South Korean entertainment giant SM Entertainment is facing a lawsuit. The company’s plan to construct a mixed-use entertainment center in the heart of Los Angeles’s Koreatown has led to legal action.
The lawsuit alleges that SM Entertainment and its subsidiaries failed to pay Korean-American contractors more than $3.76 million in construction costs.
According to the Superior Court of California, Diamond Bar-based Pub Construction filed a lawsuit against SM Entertainment USA and its subsidiary Creative Space Development, alleging breach of contract, wrongful termination, foreclosure of mechanics lien, open book account, and account stated.
The lawsuit was filed last November in Los Angeles County Superior Court.
The building in question is a two-story, approximately 13,000-square-foot commercial building at the corner of 6th Street and Oxford Avenue in Koreatown. SM Entertainment founder Soo Man Lee purchased it in 2013 for $4 million.
SM Entertainment began construction on the building in 2017 to develop it into ‘SMT LA’, a multicultural space with restaurants and karaoke. The project is currently on hold as the plans have yet to be finalized.
According to the complaint, Pub Construction signed a written contract with SM Entertainment and its subsidiary Creative Space Development on June 29, 2016, for the construction of SMT LA and began work the following year.
“After the contract, Pub Construction provided labor, materials, and equipment at the property through August of 2023,” the plaintiffs claimed in the complaint. “Defendants wrongfully terminated the contract but refused to pay Pub Construction for its costs or any remaining balance due.”
Along with the complaint, the plaintiffs submitted evidence to the court, including contracts, construction details, and construction schedules.
Pub Construction was only responsible for the construction of SMT LA. SM Entertainment hired a separate contractor for design, architecture, and engineering work.
“In order to proceed with the construction, SM had to get approval for the drawing in consultation with the city of Los Angeles, but the details were changed frequently,” said Chris Yi, president of Pub Construction. “SM continuously failed to get approval for the revised plans, which delayed the construction for about two years and five months.”
After the initial contract, Pub Construction renewed the contract with Creative Space on August 16, 2019. The new contract stated that it would complete the construction by November 2019 if there were no delays caused by SM Entertainment.
The problem was that the design and drawings were again changed, causing additional construction delays.
“SM started to make unilateral claims that were far from principles, common sense, and facts, and began to shift the responsibility for the delay to us,” Yi said, “and they even notified the termination in November 2020.”
SM Entertainment then continued the construction through a construction surety bond. During this process, the surety insurer reassigned the work to Pub Construction given the construction progress. With SM’s consent, Pub Construction was reintroduced to the project on August 9, 2021.
Despite the company’s reassignment, the construction project did not progress successfully.
According to the plaintiffs, SM Entertainment changed the drawings 35 times during the construction process. In addition, more than 200 written submissions of RFIs (Request for Information) seeking problems and solutions during the construction process were made, plus more than 100 requests for change orders.
In May of last year, Pub Construction and the insurer temporarily suspended the construction project based on the difficulty of proceeding with the construction at the property.
“Normally it is very rare to change the drawings 35 times, and this shows that there is no will to continue the project,” said Yi, adding, “Even though the construction is currently suspended, the damage is growing because we continue to spend money such as on maintaining the fences.”
The Korea Daily reached out to SM Entertainment USA officials for comment but had not received a response as of 5 p.m. on April 16.
Pub Construction’s CEO Chris Yi is currently the chairman of the California Korean Construction Association.
SM Entertainment is a Korean entertainment company that has produced some of the world’s biggest K-pop stars, including EXO and Aespa. It was acquired by Kakao in 2023.
BY YEOL JANG, HOONSIK WOO [jang.yeol@koreadaily.com]
