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Circa in 2007.

Tim Fraser for The Globe and Mail/tim fraser The Globe and Mail

When New York City club king Peter Gatien landed in Toronto and declared he would change the city's nightlife forever with his audacious new nightclub Circa, he couldn't have known he was laying the groundwork for one of the most expensive financial flops the city's club set has ever seen.

The only thing left to fight over when the club closed in March was some old furniture and about $15,000 worth of booze - cold comfort to investors who were owed some $8-million.

While it was open, the club was a symbol of the city's ambitions - larger than life, world class and exclusive. Run by one of the most successful club owners ever to operate in New York City, it allowed patrons to imagine they were every bit as sophisticated as party goers in larger cities such as New York or London.

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"There had never been anything like it in Toronto," said Matt Sims, a promoter who was brought on early to help drum up interest in the club ahead of its October 2007 opening. "It felt like an unsinkable ship in the early days. I guess, looking back, it was the Titanic of night clubs."

Although he walked away from Circa a year before it declared bankruptcy, Mr. Gatien's reputation is inextricably linked to the most ambitious nightclub the country has ever seen. Maybe that's why he gets so snappy whenever the world "failure" is mentioned.

"It was a wildly successful venture for the most part," he says from the back corner of a Queen Street West restaurant where he's picking tersely at a salad. "There was a sense of something special - we were building something that had never been seen before anywhere in the world."

Two years into a self-imposed exile, Mr. Gatien is about to step back into the spotlight. He's scouting Toronto locations for a boutique hotel. A movie about his life is in post-production, and he hopes to have it on the film festival circuit come spring.

But the inside story of Circa remains to be told.

FROM NYC TO YYZ

Peter Gatien arrived in Toronto as an outcast criminal. The club veteran was unceremoniously shipped to the city in 2003 after serving time for state-sales-tax evasion in the United States, the only charge that stuck after a decade of failed drug raids that saw him charged - but never convicted - in a string of busts in his Manhattan clubs.

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The Cornwall, Ont., native lorded over the New York City party scene for decades, opening his first club in the city, Limelight, in 1983 in the shell of a 139-year-old Episcopal church. Not one to understate a moment, he had Andy Warhol bestow his blessing upon the property on opening night.

He went on to open the Tunnel, Club USA and the Palladium as he built a $50-million business empire. Mr. Gatien became both a cultural icon revered for his hedonistic temples and a lightning rod for criticisms about the city's unseemly underbelly, easily recognizable by the eye patch he wore while in New York (he lost an eye in a childhood hockey accident, but now wears sunglasses instead of the patch).

"If you went dancing in New York in the 1990s, you were in one of my clubs," he says. "It's that simple."

When former mayor Rudolph Giuliani vowed to crack down on the city's drug-fuelled party scene, Mr. Gatien's high-profile clubs were an easy target. The raids started in 1996, and led to federal drug-racketeering and conspiracy charges.

He would be acquitted, but charges that he evaded sales taxes and skimmed from the bank accounts of his empire would stick and lead to a 90-day jail sentence and $1.75-million fine.

"Apparently, the powers that be wanted Peter Gatien's head on a platter," author James St. James wrote in his memoir Party Monster, a book about his time as a New York party kid. "We [could]certainly see the DEA circling about trying to blend in, to great comic effect."

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As he left prison, Mr. Gatien vowed to resurrect the Limelight, which had folded under $2.2-million in debt while he fought his legal battle. He never got the chance: American authorities used immigration laws to ship the self-described "penniless" proprietor back to Canada - the country he left when he was 20 years old.

FINANCING THE PLEASURE PALACE

New to a city he didn't know and anxious to rebuild his empire, he partnered with Hingson Corp., a high-profile club owner in its own right that operated popular Toronto nightspots such as Eight, Eight Below, Banzai Sushi and Fez Batik to develop what would eventually become Circa Night Club, near the corner of Richmond and John streets.

When the partnership fell apart due to creative differences, Mr. Gatien pushed on alone. He promised that his 2,800-person pleasure palace would revolutionize nightclubs not only in Toronto but around the world, relying on artists and curators to create a unique space that was as much a museum as a boozeatorium.

"He's a genius, and he understands better than anyone in the world how to make a fun, social space," said Paul Budnitz, the founder of Kidrobot toys, who was contracted to build a theme room in the club. "His goal wasn't to build another nightclub or bar - he was there to build something beautiful and compelling."

Mr. Gatien brought in lawyer Ari Kulidjian to help him liaise with investors. He made Mr. Kulidjian chairman and kept the role of president for himself. The club was going to be expensive to open, and even the initial estimate of $3-million put it well out of Mr. Gatien's range.

Mr. Kulidjian helped raised hundreds of thousands from friends and family members, helping to get the building ready for its debut.

But while he helped raise what was needed, things were already coming apart financially before the doors even opened. The loans carried interest rates as high as 36 per cent, at a time when traditional lenders would make money available for less than 5 per cent to good borrowers.

"I'd already fronted about $100,000 and with my money at risk I thought I'd better do something," Mr. Kulidjian said. "I did the classic chase-bad-money-with-good thing. To use a colloquial term - it was always a buck short and a day late."

SUCCESS, DIVISION, DETERIORATION

They did build a popular nightclub, that much can't be argued. Thousands of patrons a night crammed into Circa's indoor waiting room for a chance to pay $280 for a bottle of Grey Goose in the VIP. It was also building a reputation as a place for live music - 50 Cent was a musical guest, as were other high profile acts such as Justice, Kanye West and Lady Gaga.

"Circa was something special," said Mr. Sims. "Anyone who was involved will tell you it was one of the most exciting and rewarding experiences of their lives. It was just so insane and huge and ambitious."

Spread over four floors, the 55,000-square-foot complex was licensed to serve booze to some 2,800 people at a time, and it usually did. While relatively few made it up to the top VIP level - a glass cube suspended above the dance floor - each floor became a destination of its own because of the unique designs.

The infamous Bathroom Bar, for example, was designed to look like a hospital morgue, and the bar and seating resembled toilet seats and bedpans. A dentist's chair sat prominently in the middle of the room, a favourite spot for any number of scandalous activities. Anyone who had to take a brief respite from the party could pop into the bar's unisex bathroom.

"Go anywhere in the world and you won't find something like that," Mr. Gatien says. "We won Best Super Club - and that wasn't for Toronto. That was for the world - New York, L.A., Miami."

While court filings suggest the club was on track to pull in some $7-million in revenues that first year, the dozens of investors who had been conscripted in the early days were wondering when they would see some return on their investments.

They were right to worry, because while the club was packing the house when it flung open its doors, it was also fabulously indebted from Day One. It took a year longer to open than planned due to holdups getting the liquor licence, but the owners still had to pay $140,000 a month in rent and keep some key employees on the payroll.

Things didn't get much better financially when the doors finally opened. The club was popular and easily reached capacity most nights, but the profits were constantly being earmarked for interest payments.

"We were making good money," Mr. Gatien said. "But it cost a lot to run. There's no reason - other than those initial debts - that the club shouldn't have been earning margins around 20 per cent ... it was costing hundreds of thousands just to pay the [interest payments]"

late 2008, Mr. Kulidjian hired an accountant to go through the books in the hopes of cutting costs. The decision led to a falling-out between Mr. Kulidjian and Mr. Gatien about how much of the club's budget should be spent on art and performers, and would ultimately end their partnership.

The two are still battling in court, with Mr. Kulidjian accusing Mr. Gatien of shoddy bookkeeping and irresponsible spending (at best) and Mr. Gatien demanding back pay and alleging breach of contract.

Mr. Gatien left for good in February 2009, with key talent such as the general manager and VIP bottle manager following shortly after. It was the same club, to be sure, but without Mr. Gatien, many key backers quickly lost interest.

"It had turned out to be such a wonderful place," said Mr. Budnitz from his Colorado home. "But after [Mr. Gatien]left, there was never a reason to go back up. With him gone, I didn't want anything to do with it."

THE PARTY'S OVER

Through 2009 it became clear that there was no way the club would be able to operate with almost $8-million owing to its 150 creditors. Now running the club without Mr. Gatien, Mr. Kulidjian found himself with a new problem - landlord RioCan Real Estate Investment Trust was sick of late payments on the rent.

Bankruptcy documents indicate Mr. Kulidjian asked the club's creditors to cut it a deal in January, 2010. Nobody would be paid what they put in under the plan, but management hoped they'd settle for less if the alternative was to get nothing at all.

One lender - the chief executive officer of an oil and gas exploration company who was owed $1.8-million - would get notes promising full payment within five years, with interest. Other secured lenders would only get 60 per cent and lower interest payments, while suppliers and other unsecured creditors would have to settle for 30 per cent of what they were owed at a 3 per cent rate of interest.

The bankruptcy documents suggest everyone was on board - everyone, that is, except the landlord who would just as well see the whole thing shut down rather than having to knock on the door every month asking for back pay.

The landlord's concerns would turn out to be an irrelevant sideshow. The fatal blow would come from the Royal Bank of Canada, which, in March, forced the company into bankruptcy over an unpaid $249,000 loan.

Three years after its splashy opening, Circa was dead, and the creditors were left to fight for the few assets that remained. Total debts were listed at $8.8-million, and if you added up everything left in the cavernous building - from the old dentist's chair in the Bathroom Bar that was a starring prop in countless dirty photos, to the battered fridges that housed the alcohol - only $62,000 would be available to pay debts.

Of that, $15,000 was sitting in bottles on the shelves.

"I was attracted to Circa because it was a sexy concept," said Lev Ozdemir, a builder who is listed as a $50,000 creditor in the bankruptcy documents. "It was fresh and new, and as a risk taker, that intrigued me. It was an expensive mistake."

THE MORNING AFTER

The cavernous fortress of partying that was once Circa is now conspicuously empty, with giant "for lease" signs plastered in the windows. What comes next for the site isn't entirely clear - as Circa fought for its life, the neighbourhood around it has become less clubby and more residential.

There is a proposal to build a small boutique hotel on the same block, and the space currently occupied by the Embassy nightclub is in the early stages of a rezoning proposal that could see a developer build a 28-storey condo. TAS DesignBuild, meanwhile, wants to build a 35-storey condo on the same block.

Meanwhile, a $20-million suit that pits Mr. Gatien and Mr. Kulidjian against one another is also languishing in the courts, already having generated hundreds of pages of arguments and counterarguments.

The end is likely nearer for the bankruptcy proceeding - with so few assets to distribute, there's just not that much to discuss.

"We are still administering the file and have not been discharged as trustee; as well, the court-appointed receiver, to my knowledge, has not been discharged as well," said Hans Rizarri, a Soberman Inc. trustee that is handling the bankruptcy. "These discharges will likely take place over the next 12 months."

Mr. Kulidjian has returned to practising law, saying he had never intended to become so involved in the club in the first place.

"I don't regret anything because I learned a lot," he said. "I used to think I was a pretty sharp cookie. But everything in life happens for a reason, things happen because they should."

As for Mr. Gatien, he's been keeping a low profile since walking out of Circa. That's not likely to last much longer - he's spent the last year filming a documentary about his life, financed by a half-a-million dollars he managed to raise from investors. He's also written several episodes of a TV series based on the New York club scene that he hopes to shop around.

He's also scouring Toronto, hoping to find a good location to build a boutique hotel - he thinks the city could use another 20 or so.

And he's plotting a return to the United States, where his reputation was built. He's not allowed in the country now, but is applying for a waiver that would permit him to travel. He's particularly interested in scouting Las Vegas for any business opportunities, after having received some interesting pitches while in exile.

Image rehabilitation? Suggest that at your own peril.

"I'm actually a very reclusive person and just think I have a compelling story to tell," he says, smirking at the very obvious irony of a private citizen spending $500,000 to capture his life on film. "My reputation is fine - I've done what I've done and everyone knows what I'm about. I don't need to worry about things like that."

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