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Thursday, Dec. 3, 2009 | 7:58 p.m.
Catherine Cortez Masto
Sun Archives
- Station Casinos, lenders agree to rent decrease at 4 properties (11-20-2009)
- Creditors want to expand probe of Station Casinos deal (11-19-2009)
- Station Casinos’ loss widens on reorganization costs (11-16-2009)
- Station Casinos wants more time to restructure finances (10-16-2009)
- Judge grants request of Station Casinos creditors to probe 2007 deal (9-30-2009)
- Station Casinos opposes creditors’ request to probe 2007 deal (9-29-2009)
Nevada Attorney General Catherine Cortez Masto and gaming regulators are intervening in the Station Casinos Inc. bankruptcy case, demanding that if a trustee is appointed that the trustee be licensed by state casino regulators.
Disgruntled Station Casinos' unsecured bondholders earlier this week asked U.S. Bankruptcy Judge Gregg Zive in Reno to appoint a trustee to supervise Station, charging Station executives have engaged in deals harmful to the bondholders while benefiting secured lenders to the company.
Station has denied those allegations and is expected to ask Zive to reject the request, which was made by attorneys for the bondholders and other unsecured creditors, organized as the case's Official Committee of Unsecured Creditors.
In a court filing Thursday, Masto's office didn't take sides on whether a trustee should be appointed.
But, representing the State Gaming Control Board and the Nevada Gaming Commission, attorneys for Masto argued any trustee "must be accountable to the board and the commission for the conduct of the Nevada licensed establishments prior to exercising any control over the gaming operations.''
"The common thread that runs throughout the history of gaming control in the state of Nevada is that gaming is vital to the state’s life and economy, that the peculiar nature of the gaming industry presents special concerns and problems in the area of control, and that effective control is the only mechanism which will ensure appropriate deference to the health, safety and welfare of the state’s citizenry,'' the state's filing said. "Moreover, the board and commission have special expertise that makes them uniquely qualified to properly administer the necessary controls in implementing the police powers of the state of Nevada over the gaming industry.''
Station and its creditors have not yet responded to the state's filing.
The unsecured creditors, in their filing Tuesday, charged "Station Casinos Inc.'s estate has been hopelessly mismanaged and Station Casinos has proven itself incapable of creating anything save acrimony between itself and its various creditor constituencies.''
The creditors complained that in a recent deal in which Station agreed with secured lenders to temporarily lower the rent Station pays to lease from itself four hotel-casinos, Station "gave away'' assets to its subsidiary "for little to no consideration and without the benefit of any meaningful analysis.''
The unsecured creditors face substantial losses in the case because the recession has reduced the value of Station's assets and left Station unable to service its debt and other long-term obligations last reported at $6.818 billion.
The unsecured creditors also complained in their filing that Station recently compromised with a group of lenders to get the lenders to drop their motion to have an examiner appointed to supervise Station, which has 18 locals casino properties.
The compromise "seeks to buy off parties'' and "such behavior would be unacceptable in any context but especially in a court of equity,'' the unsecured creditors complained.
Zive has not yet ruled on the motion that a trustee be appointed to supervise Station — a motion Station attorneys are sure to fight.
"We believe these claims are wholly without merit,'' Station spokeswoman Lori Nelson said. "We believe they are factually inaccurate.''
Since Station filed for bankruptcy protection in July, the creditors committee has been critical of Station and has been investigating the 2007 deal in which the Las Vegas company was taken private for $5.7 billion by members of the founding Fertitta family and affiliates of investment company Colony Capital of Los Angeles.
The creditors are concerned the transaction has and continues to divert funds away from certain creditors to Station, its insiders and its key lenders led by Deutsche Bank.
Station, in its Chapter 11 case, has asserted the going-private transaction was not successful because of the recession, not because of the terms of the deal.
A key issue in the case is the provision in the going-private transaction in which four of Station's most profitable properties were spun off into a company called PropCo and were encumbered by $2.475 billion in debt. Station and PropCo have common management, but different sets of creditors.
Station now pays PropCo $250 million per year to lease those properties, with the rental payments covering the mortgage. Creditors have attacked the mortgage and lease, saying they're unrealistic given the value of the hotel-casinos has declined due to the recession.
In court filings Nov. 19, Station revealed it and key lenders had reached an agreement to temporarily slash the rent for the four hotel-casinos: Red Rock Resort, Sunset Station, Boulder Station and Palace Station.
Station said that under the deal with Deutsche Bank and other lenders, the rent will be reduced by about $7.7 million per month for December, January and February. The rent will be about $13.8 million per month during this period, Station said.
I'm jealous of Judge Zive, as he's got a unique opportunity to decide some very interesting choice-of-law issues. Put simply, since bankruptcy is by definition a federal proceeding, does he even have to entertain objections from the state Gaming Control Board and Gaming Commission or can he override them in the best interest of creditors? Stay tuned :)
hey catherine cortez masto...
what the hell have you done about the hepatitis epidemic...
anything???
catherine cortez masto is a joke...
catherine cortez masto is an absolute total joke...
want proof...
consider her actions in the medical assistants emergency regulation fiasco...
she did the dirty work for the medical board...
absolutely pathetic...
she went after some poor medical assistant...
who just happened to be the most qualified medical assistant in the state...
question is...
why didn't she go after a medical board member's assistant???
hmmm???
hey catherine...
answer me this...
does the medical board laugh at you???
does the medical profession laugh at you???
do desai, carrol and carrera laugh at you???
catherine cortez masto is a joke...
catherine cortez masto is an absolute total joke
Its funny to see the Attorney General and the Gaming Commission trying to step in to save their friends the Fertita's. It probably only took the Fertita's one phone call to get the corrupt state employees to jump into this.
Licensing is a joke...just restricts the development and ownership of casinos to the anointed few.
If the regulators do their jobs you could license anyone with the ability to fund a project.
The casino license is nothing more than a license to steal.
PS
I would rather have Meyer Lansky stealing from me than Steve Wynn.
Meyer wasn't as greedy.
You got that right vc. And they say the mob has left Las Vegas...
http://www.americanmafia.com/Inside_Vega...
A rhetorical threshold question -- AG Masto gets the authority to intervene in a federal case on federal issues from where?
It appears she's running on empty here. It's just hubris the court needs Nevada's permission to appoint a trustee, a normal part of federal bankruptcy procedure. Masto only needs to look to her oaths of office, as an attorney and as AG, particularly the part about supporting the federal Constitution. Then review the Supremacy Clause and how it relates to what she's doing here.
Part 1:
LasVegasLawyerGal and KillerB raise an interesting conceptual issue: What happens to the regulatory powers of states, counties and cities when a business goes into bankruptcy. The answer is clear. The bankruptcy judge cannot interfere with those agencies enforcement of their powers.
Congress already figured out an answer many years ago, by way of enacting Title 28 United States Code Sec. 959(b) and Title 11 United States Code 362(b)(4).
Section 959(b) specifically states: "A trustee, receiver or manager appointed in any cause pending in any court of the United States, including a debtor in possession, shall manage and operate the property in his possession as such trustee, receiver or manager according to the requirements of the valid laws of the State in which such property is situated, in the same manner that the owner or possessor thereof would be bound to do if in possession thereof."
Both of the cited sections of the U.S. Code arise out of the "reservation of police powers to the states" concept in the Tenth and Eleventh Amendments to the U.S. Constitution.
Thanks to "State's Rights" congressmen for protecting the turf of America's states, cities and counties when they are regulating matters concerning the public health, safety and welfare.
The reality is that Chapter 11 debtors in bankruptcy love to break state, county, city and regional agency laws and regulations, and then hide behind the b.s. claim that they are immune from enforcement or prosecution because they are in bankruptcy. That is simply not true, under the two U.S. Code sections above, and the bankruptcy judges well know it.
Part 2:
The reality is that AG Cortez Masto is absolutely correct.
For example:
In Oakland, California bankrupt Lehman Brothers and a Chapter 11 trustee over some of its real estate investments are in serious trouble for violating the City of Oakland's fire hazard abatement order relating to a roughly 200 acre, brush covered abandoned military base which Lehman bought as an investment. The Chapter 11 trustee's timesheets filed with the bankruptcy court showed a meeting with the Alameda County District attorney and discussion with Lehman and others about a Grand Jury investigation of their misconduct in willfully refusing to abate the fire hazard.
In another case, the California Attorney General had to intervene in the Chapter 11 bankruptcy case of Lennar's subsidiary, LandSource, when lawyers for the partnership between Lennar, Barclays Bank and 5 hedge funds wanted the Delaware bankruptcy court to issue a completely obnoxious injunction against any public agency enforcing any state or local law, or Federal toxic clean up laws, against the debtors or any party who bought property from them. The New York Attorney General had to do the same thing in the GM bankruptcy, when GM's bankruptcy lawyers wanted a similarly illegal injunction. In both cases, the bankruptcy lawyers for the miscreants tried to hide the injunctions in Chapter 11 Plans of Reorganization.
When Pacific Gas & Electric was in bankruptcy in San Francisco, the State of California's Public Utilities Commission flipped the bankruptcy judge the bird, and told him he did not have the authority to approve a Chapter 11 Plan which included electricity rate hikes to consumers which were not approved by the PUC. PG&E and the judge bowed their heads, and PG&E conducted a full rate increase hearing before the bankruptcy judge dared to approve a Chapter 11 Plan.
Part 3:
It may be that AG Masto intervened as a means of trying to help the Fertittas and Colony Capital, and scare off the unsecured creditors who want a trustee.
The Nevada Revised Statutes concerning gaming actually contain a provision requiring licensing of trustees and receivers, so AG Cortez Masto is not off the mark, and because of the U.S. Code Sections and Constitutional provisions, any trustee appointed over Stations Casinos must be licensed.
Logistically, obtaining a gaming licensed Chapter 11 Trustee is not as big a deal as it looks.
Bankruptcy trustees are typically lawyers or accountants on a list approved by the local bankruptcy court, called the "Trustee Panel".
The reality is that the party who would pick a particular person to be Trustee over Station Casinos is a Federal official called the U.S. Trustee for Nevada. The U.S. Trustee can go outside the Trustee Panel member list, if none of the Panel members hold or previously held a gaming license. The U.S. Trustee can find an experienced, previously licensed lawyer, accountant or business person to be the Trustee over Station Casinos. That person doesn't have to know much in terms of details about how bankruptcy court works, because Chapter 11 Trustees always hire experienced bankruptcy lawyers to advise them and represent them in court.
Personally, I don't see the appointment of a Trustee happening, because the Bankruptcy Code criteria for appointment of a Trustee hasn't been factually established. However, the appointment of a Chapter 11 Trustee over a company operating casinos can be done without much difficulty.
Anyone who wants to read the actual court documents where Station Casinos' unsecured creditors try to prove they are entitled to the appointment of a Trustee can find them at:
http://www.kccllc.net/stationcasinos
Click on the Court Documents tab on the left and then click on Court Documents 0631 and 0632.
As far as I can tell, as of 3PM on December 4th, there still is no hearing date and time set for the court to hear the motion to appoint the Trustee.
The Attorney General's "reminder" to the bankruptcy judge, about the need for the Trustee to be issued a gaming license before taking control of the casinos, is Court Document 0652. Any lawyer looking at the document would say it was amazing that in only 2 to 3 days, the Attorney General's staff could research and write such a thorough and understandable essay. Either the Attorney General's staff are very, very good bankruptcy lawyers, or have been down this Trustee road before, or had some help from outside law firms who had done all the research before 12/1/09, the date the motion to appoint the Trustee was filed.
CynOb -- it appears I've been corrected.
CynicalObserver: Thanks for the 411 re 11 USC 959. Out of curiosity, assuming for present purposes Judge Zive decides to appoint a receiver who then applies for licensure, is there any burden on the Gaming Commission or GCB not to "unreasonably withhold" licensure? In other words, assume the receiver is a qualified insolvency attorney or accountant but not one of the annointed members of the gaming community. Can the state say, a la the soup nazi in "Seinfield", "No license for you!" and thereby frustrate Judge Zive's order?
why is this case being argued in reno