By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Baha Mar’s original developer is pleading with the project’s Chinese contractor to “come to their senses” and quickly settle the now $1.7bn damages award that was yesterday fully upheld by a New York appeals court.

However, despite suffering the latest in a series of multiple legal reversals, the three China Construction America (CCA) affiliates held responsible for committing fraud and breach of contract against Sarkis Izmirlian pledged that yesterday’s verdict “is not the last word on this matter” given that they plan to pursue a further appeal in the New York legal system.

Both sides hit out after the New York State Supreme Court’s appeals division, first judicial department, yesterday “unanimously dismissed” CCA’s appeal against Justice Andrew Borrok’s original verdict that found the Chinese state-owned contractor had perpetrated “an absolute sham and shakedown” on Mr Izmirlian by supplying “phony” completion dates for the then-$2.5bn Baha Mar resort complex.

The four New York appeal judges, in a short five-page verdict, completely shredded CCA’s challenge to Justice Borrok’s findings by ruling there was “no basis to disturb” the latter’s damages award to Mr Izmirlian.

They also rejected the contractor’s assertion that it was wrongly held liable for fraud, finding that CCA’s internal documents showed it did not believe the target March 27, 2015, opening date could be achieved - the direct opposite of what it was telling Mr Izmirlian to his face. CCA’s “misrepresenting its ability to perform”, the New York appeals court added, was sufficient evidence to prove fraud.

The appeal judges also determined that Mr Izmirlian were “properly awarded” the $845m value of their lost Baha Mar investment as damages, as well as interest on that sum starting almost 11 years ago from May 1, 2014. And, finally, they backed Justice Borrok’s decision to “pierce the corporate veils” as CCA’s “complete domination” of its Bahamian subsidiaries led to the breaches that caused the project’s collapse.

“This action stems from the breakdown of a multi-billion dollar project to build a resort complex in The Bahamas,” the New York appeals verdict said. “Non-party Baha Mar Ltd, a Bahamian entity, was the owner and developer of the project. Plaintiff BML Properties, another Bahamian entity, was the direct parent of Baha Mar, owned 100 percent of its voting shares, and was responsible for its day-to-day management.

“Defendant CSCEC Bahamas Ltd, a Bahamian entity, was the sole minority shareholder of Baha Mar under an investors agreement. Defendant CCA Bahamas Ltd, another Bahamian entity, was the construction manager for the project.

“Defendant CCA Construction Inc was an affiliate of the other defendants; it was not a party to any of the project agreements but was nonetheless involved and had overlapping offices and executives, including one Taizhong (Tiger) Wu, who was an executive of CCA Construction and CCA Bahamas, and was appointed to Baha Mar’s board on behalf of CSCEC Bahamas.”

CSCEC stands for China State Construction and Engineering Corporation, CCA’s parent. “After a series of delays that ultimately prevented the resort from opening, plaintiff filed for bankruptcy,” the New York appeals court said of Mr Izmirlian’s BML Properties vehicle.

“Plaintiff commenced this action in 2017, asserting causes of action for, among other things, breach of contract and fraud. Plaintiff also sought to pierce the corporate veil, asserting that the defendants were alter egos of one another. The matter ultimately proceeded to a non-jury trial, which took place over 11 days, with 20 witnesses and more than 1,000 documentary exhibits.”

Finding “no basis to disturb” Justice Borrok’s original ruling and $1.642bn damages award, which includes interest on Mr Izmirlian’s initial $845m investment, the New York appeals court also ruled that he “properly construed” that Mr Wu, as the Baha Mar Board representative for CSCEC Bahamas, had “to act in the best interests of the project at all times”.

“Wu’s actions - for example, stripping manpower and resources from the project, diverting funds from the project that were meant for sub-contractors, and causing or authorising delays - contravened Baha Mar’s and the project’s best interests, and therefore breached the investor agreement,” the appeal verdict ruled. 

“The breaches, in turn, prevented the resort from opening and resulted in the loss of plaintiff’s entire investment. Furthermore, loss of the investment constituted direct damages, not consequential ones, as defendants’ breaches prevented the resort from opening, thus causing plaintiff’s financial collapse and bankruptcy...

“We reject defendants’ contention that the trial court failed to apply the correct scienter standard, and therefore erred in holding defendants liable for fraud. Internal company communications introduced at trial showed that although CCA Bahamas told plaintiff that the project was on track for a March 27, 2015 opening date, CCA Bahamas did not, in fact, believe that it would be possible for the resort to open on that date.

“Thus the evidence established that defendants misrepresented their ability to perform, which is sufficient to support a finding of fraud,” the New York appeals court continued. “As for the award of damages, the trial court properly awarded plaintiff the value of its investment.

“Defendants note that although the investment was made in 2011, the fraud occurred in 2014 and 2015. However, plaintiff’s claim is that the fraud caused it to lose its investment because it took steps in reliance on the misstatements that precipitated the financial collapse once the project failed to open.”

Also ruling that CCA had “waived the application of Bahamian law” until it was too late, the New York Appeals court concluded: “The trial court properly found that, under New York law, defendants’ corporate veils should be pierced.

“The evidence in the record, which was largely unrebutted, shows that CCA Construction exercised complete domination of CCA Bahamas and CSCEC Bahamas, and that the domination was used to breach the investor agreement, defraud plaintiff, and cause the collapse of Baha Mar, resulting in plaintiff’s injury.

“In fact, the trial court made detailed findings as to both veil-piercing elements. We have considered defendants’ remaining contentions, including the contention that the trial court improperly applied a ‘reckless disregard for the truth’ standard of scienter, and find them unavailing.” 

The next move is now CCA’s, with Mr Izmirlian likely to pursue all legal avenues and options against the Chinese state-owned contractor in a bid to collect his $1.7bn-and-counting damages award. CCA Construction Inc, the US affiliate that has been held liable to pay these damages, presently remains protected from Mr Izmirlian’s pursuit by its Chapter 11 bankruptcy filing in New Jersey.

CCA (Bahamas), which owns the companies that hold downtown Nassau’s British Colonial and Margaritaville Beach resorts, plus CSCEC (Bahamas) are both the subject of winding-up petitions initiated by Mr Izmirlian before the Bahamian Supreme Court. He is seeking to have the KPMG accounting firm appointed as receiver over the two companies and hotels on the basis they are insolvent and cannot pay his damages.

The three CCA affiliates yesterday sought to strike a defiant tone in the wake of the New York appeals court ruling by pledging to continue the fight to overturn Mr Izmirlian’s damages award and the original verdict. “We are disappointed in the appellate court’s decision, which is incorrect on multiple points of New York law,” they said in a statement responding to Tribune Business inquiries.

“It also ignores BML Properties’ own mismanagement of the Baha Mar project, which led to the losses suffered by CCA Bahamas, CSCEC Bahamas, the Bahamian government, sub-contractors and workers. This is not the last word on this matter, and we intend to pursue an appeal of this decision to the New York Court of Appeals.”

However, given that it has now suffered multiple legal reversals on the matter without achieving any successes, CCA’s previous and ongoing protests that the New York courts’ verdicts are “fatally-flawed” and “piled error on error” are starting to sound increasingly hollow.

Mr Izmirlian, meanwhile, issued a statement in which he asserted that the damages owed to him have risen beyond the initial $1.642bn award to now $1.7bn and counting. This is as a result of the 9 percent interest attached to the principal sum that is continuing to accrue on an a daily basis.

“We are grateful that the appellate court upheld Justice Borrok’s judgment, once again confirming that CCA’s multiple acts of fraud and breaches caused the Baha Mar project to miss its opening, resulting in the subsequent loss of our entire investment,” said Mr Izmirlian in a statement.

“We are continuing in our efforts to aggressively enforce our rights against CCA, its parent CSCEC, their affiliates, and all those who orchestrated the fraud, and look forward to collecting on their debt. We hope that they will come to their senses and enter into a rapid settlement to minimise the disruptions to their operations that have been caused by their actions.”