Adelson v. Hananel

• Decision Date: 07 August 2009
• Docket Number: Civil Action No. 04-10357-PBS.
• Citation: 641 F.Supp.2d 65
• Parties: Sheldon G. ADELSON, Plaintiff, v. Moshe HANANEL, Defendant.
• Court: U.S. District Court — District of Massachusetts

641 F.Supp.2d 65

Sheldon G. ADELSON, Plaintiff, v. Moshe HANANEL, Defendant.

Civil Action No. 04-10357-PBS.

United States District Court, D. Massachusetts.

August 7, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Lauren E. Dwyer, Bruce A. Singal, Donoghue, Barrett & Singal, PC, Franklin H.

Levy, Albert P. Zabin, Duane Morris LLP, Boston, MA, Christopher J. Houpt, Mayer Brown LLP, Andrew H. Schapiro, Mayer, Brown, Rowe & Maw LLP, New York, NY, Paul G. Roberts, The Interface Group LLC, Needham, MA, for Plaintiff.

Lawrence G. Green, James A.G. Hamilton, Lynn C. Norton, Burns & Levinson LLP, Boston, MA, for Defendant.

MEMORANDUM AND ORDER

SARIS, District Judge.

This case is about one of the largest casinos in the world, located in Macau. Plaintiff Sheldon Adelson brings this action seeking a declaratory judgment that defendant Moshe Hananel does not retain an option to purchase a twelve percent interest in the casino or any other Adelson venture outside of Israel. Hananel has brought a parallel suit in Israel in which the identical issue, among others, is being litigated. Earlier in the litigation, the First Circuit rejected Hananel's forum non conveniens challenge, and this case was set for trial. At a three-week bench trial which commenced on May 18, 2009, plaintiff introduced the following witnesses: Sheldon Adelson; Daniel Chinn, Interface Partners International's attorney in Israel; Paul Roberts, Vice President and General Counsel of Interface Group Massachusetts; Stephen O'Connor, the Chief Financial Officer of Interface Group Massachusetts and Interface Partners International; Robert G. Goldstein, an employee of Las Vegas Sands, Inc.; George Frederick Kinmonth, an attorney; Jorge Oliveira, the head of Macau's International Law Office; Matthew Ma, the former head of Las Vegas Sands, Inc.'s Asian marketing department; Franklin Levy, Adelson's former personal lawyer and now in-house counsel with Las Vegas Sands, Inc.; William Boyle, the pilot of Adelson's private plane; Frederick Kraus, a lawyer with Las Vegas Sands, Inc.; Lica Brill, a former Adelson employee; and Iris Maimon, a former employee of Interface Partners International. Defendant introduced the following witnesses: Miriam Cohen, a lecturer who worked at Galilee Tours from 1990 to 1998; Max Blankstein, a real estate consultant; David Miro, a personal driver for Hananel while he was employed by Interface; Arik Koubi, one of Adelson's bodyguards; and Moshe Hananel. The Court makes the following findings of fact and conclusions of law.

FINDINGS OF FACT

1. The Back Story

Sheldon Adelson was born in 1933 and grew up in penurious circumstances in Dorchester, Massachusetts. At the age of twelve, Adelson began his business career setting up a newsstand in downtown Boston, and over the course of his early life invested in candy machines, trained as a court reporter, served in the army, became an SEC registered investment advisor, worked in real estate, and became a venture capitalist. He invested in a travel agency in Newton, which still operates and is now called GWV. (Trial Tr. vol. 1, 7-18, May 18, 2009.)

His financial success began with a trade show business called Comdex, a trade show for computers, which became the largest trade show in the world. Having started in Las Vegas, he eventually expanded globally to countries such as Holland and Japan. At some point, the convention in Las Vegas became so successful he needed more space. To develop a convention center, he eventually bought the famous Las Vegas Sands casino and resort, hang out for the Rat Pack. He developed an expo and convention center on the Sands property. Eschewing nostalgia, he eventually tore down the Sands and, in 1999, built a new mega-casino and resort, the Venetian, where the Sands once stood. Now a multi-billionaire, he currently is domiciled in Las Vegas where he resides, votes, and possesses his driver's license. He retains a home in Newton, Massachusetts. (Id. at 21-24.)

Adelson owns a warren of businesses informally called the Interface Group. The corporate structure is somewhat complicated. Starting by at least 1989, Adelson and three minority partners controlled a number of businesses. Two of these businesses are Interface Group Nevada, Inc. (which owns the Sands Expo Center and operated Comdex) and Interface Group Massachusetts, Inc. (which primarily runs the travel business and is based in Needham, Massachusetts). A separate business, Las Vegas Sands, Inc. ("LVSI"), was also controlled by the partners and operated the Sands Hotel and Casino. Their employees generally referred to the companies as "Interface" or "The Interface Group." (Trial Tr. vol. 1, 137-141; Trial Tr. vol. 3, 58-68, May 20, 2009; Ex. 71.)

2. Hananel

Moshe Hananel was born in Israel. After studying medicine for five years, he began to work at Galilee Tours, his father-in-law's travel agency. Together they expanded the business so that it became one of the largest tour operators in Israel. It created large tour packages for Israelis to go to casinos in the Mediterranean. Hananel also developed tours to India and Korea. As part of his tour business, he personally traveled to China and Macau. He had no background in investment, either in high tech or gaming. Hananel is now legally blind and can read only large type or with the aid of a machine.¹ (Trial Tr. vol. 10, 8-20, 36-38, June 1, 2009; Trial Tr. vol. 11, 82-83, June 2, 2009; Trial Tr. vol. 12, 4-5, June 3, 2009.)

3. Passion for Israel

A zealous Zionist, Adelson first decided to visit Israel in 1988. After he met Hananel in a travel industry meeting in Boston, Adelson took a three-week tour of Israel, spending almost every day with Hananel and his wife. The trip was life-changing, leaving Adelson torn between lives in the United States and Israel. As a result of this trip, between 1988 and 1995, Hananel and Adelson became socially friendly and grew to trust each other. Adelson made many trips to Israel, and eventually married an Israeli citizen, staying in her family's apartment when he visited. The marriage took place in Israel in 1991. Hananel attended. Hananel also became the godfather to Adelson's son. (Trial Tr. vol. 1, 33-36, 50, 104-105; Trial Tr. vol. 10, 21-25.)

As a way to promote the economy of Israel, Adelson created a National Forum for Israel at the Comdex convention. His brother-in-law, David Farbstein, who had been working with Adelson in Las Vegas, came up with the idea to use contacts from Comdex to begin investing in Israel, which, at the time, was a wellspring of high tech activity. Although initially the business activities were conducted by the Interface Group Massachusetts, in late 1994 Adelson started Interface Partners International, Ltd. (IPI), a Delaware entity, with the primary purpose of investing in high tech companies in Israel. It had offices in Needham, Massachusetts, and in Ramat Gan on the outskirts of Tel Aviv. Employees of Interface Group Massachusetts, like General Counsel Paul Roberts and CFO Stephen O'Connor, provided legal and financial services to IPI, as they did to other Adelson companies. For instance, employees of IPI in Israel were in regular contact with O'Connor regarding budgets and other financial matters. Roberts and O'Connor were also officers of IPI. While there was an IPI sign on the door in Needham, IPI had no employees there, and despite being incorporated in Delaware, never filed to do business in Massachusetts, a requirement for out-of-state businesses doing business here. It was registered to do business in Israel in December 1995 and began its operations in April 1996. (Trial Tr. vol. 1, 26-30; Trial Tr. vol. 3, 63-68, 78-82; Trial Tr. vol. 5, 7, 16-17, May 22, 2009; Trial Tr. vol. 11, 47-58; Ex. 21AA; Ex. 71; Ex. 192; Ex. 358A; Ex. 359A.)

CFO O'Connor reviewed IPI's budget to ensure that its expenditures were appropriate and provided the funding to IPI, but the money trail is quite complicated. Adelson typically paid for its operations out of his personal account directly from his Las Vegas bank to Israel. However, the transaction was treated as an equity contribution to the capital of the Massachusetts "branch" of IPI which then ostensibly lent it to the Israeli "branch." (Trial Tr. vol. 4, 107-127, May 21, 2009.)

In April 1995, as part of a broader series of transactions, Adelson bought out the early partners in IPI and became the sole shareholder of IPI, as well as of LVSI and Interface Group Nevada. Adelson and his partners retained their respective ownership interests in Interface Group Massachusetts. (Trial Tr. vol. 1, 32; Trial Tr. vol. 3, 69-71; Ex. 71.)

Farbstein was to run the business in Israel. Adelson's recollection was that Farbstein was to be paid $80,000 a year, and given the opportunity to be a 10% or 20% co-investor in the investments targeted by IPI. In fact, Farbstein's base salary was $150,000 and the percentage was 25%. Farbstein was required to put up the requisite capital at the time of the closing of the deal. While the focus was supposed to be on high tech investments, IPI looked at other potential investments in Israel and invested heavily in a company called Auto Depot, an automobile parts dealer. (Trial Tr. vol. 1, 29, 41, 57-58, 107-112.)

4. Hiring Hananel with a Handshake

By June 1995, Adelson concluded that Farbstein was an unsatisfactory employee because he failed to go to work on a regular basis, and had hired a lawyer at IPI, Moshe Melnick, a war hero and Farbstein's friend, of whom Adelson disapproved. Adelson was also dissatisfied with the investment in Auto Depot. Farbstein also failed to staff IPI's office beyond a secretary and Melnick. Hananel tried to resolve the festering family dispute to no avail. At Adelson's request, Hananel fired Melnick in September 1995, at which point Hananel functionally began to manage the office. While Farbstein helped somewhat in the transition; he left the office at the end of ...