The California Supreme Court has declined to review a 2nd District Court of Appeals decision that upheld a significant judgment against Santa Monica’s most prolific developer, Neil Shekhter of NMS Properties. With the denial of NMS’ petition for review, the court allowed the terminating sanctions that permitted hedge fund AEW to sell an estimated half a billion dollars worth of NMS property on the Westside.
“The wheels of justice turn slowly but they do turn,” said AEW’s attorney, James Fogelman of Gibson, Dunn & Crutcher, LLP, who is involved in approximately ten court cases related to NMS and its CEO Neil Shekhter. Fogelman said a separate Federal RICO (Racketeer Influenced and Corrupt Organizations Act) case against NMS Properties will now go forward.
The “Lincoln Studios” case involves a 2010 joint venture agreement between Shekhter and AEW to build and manage nine properties in Santa Monica and West Los Angeles. As the local real estate market rebounded from the recession, Shekhter tried to repay AEW its $60 million investment plus interest. AEW refused to accept the buyout money, and NMS filed a lawsuit over the ownership of the properties.
During litigation, the trial court found Shekhter destroyed his personal computer, deleted files and failed to produce at least 21 devices that had access to the details of the joint venture. The court found “widespread misconduct infect(ed) the entirety of the proceedings” and evidence suggested Shekhter lied under oath. Forensic evidence showed Shekhter’s son, Alan, searched Google for “secure wipe hard drive” and “how to avoid computer forensics” the morning the computers were to be searched.
“That same day, they executed the plan by removing a hard drive from Shekhter’s home computer, replacing it with a new hard drive that looked similar to the old one after manipulating it by backdating the computer’s clock to make files appear older than they were and then flooding it with more than 75,000 backdated files and folders. This resulted in the permanent loss of evidence and metadata,” according to court documents.
“Mr. Shekhter has already acknowledged that he threw out his old computer,” said Shekhter’s attorney Skip Miller, of Miller Barondess, LLP. “He admitted it was a mistake. He shouldn’t have done it.”
Miller maintains Shekhter’s claims regarding buy-back provisions in the joint venture have never actually been adjudicated. He plans to file a new complaint next week alleging AEW committed fraud.
“Then, we’re going to unwind the sale,” Miller said, regarding the Nov. 2016 sale of the properties for $407 million.
Attorneys for AEW said the Supreme Court’s decision to deny NMS’ petition for review represented a “huge victory,” validating the prior decisions that allowed them to sell the properties and remove NMS as the property manager.
In the RICO case, AEW alleges Shekhter attempted to strike fear into AEW and potential buyers of the property of significant economic loss and protracted legal battles if they became involved in the venture.
The properties involved in the litigation include the Lido at 1440 5th Street, Quonset at 829 Broadway, Lincoln Walk at 1447 Lincoln Blvd, San Marco at 1420 5th Street, Rapallo at 1430 5th Street, Luxe Broadway at 1502 Broadway and 1511 15th Street. One other property is in Los Angeles: 9901 Washington Blvd, and another is in West Hollywood: Luxe La Cienega at 375 N. La Cienega Boulevard.
Editor's note: A previous version of this story misspelled the name of Shekhter's attorney, Skip Miller. It has been corrected.
kate@smdp.com
