The Fontainebleau Las Vegas LLC bankruptcy trustee may never win court approval for an $83.3 million settlement of lawsuits against former officers, directors and managers.
U.S. Bankruptcy Judge A. Jay Cristol in Miami handed down an opinion on July 11 saying he won’t approve a provision in the settlement that would bar a pending lawsuit against Fontainebleau directors and officers filed by term-loan lenders.
The trustee had said before Cristol issued his ruling that the so-called bar order was an “essential requirement” for the parties to proceed with the agreement in the first place and an “integral part” of the accord, “without which there simply would be no settlement for the court to consider.”
Cristol said he would be pleased to approve a settlement but can’t approve the bar order unless the trustee proves unusual circumstances to justify precluding the term lenders from suing.
The judge agreed with the term lenders that their claims for fraud and negligent misrepresentation in a Nevada state court action fall squarely within the meaning of the phrase “truly independent claims.”
The judge said that whether such claims can be enjoined by a bar order in a Chapter 7 case without the consent of an affected claimant has yet to be decided in the U.S. Court of Appeals that governs Florida. Cristol said a bar order seemed unconstitutional as a taking of property without due process.
Agreeing to settle the term lenders’ pending claim for less than 4 percent of the amount sought can’t be fair and equitable unless it’s shown that the pending claim is not viable and the defendants are insolvent or are of “tiny means,” said Cristol.
The parties are conducting investigations on those issues, according to the court’s order. A hearing for Cristol to take additional evidence is scheduled to begin Sept. 11. For details on the settlement, click here for the July 8 Bloomberg bankruptcy report.
The hotel went into Chapter 11 in June 2009 in Miami after lenders refused to allow a draw on a $350 million delayed-draw term loan and a $670 million revolving credit. The lenders, with Bank of America NA as agent, took the position that both loans couldn’t be drawn at the same time.
The unfinished 63-story hotel and casino on the north end of the Las Vegas Strip, which was to have 3,815 rooms, was sold to a company affiliated with Carl Icahn for about $150 million, including the assumption of financing Icahn provided for the Chapter 11 case. After the sale was completed, the Chapter 11 case was converted to a Chapter 7 liquidation and a trustee was appointed.
The case is In re Fontainebleau Las Vegas Holdings LLC, 09- bk-21481, U.S. Bankruptcy Court, Southern District of Florida (Miami).