Developer of Shutters at Beach Settles Defect Arbitration Suit

After almost seven years of legal wrangling, a bankruptcy and an appeal, the original developer of Santa Monica’s famed Shutters at the Beach hotel is getting his financial due.

Sam Stein of Encino has settled the seaside hotel’s construction defect arbitration suit against Phoenix-based Gosnell Builders Corp. for $33 million, one of the largest such settlements in recent years, according to Los Angeles attorney Lee Colton, who represented Stein.

An arbitration panel had ordered Gosnell to pay nearly $65 million last year, but Stein had been unable to collect because the construction firm subsequently filed bankruptcy and the judgment was appealed. Colton said Stein decided to settle with the firm’s bonding company instead of pursuing further legal action.

“There was little likelihood of recovering,” Colton said.

Stein, who had reportedly invested about $27 million of his own money and $71 million from Tokai Bank into the project in 1988, was himself forced into bankruptcy in 1991 after building disputes derailed construction of the 198-room hotel and Tokai foreclosed on the project.

Plaintiff’s attorneys say that when work stopped, the new contractors discovered the hotel’s floors were out of level, the plumbing was not up to code and that portions of the hotel were built outside its property lines. The development sat idle for more than a year, until it was auctioned off to hoteliers Edward and Thomas Slatkin for $18.5 million in December 1992.

The luxury hotel is now performing better than most industry analysts had originally predicted, with average occupancy of nearly 85% and room rates of $315 to $500 a night, real estate sources say.