Bank of America Corp., JPMorgan Chase & Co. (JPM) and other lenders justifiably refused additional loans to an “ambitious” casino development by Fontainebleau Las Vegas LLC, as the company had breached a credit agreement governing the revolving loans, a U.S. appeals court said.
The casino company sued the lenders for $3 billion in 2009, saying they refused to provide $800 million in funding for the development. Fontainebleau hadn’t abided by conditions it undertook to fulfill before the banks would increase their revolving loans from $150 million, the appeal judges ruled yesterday in Atlanta.
Fontainebleau, whose corporate parent owns a hotel on 22 acres of Miami Beach, Florida, needed the money to complete a $2.4 billion casino-hotel being built in Las Vegas. The company and affiliates filed for bankruptcy in Miami in 2009, and billionaire investor Carl Icahn bought the unfinished Las Vegas project for about $150 million in 2010. The appeals court wound up reviewing two U.S. District Court decisions from Florida on what they termed “a contract dispute.”
“This case presents more fallout from the failure of the ambitious Fontainebleau development in Las Vegas,” the appeals judges said in their ruling. “After careful review, and having had the benefit of oral argument, we affirm both rulings by the district court.”
The dispute between Fontainebleau and the banks hinged on the interpretation of the term “fully drawn” in the loan documents, the judges said. When Bank of America, as agent for the loans, said the request for funds didn’t comply with the agreement, Fontainebleau said it did. The project collapsed after the lenders declared a default, and the company filed the lawsuit alleging breach of contract.
Finding the contract terms “ambiguous,” the judges said they couldn’t by law conclude that the lenders “broke their promise to fund the borrowers,” as Fontainebleau argued.
Alvin Goldstein, a lawyer for the trustee handling the bankruptcy, didn’t immediately respond to an e-mail seeking comment on the ruling. Jason Jones, a lawyer for Fontainebleau Las Vegas, said he wasn’t involved in the appeal.
The case is Fontainebleau Las Vegas LLC v. Bank of America, 11-10468, U.S. Court of Appeals for the Eleventh Circuit (Atlanta).
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