Trial to determine who controls graffiti covered LA skyscrapers

A bench trial that began Tuesday will decide who controls a stalled skyscraper project in downtown Los Angeles, with plaintiffs claiming that Chinese investors exploited the venture to enrich themselves, leading to delays, disrepair and widespread vandalism at the site.

Plaintiff, defendant and cross defendant Lendlease Construction Inc. argued in opening remarks that Mickey Cheng and Edward Chen, executives for Los Angeles Downtown Investments, used the project to line their pockets with interest payments until the money ran out and the project stalled.

"Their behavior on the project, the fact that they scuttled this project, created this eyesore on the L.A. skyline," said Meredith A. Jones-McKeown of Perkins Coie LLP in opening remarks for Lendlease.

However, counsel for Los Angeles Downtown Investments argued in response that they would prove that all the loans taken out by Cheng and Chen went directly into the project.

"LADI's funds ... all went to the same bank account, and for that reason, Lendlease cannot meet its burden, and the evidence will show that all of LADI's money was to pay costs and expenses incurred in connection with the project," said Greenberg Traurig LLP associate Julianna Simon on behalf of Los Angeles Downtown Investments.

The trial stems from a breach of contract lawsuit naming Lendlease, Downtown investments and other companies as defendants brought by Webcor Construction LLP over a three-tower development near the Crypto.com arena and the Los Angeles Convention Center in Downtown Los Angeles. Webcor Construction Inc. v. Lendlease Construction Inc. et al.,19STCV03357 (L.A. Super. Ct., filed Jan. 31, 2019).

The project made national headlines this year when graffiti artists began tagging the windows of the derelict buildings. The Los Angeles City Council has since voted to allot nearly $4 million to remove the graffiti.

In a Phase 1 bench trial in 2023, the court struck varying amounts from mechanics' liens held by four subcontractors on the project.

Lendlease and Downtown Investments now each hold a lien on the property, according to trial briefs. Tuesday's opening remarks were the start of a Phase 2 bench trial in the case to determine whose lien takes priority.

In her remarks, Jones-McKeown argued that a loan agreement between Downtown Investments and Oceanwide Plaza LLC was abnormally structured.

"What you're going to see is on the day that [Downtown Investments] record the loan with a deed of trust for $325 million they had $2 million in the bank," she said. "That was all they have raised, totally abnormal."

The deal also suffered from a lack of oversight and quarterly interest payments rather than payments budgeted and planned for ahead of time, allowing Cheng and Chen to continue receiving interest payments indefinitely, Jones-McKeown said.

"The longer it goes, the more they get paid," she said. "What you're going to see is these funds go through a lot of intermediary companies that they own and control, straight to these individuals."

In response, Simon said Lendlease was trying to distract the court with "fanciful claims of alleged wrongdoing and lack of credibility."

"If Oceanwide received LADI's money and used all of LADI's money on the project, the case is over," she said. "Mickey Cheng's wealth and his personal dealings with other affiliates of one of the world's largest conglomerates is inconsequential. Whether LADI's loan meets conventional institutional financing standards, inconsequential."

Another party in the case, Chicago Title Insurance Company, gave opening remarks on claims that it has spent more than $10 million helping to defend the priority of Downtown Investments lien against Lendlease's claims of priority.

"Lendlease here is obligated to pay Chicago Title as damages over $16 million for breaching its obligations under the subordination agreement and the covenant of good faith and fair dealing implied therein," argued Ryan C. Squire of Garrett & Tully in Pasadena.

"In addition," he continued, "to the deed of trust must be added what will come to be proven, I suspect, by the end of the trial, over $20 million for cost fees and expenses that have been incurred by LADI and Chicago Title to protect that lien against all of the, dare I say, many spurious fights that have been asserted by Lendlease in this case."

The bench trial is expected to last for two weeks.