After the party comes the hangover.
Earlier this year, Dallas investment firm BHL Capital struck a deal to buy Nate Paul’s Austin nightclub, RIO, for $20 million. That deal soon fell apart, but the firms that put up money for a down payment claim BHL’s principal, Nolan Schutze, took the down payment for himself. Now, they are suing BHL, Schutze and the title company that held the money in escrow.
Schutze, through a lawyer, denied the claims. “Although the pleading includes one or two colorful random salacious facts, we contend that they are demonstrably false,” his attorney wrote in an email.
The case centers on a $3 million down payment organized by Austin Deraaff and Jake Deraaff, 20-something real estate entrepreneurs based in New York. They contacted another set of brothers, led by Avraham Mermelstein of CJI Trading, to put up the capital.
The sets of brothers formed a shell company, 82 Glenwood Ave LLC, to provide the $3 million to a separate purchasing LLC. 82 Glenwood took half of the LLC used to buy the nightclub, while Schutze’s company owned the other half.
In February, Schutze introduced 82 Glenwood’s members to a representative from a title company, Kane Title, by email. In the thread that followed, both sides appeared to agree that the money would be returned to 82 Glenwood if the deal fell through, or once a 45-day feasibility period ended, according to the lawsuit.
The next day, 82 Glenwood wired the $3 million to the title company, the suit claims. But then everything went south, according to the complaint.
Without cc’ing 82 Glenwood’s members, Schutze allegedly emailed the title company and requested a refund of the $3 million, minus the title company’s 2.5 percent fee. Critically, Schutze asked that the money be sent to him, not 82 Glenwood, according to the suit.
The title company immediately released the funds, and Schutze “stole and converted those funds for his own personal use,” the suit alleges.
All this apparently happened without the Deraaffs’ and Mermelsteins’ knowledge, and come March, 82 Glenwood’s members wanted their money back. The suit alleges that they began emailing Schutze and the title company “incessantly” for a refund.
The title company responded that it would not release any money out of escrow, as it didn’t even know who was eligible to sign for the LLC. 82 Glenwood sued Schutze and BHL in New York to get the money back, but while that was being litigated, the members learned that the money had been already released in February, the more recent suit alleges.
The parties settled, but now, 82 Glenwood claims Schutze and BHL have broken that agreement. The terms, outlined in an email from the entity’s lawyer, were significant: $3.5 million in costs and losses within 60 days, a pocket judgment for $6 million, liens against “all properties or assets that can be placed now,” and an admission of liability.
However, final documents for the settlement were not completed, according to the lawsuit. Instead, there was a “mutual meeting of the minds” about the terms of the settlement, “which Schutze and BHL have obviously breached,” the suit alleges.
Now, they’re seeking a whole lot of damages. Their target amount is unspecified, but in the filing, they ask for “compensatory damages,” “exemplary damages” and “punitive damages.”
Schultze forwarded a request for comment to his attorney, Jules Slim, who denied the claims on behalf of his client.
None of the suit’s fraud claims apply, Slim said.
“The only claim made against Mr. Schutze and BHL is for breach of a non-existent settlement agreement ‘subject to review of the final docs.’ These documents were never timely circulated, so even that claim fails,” he wrote.
“Mr. Schutze is acting in good faith now as he was then, and it is our goal to resolve all of this amicably and quickly.”
When reached by phone, David Kane of Kane Title said he had not yet heard about the case.
According to property records, the nightclub still belongs to an LLC tied to Nate Paul’s World Class Holdings.
Read more
Residential
Texas
Former Re/Max agent indicted on theft, fraud
Residential
San Francisco
L.A.’s “Tenant From Hell” Squatted for a Year in Oakland
San Antonio
Woodbranch now owns two Texas office buildings, but not by choice