By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Sarkis Izmirlian has successfully fought-off a bid by Baha Mar’s main contractor to slash his damages claim by $830m just days before their fraud and breach of contract battle goes to trial in New York.

China Construction America (CCA) had argued that the loss of the original developer’s “initial equity contribution” to the Cable Beach mega resort was not directly caused by its alleged actions that resulted in the project missing the agreed March 27, 2015, completion date and plunging into a liquidity and financial crisis.

As a result, the Chinese state-owned contractor asserted that the New York State Supreme Court should bar Mr Izmirlian from bringing “evidence and testimony” involving the loss of his and his family’s $830m initial equity injection at the trial, which is scheduled to begin next Thursday, August 1.

However, in a comprehensive victory for Baha Mar’s original developer, Judge Andrew Borrok rejected both this argument and CCA’s other contention that “certain unidentified evidence” involving its alleged breach of the two sides’ investors agreement should also be prohibited from appearing at the two-week trial.

Dismissing the contractor’s position in its entirety, Judge Borrok ruled that the wipe-out of Mr Izmirlian’s $830m investment was a direct result of CCA’s “alleged breach of contract and fraud”. As a result, evidence relating to the initial equity contribution and its loss can now be presented at trial, with the judge slamming previous legal examples cited by CCA to justify its position as inappropriate and out of place.

Outlining why the developer’s $2.25bn claim should survive largely intact, Judge Borrok wrote: “The defendants argue that initial investment damages are consequential and not direct damages, and are thus barred by the waiver of consequential damages provided in Section 11.10 of the Investors Agreement such that evidence as to the initial investment should be precluded from introduction at trial.

“They are not correct. The project at issue was a joint venture, and the loss of initial investment in the joint venture is a direct - not consequential - damage of the defendants’ alleged breach of contract and fraud if proven at trial.” The investor agreement governed the relationship between Mr Izmirlian, his BML Properties vehicle and CCA’s affiliate as joint equity partners in the Baha Mar development.

Judge Borrok, though, branded the legal examples and case law cited by CCA as “simply inapposite” as they all involved lending transactions as opposed to the joint venture and partnership that was the $2.5bn Baha Mar project in its initial form.

“What is at issue in this case is not a separate loan transaction but the joint venture transaction itself, and damages as to the investment in the joint venture transaction are not remote, consequential damages not within the contemplation of the parties at the time of contract,” he determined.

“They are direct damages. These damages thus do not run afoul on the contractually agreed-upon limit on consequential damages or the [appeal court’s] decision limiting the plaintiff’s ability to recover lost profits.... The court notes that the defendants’ arguments regarding causation do not make the damages consequential and involve factual issues properly determined at trial.”

The New York State Supreme Court’s appeals division previously ruled that Mr Izmirlian could not present evidence on, or claim for, lost profits as a result of being ousted from the Baha Mar development because this was not included as a potential liability in the investor agreement with CCA.

However, Judge Borrok’s latest verdict also dismissed CCA’s claim that other evidence involving the alleged breach of the investor agreement by itself and its affiliates should be barred from the trial. He added that the appeals court had not limited evidence on this point to just the actions of China State Construction and Engineering Corporation (CSCEC) executives including those who sat on Baha Mar’s Board.

CSCEC is CCA’s parent company, and the appeals court had previously found that “issues of fact exist as to whether the representatives of defendant CSCEC Bahamas failed to act in the best interests of the company by diverting resources to other projects, and authorising the removal of 700 workers from the project as it was nearing its deadline, despite concerns about meeting that deadline, which they did not communicate to the company”.

Judge Borrok thus concluded: “The appellate division did not limit evidence of any breach of the investor agreement solely to the ‘China State Board Member’ and the ‘China State representatives’..... Direct and circumstantial evidence of breach is thus relevant and does not serve to alter the terms of the investor agreement. The court has considered the parties’ remaining arguments and finds them unavailing.”

CCA, which had hired new US attorneys after a series of legal reversals in its six-and-a-half year court battle with Mr Izmirlian, also failed to exclude any costs incurred by Baha Mar - as opposed to BML Properties - in the run-up to the $4.2bn mega resort’s failed March 27, 2015, completion from the damages it may have to pay.

It made its last-ditch legal move on June 12, 2024, less than two months before the trial’s start, but Mr Izmirlian and BML Properties argued that, rather than seeking to exclude evidence, CCA and its new attorneys were employing “thinly-veiled motions for partial summary judgment” using arguments that should have been raised earlier with the New York State Supreme Court.

“CCA could have presented these new and misguided legal theories over a year ago. The court should deny the motions as untimely and successive summary judgment motions,” Baha Mar’s original developer alleged in his counter to the claims.

“In addition, CCA’s motions lack merit. The first motion is premised on the false notion that, as a matter of law, BML Properties is not entitled to recover the financial contributions it lost as a direct consequence of CCA’s fraud and breach of contract..... BML Properties is seeking the return of the cash value of its ‘“entire investment’ that it ‘lost because of the fraud’ - the standard measure of fraud damages.

“BML Properties’ out-of-pocket damages comprise the return of the value of the assets BML Properties contributed to the Baha Mar project - an appraised value that the parties agreed to in their contract. These are direct, not consequential, damages. BML Properties seeks the return of what it initially contributed and then lost as a direct result of CCA’s breach, not lost profits or collateral business opportunities.”

Mr Izmirlian and his US legal team successfully argued that CCA was “trying to improperly re-use its lost profits damages arguments”, with which it had succeeded at the appeals court level, to now knock-out and exclude something entirely different - the loss of the original developer’s equity contribution to the project.

“This case is about CCA’s massive fraud and breached promises to its former partner, BML Properties,” Mr Izmirlian and his attorneys argued. “CCA was the general contractor and construction manager, as well as BML Properties’ purported ‘co-investor’ for the multi-billion-dollar Baha Mar resort and casino in The Bahamas.

“BML Properties was the majority shareholder and day-to-day manager of the project. CCA promised BML Properties that its representatives managing the project would ‘at all times act in the best interests’ of the project. Instead, CCA’s representatives withheld material information from and made material misrepresentations to BML Properties, and acted to deliberately harm Baha Mar and BML Properties in order to advantage CCA.

“BML Properties seeks $845m in out-of-pocket damages from CCA, comprising $745m in tangible and intangible assets including land, leased facilities, improvements, personal property, contracts, approvals, hotel assets, intellectual property, personal property and casino operations and a license invested in the project in 2010; $85m in cash invested in the project in 2010; and $15m contributed to the project in 2015.

“Although CCA now - and for the first time - attacks BML Properties’ expert’s calculation of these damages as ‘conclusory’, the parties contemporaneously agreed on the $745m valuation for BML Properties’ non-cash contribution, which was confirmed by an appraisal and memorialised in numerous signed writings.”