Venetian-builder rift widens

Gary Thompson

Thursday, Aug. 5, 1999 | 11:17 a.m.

Sheldon Adelson got a double-barreled dose of bad news Wednesday when subcontractors threatened to foreclose on his Venetian hotel-casino and the resort's general contractor filed a $582 million lawsuit against it.

Venetian General Counsel David Friedman said today the lawsuit filed by general contractor Lehrer McGovern Bovis Inc. is "patently absurd" and insisted the resort has paid Bovis "everything we owe to date. In fact, we've even paid additional amounts in advance of proper documentation from Bovis."

Some Venetian executives headed later today for a District Court hearing on a suit Adelson has filed seeking to block a Las Vegas Convention Center expansion he fears would take business from his Sands Expo Center.

Mounting concerns over the Venetian's legal battles and uncertain finances combined to push the resort's publicly traded debt to record lows today.

Late Wednesday, Bovis filed a lawsuit in District Court seeking compensatory and punitive damages for alleged fraud on the part of Adelson and other Venetian officials.

Bovis wants the court to force Adelson to pay $145.6 million to cover mechanics liens the general contractor says it's owed, and asks for punitive damages as well. That could treble any award, potentially adding another $436.8 million to the tab.

The Bovis suit alleges Venetian officials "recklessly, maliciously and intentionally" made "material and false representations of fact" by promising in May to pay for $20.7 million of work Bovis performed in April and refusing to do so.

"At the time VCR (Venetian Casino Resort) stated it would pay the amounts," the lawsuit alleges, "VCR had a present intention not to pay and knew it would not then pay those amounts."

The lawsuit also claims that Adelson reneged on his promise, which he made to both Bovis "and by public statement in the project bond prospectus," to put up another $25 million in cash to pay for changes to original construction plans for the resort, which started opening in phases May 4.

Relying on the promise, Bovis says, it continued to work on the resort "despite errors and omissions of VCR's design professionals, all at a cost to LMB in excess of" the guaranteed maximum price for the resort.

"VCR knowingly and maliciously refused to fund the (Adelson) contribution ... (and) has been guilty of oppression, fraud and/or malice," the lawsuit says.

"In Las Vegas, a gentleman always pays his marker," Bovis spokesman Sam Singer said today.

"We have Mr. Adelson's marker for $145 million. We expect him to be a gentleman and to own up to the debt he owes both to the subcontractors and to Lehrer McGovern Bovis.

"We will continue good-faith negotiations with Mr. Adelson and attempt to get him to do the honorable thing and pay his debts," Singer said.

Liens totaling more than $215 million have been filed against the Venetian by Bovis and subcontractors, though Venetian officials say privately that duplicate liens reduce the actual amount owed to $145 million.

Those liens, however, exclude another $35 million in claims for work done by a dozen subcontractors represented by Construction Contract Management Services, according to CCMS President Keith Swift. San Diego-based CCMS is negotiating with Venetian officials to collect for clients who are owed "undisputed amounts," Swift said.

Swift said that in 15 years of construction industry experience, "I've never seen a project with $215 million of liens. This one is off the scale."

Meanwhile, Margi Grien, executive director of the Nevada State Contractors' Board, urged subcontractors who haven't been paid for their work to file complaints with the state agency.

"If the general contractor has been paid by the Venetian and hasn't paid you in turn, it's within our power to consider (building) licence revocation," she told more than 50 construction company representatives meeting here Wednesday. She noted that Bovis' state contractor's license comes up for renewal next Monday, but that no complains are currently pending against the company.

"If the general contractor hasn't been paid by the Venetian, then the matter should be taken up by the State Gaming Control Board and the Nevada Gaming Commission," Grien said.

Gaming regulators can revoke a casino operator's license for actions detrimental to the industry's image and reputation. Subcontractors said the Gaming Control Board has already been contacted.

In a letter to Jack Jeffrey, secretary-treasurer of the Southern Nevada Building & Trades Council, Venetian vice president Stuart Mason said the resort "has made all its payments to Bovis and Bovis' subcontractors ... right up through July 12 -- the last period, which we received a payment request from Bovis."

"We believe it is unconscionable that some of Bovis' subcontractors may not have been paid by Bovis since May," Mason wrote.

"The Venetian is doing everything it can to resolve this issue ... Unlike Bovis, which is headquartered in New York, the Venetian is a local business," he said.

The Venetian also issued a press release containing the same statements under the name of its president, William Weidner.

"There aren't any excuses," said Gene Newton, chief financial officer of Saffles Construction Co., which has filed $1.2 million of liens against the Venetian.

"Their building is up and open and they're making money by using our time and money," Newton said. "We need to take this to the Legislature to make sure this doesn't happen again."

Richard McCracken, an attorney for the building and trades council, said a major Nevada law firm has agreed to represent subcontractors in their fight to get paid. He didn't identify the firm, but said it is prepared to take foreclosure action against the resort.

"Your work and your materials have become the Venetian, which has enjoyed the benefits of your labor and material and owes you," he said. "If the work was authorized by or known by the owner to have taken place, the owner is responsible.

"You have the right to enforce mechanics liens against the property," the lawyer said. "An enforcement action isn't an action for damages. The remedy is the sale of the property. It is a foreclosure action.

"If a lien is validated, the court is obligated to put the property up for auction. Sale proceeds would be used to satisfy all liens and other obligations, including deeds of trust."

Mechanics liens are superior to the deeds of trust held by bondholders, including those owning $425 million of Venetian first-mortgage notes and $97 million of senior subordinated debt. The notes were quoted at 86.7 today and the subordinated debt in the high 70s, even though word of the Bovis lawsuit hadn't reached many holders yet, a bond analyst said. The par value of the bonds is 100.

McCracken said the Venetian or Bovis could "bond around" the outstanding liens by securing a bond for the full amount outstanding. Such an action would transform the liens into a contract suit against the bond. If subcontractors won their lawsuit, "the money is there to pay you," he said.

If a foreclosure action is initiated by even one subcontractor, McCracken said, all the outstanding liens will be brought into the case by a trustee.

In the event subcontractors seek foreclosure, bondholders concerned about their own holdings might "do something" to stop a forced sale of the property, he said.

"There are plenty of people with an interest in seeing you get paid and avoiding losses," McCracken said. "No one has ever seen mechanics liens of this magnitude."

Several subcontractors at the meeting suggested pressure be brought to bear on state and county officials after Grien noted that the situation could seriously damage the state's construction industry. Some subcontractors could go out of business, while survivors might try to recoup losses on the Venetian contract by boosting prices for their next commercial and residential construction jobs.