Seabonay Beach Resort federal lawsuit ends in $3.5M verdict

A federal jury determined that the previous owners of the Seabonay Beach Resort in Pompano Beach fraudulently muscled out a former partner when they sold the 69-key hotel to affiliates of BH3 for $13.5 million in 2017.

Last week, jurors awarded Los Angeles-based real estate investor Arturo Rubenstein and his company Fab Rock Investments $3.5 million in damages stemming from his lawsuit against Yoram and Sharona Yehuda and the BH3 affiliates BNH LLC and 1159 Hillsboro Mile LLC.

However, prior to the jury verdict, U.S. District Judge Kathleen Williams ruled against Rubenstein’s request to rescind conveyance of the resort’s title to the BH3 affiliates, which means the Aventura-based development firm’s ownership of the property is no longer in dispute.

Chris Smart, a Carlton Fields shareholder representing BH3, said its affiliates negotiated a settlement with Rubenstein and the Yehudas as a waiver to the plaintiffs’ right to appeal, and that he is no longer contesting the title conveyance. “Our clients’ real estate transaction has been affirmed,” Smart said. “And that is an important victory for the real estate and development industries in Florida.”

BH3 co-founder Daniel Lebensohn said the firm is pleased the dispute over the Seabonay sale is closed. “Justice has truly been served as to our property rights,” he said.

Barry Postman, Rubenstein’s lawyer, said the $3.5 million verdict includes $2.5 million in punitive damages against the Yehudas and four other minority members of Oceanside LLC, the company that owned and operated the hotel from 2007 to 2017. “My client was disappointed the judge entered a directed verdict with regards to the buyers,” Postman said. “But he takes solace in the jury finding the Yehudas stole the hotel from him and awarded damages in his favor.”

According to Rubenstein’s 2017 lawsuit, the Yehudas brought him onboard in 2012 when they needed him to sign on as a personal guarantor to extend the maturity date on a $6.5 million loan from First Citizens Bank. The loan was used to purchase, renovate and operate the six-story hotel at 1159 Hillsboro Mile in 2007. In exchange for Rubenstein’s guarantor status, the Yehudas transferred 50.5 percent ownership of Oceanside to Fab Rock.

However, the complaint alleges the Yehudas never intended for Rubenstein to remain permanently as a partner and fraudulently induced him to guarantee the loan. Subsequently, First Citizens Bank refused to extend the maturity date even with Rubenstein as a guarantor, so the Oceanside partners decided to file for bankruptcy protection. During those proceedings, Fab Rock executed bankruptcy-related documents and paid $237,000 in legal fees, according to the lawsuit. At the behest of the Yehudas, Rubenstein also paid down $500,000 of the loan debt when Oceanside got another mortgage for $5.2 million in 2014.

Over the next three years, the Yehudas attempted to remove Rubenstein as a partner through fraudulent means, the lawsuit alleges. For instance, they allegedly drafted an amendment to their agreement with Rubenstein that claimed he would give them back the 50.5 percent stake in Oceanside for no consideration. He alleges his signature was forged on two documents.

As the Oceanside partnership continued to fracture, the BH3 affiliates bought the hotel in May 2017. The deed was signed by Sharon Yehuda as the sole manager of Oceanside with no mention of Fab Rock or Rubenstein, the lawsuit states.