Sexual Dealing

The truth about Cabaret Royale's blue-chip fantasy world

But adversity could just as easily unravel Salah's dream. The multimillion-dollar lawsuit, the DOL's decision to seek back pay, and the bankruptcy proceedings have the potential to strip Cabaret Royale to its barest essentials: a Dallas titty bar with drinks that cost too much and a tarnished chandelier in the foyer.

Before sweeping into the topless-bar industry, Salah Izzedin sought his fortune in the oil business, running his own oil trading company, Oceanic Oil Corporation, and holding an interest in another, Houston-based Eton Oil.

The highly educated entrepreneur hailed from a Middle Eastern family with the means to back his business ventures. Headed by its patriarch, accounting professor Fuoad Abu-Izzedin, the family controlled corporations in the United States, Europe, the Middle East, and Central and South America. (Cabaret Royale officials say the 85-year-old Fuoad Izzedin still takes a keen interest in his son's enterprises, visiting the nightclub and keeping in contact with its directors from his Austrian home.)

During the oil industry's declining days in the early '80s, Eton shareholder Robert Pensotti sued Salah Izzedin and another company officer for what Pensotti considered a bad loan. Izzedin eventually paid back the loan.

When oil went bust in Texas, Izzedin invested in his first topless nightclub, Rick's Cabaret, in Houston. He and a handful of Houston businessmen pulled together a hodgepodge of loosely related corporations to start Rick's, which became known as the first upscale topless club--the forerunner of Cabaret Royale.

Rick's was profitable beyond its investors' wildest dreams--raking in millions each year. Former shareholders say everybody got greedy, and the club became the focal point for vicious and protracted court fights. In Texas topless circles, the battle among the owners of Rick's Cabaret in Houston became legend.

The tale began in 1982 when Izzedin befriended a grizzled titty-bar owner with the colorful name of Dallas Fontenot. The two went into business with Houston businessmen J.B. Gentry and Vernon Young and opened Rick's Cabaret nightclub in 1983. Fontenot and Gentry planned to buy out Izzedin and Young within a few years. The buyout "was a fabulous deal for (Izzedin) and he would go his way and Mr. Gentry and I would stay there as partners and live happily ever after," Fontenot would later say during a civil suit deposition.

It didn't work out that way. To get Rick's going, the investors had pooled their assets, making them dependent on each other. It so happened that Izzedin held the precious liquor license, and Rick's was proving too profitable for him to consider giving it up.

Fontenot and the others eventually cut a deal with Izzedin that gave him one-third of Rick's operations in exchange for the liquor license. Fontenot was unhappy about the terms, but figured he had no choice.

Soon afterward, Fontenot booted out Gentry "...over his partying and tooting drugs with people out of the kitchen and giving drugs to the girls and all that kind of crap," according to his court filings. Gentry could not be reached for comment.

After Gentry's ouster, Izzedin began spending more time at Rick's, handling a greater share of the topless club's day-to-day affairs. At the same time, Izzedin roped in an attorney named Robert Watters as a new partner. Izzedin wooed Watters because of his tax expertise--and the lawyer's polished, cultured air.

"Salah is not the greatest guy in the world to be a P.R. man," Fontenot recalled in court records. "He is not the kind of guy you send out and try to get a lease and try to talk a landlord into putting a topless club into a shopping center. We needed a man that had a good background and was intelligent and could go out there and cut a deal."

Despite the turmoil among its owners, the nightclub's tremendous success blunted any ill feelings--for a while, anyway. Rick's became renowned for catering to Houston's well-to-do businessmen. The bar's Bering Avenue address--on a popular entertainment and dining thoroughfare--was ideal. In its first year of operation, Rick's grossed $5 million.

Rick's would evolve so successfully, in fact, that the men began scouting for a site to build Rick's II in Dallas. In 1987, Watters located suitable property along Composite Drive--which would later become home to Cabaret Royale.

But by then, Rick's corporate structure--a confusing collage of corporations--was falling apart amid allegations of embezzlement, narcotics, prostitution, and illegal transfers of assets. During three years of bitter court fights over Rick's assets, investors and owners of the club rarely seemed to know which corporation owned what part of the club or which partner owned how much of any given corporation.

The court battles began in 1988 when Vernon Young, one of the original investors, filed suit in Houston against Fontenot, Izzedin, and Watters, contending the men were illegally channeling the nightclub's profits into their own pockets, and weren't giving Young his fair share.

When confronted--according to Young's suit--both Izzedin and Fontenot admitted pocketing unreported revenues.

"Izzedin admitted that he had received $45,000 from Fontenot, knowing that the funds were diverted corporation proceeds; and he further admitted that he was going to continue to divert funds until he had diverted $300,000," Young charged in his suit. (Young could not be reached for comment; Fontenot declined requests for an interview.)

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