One of the partners at Manhattan’s Playboy Club is angling for a better peek at the venture’s books.
The Bunny-themed restaurant and the hotel it’s housed in are embroiled in a lawsuit filed by their minority investor, who wants information about the property’s finances.
Mikhail Gurevich’s Dominion Capital filed the complaint against Merchants Hospitality Inc. Wednesday in New York County Supreme Court, claiming it has been shut out of major financial and management decisions.
Merchants is the majority owner and managing partner, having contributed initially $8.6 million for 63 percent of the venture, according to the complaint.
But Dominion claims that despite being the minority partner, its operating agreement with Dominion gives it consent rights when it comes to big financial and management decisions.
For example, Dominion alleges in the complaint that Merchants invested more capital into the venture than Dominion had been aware of, which changed the partnership’s capital structure. Merchants also allegedly did not extend or refinance a $30 million loan for the project from Hackensack, New Jersey-based bridge lender Silver Arch Capital Partners that was set to mature in November.
The complaint also claims that Merchants altered the hotel’s management agreement to swap out Cachet Hotel Group as the operator of the Playboy Club and the hotel’s restaurant, EDEN Local. Cachet was to be the hotel, food and beverage operator for at least two years, the complaint states. Merchants then allegedly shut down EDEN and instead opened a Merchants restaurant, Treadwell Park, without Dominion’s input.
Dominion is seeking a permanent restraining order that would require Dominion to get written consent to move forward with major decisions.
Merchants declined to comment. Eugene Meyers, an attorney at Meister Seelig & Fein LLP who is representing Dominion, declined to comment beyond the complaint but noted his client is only trying to get information about the investment.
The Cachet Boutique Hotel opened in November 2017 at 510 West 42nd Street. The property had been the former Out Hotel and contained a club and restaurant.
Merchants, Dominion and Cachet Hotel Group (which is not a party to the lawsuit) linked up to rebrand the nightclub, hotel and restaurant, with the Playboy Club as the main attraction. To do that, they set up two overarching entities: one that acquired the property’s long-term ground lease in 2016 for $40 million. The other owns the licensing for the hotel, club and restaurants.
Dominion’s complaint notes that it found out about some of the details related to alleged mismanagement issues at the hotel thanks in part to a wrongful termination lawsuit filed by Cachet’s former CEO, Alexander Mirza, against Cachet.
Mirza claimed he was fired for trying to look into sexual harassment claims against Cachet’s partner in the hotel, Merchant’s Adam Hochfelder. Cachet previously has said an independent investigation found no evidence behind the claims and said Mirza had been fired for cause. The hotel company’s counterclaims included some of the alleged issues at the redeveloped New York property, but Dominion said Merchants never consulted with it about them.
Mirza’s attorney, Michael Faber, said in an email that Mirza denied all the allegations in Cachet’s cross-complaint against him and that Mirza “and Cachet have since resolved their differences. There is no longer any pending litigation between them.”