Lienholders seeking payment priority score gain in Fontainebleau case

A group of construction contractors with liens against the Fontainebleau Las Vegas has scored a victory in Florida federal court.

The U.S. District Court in the Southern District of Florida remanded the case to bankruptcy court in Miami last week to recover nearly $25 million disbursed to term lenders, the examiner and professionals "pending a determination of the issue of priority" to include the lienholders.

In her ruling, U.S. District Judge Cecilia Altonaga said the bankruptcy court erred in entering payment orders over the lienholders' objections without making sure the lienholders' interests were protected.

Greg Garman, attorney for the lienholders, said the $25 million will be added to nearly $100 million being held after the sale, which closed in February.

"We're going to be back in litigation in bankruptcy court on the priority issue," said Garman, managing shareholder in the Las Vegas firm Gordon Silver. "This order simply means more money is available for the payment of whoever is in first position and we strongly believe that is the lienholders."

Gordon represents a group of construction contractors and subcontractors holding $300 million to $400 million in liens against the bankrupt project.

Those amounts mean even if the bankruptcy court does prioritize the lienholders, subcontractors and vendors who worked on the multibillion-dollar project before bankruptcy are still collectively out hundreds of millions of dollars, Garman said.

"Even with this, lienholders are not going to get made whole," Garman said. "But nonetheless, we were arguing against this in bankruptcy court. We lost and the district court has said we were right."

The order does not affect billionaire investor Carl Icahn's acquisition of the unfinished project for $156 million.

Garman said the decision could be appealed to the 11th U.S. Circuit Court of Appeals before it gets to bankruptcy, but didn't know what the term lenders and other parties plan to do next.

Delaware-based Wilmington Trust, which is the agent for the term lenders, did not respond to a request for comment.

Miami-based Fontainebleau Resorts filed Chapter 11 bankruptcy on the 3,889-room hotel-casino in June 2009. The project was said to be 70 percent complete when construction was halted a few weeks earlier.

Contact reporter Arnold M. Knightly at aknightly
@reviewjournal.com or 702-477-3893.