Court ruling gives Fontainebleau contractors hope of repayment

More than 100 contractors claiming about $350 million in unpaid bills on the defunct Fontainebleau received hope of some repayment after the Nevada Supreme Court on Thursday decided in their favor on two key legal questions.

The six justices ruled unanimously that mechanic's liens stand in the repayment line ahead of lenders who replaced original lenders. In addition, the court said mechanic's lien claimants can't waive their positions ahead of time.

The Fontainebleau bankruptcy estate has $100 million that can be paid to creditors. Had the lenders won, they probably would have collected the entire sum for repayment of loans totaling $1.85 billion and left contractors empty-handed.

More issues must be decided in the bankruptcy, being heard in Miami, before any checks are mailed, said Thomas Fell, one of the attorneys representing contractors who have gone unpaid for 3½ years. His firm, Gordon Silver, argued the case in June.

The bankruptcy court requested the state high court ruling before moving forward.

Had his clients lost, Fell said, "it would have been bad for us but not hopeless. This ruling goes a long way to helping the cause."

Another official agreed.

"They are not going to be made whole or close to it, but it is something," added Sam Stewart, executive vice president of the Las Vegas chapter of the Associated General Contractors. "It's pennies under the mattress, but it's better than nothing."

The association entered the case on a friend of the court basis to set a precedent "that banks can't step all over us."

Lenders' attorneys could not be reached for comment. But the Nevada Bankers Association argued a contractors' win would raise the cost of borrowing and possibly crimp loan activity. However, if banks structured their loans carefully, Fell said, the ruling should not make a difference.

Nevada justices, in their 17-page opinion, noted they previously have allowed substitute lenders to assume the rights of the originals. But a 2003 state law carved out an exception for mechanic's liens, the justices wrote.

Work on the 68-story Fontainebleau, originally designed to contain more than 3,800 rooms at a cost of $2.9 billion, halted in April 2009, leaving the contractors unpaid since then. The Chapter 11 bankruptcy was filed two months later, resulting in its sale to New York investor Carl Icahn for $151 million.

Since then, the Fontainebleau is still an unfinished hulk on the north Strip.

Contact reporter Tim O'Reiley at toreiley@review
journal.com or 702-387-5290.