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Morgans Hotel Sued by Burkle Over Board Meetings Claims

Morgans Hotel Group Co. was accused in a lawsuit by billionaire Ron Burkle’s Yucaipa Cos. of undermining its right to have an observer attend the boutique-hotel operators’ board meetings.

Burkle’s Yucaipa American Alliance Fund II LP and Yucaipa American Alliance (Parallel) Fund II LP filed the suit in New York State Supreme Court in Manhattan on Oct. 4, saying they have the right to send an observer to Morgans’ board meetings under a 2009 stock purchase agreement.

OTK Associates, the hotel company’s largest shareholder, and Burkle’s Yucaipa, also a substantial stakeholder, have been embroiled in disputes over control of the hotelier. Morgans operates luxury hotels under brands including Hudson, Delano and Mondrian.

The Yucaipa funds purchased 75,000 shares of Morgans’ Series A preferred stock and warrants to acquire 12.5 million shares of the company’s common stock for $75 million in October 2009, according to the suit.

As a condition of the purchase, Morgans was required to nominate a candidate selected by the funds to be elected to its board or allow the candidate to attend meetings and receive copies of notices, minutes and other materials provided to the directors.

‘Lip Service’

“Although Morgans has paid lip service to its obligations to allow the Yucaipa nominee to be an observer, in fact Morgans has done everything in its power to undermine those rights,” the funds said in the complaint.

Lauren Buchman, a spokeswoman for New York-based Morgans, didn’t immediately return messages seeking comment on the suit.

Burkle, who has demanded that Morgans’ board put the hotelier on the market, filed a separate suit in June against Morgans in New York state Supreme Court related to its disputes with OTK. The suit alleges breach of contract over agreements to sell Morgans’ interests in a Florida hotel and a food and beverage company that serves the hotel.

Burkle also sued OTK Associates, which was founded by Jason Taubman Kalisman and holds about 14 percent of Morgans’ shares, in federal court in Manhattan in July, accusing the firm of misleading shareholders in proxy materials. Kalisman is the interim chief executive officer of Morgans.

The case is Yucaipa American Alliance Fund II LP v. Morgans Hotel Group Co., 653455/2013, New York State Supreme Court, New York County (Manhattan)

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