PDS to settle claim against former Regent

David Strow

Monday, Dec. 17, 2001 | 10:49 a.m.

PDS Gaming Corp. has agreed to a payment of more than $19 million to settle its claims against the former owner of the JW Marriott Las Vegas, formerly known as the Regent Las Vegas.

PDS was the company that provided much of the resort's gaming equipment and furniture -- all of which went to the new owner of the resort, Hotspur Resorts, when the Summerlin hotel-casino was sold last month.

PDS had claimed it leased the equipment to the resort, and deserved to receive both payment for the equipment and pay-off of the leases. The Resort at Summerlin L.P., former owner of the hotel-casino, claimed PDS provided financing to the property, not leases, and deserved to receive only the "fair market value" of the equipment, minus more than $6 million in payments made to PDS while the property was in bankruptcy.

The difference between the two claims was far more than semantics. PDS' claim exceeded $50 million, court documents indicate, while Resort at Summerlin was arguing for payment of no more than $4 million.

PDS agreed to take $19.1 million in a settlement approved Thursday by a federal bankruptcy judge.

"The absolute dollar amount of the settlement to be received by PDS is an acceptable resolution of this matter," PDS said in court documents. "Significant additional expense will be incurred by PDS, the debtors and the lenders if this matter goes to trial."

That will reduce the pool of cash available to pay the resort's creditors -- and with an $80 million sale price, there wasn't even enough to pay off the property's secured creditors. But the $19.1 million paid out to PDS will be offset by a $22.25 million payment to the Resort at Summerlin by the resort's insurance company.

The $22.25 million payment, made by Steadfast Insurance Co., settles claims made by Resort at Summerlin against the property's general contractor, J.A. Jones Construction Co. Resort at Summerlin had been demanding $200 million in damages, saying long construction delays had been a key reason for the bankruptcy. J.A. Jones had made a counterclaim for nearly $30 million, claiming it hadn't been paid for work on the resort.

The settlement allows Resort at Summerlin to continue pursuing legal claims against J.A. Jones on such charges as overbilling and improper overtime charges. J.A. Jones is also free to pursue its mechanics lien against Resort at Summerlin, though the chances of collecting on this are low, since the secured creditors must be paid in full first.

Of the $22.25 million, $14.28 million will be paid to the secured creditors. Swiss Casinos of America, the equity owner of Resort at Summerlin, received just under $6 million; the company had extended a $3 million loan to the Resort at Summerlin that enabled it to continue pursuing its claim against J.A. Jones. Attorneys on both sides received the final $2 million.

Following this payment, attorney Candace Carlyon said the secured creditors will be repaid only about one-half of what they are owed. Unsecured creditors will not receive anything.

There are two lawsuits remaining that could result in greater recovery for the creditors, however. The Resort at Summerlin and the secured creditors plan to press a lawsuit against Marsh USA Inc., the company that provided Resort at Summerlin with its construction insurance policies.

Resort at Summerlin claims it asked for coverage of $100 million, but received only $25 million in coverage. The company plans to pursue a claim against Marsh for up to the $75 million difference.

"That case could result in significant additional recovery," Carlyon said.

The other claim outstanding is a claim by Resort at Summerlin on behalf of its creditors against its parent company, Swiss Casinos. Carlyon said it is expected that Resort at Summerlin will file a lawsuit alleging breach of fiduciary duty against Swiss Casinos by Jan. 15.