Judge dismisses bankruptcy case of Rumjungle nightclub at Mandalay Bay

By Steve Green

Published Friday, June 25, 2010 | 10:53 a.m.

Updated Friday, June 25, 2010 | 3:41 p.m.

A judge on Thursday dismissed the Rumjungle nightclub bankruptcy case after landlord Mandalay Bay argued the Las Vegas club improperly and in bad faith filed for bankruptcy.

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 casino resort on the Las Vegas Strip.

Attorneys for Mandalay Bay, owned by MGM Resorts International, later argued the filing was improper because Rumjungle had fabricated the claim that it owed Mandalay Bay $1.1 million in rent.

The "$1.1 million Mandalay claim is a fabrication made by Rumjungle in its hopes of circumventing Mandalay's contractual and state law rights," charged the attorneys for Mandalay Bay, Todd Bice and Jeffrey Rugg of the Las Vegas firm Brownstein Hyatt Farber Schreck LLP, .

They noted Mandalay Bay has been engaged in state court litigation since 2008 with Rumjungle and its sister business the Red Square Restaurant at the resort. The litigation involves claims that each side breached the lease contracts.

U.S. Bankruptcy Judge Mike Nakagawa on Thursday sided with Mandalay Bay in the dispute and closed the Rumjungle bankruptcy case.

"Fundamentally, this matter remains a two-party dispute between Mandalay and the debtor concerning performance under the lease. That dispute can and should be resolved in the very state court action that the debtor itself initiated more than 18 months before this Chapter 11 proceeding was commenced. Debtor has failed to demonstrate that this Chapter 11 proceeding was commenced in good faith," Nakagawa wrote in his ruling.

"While debtor now asserts that its purpose in commencing the (bankruptcy) case was not to gain a litigation advantage, but to deal with its mounting debt, the evidence shows otherwise," the ruling said.

Rumjungle attorneys Nancy Allf and Angela Nakamura had unsuccessfully argued: "This is a case of a debtor who cannot pay debts as they become due and who legitimately filed for a reorganization for financial reasons exacerbated and caused by lease violations" by Mandalay Bay.

Rumjungle said in a court filing that its lease, running from 1998 through March 2014, required payment of base rent of $137,000 per month for the first 10 years and $75,000 per month thereafter. Additionally, Rumjungle agreed to pay 60 percent of its net income and that beginning in the 11th year this 60 percent had to result in a minimum percentage annual rental payment of $1.1 million.

Rumjungle claimed Mandalay Bay caused financial problems for Rumjungle when Mandalay Bay in October 2008 opened the eyecandy Sound Lounge & Bar venue, which Rumjungle calls a nightclub with no cover charge.

"Mandalay knew that to compete, Rumjungle would also have to stop charging a cover charge, thereby extinguishing a significant profitable source of Rumjungle's revenue," Rumjungle said in a filing.

Rumjungle also complained that prior to the opening of eyecandy, Mandalay Bay had been in talks to buy Rumjungle affiliates Red White & Blue, China Grill and Red Square -- but not Rumjungle, with Mandalay Bay allegedly "citing Mandalay's prediction that Rumjungle's revenues would soon decline to the point that it would default on its lease due to 'increased competition."' Talks to buy the affiliates ended after the opening of eyecandy, Rumjungle said in its filing.

Rumjungle also complained it has been harmed by Mandalay Bay's decision to limit guest referrals to Rumjungle; to allow another tenant, the Foundation Room, to change from a private club to a nightclub-type business open to the public; from the operation of the now-closed Ivan Kane's Forty Deuce Burlesque Show nightclub; and from the temporary operation in 2009 of a country and western themed bar called Nightclub PBR.

In the state court lawsuit, Rumjungle and Red Square charged that the relationship between the China Grill affiliates and Mandalay Bay started to sour in June 2004. when MGM Mirage -- now MGM Resorts -- agreed to acquire Mandalay Resort Group, which at that time owned Mandalay Bay.

"This deterioration was due to the new officers' dissatisfaction with being 'stuck with' the long-term leases held by the China Grill affiliates and has manifested itself in numerous circumstances where they have refused to abide by the preexisting written agreements embodied in the leases with the China Grill affiliates," the Rumjungle and Red Square lawsuit charged.

Mandalay Bay, however, charged in that lawsuit that it's the China Grill affiliates who breached the contracts. With the bankruptcy dismissal, that lawsuit likely will now proceed in Clark County District Court.

Mandalay Bay attorneys have said Rumjungle's problems relate to its own lack of competitiveness.

"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 a filing.

Rumjungle will remain open despite the legal setback, officials said Friday.

“It is our intention to continue this fight, to retain staff and to keep Rumjungle’s doors open. We still believe our legal case is strong and look forward to pursuing it in a venue other than bankruptcy court,” said Rumjungle manager Neil Faggen. “We believe the judge’s ruling is a reflection of the fact that Rumjungle’s financial operation was sound except for the dispute with Mandalay Bay, whose actions we contend violate our agreement.”

“Despite Mandalay Bay’s efforts to force us to close, we have legal options at our disposal and intend to pursue them,” Faggen said. “Our many customers and our employees deserve nothing less.