Mandalay Bay wants Rumjungle bankruptcy filing dismissed

By Steve Green

Friday, April 30, 2010 | 10:53 a.m.

Attorneys for Mandalay Bay casino-resort in Las Vegas are asking the U.S. Bankruptcy Court to dismiss the bankruptcy filing by the Rumjungle nightclub there, saying it was filed in bad faith and is a misuse of the bankruptcy process.

Rumjungle Las Vegas LLC filed for Chapter 11 bankruptcy reorganization on March 16, saying it needed court protection to prevent it from being evicted because of $1.1 million in back rent due the 4,328-room Mandalay Bay.

But in a court filing Tuesday, attorneys for Mandalay Bay said the "purported $1.1 million Mandalay claim is a fabrication made by Rumjungle in its hopes of circumventing Mandalay's contractual and state law rights."

Rumjungle and Mandalay Bay, owned by Las Vegas Strip giant MGM Mirage, have been locked in state court litigation since 2008.

Rumjungle claims Mandalay Bay breached the lease dated in 1998 allowing it to be the sole nightclub at the resort when Mandalay Bay opened the eyecandy sound lounge, which Rumjungle claims is a nightclub. Rumjungle also claims Mandalay Bay failed to send sufficient "comp" business to the club.

Mandalay Bay has counter-charged that Rumjungle and its sister business, the Red Square Restaurant at the resort, had previously breached their lease agreements.

In its filing Tuesday, Mandalay Bay said Rumjungle's problems relate to the recession and its lack of competitiveness with nightclub competitors that have opened over the years on and near the Las Vegas Strip.

"Like for virtually all other Las Vegas businesses, 2009 was a bad year for Rumjungle. Las Vegas was in the throes of the worst recession since the Great Depression. Considering that Rumjungle is a decade-old and outdated nightclub that has suffered continuing revenue declines for several years due to competition, it surprised no one that Rumjungle's 2009 revenues continued to decline," Mandalay Bay's attorneys wrote in their filing.

Mandalay Bay said business was so bad for Rumjungle that its revenue failed to generate sufficient cash flow to trigger any minimum rent payments to Mandalay. That triggered Mandalay Bay's right to terminate the lease, the resort attorneys argued.

"Now, wanting to hold onto the premises and hold up Mandalay's abilities to improve the property, Rumjungle resorts to the fanciful assertion that Mandalay's breach of the lease by operating 'eyecandy' is responsible for Rumjungle's revenue shortfall. According to Rumjungle, this conveniently allows it to remain at a below-market rent for the premises indefinitely," Mandalay Bay's filing said.

"Mandalay wants to exercise its contractual rights and retake its property. Mandalay has no interest in a reorganization and believes that, even after every other creditor is paid in full, Rumjungle's assets are more than sufficient to satisfy any actual debt owed to Mandalay. Plainly, Rumjungle has no interest in a reorganization, either. It has nothing to reorganize and is simply trying to use the bankruptcy process to stay in possession of the premises in violation of its contractual and state law obligations," Mandalay's filing said.

"Rumjungle's filing with this court is false. Mandalay has never asserted that it is owed $1.1 million as a debt. Mandalay has never demanded that Rumjungle pay $1.1 million for ... rent from 2009. Rather, as the lease unequivocally states, Mandalay exercised its contractual right of termination because Rumjungle did not generate sufficient available cash flow in 2009 so as to generate enough business that Mandalay would receive at least $1.1 million," the filing said. "The lease does not provide that Rumjungle is obligated to pay $1.1 million in ... rent. It provides that Mandalay may terminate the lease if Rumjungle fails to generate sufficient business that results in Mandalay receiving at least $1.1 million in ... rent," the filing said,

The attorneys for Mandalay Bay, Todd Bice and Jeffrey Rugg of the Las Vegas firm Brownstein Hyatt Farber Schreck LLP, said in the filing that Rumjungle has plenty of resources to pay its real creditors and that the bankruptcy is simply running up unnecessary legal expenses.

Rumjungle has yet to respond to the motion that its bankruptcy be dismissed. The state court litigation between the parties has been transferred to the bankruptcy court, but if Mandalay Bay is successful in its motion the lawsuit will likely be sent back to District Court for Clark County.