Soneet Kapila, Co-managing partner, KapilaMukamal LLP. ()
After four years of intense litigation, the trustee overseeing the failed $3 billion Fontainebleau Las Vegas casino resort project has reached an $83 million settlement with creditors and contractors.
However, term lenders who lent hundreds of millions of dollars to Aventura’s Soffer family, the developers of the project, to build the 68-story high-rise are strongly objecting to the agreement, which includes a bar order preventing other litigation against the Soffers and other officers and directors of the development.
One casualty would be a billion-dollar lawsuit the lenders filed against the Soffers in Las Vegas that is set for trial in January.
U.S. Bankruptcy Judge A. Jay Cristol in Miami heard arguments last week at a hearing attended by dozens of lawyers and scheduled a final hearing on the settlement for Aug. 27-29. The Soffers did not attend Wednesday’s hearing.
The Fontainebleau Las Vegas was envisioned as one of the tallest and most lavish casinos in Sin City when the Soffers began development in 2007. The project was undertaken by Jeff Soffer and his sister, Jacquelyn, who run the family’s Turnberry real estate companies, which developed Turnberry Isle Miami resort, Aventura Mall, thousands of residential units and numerous office buildings in Aventura.
The Las Vegas project was a spectacular victim of the nationwide real estate crash. With the resort half built, the project filed for Chapter 11 bankruptcy protection in June 2009. Soffer blamed the bankruptcy on Lehman Brothers Holdings Inc. cutting off funds and some of the country’s top banks holding back $800 million in construction funds to finish the hotel.
Corporate raider Carl Icahn swept in and bought the skeletal building in 2010 for $160 million; the money has been held in escrow.
Court-appointed bankruptcy trustee Soneet Kapila has been filing suits to recover funds for creditors. The proposed settlement with the Soffers and other officers and directors is one of several key agreements, he said.
Although it represents a small percentage of the estimated $2 billion owed to creditors, lenders and contractors, Kapila called it a fair settlement achieved after three mediation sessions in California, New York City and Miami.
Under the proposal, the term lenders would get 30 percent of the $83 million, and $675 million in claims against the estate would be waived. The funds would come from the Soffers, directors, officers and insurance coverage.
But in a motion objecting to the settlement and bar order filed Wednesday, the term lenders represented by Sidney Levinson of Jones Day in Los Angeles, slammed the deal, which would bar $1 billion in claims in five causes of action they have filed. The lenders are led by a New York-based hedge fund, Brigade Leveraged Capital Structures Fund Ltd.
The lenders also have a case pending against Bank of America, alleging the bank should have detected red flags at the project and stopped disbursing the lenders’ money.
In court Wednesday, the lenders claimed they were cut out of the settlement and that calls they made to Kapila and his attorneys were never returned.
“It’s unfortunate that they went down this path of excluding term lenders … particularly given case law that’s clear in the Eleventh Circuit,” Levinson said. “They don’t seem interested in talking to us.”
Keep It Simple
The lenders have asked for a 10-day hearing and want to present six construction experts, depositions and bank documents. They also want the hearing delayed while they conduct discovery. They claim the Soffers had two sets of books and accused them of fraud in their Las Vegas lawsuit.
But lawyers for Kapila and the Soffers argued the lenders are trying to litigate their Las Vegas case in bankruptcy court. Miami attorney Paul Singerman of Berger Singerman, who represents the Soffers, argued the lenders have had the Soffers’ computer servers for two years.
“They contain 3.3 terabytes of data,” he said. “That’s 916 million pages of data. I can’t imagine what more the term lenders need.”
Singerman also argued Cristol did not need to hear from construction experts to decide whether to approve the settlement.
“Please judge, don’t let them make this more complicated than it really is,” he said. “Helen Keller can see there will be something else they need so they can blow up this deal.”
Miami attorney Paul Battista of Genovese Joblove & Battista, which represents Kapila of KapilaMukamal LLP, also blasted the lenders for calling Kapila unethical and “trying to dirty us up.”
“They don’t want a fair process. They want it all ways to Sunday,” he said. “If they get six experts, then we’ll need six experts, and we’ll have dueling experts. It will be 2017 by the time we get to trial.”
Cristol indicated he did not want to delay the final hearing.
“We are going to have to work within our time limits,” he said. “We have a deal, and it’s got a fuse on it.”
The judge said he would not allow experts to testify at the hearing.
“I’ll make my decision based on the evidence,” he said. “The court is not interested in hearing from experts.”
Cristol did not indicate which way he was leaning.
“I look with great favor on the trustee’s recommendation,” he said. “What I am concerned about, however, is the bar order. I have concerns about whether I can do it in this case.”
Cristol asked both sides to prepare briefs on his authority to impose a bar order by Tuesday.