First construction lien case going against the Venetian

David Strow

Tuesday, Sept. 19, 2000 | 10:31 a.m.

A subcontractor is close to winning the first court battle over a mechanics lien against the Las Vegas Strip's Venetian resort. A court hearing officer recommended that the Venetian be forced to pay $1.33 million, the full amount demanded by the subcontractor.

But the Venetian is already challenging the ruling, claiming that defective work by the subcontractor will cost at least $2.5 million to fix -- and that the contractor should be held liable for these costs.

The recommendation is the first made over more than 100 mechanics liens filed against the Venetian. The recommendation will not become official until approved by Senior District Court Judge James Brennan, who will hold a hearing to hear the Venetian's objections Oct. 4.

Even if approved, the decision doesn't necessarily set a precedent for the other cases, since each lienholder must individually prove the extent of their claims against the Venetian at trial.

Though trials will be held at a later date for each lien, lienholders have the right to request a "preferential trial" to speed up the collections process. Under a preferential trial, a lienholder can collect amounts owed, but cannot claim damages for such issues as lost business. To date, six lienholders have requested a preferential trial; no date has been set for trials on the balance of the claims.

The first trial recommendation, issued by attorney Erika Pike Turner, would award Superior Tile Co. $1.126 million, the amount the company had claimed with its lien. Pike Turner also recommended payment of $109,000 in attorney's fees and at least $90,000 in interest.

Collection of these funds would be made from the $470 million in surety bonds posted by the Venetian to clear more than $300 million in mechanics liens from the property. However, the Venetian could halt this payment by appealing to the Nevada Supreme Court.

Without "bonding around" the liens, the subcontractors could have demanded the foreclosure sale of the Venetian to satisfy their claims.

The battle over funds owed to construction companies emerged after general contractor Lehrer McGovern Bovis claimed huge cost overruns on the Venetian construction project.

The Venetian, which had already paid the $653 million guaranteed maximum price provided by Bovis, disputed Bovis' overrun claims and refused to pay. Bovis then refused to pay its subcontractors for extra work, saying it wasn't legally bound to pay unless it had first been paid by the Venetian. The subcontractors, unpaid for their extra work by either the Venetian or Bovis, responded by filing the mechanics liens against the property.

Shortly after negotiations between Bovis and the Venetian broke down in August, the Venetian filed suit against Bovis, blaming it for delays in the resort's opening and construction defects. Three days later, Bovis retaliated with a lawsuit demanding payment of $146 million Bovis said it was owed on the project. Bovis claimed the overruns were caused by changes to the Venetian project, and the company filed a lien against the Venetian for this amount.

Both lawsuits are still pending. But many subcontractors have chosen not to wait, and have sold their rights to collect from the Venetian to Bovis at a discount. Though Bovis is named as a defendant in the lien trials, it would stand to collect from the Venetian if the subcontractors' claims it purchased were proven valid. The Venetian, meanwhile, said that Bovis should be responsible for payment of any successful subcontractor claims.

Superior Tile was the subcontractor responsible for installing much of the marble tile in the Venetian, including in the hotel rooms and the casino floor. The value of Superior's contract was initially $6.9 million, but was boosted by $6.8 million at the request of Bovis. Unlike many subcontractors, Superior did not sell the rights to its claim to Bovis.

As of July 1999, Superior claimed a balance of $1.126 million was left unpaid.

The Venetian had sought to reduce this amount, claiming that Superior Tile's work was defective. Because of these alleged defects, property attorneys argued, damage was caused that the Venetian sought to have repaired under warranty. Superior denied most of these repair requests because of non-payment, and because it said it could not be certain damages claimed weren't caused by other parties, rather than defects.

Most of the defects claimed by the Venetian came in the showers in each of the Venetian's 3,000 hotel rooms. Because an improper sealant was used on the showers' tile, the Venetian claimed, the showers' tile is deteriorated by "mineral bleaching, mold and mildew growth." Moreover, the Venetian claims tile was installed by Superior that is outside of the color range specified.

To repair the damage, the Venetian estimates each room will have to be removed from inventory for three days. This will result in as much as $810,000 in repair costs and $1.67 million in lost room revenues, the resort estimates.

However, in her finding, Pike Turner ruled that the type of sealant wasn't specified in the contract, and that materials used were approved by Bovis. Moreover, she ruled that the use of such sealants is standard practice in the construction industry.

Although Superior Tile has prevailed in the recommendation, it's likely it will be some time before the company could collect. Even if Brennan signs off on Pike Turner's recommendation, the Venetian could appeal the ruling to the Nevada Supreme Court, a move observers believe is highly likely. The Venetian would not have to make payments to Superior until its appeal was ruled on by the high court.