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April 23, 2014

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Fontainebleau subcontractors say contractor conflicted

Subcontractors seek committee to protect their interests

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Big subcontractors in the Fontainebleau Las Vegas bankruptcy case moved Thursday to protect their interests in the project totaling some $112 million.

In court papers filed in Miami, the subcontractors said a committee should be formed to protect their interests in the $2.9 billion project that filed for bankruptcy protection last week in Miami after banks shut off funding.

The subcontractors said Fontainebleau left them out of a recent motion to pay critical vendors and that Fontainebleau's general contractor, Turnberry West Construction, is conflicted in the case and can't be relied upon to represent the interests of subcontractors.

Turnberry West is controlled by the same family that is developing Fontainebleau, the Soffer family of Miami.

The Soffers' Turnberry Ltd. and Turnberry Associates are known for developing retail centers and luxury condominiums in Las Vegas and around the country.

The bankruptcy court set a June 23 hearing on the motion by the subcontractors for an order directing the U.S. Trustee in the case to form an official committee of contractor claimants.

"The contractor claimants wish to continue to provide the debtors with expert building, air conditioning and ventilation, electrical, mechanical and other services and equipment that are indispensable to the completion of the Fontainebleau project," the contractors said in their motion.

The subcontractors, which say they have filed mechanics liens against Fontainebleau totaling $112 million, are Desert Fire Protection; Bombard Mechanical LLC; Bombard Electric LLC; Warner Enterprises Inc. doing business as Sun Valley Electric Supply Co.; Absocold Corp. doing business as Econ Appliance; Austin General Contracting, Powell Cabinet and Fixture Co. and Safe Electronics Inc.

They noted the U.S. Trustee has created a committee of creditors holding unsecured claims and appointed five members: Kelley II LLC doing business as Kelley Technologies; Minibar North America Inc.; Paul Steelman Design Group/Steelman Partners; Decca Hospitality; and Wells Fargo Bank as trustee for holders of second mortgage notes totaling $675 million.

Excluding Wells Fargo, the committee members hold $5.278 million in unsecured claims, the subcontractors noted, adding that of those claims some $4.3 million are listed as "disputed" by Fontainebleau.

The subcontractors said Fontainebleau earlier this week filed a motion to pay critical trade vendors holding $7.9 million in claims.

"But, curiously, the list of such vendors does not include any of the contractor claimants," the subcontractors said.

Also noting assertions by Fontainebleau that there are some $403 million in project payables that may result in mechanics liens against the project, the contractors said that under Nevada law their claims may supersede those of banks and other secured parties in the case.

"The contractor claimants are not adequately represented by the (trustees' unsecured claims committee)," the subcontractors said in their motion.

"The contractor claimants have performed significant labor, and supplied massive quantities of parts and equipment for the project. They are unified and incentivized to seeing the project through to completion and getting paid for their work in the process," their motion said.

"Moreover, the debtors will not adequately represent the contractor claimants and other similar creditors. The critical vendor motion did not include a single contractor claimant despite their combined total of over $100 million in claims and the critical role that each performs in constructing the project,'' their motion said. "Instead, the debtors seek to pay the vendors, who represent only $7.9 million in claims, and do not provide the construction services that are immediately necessary to preserve the project, including enclosing the project and securing the exposed equipment and infrastructure."

The subcontractors said they are not comfortable with Turnberry West serving as their advocate in the pursuit of construction liens.

"Contractor claimants believe Turnberry has performed nowhere near the $668 million in services now claimed'' by Turnberry West in its lien filings, the subcontractors said.

"Contractor claimants have themselves performed the vast majority of the work on the project and are therefore much better situated to advocate their own lien claims," the contractors said, adding they believe Turnberry is conflicted because it's owned by the Soffer family and there are indications that Turnberry West may itself file for bankruptcy protection.

Fontainebleau, Turnberry West and other parties in the bankruptcy case have not yet responded to the contractors' motion.

Separately, creditor Young Electric Sign Co., without explanation, withdrew its motion that the bankruptcy case be transferred from Miami to Las Vegas. Young had argued most of the parties involved in the massive case are in Las Vegas and the case should be moved to Las Vegas in the interest of justice and for the convenience of the parties.

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