In a new twist in the Fontainebleau Las Vegas bankruptcy case, project owner Jeffrey Soffer has sued himself, sort of.
Soffer’s Turnberry West Construction, which is the general contractor on the stalled project, filed a lawsuit in Florida bankruptcy court against Fontainebleau Las Vegas, which Soffer also owns, and various financial institutions seeking permission to move the contractor’s $668 million mechanics’ liens ahead of any banks’ claims on the project’s assets.
Nancy Rapoport, a bankruptcy law professor at the University of Nevada, Las Vegas said that if successful, Soffer’s move could possibly decide Fontainebleau’s bankruptcy case.
“The size of the lien is pretty much going to take all the value of the property,” said Rapoport, who has written extensively on the Enron bankruptcy. “It’s not unexpected, but that’s a rather breathtakingly large lien.”
The result of Turnberry West Construction getting a favorable decision in its lawsuit would mean there would probably be no assets left to satisfy both secured and unsecured creditors.
In its lawsuit, Turnberry West is asking that an agreement between the contractor and lenders be ruled void and that the contractor’s liens be viewed as superior to the banks’ claims against the property.
While the creditors might claim that would not be not fair, the bankruptcy court in Florida will have to follow Nevada law, “and who knows how it’ll go,” Rapoport said.
Rob Charles, a local bankruptcy attorney not involved with the Fontainebleau case, said in bankruptcy cases, general contractors often get caught in the middle when subcontractors and suppliers begin filing liens against the builder.
The lawsuit said “the vast majority of (the $668 million) is for money owed to various subcontractors” because Turnberry West had not been paid for some of the work it performed after a group of banks backed out of an agreement to provide funds to complete the Fontainebleau project.
Charles said the move, if successful, could push the banks to supply money to the project.
“The banks could be more willing to see the thing completed,” Charles said. “Get the subs and suppliers paid off so that they can finish a product to sell as opposed to foreclosing and not finishing the project.”
The lawsuit comes while the developer and banks are preparing proposed orders, due Tuesday, on Fontainebleau’s request for a summary judgment against the banks.
Fontainebleau officials are asking the bankruptcy court to force the banks to release $656 million in financing that they withheld in March.
Contact reporter Arnold M. Knightly at email@example.com or 702-477-3893. Las Vegas Business Press reporter Tony Illia contributed to this report.