Subcontractors fall short in effort to move Fontainebleau case

By Steve Green

Monday, Oct. 26, 2009 | 2:17 p.m.

A group of Fontainebleau subcontractors has lost part two of a two-part effort to move the casino resort bankruptcy case from Miami to Las Vegas.

Bankruptcy Judge A. Jay Cristol in Miami filed an order Monday denying a motion by the contractors to move the case.

On July 22, Cristol denied the first part of the request, saying it wouldn't be in the interests of justice or be convenient to the parties.

He reserved judgment on the second part of the issue until after a September hearing. That issue involved Fontainebleau's "principal place of business" during the six months preceding the June 9 bankruptcy filing.

"The site of the principal asset of the debtor does not control," Monday's ruling said. "Almost daily, cases with major assets all over the United States, in fact all over the world, are appropriately filed in Delaware and southern New York."

"Because of the complex corporate structure involving multiple corporations, the movants (subcontractors) argue that the venue decision should be based on the tip of the spear -- the discrete corporation and its asset, officers and employees located in Nevada -- and should ignore the power holding the handle of the spear, and directing and controlling it," Cristol's ruling said.

"The simple fact of the matter is that the idea for the project came from Florida, the initial money invested came from Florida, borrowings for construction were negotiated from Florida and finally, what went on in Las Vegas was ultimately controlled from the nerve center in Florida," the ruling said.

Before construction shut down this spring, the resort was being developed by affiliates of Miami-based Turnberry Associates, known in Las Vegas for developing high-rise luxury condominiums and the Town Square shopping Center.

In their motion to move the case to Las Vegas, the subcontractors suggested the resort filed for bankruptcy in Miami, rather than Las Vegas, in hopes of excluding small creditors from meaningful participation in the financial restructuring.

In filings by the subcontractors' Las Vegas law firm, Gordon Silver, and their co-counsel, the Boca Raton, Fla., law firm of Shraiberg, Ferrara & Landau, the subcontractors complained creditors face time-consuming and expensive trips to Miami to attend hearings. That's a deterrent to their participation, the lawyers said.

Still pending is a separate motion filed by the subcontractors that they can pursue construction lien claims in state court in Nevada -- outside of the bankruptcy process.

Even as the Fontainebleau developer works under bankruptcy court supervision to arrange a sale of the stalled project, the subcontractors and lenders to the resort are at odds over whose liens take priority and which liens will be paid first should a buyer come up with financing to pay any of the liens.

Separately, the examiner in the Fontainebleau bankruptcy case charged with supervising the sale of the project filed a report with the court Monday outlining his work on the case since his appointment July 16.

Jeff Truitt of the Santa Ana, Calif., office of Xroads Solutions Group said he selected the Los Angeles law firm Stutman, Treister & Glatt as his legal counsel, that he toured the construction site on Oct. 19 and that he's had discussions about the case with officials and attorneys of Fontainebleau, lenders, subcontractors, title companies and potential bidder Penn National Gaming.

Truitt said he's discussed with the parties the necessity of obtaining debtor in possession financing or the continued use of the cash collateral held by Fontainebleau during the sales process. In coming days he intends to finalize sales procedures for the resort.

Once billed as a $2.9 billion project, construction was halted on the resort on Las Vegas Boulevard after Bank of America and other lenders cut off funding due to cost overruns and other problems.

Fontainebleau has borrowed $1.675 billion against the project, and estimates to complete it have ranged from $1.5 billion to $2 billion.

In a filing last week, Fontainebleau said that as of Aug. 17, $615 million of contractor liens had piled up against the 63-story, 3,815-room project.