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Gaming Guru

Richard N. Velotta

Ellis Island Sues Over Failed Tuscany Suites Merger

3 August 2004

LAS VEGAS -- The merger between the Ellis Island Casino & Brewery and the Tuscany Suites and Casino Resort has been scrapped and Ellis Island's owner has filed suit in Clark County District Court over the abandonment of the deal.

Gary Ellis of Gary Ellis Enterprises Inc. and Fame Operating Co. Inc. filed suit last month over "the 11th hour abandonment of a fully negotiated agreement to combine the Ellis Island Casino operations with the Tuscany Hotel and Casino property," court documents say.

In mid-April, representatives of Ellis Island confirmed the deal was taking shape, but neither company formally announced it.

The lawsuit was filed by Ellis Island against Charles M. Heers, individually, and with Marilyn C. Heers as trustees for the Heers Family Trust, which built and owns the Tuscany.

A spokesman for Heers said last week that the company had not been served with the suit, but representatives have become aware of it. Heers attorney Eric Olsen said Ellis Island officials had changed conditions of the deal, which led Tuscany to back out.

According to the suit, Heers approached Gary Ellis as early as 1997 about the possibility of managing or assuming operations of the hotel-casino property that would be built at 255 E. Flamingo Road. The Tuscany, a 716-suite property, opened its hotel in December 2001 and the 60,000-square-foot casino in January 2003.

The suit says talks evolved into serious negotiations for the marriage of the two operations in January 2004. By then, it was apparent that the Tuscany was not having the success managers had hoped for, attempting to attract a mix of conventioneers, Strip workers and other locals.

One of the big reasons for that lack of success was that entrenched properties like Ellis Island -- which offered free drinks to casino workers, steak specials for under $4 as well as a popular karaoke lounge every night -- had a loyal following.

The suit said that after months of negotiations, the two parties entered into a comprehensive nonbinding letter of intent signed April 2 to combine operations.

Ellis said he shared confidential and proprietary strategies with Heers and he entered negotiations with Diversified Real Estate Concepts Inc., for the sale of the Ellis Island property at 4180 Koval Lane for a non-casino use.

In May, the two parties exchanged drafts of a definitive agreement, the suit says, and on May 24, Heers requested that the agreements be finalized as soon as possible.

On June 9, the agreements were completed, the suit says. Heers was ready to sign it the next day. But on June 11, Ellis said he received a message that Heers was abandoning the deal. Heers ceased all contact and didn't return calls or messages, the suit says, and a June 30 demand letter was ignored. The suit was filed July 13.

Heers' attorney said the crux of the dispute was over Ellis' plan to sell the Ellis Island property.

"Contrary to their assertions, there was no final agreement," Olsen said.

He said Heers backed out of the deal when he learned that Ellis planned to sell the Ellis Island and not combine the two properties into one company.

Ellis' suit accuses Heers of breach of contract, fraud and misappropriation of trade practices secrets among other allegations, and it seeks a jury trial.

The suit seeks an injunction directing the defendants to finalize and execute the definitive agreements as well as more than $10,000 in general damages, $10,000 in special damages and punitive damages to be determined at trial.