Aladdin settlements at issue in state case

Wednesday, Jan. 23, 2002 | 11:03 a.m.

A state judge was cleared Tuesday to begin the process of deciding who gets paid first in the bankruptcy of the Las Vegas Strip's $1.2 billion Aladdin hotel-casino.

Unpaid trade contractors have filed claims of at least three dozen mechanics liens against the Aladdin in the bankruptcy case. These liens total at least $21 million, though some of the liens may be duplicates. A lawsuit filed by the contractors to collect was halted when the Aladdin went into Chapter 11 bankruptcy in late September.

Before proceeds become available from a sale or reorganization of the Aladdin, one key question must be answered: whether the lienholders should be paid before the Aladdin's bankers, or after.

It isn't a trivial question for the lienholders, as the banks have claims of more than $430 million -- and the lienholders are at risk of collecting little or nothing from a sale or reorganization of the Aladdin if their claims come behind the banks.

"If there is no priority (for lienholders), there may be no money for lien claimants," said Kevin Stolworthy, an attorney representing lienholder Sturgeon Electric. "What everyone wants is a quick resolution of this issue. There's a lot of money at stake for a lot of people, a lot of companies."

Deciding where the money goes, however, is a complex process involving two separate courts, both state and federal.

On Tuesday federal bankruptcy Judge Robert Jones lifted the stay on the state lawsuit filed by the contractors against the Aladdin. This means that a state court, not the bankruptcy court, will have the responsibility of determining whether the lienholders will be paid.

The first step is to determine whose liens were placed on the Aladdin first -- those of the lien claimants, or those of the banks. Answering this question will determine who has the right to be paid first from the proceeds of the sale or reorganization of the Aladdin.

The next step in state court -- assuming the contractors decide to proceed -- would be to scrutinize each lien, and determine which liens are valid. Finally, a state judge would decide how much each valid lienholder was entitled to.

Jones will ultimately be responsible for overseeing the distribution of funds to all claimants, including the lienholders.

Separately, Jones extended the Aladdin's "exclusivity period" for filing a reorganization plan by five months. During this period, no creditor may file a proposal of its own for reorganizing a bankrupt debtor.

This period was set to expire on Friday, but was extended to May 27 at the request of the Aladdin.

Aladdin attorney Thomas Fell said the Aladdin and the banks are in talks about putting together a reorganization plan for the property.