Club, spa attempt to force Aladdin’s hand

David Strow

Monday, Oct. 15, 2001 | 9:24 a.m.

The builders of two major projects at the Aladdin hotel-casino are looking for guidance on whether to proceed with construction, following the Las Vegas Strip property's Chapter 11 bankruptcy filing last month.

Meanwhile, the Aladdin is petitioning a bankruptcy judge for permission to pay nearly $750,000 to several of its food and beverage vendors, who have suspended service to the Aladdin following the Sept. 28 bankruptcy filing.

One project that apparently won't be opening on time is a combination showroom and nightclub, proposed by Showclubs of America. Once scheduled to open in early 2002, the 1,200-seat showroom is proposed to feature "Lumiere," a nightly show headlined by actress Carmen Electra. Once complete, the showroom will convert into a three-level, 40,000-square-foot nightclub.

The project will cost $12 million to $14 million, Showclubs of America estimates. The company's 30-year lease with the Aladdin calls for construction to begin this month and the nightclub to open by April 15.

Now, Showclubs of America is claiming that the terrorist attacks of Sept. 11, and the subsequent downturn in tourism in Las Vegas, gives it legal grounds to push back the construction and opening of the nightclub. The company claims these events constitute "force majeure" -- a legal term for an uncontrollable event that releases a party from its contractual obligations.

"The events of Sept. 11, 2001, have had a tremendous financial, political and social impact on the United States, and indeed, the entire world," the Showclubs of America filing states. "The federal government has undertaken a 'warlike operation.' The societal and financial ramifications continue to unfold.

"Pursuant to the Force Majeure Clause ... any time limit for Showclubs' performance under the lease is extended so it has a reasonable period of time to comply with its obligations. These obligations include, but are not limited to, the beginning of construction ... and the opening of the premises and the show to the public."

With its bankruptcy, the Aladdin must also state which leases it will continue to honor. In its filing, Showclubs of America asked the Aladdin to quickly decide whether it will accept or reject its 30-year lease.

Such a decision should be made "within a reasonable period of time to allow Showclubs to move forward with its other obligations under the lease ...," Showclubs of America said in its filing.

The Aladdin had not responded to the filing as of Friday, and no hearing has yet been scheduled. Both Aladdin and Showclubs of America officials declined to comment.

One project that does appear to be going ahead on schedule is the Aladdin's 32,000-square-foot, $13 million spa. The spa is being built by Steiner Leisure Ltd., a Miami-based operator of cruise ship spas, and had been on schedule to open in December when the bankruptcy filing came.

On Oct. 5, Steiner filed an emergency motion to force the Aladdin to accept its lease, arguing it could not continue construction without such action.

"A logical analysis can hardly discern any scenario where the (Aladdin) or its estate or its constituencies would benefit by not assuming the lease and having Steiner complete and open the spa," the Steiner filing said. "Steiner cannot continue to complete the spa unless and until the assumption of the lease is ordered by this court. If that order is not entered within a week or less, construction of the spa will begin to abate, damages will escalate rapidly and the issue will begin to quickly spin out of control."

The Aladdin, which is proceeding with the construction of walkways to the spa, said in an Oct. 11 filing it plans to assume the lease. "The commencement of the operations of the spa is in the best interest of (the Aladdin) and the estate," the Aladdin's filing said.

However, the deal isn't done, as the two sides are in a dispute over terms of the lease.

To protect its investment, Steiner negotiated a lien on the spa. If the Aladdin terminated the lease, Steiner said, it would be entitled to all future income from the spa's operation by the Aladdin or another party. The terms of the lien have been negotiated with the Aladdin's banks, Steiner said, but the lien has not been formally recorded with Clark County, and so has not gone into effect.

"Based upon its failure or inability to record (the lien), the (Aladdin is in default under the lease," Steiner's filing said. "As a result of the default, Steiner is within its rights to suspend the building of the spa pending cure of default."

But the Aladdin countered that the documents aren't necessary to protect Steiner's lien. The reason the documents haven't been filed, the Aladdin's filing said, is that Steiner and the Aladdin's bankers haven't been able to agree on the legal language of the document. The Aladdin also denied it had defaulted on Steiner's lease.

If the Aladdin tried to record the documents without the banks' consent, "it may disputably cause a default" under terms of the $9 million loan the Aladdin received from its banks after filing for bankruptcy. This loan has enabled the Aladdin to keep its doors open during the early days of bankruptcy; a default on this loan would give the banks the ability to shut down the hotel-casino.

The matter is scheduled to be heard this morning before bankruptcy Judge Robert Jones.

Also on the agenda of today's hearing is the emergency payment of $732,000 to five of the Aladdin's vendors: Outwest Meat Co., Bell Trans (a limousine service), Southern Nevada Wine & Spirits, Anderson Dairy and US Food Service. The Aladdin characterized the five companies as "either the only provider of such goods (food, alcohol and limousine service) or impossible to replace on short notice."

The Aladdin had sent these payments to the five vendors before the bankruptcy was filed Sept. 28. But the day before the filing, the Aladdin said Wells Fargo Bank froze its account, and did not honor the checks.

Since that occurred, some of the vendors have stopped doing business with the Aladdin, and others may follow, the Aladdin said in an Oct. 5 filing.

"In order to successfully reorganize it is imperative for the debtor to maintain the confidence and goodwill of its customers," the Aladdin filing stated. "To maintain this confidence and goodwill, (the Aladdin) must provide its customers with essentially the same level of service as prior to the commencement of this bankruptcy case.

"The supply of food and alcohol, as well as other essential services, must continue unabated during the (bankruptcy case) if substantial harm is to be avoided."