Bank of America Corp., agent for a loan to a failed casino development by Fontainebleau Las Vegas LLC, was sent back to district court to resolve claims that it acted negligently under the loan agreement.
Bank of America was responsible for paying lenders’ money to Fontainebleau for a project at the north end of the Las Vegas Strip with an initial budget of $2.9 billion. In its July 26 decision, the U.S. Court of Appeals in Atlanta examined whether the bank was right to disburse some funds after the financial crisis began in 2008.
The lenders said Bank of America’s payment to Fontainebleau in March 2009, amid a credit crunch spurred by Lehman Brothers Holdings Inc.’s bankruptcy, was “untimely,” as the borrower had failed to disclose anticipated project costs and some lenders had dropped out. They challenged a U.S. district judge’s decision that the bank acted in keeping with its agreements.
While agreeing with the district court’s interpretation of some of the bank’s obligations under the loan agreements, the appeals panel reversed part of its decision, saying Bank of America may have known the borrower hadn’t met necessary conditions when it paid out the funds in 2009.
“There remain genuine issues of material fact about whether Bank of America had such knowledge and whether its actions amounted to gross negligence,” the appeals panel said.
Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, declined to comment on the ruling.
Fontainebleau, whose corporate parent owns a hotel on 22 acres of Miami Beach, Florida, wanted the money to complete the casino and hotel 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 casino company originally sued the lenders for $3 billion in 2009, saying they refused to provide $800 million in funding for the development. The courts sided with lenders, saying Fontainebleau hadn’t abided by conditions it undertook to fulfill before the banks would increase their revolving loans.
The case is Avenue Clo Fund Ltd. v. Sumitomo Mitsui Banking Corp., 12-11815, U.S. Court of Appeals for the 11th Circuit (Atlanta).