Lord of the Fly

Investors in the Dragonfly Bar & Restaurant say they were fleeced by partner Steve Kahn, but he claims his accusers had him framed

Steve shrugs off these episodes of legal wrangling, dismissing them as family feuds. But they are the same kinds of charges--fraud, misuse of company funds, breach of fiduciary relationships--that Charlott Norman would level against Kahn before the Dragonfly even opened its doors.

In February 1998, Norman went against her instincts and invested $100,000 in the Dragonfly, taking a one-third interest in the place, the largest share of any of the six limited partners. She did so with the understanding that Kahn and Priebe would control the venture's general partner, Dragonfly LLC, in equal parts. Corporate documents list Priebe as president and Kahn as secretary; both would be wholly accountable to investors, Norman believed.

By April, Norman began to have serious doubts about the project when she learned that most of the $300,000 earmarked for construction was gone, with much of the job yet to be completed. "I knew that somebody was ripping us off," she says. "We had a stripped-down building. I'm talking no walls. No electricity. Nothing. And we didn't have any money."

Kahn blamed general contractor Dale Lookingbill of DRL Construction, whom he fired on May 14. Oddly, that same day, he hired Lookingbill for another project: the all-nude cabaret and adult video and book store he was developing on Reeder Road along Interstate 35 called the Ocean Club.

To complete the Dragonfly, Kahn turned to contractor Santiago Pena of Penaco Industries, a contractor, metal fabricator, and sculptor who is held in high regard within the restaurant industry. Pena's restaurant projects include the Green Room and Stephan Pyles' Star Canyon (in Dallas and Las Vegas) and AquaKnox restaurants. He had already served as a Dragonfly subcontractor, at first hired just to fabricate the interior spiral staircase. He did other interior-design touches, including the granite water wall over the bar, an installation Kahn had ordered over Priebe's vigorous objections to the cost.

Sometime in April, Pena says, Kahn began frequenting his Deep Ellum office, pleading with him to help finish the aborted Dragonfly construction. Kahn knew he couldn't afford Pena, but his nagging persistence finally won over the burly contractor. Pena says that future Dragonfly chef and manager Erick Chavez would sometimes accompany Kahn and that both would plead for him to save them from financial disaster. "They begged me, man," says Pena with an acid edge in his voice. "For [Kahn] to drag me down to his level, that is just the worst thing. I mean, I've got a card from him saying, 'When this job is over, I'm going to owe you my ass.'"

Pena agreed to do the job--as a favor, he says--and told Kahn he'd cut his normal rate by more than half and start as soon as possible. But he quickly realized that he had been sucked into someone else's nightmare. He claims that much of Lookingbill's construction on both the Dragonfly and the Ocean Club had to be redone because it wasn't up to code. At one point, he yanked his crew and equipment off the project in mid-construction because he had a handful of bad checks totaling $40,000 written against Dragonfly accounts. But Pena came back, lured, he says, by Kahn's promises of payment and a potentially lucrative construction contract for the Ocean Club.

"I had so much money tied into it that I didn't know what else to do," says Pena. "[Kahn] promised me from the beginning, 'You'll get paid every penny. You won't be owed a dime, I swear to you, man. I'll owe you big-time.' All this crap. This guy's a fucking con man."

While Pena was completing construction on the Dragonfly, Kahn made a mad scramble for a fresh infusion of investor funds. Charlott Norman says Kahn secured a secret $50,000 loan from James Emerson, a limited partner lured to the project by Erick Chavez. Norman also coughed up another $25,000, wiring the money from her investment account to the Dragonfly account to cover bounced checks.

On May 20, Kahn and Priebe made a $75,000 capital call to all the limited partners, for which Norman put up another 25 grand. She also personally paid Pena another $5,500 for construction costs, making her total investment more than $155,000. As part of this capital call, the general partners were each forced to pony up a sizable contribution, but Priebe didn't have the needed funds. In early July, Kahn used the opportunity to oust Priebe as co-general partner and consolidate his control over the venture. He would eventually change all the locks and prohibit Priebe from going on the premises. Kahn also blamed Priebe for mismanaging parts of the Dragonfly's construction process. (Priebe refused to comment on the substance of these allegations.)

After getting wind of this capital call, Cheryl Lookingbill, Dale Lookingbill's sister, approached Priebe with a disturbing story. She said her brother told her of a kickback scheme that Kahn engineered to embezzle the partnership out of more than $60,000. She affirmed these allegations in a signed affidavit dated July 1. On July 6, Dale Lookingbill himself signed an affidavit confirming his sister's story. He said Kahn hired him as the Dragonfly's general contractor with the stipulation that he pay significant chunks of his fee back to Kahn.

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