Casino titan says Las Vegas court ruling could scare away foreign investors

The unfinished Fontainebleau is seen Thursday, July 28, 2011.

Australian billionaire James Packer and his casino company say they got a raw deal from a Las Vegas judge and they want the Nevada Supreme Court to make things right.

Packer and his company Crown Ltd. are also complaining that the judge's recent ruling against them involving a Las Vegas investment is so egregious that it could deter other foreigners from investing in Nevada.

The ruling involves the stalled $2.9 billion Fontainebleau casino resort on the Las Vegas Strip.

Crown is already smarting from the loss of its entire $279 million minority investment in Fontainebleau Las Vegas.

The problems for Crown and Packer with the project multiplied last year when a group of 46 lenders and investment funds holding $700 million in Fontainebleau debt filed suit in state court in Las Vegas.

They claim Fontainebleau developer Jeffrey Soffer, Crown, Packer and others hid $400 million in cost overruns and other problems with the development while it was being built and that they submitted false financial information to the lenders before the project filed for bankruptcy and construction was halted.

The lenders/debt investors say they would not have provided additional funding to the resort if they were aware that it was headed toward insolvency.

Soffer, Crown, Packer and the other defendants have denied the lawsuit allegations. They blame the failure of Fontainebleau on the 2008 bankruptcy of lender Lehman Brothers and by lenders including Bank of America in 2009 terminating an $800 million loan commitment for the project.

With the lawsuit still in the pleading stage, it's unknown when or if it will go to trial, if it will be settled or if it will ultimately be resolved by other means.

Crown and Packer suffered a setback in the litigation on Sept. 20 when Clark County District Court Judge Mark Denton denied their motion that the lawsuit be dismissed against them.

Denton's ruling wasn't a finding that Crown and Packer were involved in wrongdoing. It merely kept that portion of the lawsuit alive, giving the lenders a chance to prove their case against those defendants.

Attorneys for Crown and Packer this month appealed Denton's order to the Nevada Supreme Court, saying it was "clearly erroneous."

The attorneys said that as minority investors in Fontainebleau, there is no evidence to substantiate claims by the lenders that Crown and Packer had a duty to disclose anything to them.

They also say there's nothing to show that after the Crown defendants learned of cost overruns, they misled the lenders about the status of the project.

"Plaintiffs (lenders) do not allege that the Crown defendants had any relationship, let alone a fiduciary or special relationship, with plaintiffs that could give rise to a duty to speak," attorneys for Crown and Packer wrote in their appeal. "The Crown defendants are not parties to the Fontainebleau credit agreement and were not involved in the management or operations of the borrowers."

"Plaintiffs do not allege, nor could they, that the Crown defendants had any role in the preparation of any allegedly fraudulent documents in which costs were misrepresented or the transmission of those documents to plaintiffs," the appeal says.

The Crown/Packer appeal also pointed to a U.S. Commerce Department study on the U.S. litigation environment finding international investors are worried about the "comparatively high legal cost of doing business in the U.S. market and the unpredictable and unfamiliar nature of liability in the United States."

"The procedural posture of this case presents a nightmare scenario confronting any foreign investor in Nevada. The court's decision regarding the Crown defendants, if left uncorrected, is likely to chill foreign investment in Nevada," Crown/Packer attorneys wrote in their appeal.

It's unknown when the Supreme Court will rule on the appeal, which is likely to be hotly contested by Fontainebleau's lenders.

Their attorneys claim that in 2008, Soffer, Packer, Crown and others were aware of hundreds of millions of dollars in Fontainebleau cost overruns but "conspired and agreed to keep this information from lenders."

"They accomplished this, in part, through an elaborate set of double books that hid the true progress, scope and the cost of the project from the lenders," attorneys for the lenders/debt investors claim in their lawsuit.

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  1. Packer is right. He had nothing to do with the overruns and whatever coverup happened as a result. The Supreme Court should fix this egregious error.