Fontainebleau bankruptcy trustee seeks to recover millions
8 June 2011
8 June 2011 7:23 p.m.
The bankruptcy trustee for the stalled $2.9 billion Fontainebleau Las Vegas casino-resort on Wednesday sued its developer, Miami executive Jeff Soffer, claiming he and others are responsible for the failure of the project and losses sustained by creditors.
Attorneys for Chapter 7 liquidating Trustee Soneet Kapila hit Soffer, head of the Turnberry Associates real estate empire, and other members of the Fontainebleau Las Vegas management team with a complaint in Miami’s U.S. Bankruptcy Court.
It seeks to recover damages for alleged breach of fiduciary duty and to recover “fraudulent transfers” related to development of the stalled resort.
The allegations were promptly denied by a Turnberry spokesman, who said in a statement: “These allegations are baseless and meritless. It is well-documented that the real downfall with Fontainebleau Las Vegas was the bankruptcy filing by Lehman Brothers and the wrongful termination of an $800 million loan commitment by a group of lenders.”
The complaint covered previously-reported allegations that Fontainebleau Las Vegas managers “failed to adequately design, supervise, coordinate, plan and schedule all of the work performed at the project, which resulted in significant delays, disruptions, alterations and hardship on many of the subcontractors, consultants and employees who worked on the project.”
Also, as previously reported, Soffer and the other managers were accused in the complaint of failing to disclose to key lenders that the project would cost more than was represented and failed to inform lenders about cost overruns and the true status of critical construction drawings for the resort.
The complaint also alleges certain Turnberry-associated defendants received payments that “have no apparent legitimate business purpose” and that some expenses for Fontainebleau Resorts LLC — a non-bankrupt Soffer company — were wrongly paid by Fontainebleau Las Vegas.
The complaint seeks to recover, among other things, unspecified “compensatory damages, consequential damages, special damages and punitive damages including...the increased liabilities of the debtors, the decreased value of the assets of the debtors, the loss of assets of the debtors in the form of avoidable transfers (and) the lost enterprise value of the debtors.”
Also named as defendants in the complaint were Fontainebleau Resorts LLC, Turnberry Residential Limited Partner LP, Turnberry West Construction Inc. (general contractor of the resort), Turnberry Ltd. and executives Albert “Sonny” Kotite, Ray Parello, Bruce Weiner, Glenn Schaeffer, James Freeman and Devendra “Deven” Kumar.
The individual officers and directors were accused in the complaint of receiving salaries, bonuses and other payments while Fontainebleau Las Vegas was insolvent — and the trustee wants an unspecified portion of that money reimbursed for the benefit of the bankruptcy estate.
“During and after their terms as officers, directors and/or control person of the debtors prior to the (bankruptcy) petition date, the (officer and director) defendants received payments from the debtors, and/or compensation from the debtors in the form of salaries, bonuses, stock options, severance payments and other benefits, and any and all other transfers within four years of the petition date...At the time such transfers were made, the debtors were insolvent and/or knew or should have known that it was incurring or would be incurring debts beyond their ability to pay as such debts matured,” the complaint says.
Besides Fontainebleau Las Vegas, Turnberry is known in Las Vegas for developing high-rise luxury condominiums and the Town Square shopping center.
The 3,815-room Fontainebleau casino-resort sits stalled and unfinished on the Las Vegas Strip after construction was halted in 2009 because lenders led by Bank of America cut off funding.
That was after the failure of lender Lehman Brothers, alleged loan-covenant defaults, cost overruns, a lack of condominium sales and financial projections that were adjusted downward because of the recession.
Lenders, suppliers, contractors, investors and developers of the resort led by Soffer are now fighting in courts all over the country over staggering losses that resulted after the building and real estate were picked up at auction for just $148 million by investor Carl Icahn.
Wednesday’s complaint is similar to one pending in U.S. Bankruptcy Court in Las Vegas claiming mismanagement by Soffer and that he and others hid cost overruns and other problems from lenders. That lawsuit was initially filed in state court in Las Vegas, but was then transferred to bankruptcy court.
Wednesday’s complaint against Soffer and his codefendants was among at least 56 complaints filed Wednesday by attorneys for the Fontainebleau Las Vegas trustee. The other complaints named scores of suppliers to the stalled casino-resort and were also filed in hopes of recovering millions of dollars for the benefit of the bankruptcy estate.
The lawsuit-like “adversary complaints” were filed against the suppliers in hopes of recovering “preferential” and/or “fraudulent” transfers.
That’s bankruptcy lingo referring to payments made by the Fontainebleau developer prior to its 2009 bankruptcy at times the company was allegedly technically insolvent.
It does not suggest the supplier and contractor defendants were involved in fraud. But it does suggest some of the recipients of the payments received more than their fair share in relation to other creditors that stand to lose billions of dollars because of the failure of the project.
For instance, a complaint by the trustee Wednesday against Paul Steelman Design Group Inc., a well-known casino designer, seeks to recover $13.8 million paid to Steelman during the four years prior to the Fontainebleau Las Vegas bankruptcy.
“At the time of the four-year transfers, the debtor was insolvent and remained continuously thereafter,” the complaint alleges.
“Preferential” or “fraudulent” transfer complaints are not uncommon in big bankruptcy cases — for instance some are still pending in the Lake Las Vegas bankruptcy case.
Attorneys for the trustee didn’t immediately say how much money they hope to recover with the complaints and how many — if any — additional complaints they intend to file.
A list of companies and individuals named Wednesday — besides the Soffer and Steelman cases — in the trustee’s 56 complaints to recover funds for the Fontainebleau Las Vegas bankruptcy estate: (This list may expand if additional complaints are filed.)
HPG International LLC; Trans-Lux Corp., TCS John Huxley America Inc., Ward & Howes Associates Ltd., Tai Ping Carpets Americas Inc., Tri Power Group Inc., Murray’s Iron Works Inc., Jeffrey Beers International LLC, Kravet Inc., Inspection and Valuation International Inc., Humanscale Corp., Avnet Inc., Roncelli Inc., Project Light LLC, Barker Enterprises Inc., Deco Lav Inc., Aztech Inspection Services LLC, David Collins Studio Ltd., Digitek Inc., HKS, H Devinn Bruce, IBA Consultants, Kaempfer Crowell Renshaw Gronauer & Fiorentino, Jack Louis Braman, KPMG LLP, Max Protetch, Geri Candow, Auerbach & Associates Inc. and Arthur Weiner Enterprises Inc.
Also, Cabinet Tronix LLC, CDW Direct LLC, Illuminating Concepts Ltd., International Art Properties, JBA Consulting Engineers Inc., TMCx Nevada LLC, Tomorrow 33, Santoro Driggs Walch Kearney Holley & Thompson, Cenveo Corp., Crown Lift Trucks, CZS International Inc., Spiegel LLC, Owens Geotechnical Inc., RJF International Corp., Via West Inc., Steven Langford Architects, Pricewaterhousecoopers llp, Sheppard Mullin Richter & Hampton LLP, Nedco Supply, Mancini Duffy and Langan Engineering & Environmental Services
Also, American International Group Inc. and National Union Fire Insurance Company of Pittsburgh, PA, named in the same case; Bergman, Walls & Associates Ltd.; YWS Architects LLC; and Turnberry Associates, Turnberry Construction Inc., Turnberry Development LLC, Turnberry Residential Management L.P., Turnberry Realty Corp. and Republic Crane & Hoist Service LLC, all named in the same case.
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