In 2018, Michael Harrah was among the most daring and colorful business people in Southern California. His detractors and admirers regarded this real estate property developer from Newport Beach as daring and colorful. Harrah acquired the headquarters of The Orange County Register before he tried to attract an Amazon facility to the City of Santa Ana.
Harrah considered himself to be a visionary but would not have predicted a courthouse mess a few years ago. As per his lawsuits, the entrepreneur tolerated sexual harassment from busboy Jose Orozco, whom he named the manager of Original Mike’s restaurant. The lawsuit also claimed that he performed a fraudulent act to conceal his corporate responsibilities, cheated customers with rotgut liquor sold as costly brand products, and dodged federal taxes with bogus revenue reports.
Bartender Lahna Beasley’s lawyers Bradley Cage and Jeffrey Spencer told Judge William Claster that Harrah was the boss of Orozco when he retained him as a sexually violent offender. Back then, the lawyers claimed that there were 10 sexual harassment claims against Orozco. Therefore, they rhetorically told the Superior Court of OC Judge that Harrah retained a sexual harasser. Their logic for it was that Harrah needed Orozco’s help to siphon around $40,000 monthly to swindle the government, make inequitable outcomes for aggrieved people and undercapitalize the hospitality business.
In 2018, Harrah was not a man known for a withdrawal at the sight of opposition. Around the time of a trial in 2015 about the Orozco issue, Harrah put his OMRM (OM Restaurant Management LLC) into the Chapter 11 section of bankruptcy. He presumed that filing for bankruptcy would make Beasley with no cash-rich goal and hence end the case. Gage and Spencer were annoyed, and they filed a complaint claiming that the corporate maze attached to the finances of the restaurant could not block his own liability.
As per the filing, Harrah let Orozco not only kiss and hug female bartenders many times over many years but also trample California’s work-break and pay regulations. The filing also accused Orozco of fondling the sexual organs of the bartenders. In a 2018 report on OC Weekly, Harrah described those as imaginary accusations.
Claster, who split the legal case into multiple phases, was going to allow a jury to choose who was right. The second phase, which was to pay attention to the accused employment legislation-violation, was going to occur later that year. The first phase, which was completed earlier in 2018, was targeted at unsorting the corporate characters of Harrah at his restaurant to determine whether his paper empire constituted one enterprise. Gage and Spencer claimed that Harrah utilized the enterprises as a piggy bank where he could not reap the rewards but could dodge responsibilities.
As per the lawyers, Harrah established many undercapitalized limited liability companies to shun liability for wrongdoing at the restaurant. They said that alter ego applied in this regard as the LLCs were interrelated, which created one corporate enterprise to dodge responsibility and make an inequitable output. They stated that if Harrah was not found personally responsible for what his undercapitalized and wholly-owned enterprises did, he would try to evade his debts with bankruptcy filings in bad faith.
After he received testimony, judge Claster derided the maneuvering of the US real estate property developer. Claster found that the court could not opine about whether the filing constituted bad faith as far as bankruptcy law was concerned. However, Claster said, the company decided to file for bankruptcy to keep the court trial from moving forward. While nothing about the financial picture of OMRM had changed, said Claster, it made the bankruptcy move just because it was able to do so.
It was the slightest of the legal setbacks to the developer, who once submitted a bankruptcy claim worth $30 million and emerged cleverer about protecting assets. Over a decade before, Harrah invested $825,000 in the long-condemned conventional property of the restaurant, guaranteed a construction loan worth $5 million and tried to attract a big food-service business to his location. However, back then, suitors shunned deals as the piece of real estate sat in the middle of an area with high crime levels.
Harrah chose to make Original Mike’s restaurant after he built a vacant restaurant and, as per the two lawyers, devised a devious strategy. Harrah made his business 100 South Main Street, LLC, charge OMRM almost twice more than the going rate of just $2.50 for each square foot.
The lawyers told Claster that inflating the restaurant’s rent raised rents at the nearby properties that Harrah owned, which contributed to his Santa Ana development plan and One Broadway Plaza building. Making a rent increase of $2 for each square foot caused a further rent of $1,200,000 monthly or a yearly rent of $24 million, which would be $240 million in ten years.
Claster was also suspicious. As for Claster, the rental amount charged for the restaurant was considerable because it seemed like it was the reason why the business was consistently losing money. Original Mike’s lost a whopping $218,130 in the year 2014 and had $353,098 as its loss for the next year. Claster argued that if it charged a fair-market rental amount, or around 50% of the amount it was actually charged, its minimum saving would have been $360,000 per annum. Thus, argued the lawyer, the restaurant would have made the loss of each year a profit. As for the lawyer, the lofty rent that one Harrah enterprise charged was harmful to a different Harrah entity.
One of Harrah’s attorneys claimed that it was a fair rent and that Beasley failed to meet her responsibility to prevail over the corporate separateness-related presumption. As per that lawyer, the plaintiff failed to substantiate that a fake financial setup created through undercapitalization worked in the way of injustice towards Beasley. As per the attorney, Harrah had not represented himself as someone who was personally liable for the expense or debt of OMRM.
