Judge Rejects Challenges to U. S. Grant Hotel Suit

A federal judge on Thursday refused to dismiss most elements of a lawsuit filed by U. S. Grant Hotel investors against the hotel’s management, former owner and other parties. The judge also indicated he is likely to certify the investors’ suit as a class action.

U. S. District Court Judge William B. Enright turned down pretrial motions put forth by defendants that they be excluded from the suit or that it be dismissed altogether. Filed in December by investor Robert Lubin of San Diego, the suit alleges fraud, misrepresentation and securities violations.

Lubin and about 300 others invested about $40 million in the Grant as members of a limited partnership headed by Sybedon Corp. of New York and underwritten by Prudential-Bache Securities. Both Sybedon and Prudential-Bache, as well as the Grant’s previous owner, Christopher Sickels, and lead lender, Home Federal Savings, have been named as defendants in the investor suit.

The Grant has experienced financial problems since reopening in late 1985 after a $64-million, four-year renovation. The Grant filed for protection under Chapter 11 of the U. S. Bankruptcy Code on Feb. 22, shortly before lender Home Federal Savings was to have sold the historic property at a foreclosure auction.

Illegal Action Claimed

In their suit, the investors allege that cost overruns in the hotel renovation were illegally omitted from the offering prospectus and that the value of the hotel was grossly misrepresented. As a result of the hotel’s poor performance and heavy debt load, the investors’ equity is severely jeopardized, making it unlikely they will recoup their investment in the event of a foreclosure sale, the suit claims.

In his ruling, Enright said he is likely to certify the suit as a class action as long as the plaintiffs can show they will be adequately represented in the absence of Michael Aguirre, the lead attorney for the plaintiffs. Aguirre is set to spend a year at Harvard University’s Kennedy School of Government beginning next month. Enright set a September hearing to review the adequacy of plaintiffs’ counsel.

In an interview Thursday, Aguirre said his co-counsel for the case--Terry Knoepp, Joe Ruff, Patricia Meyer and James Krause--will be more than adequate to tend to plaintiffs’ needs. Aguirre said he will continue, to some extent, his involvement in the case from Massachusetts.

In a victory for the defendants, Enright did dismiss a part of the suit alleging that the defendants committed certain securities violations, a ruling that Home Federal attorney Victor Vilaplana said would make the investors’ case more difficult to prove.