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Best of Liz Benston

Gaming Guru

Liz Benston
 

Old, New Nugget Owners' Feud Rages

14 November 2005

Hotel developer Steve Wynn appeared in a courtroom Wednesday morning to pursue his lawsuit against the Golden Nugget over a Wynn Las Vegas executive hired away to work at the Golden Nugget Laughlin.

After about an hour discussing the case with Wynn and attorneys for both parties, District Judge Michael Cherry decided to continue the matter until Dec. 1 to give both sides a chance to settle their differences.

Cherry also extended a temporary restraining order preventing Golden Nugget Laughlin General Manager Frank Toddre from fulfilling his duties. The order, extended by 30 days, went into effect late last month. Landry's is paying Toddre while he is on administrative leave, pending the outcome of the case.

After the hearing, Wynn said he is pursuing the case in court because it has "important consequences" for his and other gaming companies.

"One Las Vegas company, without so much as a phone call, steals one of my employees," Wynn said. "If we can't protect fundamental trade secrets from competitors, then what good is the law?"

Wynn said he is open to discussion but won't avoid a court battle.

"Adults resolve these things in an orderly way," he said.

Wynn's case centers on two key arguments. One is that Toddre, hired as an executive casino host at Wynn Las Vegas in April, broke an employment agreement by taking a job at the Golden Nugget Laughlin. Wynn also argues that Toddre, in violation of the agreement, could end up disclosing trade secrets in his new position, such as soliciting Wynn customers.

In court documents, Wynn claims the two properties have "overlapping marketing efforts and target markets" because they are both in the hotel and gambling business. The Golden Nugget Laughlin also participates in joint marketing efforts with its sister Las Vegas property.

"They are run as one company," Wynn said Tuesday. "They were run as one when I had them."

Landry's says the downmarket Laughlin property, more than 90 miles from Las Vegas, hardly competes with Wynn Las Vegas, a $2.7 billion resort.

Wynn Las Vegas has "celebrity chefs, couture level shopping, 2,716 rooms, which start in the several hundreds of dollars, Broadway's "Avenue Q" and an exclusive golf course," Golden Nugget said in court filings. "In stark juxtaposition, the Golden Nugget Laughlin has no celebrity chefs, 300 rooms at approximately $30 a night, no Broadway shows or couture level shopping."

Landry's Las Vegas attorney, Mark Ferrario, disputes Wynn's characterization of the noncompete agreement as including casino properties in Clark County, which includes Laughlin.

The agreement does not specify Clark County but includes markets "where Wynn has a hotel or casino operation," he said.

Besides their differences interpreting the employment agreement, both sides also dispute the events leading up to Toddre's departure. Wynn claimed he was hoodwinked by Toddre, who said he was retiring from the business instead of going to work for the Laughlin property. Toddre claims he was up front with Wynn officials about his desire to work for the Laughlin property at the time of his departure and believed the noncompete agreement applied to resort properties on the Strip, not Laughlin. He said he liked Laughlin's slower pace and preferred it over the high-stress environment on the Strip.

Ferrario said Cherry has encouraged the parties to settle the case in advance of the next court hearing and said both sides will set to work over the next week or so.

So-called noncompete agreements are commonly used in the casino business to protect competitors from poaching employees and prized customers. They are often the subject of litigation in Nevada, where they are enforced in court and have a lengthy case history, attorneys say.

Employers typically rely on a Nevada Supreme Court decision in 1997 that noncompete agreements are reasonable if they meet certain conditions, said Las Vegas employment attorney Howard Cole, who was not involved in the suit.

Even so, some Las Vegas judges are predisposed not to enforce such agreements, allowing employees to jump ship, provided that those workers don't solicit business from their former employers, Cole said.

During a Tuesday conference call to discuss the company's third-quarter performance, Landry's chief executive Tilman Fertitta called the Golden Nugget company "a very poorly run business" and said it had its most profitable month in five years last month.

Landry's bought the Golden Nugget properties Sept. 28 and has since laid off scores of employees to improve performance. Some of those employees worked at restaurants that are now closed to make way for new eateries, Landry's officials say.

Fertitta on Tuesday also said many Golden Nugget managers are getting a "lesson in how to make the property more profitable."

Fertitta -- whose restaurant chain primarily caters to a middle class crowd -- has criticized the way previous owners Tim Poster and Tom Breitling attempted to attract high rollers from the Strip with high limits and expensive perks.

But some Golden Nugget employees say they are worried that Fertitta will cheapen the Las Vegas property and rely on his restaurants to draw customers. They also criticize the way he has so quickly laid off longtime managers and workers -- many of whom had served under Steve Wynn and MGM Mirage long before Poster and Breitling took over the property in January 2004.

But downtown casino owners have praised Landry's for redevelopment projects elsewhere and spending money to freshen up the Las Vegas property.

Fertitta said he will invest more than $150 million to improve both casinos.

Last week the Las Vegas City Council agreed to vacate Carson Street to allow the Golden Nugget to build a second hotel tower next to the property. That building would also contain a new casino, ballroom, an aquarium-theme restaurant and a bar overlooking Fremont Street, Fertitta said. The company hasn't yet decided how many rooms to build in the new tower, he said.