Fontainebleau subcontractors fall short in bid to move case

By Steve Green

Wednesday, July 22, 2009 | 3:37 p.m.

Subcontractors for the bankrupt Fontainebleau development in Las Vegas have lost Round One in their bid to move the case from Miami to Las Vegas, but will have another chance to press their arguments next month.

U.S. Bankruptcy Judge A. Jay Cristol in Miami on Wednesday rejected the subcontractors' argument that the case can be more efficiently handled in Las Vegas because most of the affected parties are based in Southern Nevada.

"This reorganization has little if nothing to do with the (subcontractors' financial) claims and the construction of the project in Las Vegas. Rather, this case is all about the financing of the Las Vegas project, which is in the hands of the lenders and financial institutions – all of whom are located outside of Nevada," Cristol wrote in his ruling.

"While the project itself is located in Nevada, that fact alone is not compelling, as the construction of the project has currently been halted as a result of the lack of financing and the business of these debtors is actually being carried on outside the state of Nevada," the ruling said. "Moreover, with regard to potential witnesses who may be necessary to the administration of the estate, they can be deposed where they reside unless they agree otherwise. They need not even attend court hearings if they reside more than 100 miles from Miami, and their transcribed testimony will still be useable."

The judge issued his ruling based on a bankruptcy code provision in which the economic and efficient administration of debtors' estates is a key factor in determining venue. He said if the case is moved based on those factors, New York or Delaware may be more appropriate than Nevada. He noted parties in the case are located all over the world and many of the involved lenders and professionals are based on the East Coast.

But Cristol set an evidentiary hearing for Aug. 17 on another claim that could result in transfer of the case, which is that the principal place of business of the Fontainebleau development companies has been in Las Vegas rather than Miami.

"The court finds there are issues of fact remaining as to the location of the debtors’ principal place of business during the 180-day period immediately preceding the commencement of these cases," the ruling said.

Attorneys for the Fontainebleau casino-resort subcontractors last month suggested the resort filed for bankruptcy in Miami, rather than Las Vegas, in hopes of excluding small creditors from meaningful participation in case.

They are represented by the Las Vegas law firm Gordon Silver, and co-counsel, the Boca Raton, Fla., law firm of Shraiberg, Ferrara & Landau.

The subcontractors, with more than $111 million at stake in the case, said Las Vegas creditors face time-consuming and expensive trips to Miami to attend hearings. That's a deterrent to their participation, their lawyers said.

Fontainebleau has insisted Miami is the proper venue because that's where the key decisions about the project are made.

The subcontractor attorneys said their clients' construction liens have priority over lender liens and that Nevada bankruptcy judges are familiar with the state's lien laws and have lots of experience handling large, complex construction bankruptcy cases.

Cristol said the subcontractors' claims of $111 million are less than 5 percent of the $2 billion in claims so far filed by creditors.

He wrote that if the subcontractors' claims about the liens are true, they will be well protected regardless of where the case is heard.

"If, as they assert, under applicable governing state law, their liens on debtors’ property are in a first position, ahead of the secured lenders, then they will likely be paid in full if these cases are a success. If these cases fail, and (subcontractor) movants are, in fact, in a first lien position, they will pick up whatever pieces are left of this estate," the judge wrote in Wednesday's ruling.