The Fontainebleau Las Vegas project on the Las Vegas Strip has been a sore subject for hundreds of contractors in the Nevada area (the Strip has had problems before).  The lender on this mega project pulled funding, and the project went into bankruptcy.  Although the project is in Nevada and all mechanic liens were filed there, the developer filed bankruptcy in Florida, and the case is being adjudicated there.

A dispute is currently heating up about $100 million dollars in the bankruptcy estate. The lender claims it has priority claim to the funds, and of course, the contractors and suppliers who filed mechanic liens claim they have priority claim to the funds.  Arguments have been made to the Florida bankruptcy judge. Who will win?

Get lien stories and legal alerts
delivered to your inbox
Mechanics Lien Form Download

Get Free Mechanics Lien Form

We’re the Mechanics Lien experts. Forms made by attorneys, and trusted by thousands.

Download Free

It seems this might be up to the Nevada Supreme Court. Since there is a novel issue involved, the Florida bankruptcy district court judge has turned to the Nevada high court for its opinion. It seems the high court is likely to respond, because there is an unique Lien Priority issue involved.  The story was reported in Vegas, Inc. (Top Nevada Court Asked To Weigh In On Fontainebleau Lien Dispute).

We’ve talked about Lien Priority in the past. While the subject matter usually doesn’t matter (most mechanics liens are paid before foreclosure), it matters a lot when it matters – such as cases like the Fontainebleau project.

In Nevada, lenders usually have claim priority over mechanics lien claimants. This is the case even when a lender issues one loan, then mechanics lien claimants make claims, and then the lender refinances and creates a second loan after the liens are filed.

This is sort of what happened in the Fontainebleau situation, except that instead of having the lender convert the original loan and fold it into the second loan, as is typical, the developer actually paid off the loan the day before the refinance. So, the first loan was placed, then construction started (fixing the mechanics lien claimants priority start-date), then the loan was paid off by the developer, and then a completely new loan was placed.

One of the contractors’ attorney, Gregory Garman, summed up the contractor’s argument with this quote provided to Vegas Inc. in the above-linked story:

Garman said the sophisticated lenders had plenty of opportunities to protect their interest in Fontainebleau without harming the contractors, but had failed to do so and now want to earn a windfall at the expense of contractors.

This will be very interesting, and of course, we’ll keep up with its progress here on the blog. This could have big implications to the contractors on the Fontainebleau project…but unfortunately for the larger contractor and supplier scene in Nevada, very limited applicability across the industry.