A court fight has been engaged over who should get a cut of the action in the redevelopment of a prominent South Loop site, with a group of investors who were cut into the deal by prominent convicted Democratic fundraiser Tony Rezko now claiming they were improperly quietly cut out of the deal years ago by the billionaire who controls the project.
The defendants, however, say those investors are trying to secure a payday to which they’re not entitled, because they never were actually members of the investment group.
Attorneys Ed Joyce and Rob Carroll, of the Law Offices of Edward T. Joyce & Associates, of Chicago, filed suit in Cook County Circuit Court in January, on behalf of the investors. The lawsuit targeted General Mediterranean Holding and GMH’s corporate subsidiary, Chicago South Loop Holdings III LLC.
Both GMH and South Loop Holdings are owned by Iraqi billionaire Nadmi Auchi.
Named plaintiffs in the action include Ali Baghdadi, Fouad Chamon, Antoine Korkis, Najah Najjar, Jacqueline Najjar, Suhail Nammari, Machwan Razako, Burt Rezko, Milad Saad, Michael Sahli, Georges Zouki, Khaled Shair, Layla El Shair, George Merjan and corporate entity QMQQ LLC.
After the investors filed suit, the case was removed to federal court in Chicago, before U.S. District Judge John J. Tharp Jr.
The case centered on actions taken more than six years ago by Auchi’s companies, consolidating Auchi companies’ claims over the property now known as The 78, a 62-acre property at Roosevelt and Clark streets in Chicago’s South Loop. The developers are marketing the property as Chicago's 78th Neighborhood. The property is being developed by developers Related Midwest in partnership with Auchi's companies.
GMH has sought to redevelop the former railroad yard at the site since 2006, when it began acquiring ownership of the site from Antoin “Tony” Rezko. That transfer began when Rezko, a prominent fundraiser for Democratic politicians on a first-name basis with many of Chicago’s top elected officials, was indicted by federal prosecutors for using his position within the administration of Gov. Rod Blagojevich to extract kickbacks from businesses.
Rezko was ultimately convicted and sentenced to about a decade behind bars.
In the meantime, according to court documents, Rezko used his interest in the South Loop property to help resolve his debts with Auchi and his companies.
However, in the midst of those transfers, the plaintiffs in the latest legal action assert Rezko assigned them about 30% of his interest in a company, identified as MT Holdings LLC, which stood to be among those earning a profit from any potential redevelopment of the South Loop property.
In 2014, though, the complaint asserts, GMH used a series of corporate maneuvers to dissolve MT, among other corporate entities, and either transfer or abandon their assets. The complaint accuses GMH and South Loop Holdings of failing to uphold their duties to the alleged minority investors, who are now represented by Joyce, and notify them of the MT actions.
The complaint asserts the alleged minority investors didn’t learn of MT’s dissolution until 2019, when they heard news reports and had conversations with each other about the project, and particularly concerning disclosure documents filed by GMH and Auchi companies at Chicago City Hall.
In response, however, GMH says they owed those investors nothing under Illinois state law.
In a brief filed on July 16, GMH and South Loop Holdings argued the plaintiffs really never held an ownership stake in MT Holdings or the South Loop project. Rather, GMH said, the plaintiffs simply held a so-called “distribution interest,” which entitled them to a distribution of any profits.
In this case, GMH said, Auchi’s companies stood as the sole remaining owner of MT Holdings, and chose to dissolve MT without making any distributions.
Under Illinois’ corporation law, therefore, neither GMH nor South Loop, nor anyone associated with MT, owed the plaintiffs any duty of notice, or any “fiduciary duty” to look after the plaintiffs’ interest in the project.
GMH further argued the plaintiffs shouldn’t be allowed to continue to argue their lawsuit, because they waited too long to sue. MT Holdings was dissolved in 2014, and the plaintiffs filed suit in 2020, beyond the five year statute of limitations.
“… It was Plaintiffs’ obligation to stay apprised of any rights it may or may not have under the MT Operating Agreement,” GMH said in the July 16 brief. “Plaintiffs had no right to sit back and ‘wait to hear’ from Defendant about what was happening with MT.”
The plaintiffs responded on Aug. 14, reasserting their claims that South Loop Holdings, as the corporate entity in control of MT, still owed the alleged minority investors a duty to protect their “economic interests” in MT.
“… As South Loop repeatedly points out, Plaintiffs were not members (e.g., shareholders) of MT,” the plaintiffs wrote in their Aug. 14 brief. “Plaintiffs were economic interest holders who were directly injured by South Loop III’s misconduct.”
They also asserted the court should overlook GMH’s time-limit claims. They said the question of “whether or not Plaintiffs’ (sic) could have or should have discovered that MT was dissolved without a distribution to Plaintiffs is a disputed question of fact” that will require more court hearings to resolve.
GMH and South Loop Holdings are represented by attorneys John M. Murphy and Matthew G. Allison, of the firm of Baker & McKenzie LLP, of Chicago.