Fontainebleau: Bank no longer ‘seeking to destroy’ project

By Steve Green

Thursday, Sept. 17, 2009 | 10:48 a.m.

The bankrupt Fontainebleau Las Vegas casino-resort development has quietly dropped its allegation that Deutsche Bank has been working to undermine Fontainebleau in order to protect the bank's interest in a competing hotel-casino.

Fontainebleau made headlines May 12 when it issued a press release saying it had amended its $3 billion lawsuit against a group of banks that had cut off $656 million in funding needed for construction of its resort.

The press release said Fontainebleau was "demanding additional damages from Deutsche Bank Trust Company Americas for 'seeking to destroy the Fontainebleau in order to minimize competition' with the nearby Cosmopolitan Resort and Casino," which Deutsche Bank had foreclosed on and now owns.

But attorneys for Fontainebleau on Tuesday filed a stipulation with Deutsche Bank attorneys in U.S. District Court in Miami in which Fontainebleau voluntarily dismissed those allegations against Deutsche Bank.

The allegations were dismissed without either party recovering costs related to the matter, and were dismissed without prejudice -- meaning they could be raised again by Fontainebleau.

The stipulation didn't say why Fontainebleau dismissed the allegations.

A request for comment was placed Thursday with Fontainebleau. But since a public relations firm stopped representing the company Aug. 1, it has generally declined comment to the news media on its bankruptcy and related legal cases.

Fontainebleau did not dismiss the remaining allegations against Deutsche Bank, Bank of America and other lenders charging they wrongfully withheld the funding.

The cancellation of that funding has been blamed for the shutdown of construction at the 70-percent-complete resort and its eventual bankruptcy.

Fontainebleau last month suffered a setback in the lawsuit when a federal judge ruled the banks were correct in their interpretation of the credit contract at issue.

Though he denied Fontainebleau's motion for partial summary judgment against the banks and rejected the request that the banks be forced to immediately turn over the money, the judge said factual issues remain in dispute and can proceed toward trial.

Fontainebleau has said court-ordered mediation in that case does not appear likely to be successful and that it's talking with at least one party interested in buying the partially-completed resort.

The banks have said they halted funding because Fontainebleau was in default on the credit agreement because of cost overruns and other problems at the $2.9 billion resort on Las Vegas Boulevard.

The other defendants in the case are Bank of America subsidiary Merrill Lynch Capital Corp., JPMorgan Chase Bank, Barclays Bank PLC, the Royal Bank of Scotland PLC, Sumitomo Mitsui Banking Corp., Bank of Scotland; HSH Nordbank and MB Financial Bank.

Separately, the judge in the company's bankruptcy case on Wednesday granted Fontainebleau's motion for access to cash to cover expenses for an additional three weeks.

The Miami Herald reported that creditors had argued the project wasn't worth enough to continue funding the bankruptcy case with their cash.

The Herald reported that Scott Baena, Fontainebleau bankruptcy lawyer, said a casino operator wanted to buy the unfinished project but declined to reveal the suitor.

"They're real. They've got the cash," Baena said in court, according to the Herald.

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In part, this is the portion of the lawsuit that has been dropped:

"Fontainebleau also asserts two additional claims against defendant Deutsche Bank Trust Company Americas ("Deutsche Bank"). Deutsche Bank is a subsidiary of Deutsche Bank, A.G., which shortly over one year ago became the owner and developer, through an affiliate, of another resort-casino under development on the Las Vegas Strip -- the Cosmopolitan Resort and Casino (the "Cosmopolitan") -- that will face stiff competition from the Fontainebleau Las Vegas once it commences operations.

"Deutsche Bank was originally the Cosmopolitan's lender, and acquired the project in mid-2008 in a foreclosure, following the borrower’s default, for approximately one billion dollars. To further its own interests as the Cosmopolitan’s owner and developer, Deutsche Bank is now seeking to destroy the Fontainebleau in order to minimize competition with the Cosmopolitan project. To that end, Deutsche Bank has sought to persuade other Revolver Banks to breach their commitments and has worked aggressively to discourage other Revolver Banks from working out their differences with Fontainebleau. In so doing, Deutsche Bank has breached the covenant of good faith and fair dealing that is implied by law in every contract that, like the loan agreement here, is governed by New York law.

"Deutsche Bank’s misconduct is more than just a breach of its contractual obligations. To serve its own conflicting interest in ensuring the success of Cosmopolitan, Deutsche Bank has induced other Revolver Banks to breach their own commitments -- which, under the loan agreement, are separate and independent obligations. Accordingly, Deutsche Bank is liable for tortuous interference with the other Revolver Banks’ contractual obligations."