Plumbing contractor Harry Sullard faces an Oct. 27 bench trial connected with the Meridian. He is charged with a misdemeanor for failing to get a permit to repair a vital fire-fighting water line into one Meridian building.

Contact reporter Joan Whitely at jwhitely @reviewjournal.com or 702-383-0268. Contact reporter Valerie Miller at vmiller@lvbusinesspress.com or 702-387-5286.