Fontainebleau contractors seek lien claims in state court

By Steve Green

Monday, Sept. 14, 2009 | 9:39 a.m.

With the Las Vegas Fontainebleau resort bankruptcy case seemingly stalled, a group of contractors is seeking permission to pursue construction lien claims in state court in Nevada -- outside of the bankruptcy process.

The contractors, in a court filing Friday, said they want to get started protecting their lien claims in state court in part because those claims are under attack by lenders in the bankruptcy court.

The lenders' efforts to subordinate the contractors' liens is based on the questionable assumption that Fontainebleau will find funding to resume construction on the stalled $2.9 billion resort, the contractors argued.

"While the lienholders remain hopeful the debtor will find additional funds (either through an equity infusion and/or junior debt facility) to complete the project, we are 90 days into this reorganization proceeding and reality has begun to set in. After three months, debtors have identified no exit strategy nor source of additional outside capital. With no financing, no equity infusion, and no plan, it has become clear (the lienholders) are forced to take action to protect their interests."

The contractors, represented by the Las Vegas office of the law firm Gordon Silver and the firm Shraiberg, Ferrara & Landau in Boca Raton, Fla., noted a couple of setbacks sustained by Fontainebleau during the bankruptcy process:

--Records indicate Fontainebleau's owners no longer have any equity in the project, as its debts and the costs to complete the resort exceed the value of the project.

--Fontainebleau has lost a key summary judgment ruling in its lawsuit against Bank of America and other banks that this spring canceled $656 million in planned funding for the resort, leading to the shutdown of the project and its June bankruptcy. A federal judge last month found the banks were correct in their interpretation of the credit contract at issue -- an interpretation the banks said justified their decision to stop funding Fontainebleau. Some factual issues in the lawsuit remain to be litigated and that case remains open.

The contractors participating in Friday's motion said they are owed $111 million and that state courts in Nevada are best suited to handle the complex process of sorting out the validity of liens against Fontainebleau.

They said if Fontainebleau finds funding and construction is resumed, the bankruptcy court could determine how confirmed liens are settled -- and if funding isn't found the lienholders could continue asserting claims through a potential foreclosure process against the resort.

"Because (lienholders) are not seeking by the proposal set forth in this motion to foreclose on the project or obtain payment of their claims without further order of this court, debtors can continue their efforts to find capital as the lien litigation proceeds," the lienholders said.

They said they prefer to proceed in Nevada court -- where they say contractors' liens take priority over lenders' liens -- because in the bankruptcy court they would have to challenge the lenders' liens. That would require substantial time and effort given that the court is in Miami, the contractors said.

"By way of example, in connection with the Venetian Casino Resort lien litigation, nine witnesses testified and approximately 400 exhibits were introduced in the trial of the single lien claim of Scott Co. of California, which lasted 33 days," the contractors' motion said. "In the 130-day trial of the lien claim of Lehrer McGovern Bovis, the general contractor of the Venetian, 43 fact witnesses and five expert witnesses gave testimony, and 11,000 exhibits were introduced.

"Though other parties may minimize the complexity or intricacy of the litigation of lien claims in Nevada, there is no question that a determination of the validity, priority and amounts of liens in large-scale construction projects such as the Fontainebleau Las Vegas is a time-consuming and tedious process," they said. "The Nevada mechanics' lien statute provides mechanisms for the greatest possible expediency in determining lien claims in Nevada."

Fontainebleau and the lenders have not yet responded to the contractors' motion to start the lien process in Nevada state court.

Separately, a hearing on a motion to transfer the entire bankruptcy case from Miami to Las Vegas has been moved from Sept. 9 to Sept. 22.