Las Vegas Sun

March 18, 2024

Fontainebleau subcontractors want bankruptcy case moved

Motion filed to move case from Miami to Las Vegas

Fontainebleau Resort

The Fontainebleau, construction stopped, is seen dark along the Strip. Launch slideshow »

Creditors represented by the two law firms, and the amounts they are claiming, include:

Architectural Materials Inc.

Las Vegas

$22,000,000

Collings Interiors

Huntington Beach, Calif.

$640,855

Door-Ko Inc.

Las Vegas

$961,059

Door & Hardware Management Inc.

Las Vegas

$2,332,618

Eberhard/Southwest Roofing Inc.

Las Vegas

$1,456,459

EIDS Steel Co. LLC

Willowbrook, Ill.

$4,954,379

Eugenio Painting Co.

Grosse Pointe Woods, Mich.

$4,696,172

Gallagher-Kaiser Corp.

Las Vegas

$30,718,439

Marnell Masonry Inc.

Las Vegas

$2,049,169

Midwest Drywall Co.

Las Vegas

$8,116,932

Midwest Pro Painting Inc.

Las Vegas

$1,777,049

Mechanical Insulation Specialists

North Las Vegas

$122,935

Modernfold of Nevada

Greenfield, Ind.

$1,000,000

Southern Nevada Paving Inc.

North Las Vegas

$3,160,674

Universal Piping Inc.

Las Vegas

$3,496,538

West Edna & Associates/Mojave Electric

Las Vegas

(amount not listed)

W&W Steel LLC of Nevada

Oklahoma City

$24,171,846

Attorneys for a group of Fontainebleau subcontractors are suggesting the resort filed for bankruptcy in Miami, rather than Las Vegas, in hopes of excluding small creditors from meaningful participation in the financial restructuring.

The allegation was leveled Friday by the subcontractors' Las Vegas law firm, Gordon Silver, and their co-counsel, the Boca Raton, Fla., law firm of Shraiberg, Ferrara & Landau.

In a motion to move the case to Nevada, attorneys with those firms said Las Vegas creditors face time-consuming and expensive trips to Miami to attend hearings. That's a deterrent to their participation, said the lawyers, whose clients are asserting claims of more than $111 million in the case.

“These are sophisticated debtors with substantial operations, assets, and liabilities that have retained sophisticated bankruptcy counsel, and have made a strategic decision to file their Chapter 11 cases in an improper venue in an apparent effort to preclude their creditors from economical and meaningful participation in these Chapter 11 cases,” lawyers for the subcontractors charged in court papers.

“These Chapter 11 cases were improperly filed in this court. Even if venue is technically proper, debtors' selection of a venue across the country from its assets and its operations suggests a calculated effort to exclude its creditors, its employees, and the local community from its reorganization proceedings by substantially increasing the cost of participation,” the attorneys wrote.

A Fontainebleau spokesman on Sunday reiterated that most of Fontainebleau's senior leadership is in Miami and said court filings on the issue speak for themselves.

After three of the Fontainebleau companies behind the $2.9 billion resort filed for bankruptcy June 9 in Miami, Fontainebleau Resorts LLC (FBR) Chief Operating Officer and Chief Restructuring Officer Howard Karawan said FBR is the parent company of the three debtors.

“FBR is headquartered in Miami,” he said in a court filing. “All major decisions in respect of the project have been and are made by the Board of Managers of FBR. The Board of Managers has continuously exercised its ultimate control over the management, business activities (including the design and development of the project) and capital structure/financing of the debtors.

“All critical decisions in respect of the project -- operational and restructuring -- are and shall be made in Miami. Accordingly, I am advised and believe that venue is proper in this district,” he wrote.

But the subcontractor attorneys said the case could involve extensive proceedings involving Nevada law; appraisals of and site visits to the 70-percent-completed project on Las Vegas Boulevard; and the participation of hundreds of Nevada parties -- all matters they say are more appropriate to be heard by the bankruptcy court in Las Vegas.

“These Chapter 11 Cases have everything to do with Las Vegas and nothing to do with Miami. Of (Fontainebleau Las Vegas LLC's) approximately 1,730 identified creditors, only 93 are located in the entire state of Florida. By contrast, more than 700 identified creditors are in Nevada, not to mention the thousands of people employed or contracted to work on the Fontainebleau Las Vegas reside and work in Nevada,” they wrote.

The attorneys said that under Nevada law, contractor liens on the project will take priority over lenders' deeds of trust filed after construction commenced -- and that those liens will likely be subjected to a time-consuming process of challenges and adjustments.

“The disputes as to the validity and priority of the liens recorded by the secured creditors are governed by unique aspects of Nevada law, and any sale or foreclosure of the Las Vegas property would be conducted pursuant to and governed by Nevada law,” the subcontractors' motion said.

“Familiarity in applying Nevada mechanic's lien laws will be essential for determining the notice and apportionment issues for each lien claimant,” it said.

“Many failed casinos and real property developments have sought bankruptcy protection in the District of Nevada. The United States Bankruptcy Court for the District of Nevada is uniquely familiar with the physical property, the local economic climate, the valuation of similar properties and the impact of gaming regulations on the restructuring or liquidation process,” the motion said.

The attorneys also noted inconveniences Nevada parties will be subjected to with the case proceeding in Florida.

“A creditor or its counsel traveling to Miami for an argument or evidentiary hearing will be required to devote an entire day to travel. Even the earliest flight leaving Las Vegas does not arrive in Miami until after 2 p.m., thereby requiring such creditor to travel to Florida the day before the hearing, obtain a hotel and spend the remainder of the day after the hearing traveling back to Las Vegas,” they said. “Few creditors have the financial wherewithal to devote two full days to attending a hearing or alternatively to retain local counsel to appear on their behalf.

“Effectively precluding the participation of the majority of debtors' creditors is particularly unjust as such creditors reasonably expected to be able to protect their rights in Nevada because debtors are Nevada companies that operated their business in Nevada, and because such creditors provided their goods and services within Las Vegas,” the motion said.

The court has not yet ruled on the motion to transfer the case to Las Vegas.

Also last week, a separate set of subcontractors asked that a committee be formed to protect their interests. Saying they are owed $112 million, these subcontractors said general contractor Turnberry West Construction can't look after their interests because Turnberry West is controlled by the Fontainebleau developers.

Those subcontractors are Desert Fire Protection; Bombard Mechanical LLC; Bombard Electric LLC; Warner Enterprises Inc. doing business as Sun Valley Electric Supply Co.; Absocold Corp. doing business as Econ Appliance; Austin General Contracting, Powell Cabinet and Fixture Co. and Safe Electronics Inc.

Fontainebleau has not yet responded to their motion.

The U.S. Trustee in the case has already created a committee of creditors holding unsecured claims and appointed five members: Kelley II LLC doing business as Kelley Technologies; Minibar North America Inc.; Paul Steelman Design Group/Steelman Partners; Decca Hospitality; and Wells Fargo Bank as trustee for holders of second mortgage notes totaling $675 million.

Besides the filings in bankruptcy court, Turnberry West was sued this month by three subcontractors alleging they are owned money for work on Fontainebleau.

They are Desert Plumbing & Heating Co., which says it is owed $6.249 million; PCI Group LLC (unspecified amount) and F. Rodgers Corp. (unspecified).

PCI Group and F. Rodgers are also suing Western Surety Co. in hopes of recovering funds under Turnberry's performance bond.

Turnberry West has not yet responded to those suits.

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