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June 10, 2009 5:19 PM

Fontainebleau Legal Battle Moves to Bankruptcy Court

Posted by Brian Baxter

Fontainebleau Las Vegas Skyline

Over the past few months it seems like Las Vegas real estate projects and litigation have gone hand-in-hand.

In April, Marc Kasowitz of New York's Kasowitz, Benson, Torres & Friedman filed a 22-page complaint against an array of big banks on behalf of Fontainebleau Resorts, which was seeking to complete an abandoned Las Vegas resort project. The suit claimed that the banks reneged on loan agreements necessary to fund a revolving credit facility for the resort's construction.

But now the operator of that partially completed resort, Fontainebleau Las Vegas, has filed for bankruptcy in Miami. And the litigation is along for the ride.

The initial complaint filed in Clark County Circuit Court in Las Vegas stated that lenders had terminated their agreement for the $770 million loan commitment because of an unspecified event of default. In it's filing, Fontainebleau denied that there had been any default.

The Las Vegas suit has since been withdrawn and an amended 29-page complaint re-filed in U.S. bankruptcy court in Miami, where Fontainebleau's Las Vegas affiliate entered Chapter 11 on Tuesday and where the civil case might proceed more expeditiously. The amended complaint contains allegations that one of Fontainebleau's lenders, Deutsche Bank, sought to interfere "in contractual relationships between Fontainebleau" and its other revolver banks so as to scuttle financing for the project, which is about 70 percent complete.

The plaintiffs assert that Deutsche Bank was motivated to do so in order to protect its larger investment in a rival resort project being built on the Las Vegas Strip called the Cosmopolitan, which is slated to open in 2010.

David Friedman, the head of Kasowitz Benson's bankruptcy group, appears on the amended filing along with Kasowitz and litigation partner Jed Bergman. Scott Baena, head of the bankruptcy and restructuring practice at Miami's Bilzin Sumberg Baena Price & Axelrod, is also a signatory to the complaint along with bankruptcy partners Jay Sakalo and Mindy Mora.

Kasowitz and Baena did not respond to requests for comment.

According to the 142-page bankruptcy filing by Fontainebleau Las Vegas--the parent company and its Miami Beach property were not included in the filing--Baena is serving as Chapter 11 counsel to the resort. Kasowitz Benson will remain as litigation counsel and Buchanan Ingersoll & Rooney has also been retained, but for an unspecified role. (Billing records for all three firms were not yet immediately available.)

A creditor matrix contained in Fontainebleau Las Vegas's bankruptcy filing also lists the names of 10 law firms that did work (mostly in real estate) for the resort: Bingham McCutchen, DLA Piper, Fulbright & Jaworski, New York's Ferber Chan Essner & Coller, Greenberg Traurig, Nevada's Kummer Kaempfer Bonner Renshaw & Ferrario (recently raided by Greenberg Traurig), Latham & Watkins, Shearman & Sterling, now defunct Thacher Proffitt & Wood, and California firm Wood Smith Henning & Berman.

Besides Deutsche Bank, other defendants in the adversary proceeding between Fontainebleau Las Vegas and its revolving banks are JPMorgan Chase, Bank of America, Merrill Lynch, Barclays, The Royal Bank of Scotland, Sumitomo Mitsui, Bank of Scotland, HSH Nordbank, and MB Financial.

While counsel have yet to enter appearances for any of the lenders in the adversary proceeding, a spokesman for Fontainebleau tells The Am Law Daily that Hunton & Williams bankruptcy and creditors' rights cochair Craig Rasile in Miami is representing BoA in the bankruptcy. O'Melveny & Myers is representing BoA in the adversary proceeding.

Rasile did not immediately respond to a request for comment.

Photo: Alex Martinez / Flickr

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