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On Thanksgiving Day 1995, my family was gathered around the table at home. I was looking forward to the annual feast and a quiet evening brought on by the numbing side effects of eating too much turkey. When the phone rang, my wife, Pat, wasn’t expecting to hear the voice of Larry Hirsch, CEO of Centex Corp., on the other end of the line. Hirsch had called about a development concerning a subsidiary of Centex. The subsidiary was working on one of the world’s largest land-based casinos to be located in New Orleans. Here was the situation: The partnership developing the casino had filed for bankruptcy the day before Thanksgiving, putting nearly 3,000 people out of work, and had defaulted on hundreds of millions of dollars in debt. With 60 percent of the construction complete, Centex was going to be out of pocket approximately $35 million in unpaid work and nearly the same amount in claims from its subcontractors, Hirsch said. Hirsch and I had to develop a crisis action plan — and fast. Needless to say, dinner was cut short, and I launched into a whirlwind of activity. After analyzing the situation, the company issued a press release the week after Thanksgiving commenting on the contract suspension and indicating that the company believed any exposure would be less than the $35 million in unpaid construction costs. The first order of business for us as the in-house legal team was to hire local counsel in New Orleans. This was a challenge because most of the large firms in the area had conflicts of interest. Finally, an aggressive and talented local trial lawyer, Peter Butler Sr., was located. Butler was able to keep pressure on the developer’s parent company, which was not in bankruptcy. Centex ultimately sued the parent company based on its tacit guarantee of payment. Jack Kinzie of the Dallas office of Baker Botts was engaged to work with Butler to fine-tune and go forward with Centex’s claims in the bankruptcy, which eventually reached $41 million. Centex was able to negotiate standstill agreements with the subcontractors and advanced $22.5 million to some to help keep them in business. Centex also bore the cost of maintaining its work force and the subcontractors to complete the job once work resumed. VESTED INTEREST Centex’s plan included help on the political front as well. The city of New Orleans and the state of Louisiana had substantial economic stakes in the timely completion of the casino project. Working with local Centex management, I hired a lobbyist to interact with the state Legislature, and Centex chaired the unsecured creditors committee, guaranteeing the company a seat at the table during the bankruptcy court proceedings. As with any large construction project that comes to a standstill, Centex had a vested interest in negotiating a settlement with the debtor to ensure the unfinished casino was made weather-tight until work could resume. This was accomplished at the cost of an additional $8.5 million contract. The company kept pressure on the developer’s parent company by filing suit against the parent in Louisiana state court. This approach worked well because the parent did not want to face a jury trial in New Orleans after putting 3,000 people out of work the day before Thanksgiving. One year after receiving my Thanksgiving phone call, Centex settled with the debtor for $34 million, subject to the conclusion of the bankruptcy proceeding, which took two more years. This settlement allowed Centex to complete the project and make a profit. In November 1998, the project’s reorganization plan became effective, and in October 1999 the completed casino held its grand opening. During the course of the three-year process, I worked closely with Centex’s business leaders and gave periodic update presentations to the company’s board of directors. The support our legal team received from Hirsch and the company’s board of directors was especially important throughout the process. Since that legal crisis six years ago, my wife and I haven’t gone so far as to take the phone off the hook over the holidays, but we certainly keep our fingers crossed hoping we won’t get another phone call with such great implications. Ray Smerge is the chief legal officer of Centex Corp. His email address is [email protected]

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