Courts reject Merchants’ initial claims against Dubai firm

A state Appellate Court judge on Wednesday turned down an appeal from Merchants Hospitality, a Manhattan-firm that sued a Dubai-based private school operator for $940 million after a deal to build a private school on the Upper East Side started to unravel.

The decision came a day after after New York State Supreme Court Justice Jeffrey Oing rejected Merchant’s initial request for summary judgment against the private school firm, the Dubai-based GEMS, as well as a request for an order that would block the sale or transfer of GEMS’ assets.

A summary judgment means there are no facts at issue, just money owed.

Merchants, a firm that develops, invests and manages hotels, restaurants and other real estate properties, entered a deal with GEMS Education, the world’s largest private school operator, to develop a 213,000 square foot private school on Second Avenue and East 93rd Street after originally planning to build a residential condo on the space. The deal was arranged, in part, by Adam Hochfelder, the fallen NYC real estate star from the 1990s who now works for Merchants.

The arrangement between Merchants and GEMS fell apart amid a series of disputes over GEMS’ financial strength, the use of an architect on the project, and pending financial deals involving the school operator, according to court documents. The legal tussle further escalated when GEMS raised questions about Merchant’s ownership of several parcels of land at the site.

Oing, in a transcript of the July 8 hearing, told lawyers that he was not going to tell a global company how to run its business, especially when he saw no clear evidence that the firm was facing any imminent financial jeopardy.

“I don’t believe that there is anything in the record to demonstrate or at least show to me that these companies, however they are scattered throughout the world in terms of their hierarchy, is doing business to basically [de]fraud or at least harm lenders or creditors that are out there,” said Oing, according to a transcript of the proceedings.

He did warn lawyers for GEMS to make sure to scrub their future deals “to make sure they were on the up and up.“

Oing added that there are disputes between the two parties on several issues, including whether the lease agreement was actually repudiated by GEMS or whether it simply expired due to the two firms’ inability to reach an agreement on the architecture firm. He said the various points of contention would have to be litigated through a full complaint by the plaintiffs and could not be decided on a summary judgment motion.

Late on Wednesday, Associate Justice Leland DeGrasse rejected Merchant’s appeal of Oing’s ruling.

“While we are disappointed the court did not grant us the TRO, we are gratified that the court recognizes that we have remedies that it will enforce when we obtain a significant judgment against GEMS,” said attorney Y. David Scharf, who represents Merchants Hospitality, which is run by Abraham Merchant.

Lawyers for GEMS expressed satisfaction with the rulings, claiming that they addressed what they claim is the weakness of the allegations.

“Not once, but twice in one week, two separate judges ruled in our favor,” said attorney Robert Ward, who represents GEMS. “I think that says a lot about the merits — or lack thereof — of their case.”

But Scharf said a further appeal is scheduled for July 21. And he added that he plans to file a formal complaint where the disputed issues will be litigated.