Court sides with Fontainebleau term lenders on settlement claims bar

By Caroline Salls

Pittsburgh, July 11 – A federal court agreed with Fontainebleau Las Vegas Holdings, LLC’s term lenders’ argument that a proposed claim settlement should not include a bar order, “which would release and forever discharge the term lenders’ personal, independent claims against non-debtors,” according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of Florida.

The court said in Friday’s order from a status conference that the term lenders’ claims for more than $1 billion in direct damages have been pending in Nevada state court for more than three years and have been prosecuted at a cost of millions of dollars by the lenders.

The court said the claims are based on specific misrepresentations allegedly made to the term lenders.

The court said the term lenders have not objected to the previously reported settlement filed on June 26 by Fontainebleau’s trustee.

“Instead, the term lenders take issue with the trustee’s attempt to bar the term lenders from continuing to prosecute their claims in the Nevada action,” Friday’s order said.

“The court would be pleased to approve the settlement under the 9019 motion, but for the bar order against the term lenders’ claim against the Nevada defendants.

“Although this court recognizes that bankruptcy courts do indeed have the power and authority to enter bar orders in certain factual situations, the court does not believe this is such a situation justifying the bar order contemplated.”

The court said a number of parties have agreed to settle the term lenders’ claims without their consent.

According to the order, the parties are conducting discovery to determine whether an exception to the lenders’ consent exists. Specifically, if the targets of the term lenders’ claims were shown to be insolvent, there might be an argument to compel the term lenders to accept a settlement for less than 4% of the pending claim.

As a result, the court said it will consider all evidence at the settlement hearing to determine whether an exception to the prohibition of the bar order against the term lenders’ independent claims is equitable and justified.

Fontainebleau is a Las Vegas-based casino-resort developer. It filed for bankruptcy on June 9, 2009. The company’s Chapter 11 case number is 09-21481.

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