Stratosphere Corp. and former Stratosphere Chairman Bob Stupak have settled a class-action lawsuit filed last year by thousands of people who were denied the use of vacation packages they bought from Stupak while the towering hotel-casino was being built.
Securities and Exchange Commission filings show Stratosphere, Stupak and Grand Casinos Inc. will pay the vacationers $3 million for legal fees and honor their vacation agreements. Grand Casinos took control of the Stratosphere when Stupak ran out of money during its construction.
Ara Shirinian, an attorney who represented the vacationers, said his clients are "ecstatic" with the agreement.
"If it wasn't for us these people would still be screwed," Shirinian said. "We got these people their vacations back."
In addition, Stupak agreed to release Stratosphere stock he has held in a New York escrow account since the time the vacationers bought their packages, to drop claims totalling $127.7 million against the Stratosphere and to give the company title to the adjacent Chester Stupak Center.
"Everybody's given a significant amount toward the vacation package holders," Shirinian said.
Calls to the Stratosphere and Stupak's Las Vegas Vacation Club Inc. were not immediately returned.
The case stems from Stupak's original plan to build the Stratosphere, which depended in part on proceeds from the sale of vacation packages. The prepaid packages were for anything from a few days to several weeks at the casino, and included such perks as free alcohol and unlimited access to the Stratosphere tower.
Though Stupak raised more than $25 million selling 19,000 vacation packages, he ran out of money and was forced to cede control of Stratosphere to Grand.
As part of his agreement with Grand and Stratosphere, Stupak promised to put enough cash or Stratosphere stock in an escrow account to reimburse the casino when vacationers called in their packages.
The arrangement worked while Stratosphere stock was riding near its high of $14 per share. But as the resort struggled with high debt payments and lower-than-expected visitorship, its stock plummeted into the sub-$1 range.
In January 1997, faced with the realization that the $4.4 million in cash and stock in Stupak's escrow account was not nearly enough to cover the $15 million in vacation obligations, Stratosphere said it would no longer honor the packages.
The package-holders subsequently sued Stupak and Stratosphere, which declared bankruptcy in early 1997. That suit was granted class-action status last June.
The settlement says vacationers will get to stay at the Stratosphere for the number of nights originally promised, will be allowed unlimited access to the 1,149-foot Stratosphere tower, and will get all the free booze they can drink while staying there.
In addition, the vacationers will split a $3 million cash payment. Stupak and Grand will each pay $1.15 million; Stratosphere will pay $700,000.
The settlement's total value to the vacationers is about $26 million, Shirinian said. The $3 million cash payment will be used to pay legal fees, he said.
Stupak will drop $127.7 million in additional claims against the Stratosphere, and will give the company the approximately $1 million worth of cash and company stock still held in the New York escrow account. The company's $700,000 portion of the vacationers cash payment is to come out of that account.
And finally, Stupak will give the Stratosphere the Chester Stupak Center. The company agreed to continue allowing the city of Las Vegas to use the center rent-free.
A copy of the settlement agreement attached to an SEC filing says the agreement "is not an admission of liability on the part of any party, and shall not be so construed."
Shirinian called the settlement a "win" for all of the involved parties. Stratosphere will gain favor with the state Gaming Commission, and gets out of a sticky lawsuit to boot, Shirinian said. Stupak gets Stratosphere and Grand to pick up part of the tab for his vacation package scheme, Shirinian added.
"This is truly a one of those win-win situations," he said.
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