A judge in Las Vegas today dismissed lawsuits filed by two of the billionaire Bass brothers and other investors in the Lake Las Vegas resort community against Credit Suisse AG and other lenders.
The dismissals by U.S. Bankruptcy Judge Linda Riegle involved lawsuits focused on a narrow legal issue.
Her rulings likely will only delay a probable legal showdown between the investors and Credit Suisse over allegations the international lender provided predatory "loan-to-own" loans to Lake Las Vegas, the Yellowstone Mountain Club and other resort developments around the country during the boom years of the mid 2000s.
Critics say these loans involved appraisals that were inflated at the insistence of Credit Suisse. They say that after Credit Suisse encouraged investors to use the loan money to pay themselves profits in the form of capital distributions, the developments failed under crushing loan terms and Credit Suisse then seized them through foreclosure or bankruptcy.
Credit Suisse has denied allegations of wrongdoing with these loans.
After Lake Las Vegas emerged from bankruptcy in July 2010 -- in which Credit Suisse essentially foreclosed on the 1,600-home development – the Lake Las Vegas creditor trust promptly sued Lee and Sid Bass and other Lake Las Vegas investors in hopes of recovering what the trustee called $470 million in fraudulent transfers in the form of capital distributions and damages for alleged mismanagement and "sham" transactions.
Most of the damages won by the trustee would be turned over to Credit Suisse and some 125 lenders that had participated in the securitization of Credit Suisse’s $670 million loan to Lake Las Vegas.
Attorneys for the Bass brothers and fellow investors associated with Transcontinental Corp. and the late Lake Las Vegas founder Ron Boeddeker of Santa Barbara, Calif., retaliated, filing suits in the bankruptcy case against the trustee, Credit Suisse and scores of lenders.
These suits charged that receipt of damages by Credit Suisse and the other lenders would violate the terms of the original non-recourse loans provided to the development by Credit Suisse.
Attorneys for the investors argued today it would be unfair for Credit Suisse and the lenders to receive funds from the trustee’s lawsuit on top of receiving control of the Lake Las Vegas development -- causing Riegle to suggest Credit Suisse and its co-lenders had taken a steep loss in the bankruptcy because the recession slashed the value of Lake Las Vegas and its undeveloped land.
Attorneys for the trustee, Credit Suisse and other lenders argued the investors were trying to rewrite the initial loan contract as well as the Chapter 11 reorganization plan approved by Riegle last year.
Riegle today rejected the investors’ arguments, saying the trustee’s claims for damages on behalf of the bankruptcy estate are independent of the initial loan contract.
"There’s been no plausible theory pled to show that there is a breach of (the loan) contract," Riegle said at the conclusion of a hearing. "These are not obligations due under the loan documents. These are obligations in tort – a fraudulent conveyance theory."