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September 2, 2014

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Lehman Brothers seeks millions in suit against Fontainebleau developer

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Sam Morris / Las Vegas Sun

The stalled Fontainebleau project is seen Jan. 15, 2010.

Fontainebleau

The stalled Fontainebleau project is seen Jan. 15, 2010. Launch slideshow »
Carl Icahn

Carl Icahn

Fontainebleau

Bankrupt investment bank Lehman Brothers Holdings Inc. on Thursday sued Fontainebleau Las Vegas resort developer Jeff Soffer and one of his companies, seeking to recover hundreds of millions of dollars lent for the bankrupt Las Vegas hotel-casino.

Since the Fontainebleau Las Vegas project is being purchased by investor Carl Icahn for only $156.2 million, creditors owed some $2 billion are likely to recover little of what they are owed.

Lehman Brothers, however, in two lawsuits filed in Lehman's New York bankruptcy case Thursday, isn’t going after Fontainebleau Las Vegas.

Instead, the defendants are Soffer and his Fontainebleau Resorts LLC company. Lehman Brothers is seeking to enforce guarantees it says Soffer and Fontainebleau Resorts signed to obtain two loans for the Las Vegas project.

In one lawsuit Thursday, Lehman sought to enforce guarantees for a loan of $85 million to finance construction of the retail component of Fontainebleau.

"To date, no payment has been made to Lehman under the 'retail mezzanine loan,'" the complaint says. "The mezzanine payment guaranty allows Lehman to seek full repayment if the retail mezzanine borrower files petitions for bankruptcy."

The lawsuit says that with interest, $129.3 million is due on the loan.

Under a second loan agreement, $168.2 million is now due from Soffer and Fontainebleau Resorts, Lehman Brothers said in a second complaint filed Thursday.

Soffer and Fontainebleau Resorts LLC have not filed for bankruptcy protection. The Las Vegas entities that filed for bankruptcy protection included Fontainebleau Las Vegas and Fontainebleau Las Vegas Retail.

While Lehman Brothers seeks $298 million in its lawsuits filed Thursday, Fontainebleau Las Vegas Retail said in its November bankruptcy filing that Lehman was owed $228 million and that amount was "disputed."

"We are surprised at Lehman’s actions given its own behavior on this project," Soffer said Thursday in a statement. "Lehman’s bankruptcy and default on its obligation to fully fund the retail portion of the project forced us to have to seek outside funding at a time when the credit markets were frozen."

"While there are guarantees, we believe those guarantees are invalid and that we can readily show that they are invalid," Soffer said in the statement. "Lastly, we strongly believe that we have material counterclaims against Lehman."

Icahn hasn't indicated when he would resume construction on Fontainebleau, which was 70 percent completed when banks shut off funding and construction was halted last year.

Soffer -- based in Miami but known in Las Vegas for building high-rise luxury condominiums -- is involved in a separate lawsuit involving Lehman Brothers and Las Vegas.

Jeff Soffer and his sister, Jacquelyn Soffer, and three of their companies sued Lehman Brothers in February 2009, charging Lehman had reneged on part

of a commitment to provide $1.5 billion in financing for three projects developed by the Soffers' Aventura, Fla.-based Turnberry Associates development company, where the siblings are executives.

The projects were the Fontainebleau hotel-casino retail project, the 93-acre Town Square shopping center in Las Vegas and the Aventura Mall in Florida.

While the Fontainebleau and Aventura financings closed, Lehman Brothers failed to provide promised long-term financing for Town Square in Las Vegas, the lawsuit charged.

The Turnberry companies said the initial $520 million in Town Square construction financing was provided principally by Deutsche Bank. Development of Town Square started in 2004 and Turnberry later sought customary long-term take-out financing as well as an additional $100 million for the project, the lawsuit said.

The Soffers asserted in their suit that at the insistence of Lehman, they personally were the borrowers in July 2007 under a $95 million "interim advance" credit facility for Town Square, with the expectation that Lehman would later include the interim advance in permanent financing.

"Lehman has now made clear that it is refusing to honor its commitment to provide the permanent financing," charged the lawsuit, filed several months after Lehman filed for bankruptcy on Sept. 15, 2008.

But Lehman Brothers, in responding to the lawsuit, denied it made representations it would provide long-term financing for Town Square and filed a counterclaim accusing the Soffers of breach of contract for failing to pay amounts due under the loan -- $72 million -- when it matured Feb. 27, 2009.

The counterclaim also alleges Turnberry Retail Holding LP, one of the Soffer companies behind Town Square, had guaranteed the loan but also has failed to pay the balance due.

That lawsuit is pending in Lehman's New York bankruptcy case.

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