More than nine years after developer BML Properties lost its nearly completed $3.5 billion Baha Mar resort project to bankruptcy, a New York state court judge ruled Oct. 18 that China Construction America Bahamas induced the developer’s financial collapse through fraud and misrepresentation.
Judge Andrew Borrok ordered the contractor to pay the developer $1.6 billion in restitution.
The sentencing came after a two-week non-jury trial in August.
As ENR reported in 2018, when Sarkis Izmirlian’s BML Properties filed its lawsuit against China Construction America, the developer had claimed that as the project neared completion, the contractor worked to “ falsely create the appearance that he was working to meet an on-time, on-budget deadline… while knowingly and fraudulently concealing his true intention of not building the project on time and on budget and, in the process , extorting more money than he earned and owed.”
Several entities were listed as defendants, including China Construction America Inc. (now known as CCA Construction), CCA Construction, Inc., CSCECBahamas, Ltd. and CCA Bahamas Ltd.
In his decision, Borrok upheld the developer’s claims of breach of contract and fraud, and ordered defendant China Construction America (CCA) to pay a total of approximately $1.6 billion in restitution. This dollar amount is based on BML’s stated loss of $845 million, along with interest dating back to May 1, 2014, the date the judge determined that the contractor’s first breach of their “best interest obligation” to the developer.
In his ruling, Borrok wrote that BML Properties “met its burden of proving” that a board member of China State Construction Engineering Co. Bahamas (CSCECB) “breached the best interests obligation . . . no less than six times and . . . by clear and convincing evidence committed at least four counts of fraud.”
BML Properties’ statement on the ruling noted, “The size of the verdict demonstrates not only the magnitude of the loss to Ezmirlian’s family, but the extent of CCA’s wrongdoing.”
In a statement provided to ENR, a spokesperson for China Construction America commented: “CCA Construction Inc. was neither the contractor nor the investor in the Baha Mar project and, like its co-defendants, intends to appeal ·lar decision of the court which is deeply flawed under well-settled principles of New York law.”
CCA’s statement continued: “The decision ignores the indisputable evidence that BML Properties went into debt, overspent and overextended and then drove the project into illegal and secret bankruptcy to eliminate its obligations at the expense of other stakeholders, including minority investor CSCEC Bahamas and construction manager CCA Bahamas, who made tireless efforts to complete the Baha Mar project on time and on budget.”
The liquidity crisis
However, Judge Borrok was not convinced by CCA’s arguments in court and found that the contractor’s actions were intended to “cause a liquidity crisis that would push BMLP out of its $845 million investment,” he wrote, and he added: “That’s exactly what happened.”
BML argued — and the judge agreed — that the bankruptcy was brought about, in part, by a $54 million payment from the developer to contractor CCA Bahamas as the project neared completion. The developer argued that the contractor said the money was needed to help pay subcontractors as the mega complex project neared completion and, crucially, a scheduled opening date.
Here, too, the judge sided with BML, stating in his ruling that “Defendants committed fraud by representing that they needed a $54 million payment in order to pay subcontractors. The evidence … showed that they did not need it or use it for that purpose.”
Instead, citing testimony from forensic accountants who testified on behalf of BLM Properties, the judge stated that “They (the defendants) wanted it and used it to buy a competing hotel development later,” the British Colonial Hilton in Nassau, Bahamas. .
In its statement, BML further commented that, “instead of paying subcontractors, (CCA Bahamas) secretly cut hundreds of workers during the critical period of the project’s grand opening, diverted resources and key personnel to Panama to start a new project instead of finishing Baha Mar, (and) intentionally slowed down and stopped work at Baha Mar in attempts to extort exorbitant and illegitimate payments … with catastrophic effects on Baha Mar.”
Construction was halted in 2015 and in June of that year Baha Mar Ltd. filed for bankruptcy protection in the Delaware District of the United States Bankruptcy Court, an action that CCA Bahamas fought to have dismissed.
Opened in April 2017, Baha Mar Resort is now owned by Chow Tai Fook Enterprises, Hong Kong.
