Union Pension-Backed Film Studio in New Mexico Target of Fraud Suit

albuquerqueAlbuquerque isn’t about to replace Hollywood anytime soon as the nation’s movie and television capital. But a new studio nearing completion at least should make the fast-growing New Mexico city and surrounding area a major industry presence. The $74 million, 50-acre facility, by all accounts, is state of the art. The financing, however, has involved some old-fashioned expense-account fraud – or so certain Los Angeles businessmen allege. On April 9, Pacific Coast Capital Partners (PCCP), the majority owner of Hollywood’s famed Culver Studios, filed suit in Los Angeles County Superior Court. The partnership charges that the project’s main financial backer, the Santa Monica, Calif.-based Pacifica Ventures, and its two principal officers, Hal Katersky and Dana Arnold, fraudulently billed Culver Studios more than $1 million for various services. What makes this action particularly intriguing is that Pacifica received extensive funding from union pensions to get the project off the ground.


The facility is known as Albuquerque Studios. Located in Mesa del Sol, a large master-planned community in Albuquerque currently under development, the project is nearly complete. Katersky, Pacifica’s chairman and CEO, point to its eight sound stages, plus production offices and support space. “Our goal is to build in Albuquerque the finest production facility available anywhere,” he said. “Everything will be first class.” Albuquerque Mayor Martin Chavez also welcomed the project as one that “will ensure that Albuquerque is a major center for film and television production for years to come.” The studio itself may be a class act, but Katersky and Arnold’s financial practices are anything but that, at least as Pacific Coast Capital Partners sees things.            


PCCP claims Katersky and Arnold, who had managed Culver Studios on a 30-month contract ending October 31, 2006, padded their expense account with unauthorized travel, employee paychecks, and payments to consultants and lawyers involved in activities unrelated to Culver, and then hid the expenditures. The suit claims that because of the improprieties, Pacifica failed to meet its contractual requirements to manage Culver. PCCP is seeking unspecified damages and a permanent injunction against Pacifica, Katersky and Arnold from claiming any ownership rights of Culver Studios. Katersky promised to countersue. “We will be suing all the principals in Pacific Coast Capital Partners, Culver and (Culver backer) Lehman Brothers for this outrageous lawsuit,” he assured. 


The legal wrangling between PCCP and Pacifica is part of a larger dispute over ownership of Culver Studios. Katersky has been claiming for the last two years that his company legally acquired Culver from Sony Pictures Entertainment in 2004. More recently, he clarified this statement, saying that he and his partners had been given a stake in Culver as a reward for having negotiated the sale of the studio from Sony to a joint venture consisting of PCCP and New York-based investment bank Lehman Brothers. The deal reportedly was worth about $125 million. PCCP’s lawsuit indicates that its contract with Pacifica gave the latter entity a 12.5 percent stake in any proceeds from the eventual deal, provided their contract was not terminated “for cause.” PCCP insists that the “various acts of fraud and embezzlement” occurring throughout Pacifica’s management of Culver Studios constituted a “for cause” event.


Less publicized is the role of organized labor – and by implication, member dues – in all this. Pacifica built Albuquerque Studios with the financial backing of union pension funds. One source was Amalgamated Bank, a New York City-based entity that for over 80 years has served unionized garment workers. Their organization, currently known as the Union of Needlepoint, Industrial, and Textile Employees (UNITE), in 2004 merged with the Hotel Employees and Restaurant Employees (HERE). Amalgamated Bank’s ULTRA Construction Loan Fund, managed out of Washington, D.C., is providing the funding in conjunction with Prudential Investments, which manages UNITE’s employee benefit plan assets. The other union financial source is Worker’s Realty Trust II, run by the Chicago-based Commonwealth Realty Advisors, Inc. Providing all labor for the project is BUILD New Mexico, a nonprofit Albuquerque-based economic development firm set up to promote union construction contracts. Affiliated with the for-profit Union Development Corporation, BUILD New Mexico is a joint management program that uses pension funds from 14 building trades, most of them aligned with the AFL-CIO. The group also claims as members at least six general contractors and a number of contracting and professional associations. 


The State of New Mexico also has provided key help. Katersky credits Governor (and current Democratic presidential candidate) Bill Richardson, Lieutenant Governor Diane Denish, and Mayor Chavez for “putting this project on the fast track.” New Mexico provided a 25 percent tax rebate (a refund, not a credit) on all in-state spending by a film or television production. The state also is offering four-year, interest-free loans of up to $15 million as long as the studio meets statewide labor requirements. Officials also will reimburse each qualified New Mexico resident hired as a production trainee. 

Lawsuits, unfortunately, are a fact of life in the entertainment industry, and this one is especially lamentable. Albuquerque Studios, by virtue of its close association with Culver Studios, is continuing a tradition begun in 1918. While perhaps best-known for the sets for “Gone with the Wind,” Culver more recently has provided sound stages for such acclaimed films as “Raging Bull,” “E.T.,” “Wag the Dog,” “What Women Want,” and “City of Angels,” plus the 3-D motion-capture animation movies, “The Polar Express” and “Monster House.” Culver Studios also is home to TV series such as “Las Vegas” and “Deal or No Deal.” Filmgoers and television viewers might not be aware of the deal that made Albuquerque Studios possible, but union officials, nationwide and in New Mexico, are. So far, they like what they see. (U.S. Newswire, 8/1/06; Albuquerque Journal, 4/13/07; other sources).