The Defiant Tenant

Richard Meruelo runs into trouble over a Skid Row warehouse

Comments (0) By Jeffrey Anderson Wednesday, Oct 11 2006

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Evidence at the three-day trial, which ended September 27, showed that Meruelo immediately signed on with real estate developer and film-location broker Richard Korngute, who hooked him up with production companies interested in filming TV shows, movies and commercials in the cavernous warehouse surrounded by Skid Row’s urine-soaked streets. Korngute, who testified he is not a licensed broker, but is able to associate with one “as needed,” would get 40 percent of the rental fee. Meruelo would keep 60 percent. The owner of the property would get nothing. “We’re studio friendly,” said Meruelo. “We’ve done hundreds of these agreements.”

Problem was, Meruelo’s lease prohibited him from subletting the property without written consent from the real owner. So when the real owners, Michael and Marc Asheghian, drove by one day and saw a location shoot in progress, they got pissed off. When they drove by another day and saw an illegal recycling center on their property, and broken windows that led to abatement notices from the city, they tried to cancel the sale. Meruelo sued the Asheghians to force them to stick to the deal. He says they got seller’s remorse and were looking to force him out of escrow. “It was a scheme,” he said.

Downtown�s prince of development got a PR boost from the Times.

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If the Asheghians were looking for a way out of the deal, Meruelo gave them an opening they could drive a truck through. He usually embraces the mantra “better to ask for forgiveness than permission.” In this case he asked for both: Evidence showed that Meruelo’s general counsel, Todd Nielson, had asked the Asheghians to amend the original lease to allow for subleasing, yet he was rebuffed; then Meruelo went ahead with his plan to rent out the property to film companies anyway.

On the first day of trial, Honig grilled both Meruelo and Nielson. They testified to having nothing to do with negotiating the film-location agreements, which were handled by an employee of Alameda Produce Group, a Meruelo company. “Isn’t it true that Mr. Nielson tried to renegotiate the lease to allow for subleasing, and the owner said no?” Honig asked Meruelo. “And after being told no, you [subleased] the property to film companies?”

Honig listed the film and TV projects at 801 East Seventh Street: Happy Landing Productions shot scenes for the feature film Stick It, starring Jeff Bridges; Believe Media shot a commercial for Reese’s Puffs cereal; Lock and Key Productions shot an episode of Fear Factor involving 55-gallon vats of water, jars of syrup and worms. “I never thought of it [as subleasing],” Meruelo said, arguing that the film agreements were licenses, not leases, in spite of contracts containing the words “lease” and “rental.” Not to mention the documents Meruelo filed with the SEC. “Why does your SEC statement call them leases?” Honig asked.

Then, the film agreements show Alameda Produce as the owner. “That’s a false statement, is it not?” Honig asked. To which Meruelo, referring to himself in the third person, replied, “I don’t believe so. Alameda Produce is owned by Richard Meruelo and provides property management services to properties owned by limited-liability companies. Richard Meruelo doesn’t buy under his own name. But if you are asking who was the owner of title to the property, it was not Richard Meruelo — not yet.”

On the second day, Korngute and Meruelo’s property manager, John Durham, testified that when they hammered out the film contracts, they thought Meruelo already owned the property. Why? “He handed me the keys,” Durham said. David Crockett, a producer of the film Stick It, said that he thought so too. After Korngute testified that he’s done hundreds of location deals with Meruelo, he told the Weekly he was surprised to find Meruelo was not the owner. “Had I known, I would have investigated further,” he said. In a letter to Fear Factor after the shoot, Korngute wrote, “I’m glad no one got hurt.”

Meruelo’s financial representations raised further questions. Mitchell Foon, vice president of East West Bank, one of Meruelo’s loyal lenders, testified that he had not looked closely at Meruelo’s SEC filing, and that he had not been apprised of more than $60 million in Meruelo property purchases in the last year. “We approved a loan just two weeks ago for $5 million,” Foon said, vouching for Meruelo’s credit. “We have a couple more in progress.” At that point in the hearing, Miguel Echemendia, Meruelo’s chief financial officer, was caught coaching Foon from across the room, causing the judge to issue a warning.

Meruelo’s lawyer, Gary Nevers, argued that the Asheghians had no right to cancel the sale, because Meruelo was the only party with that right. Nevers said that even if Meruelo violated the lease, there was no provision to kick him out of escrow on a building he intended to buy. “Then let’s see the green,” Honig replied, pointing to the SEC filing in which Meruelo is asking investors to get him out of debt. “Sometimes that’s how rich people get rich: other people’s money. They don’t want to pay for it themselves.”

Judge Elizabeth Grimes is expected to rule in the coming weeks on whether Meruelo can buy the property, or whether his maverick ways got the better of him.