Inn Trouble

The whole mess may have started with an argument over carpets. Or maybe it had to do with a few hundred dollars' worth of phone calls. No matter how it began, though, the dispute between Rabah Khatib and Herbert Wasserman just keeps getting more expensive--and the fate of downtown Denver's largest independently owned hotel may hang in the balance.

Last summer a Denver jury awarded Khatib, an Arab-American and ex-general manager of the 336-room Executive Tower Inn, close to $4 million in damages against the company that manages the hotel and its president, Wasserman, after hearing Khatib's claims that he'd been discriminated against, driven out of his job and then wrongfully sued for theft by his former employer. The stunning verdict has since triggered a complex legal struggle over the hotel's assets: The management company has filed for bankruptcy protection, while the hotel's owners, fighting to stave off a foreclosure by their principal lender, have entered into an unusual agreement to put the Executive Tower Inn up for sale--with Khatib angling to collect his judgment from the net proceeds of any sale.

To what extent the decision to seek a buyer for the hotel, which was reportedly valued a few months ago at around $30 million, may have been influenced by Khatib's lawsuit is unclear. "My guess is there are commercial reasons," says Jay Horowitz, one of Wasserman's attorneys. "But the lawsuit has grown into this monster with all kinds of limbs."

Through their representatives, both Khatib and Wasserman declined to comment on the dispute, as did several attorneys involved in the case. But documents filed in Denver District Court and U.S. Bankruptcy Court tell a story of petty bickering and retaliation, of corporate intrigue and legal missteps, and of a stressed-out former employee who's managed to bring one of the city's hotel giants to its knees.

An emigre from Israel, Khatib had worked for the Executive Tower Inn since 1977. He began as a night clerk and worked his way through the ranks, becoming general manager in 1992. He claims to have increased business at the then-struggling hotel during his three years at the helm; but he soon ran afoul of Wasserman, his immediate supervisor and one of the hotel's owners.

According to Khatib's testimony at trial, his troubles began after he refused to approve an insurance claim for new carpets, contending that the bill was padded. For months afterward, he testified, Wasserman verbally abused him in front of other employees, frequently countermanded his decisions and became more involved in "micromanaging" the hotel--even demanding that Khatib not hire an all-African-American cooking staff. Wasserman has denied the allegations and insisted that Khatib's $60,000-a-year salary, comparably less than that of previous non-Arab general managers, reflected his ineffectiveness and lack of previous management experience.

Citing stress-related medical problems and claiming that Wasserman had driven him out, Khatib resigned in the fall of 1995. He filed a complaint with the Equal Employment Opportunity Commission, and his attorney offered to settle any claims he might have for $125,000.

But Wasserman, a Massachusetts resident with a personal fortune estimated at $6 million and a longtime interest in the arts--Woody Allen shot scenes for his 1978 movie Interiors at Wasserman's home--wasn't inclined to settle. Instead, his management company, Tower Corporation, contested Khatib's efforts to collect unemployment insurance and filed a lawsuit against the former general manager, claiming that he'd been improperly compensated for vacation time and unauthorized phone calls. Khatib countersued, alleging not only discrimination but that Tower's lawsuit was an act of retaliation, an abuse of process designed to harass and intimidate him.

At trial Khatib attorney Darold Killmer "gave a very effective, emotional, and rhetorically charged summation," notes attorney Horowitz, who joined Wasserman's legal team after the verdict. "He happened to get some jurors who liked that and probably disliked Herb Wasserman. But if this is discrimination, then we're all in trouble."

In fact, apart from the equal pay issue and a passing remark Wasserman allegedly once made about "stupid Arabs" in the Middle East, Khatib's attorneys presented scant evidence of overt discrimination toward their client. Yet the jury felt so strongly about Wasserman's "malicious" conduct in bringing the lawsuit in the first place that it tacked on massive punitive damages as well as awards for discrimination and abuse of process. In all, Tower Corporation was socked for $3.15 million and Wasserman individually for $635,000. Colorado Supreme Court Justice George Lohr subsequently reduced the awards to $2.75 million against Tower and $170,000 against Wasserman; the case is currently being appealed.

Even if the verdict stands on appeal, though, Khatib already knows he's never going to collect his award from Tower. Less than a month after the trial concluded, Tower closed all of its Colorado bank accounts and transferred more than a million dollars to New York accounts in the name of CA Associates, the limited partnership that actually owns the hotel. Tower then filed for Chapter 11 reorganization in U.S. Bankruptcy Court, listing only $6,000 in assets and more than $3.7 million in liabilities--including Khatib's judgment.

Attorneys for Wasserman and CA Associates have asserted that the transferred funds belong to CA and that CA has no liability for the judgment against Tower, which was set up to manage the hotel's operations but has no ownership interest in the property. "Mr. Khatib well knows that Tower is its own company," says Horowitz. "It files its own tax returns and is separate from CA Associates. That's the way it's been for twenty years."

Khatib's lawyers disagree, of course. They have described Tower as "a sham corporation set up to allow Wasserman, who owns a 100 percent interest in Tower, to siphon money from CA into his personal accounts while relying on the corporate form to protect his personal assets."

In fact, the working relationship between Tower and CA Associates couldn't be much cozier. Wasserman is one of two general partners in CA, which has as its primary asset the Executive Tower Inn. Wasserman is also the president and sole stockholder of Tower, which exists solely to manage the hotel. Tower collects a small percentage of the hotel revenues for its services; most of that money, around $200,000 to $250,000 a year, then flows to Wasserman in the form of "consulting fees." But Tower itself has virtually no assets; any profit it shows is returned to CA, while any losses are covered by CA under the terms of its management agreement.

Wasserman's team insists there's nothing improper about such an arrangement, but there's little question that he exercises complete control over Tower--the company's board of directors consists of himself, his wife and his daughter--and considerable authority over the various investors in CA. A recent renewal of the management agreement between the two companies was signed by Herbert Wasserman, acting as president of Tower, and by Herbert Wasserman, acting as general partner of CA.

In hot pursuit of his judgment, Khatib has contested Tower's bankruptcy and returned to Denver District Court to seek a ruling that would make CA liable for Tower's actions. Finding a "reasonable probability" that Tower was acting as Wasserman's and CA's "alter ego," Judge Herbert Stern issued a temporary restraining order requiring CA to account for any further asset transfers. That decision apparently upset negotiations between CA and lenders over refinancing the hotel's $12 million first mortgage; in January the owner of the note, Legacy Investments, declared the loan in default and scheduled a foreclosure sale for this month.

Eager to avoid such a disaster, the hotel's owners turned to Gotham Partners, a New York-based investment firm, which has since bought out Legacy and another company that held a $6 million second mortgage on the hotel. Part of CA's deal with Gotham, though, requires CA to "immediately begin to professionally market" the Executive Tower Inn for sale to a third party. But an injunction in Khatib's lawsuit against CA prohibits the company from collecting net proceeds of any sale until the dispute with the former general manager is resolved.

All of which gives Khatib an extraordinary role in the future of the hotel where he once manned the front desk in the wee hours of the morning. Wasserman and his partners may be able to sell the Executive Tower Inn, but they won't be able to collect on it without coming to terms with their Khatib problem. Last week Khatib's lawyers filed a motion to appoint a trustee for Tower to pursue the allegedly "fraudulent" transfer of funds to the hotel's owners.

Horowitz believes that his client has ample grounds for appealing the judgment against him and his company, but he acknowledges that litigation can take some pretty strange turns. "That happens with lawsuits," he says. "I've been in a number of weird ones, and it's sometimes a sequence of improbable events.


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