Avenue CLO Fund, Ltd. et al v. Bank of America, N.A., et al

Filing 79

CERTIFIED REMAND ORDER. MDL No. 2106. Signed by MDL (FLSD) on 1/14/14. (Attachments: # 1 Transmittal from FLSD, # 2 1 09-md-02106 Designation of Record, # 3 1 09-md-02106 Dkt. Sheet - flsd, # 4 09-MD-2106 DE 1, 2, 4-30, # 5 0 9-MD-2106 DE 32-36, # 6 09-MD-2106 DE 37 part 1 of 3, # 7 09-MD-2106 DE 37 part 2 of 3, # 8 09-MD-2106 DE 37 part 3 of 3, # 9 09-MD-2106 DE 38, 39, 41-47, 49, 50, # 10 09-MD-2106 DE 51, # 11 09-MD-2106 DE 52-59, 61-65, 68, 70, 72-76, # (1 2) 09-MD-2106 DE 78-84, 86-91, # 13 09-MD-2106 DE 93, 95-103, 106-108, # 14 09-MD-2106 DE 110-115, # 15 09-MD-2106 DE 116-125, 127-129, 132-134, # 16 09-MD-2106 DE 136-140, 142-158, # 17 09-MD-2106 DE 160-162, 164-167, 170-175, 177-190, # ( 18) 09-MD-2106 DE 191-199, 201-215, # 19 09-MD-2106 DE 217-229, 232-247, # 20 09-MD-2106 DE 248, # 21 09-MD-2106 DE 249 part 1 of 2, # 22 09-MD-2106 DE 249 part 2 of 2, # 23 09-MD-2106 DE 251-253, 262-266, 284-287, 300, 301, 310, 319, 326-3 31, # 24 09-MD-2106 DE 335, 336, 338-344, 346-349, # 25 09-MD-2106 DE 350, # 26 09-MD-2106 DE 351-358, # 27 09-MD-2106 DE 360-366, 368-374, # 28 09-MD-2106 DE 375 part 1 of 3, # 29 09-MD-2106 DE 375 part 2 of 3, # 30 09-MD-2106 DE 375 p art 3 of 3, # 31 09-MD-2106 DE 376 part 1, # 32 09-MD-2106 DE 376 part 2, # 33 09-MD-2106 DE 376 part 3, # 34 09-MD-2106 DE 376 part 4, # 35 09-MD-2106 DE 376 part 5, # 36 09-MD-2106 DE 376 part 6, # 37 09-MD-2106 DE 376 part 7, # 38 09-MD-2106 DE 376 part 8, # 39 09-MD-2106 DE 376 part 9, # 40 09-MD-2106 DE 377 part 1, # 41 09-MD-2106 DE 377 part 2, # 42 09-MD-2106 DE 378, # 43 09-MD-2106 DE 379, # 44 09-MD-2106 DE 380, # 45 09-MD-2106 DE 381 part 1, # 46 09-MD-2 106 DE 381 part 2, # 47 09-MD-2106 DE 382 part 1, # 48 09-MD-2106 DE 382 part 2, # 49 09-MD-2106 DE 382 part 3, # 50 09-MD-2106 DE 382 part 4, # 51 09-MD-2106 DE 383 part 1, # 52 09-MD-2106 DE 383 part 2, # 53 09-MD-2106 DE 383 part 3, # 54 09-MD-2106 DE 383 part 4, # 55 09-MD-2106 DE 383 part 5, # 56 09-MD-2106 DE 383 part 6, # 57 09-MD-2106 DE 383 part 7, # 58 09-MD-2106 DE 383 part 8, # 59 09-MD-2106 DE 383 part 9, # 60 09-MD-2106 DE 383 part 10, # 61 09-MD-2106 DE 383 part 11, # 62 09-MD-2106 DE 384 part 1, # 63 09-MD-2106 DE 384 part 2, # 64 09-MD-2106 DE 384 part 3, # 65 09-MD-2106 DE 384 part 4, # 66 09-MD-2106 DE 384 part 5, # 67 09-MD-2106 DE 384 part 6, # 68 09-MD-2106 DE 384 part 7, # ( 69) 09-MD-2106 DE 384 part 8, # 70 09-MD-2106 DE 384 part 9, # 71 09-MD-2106 DE 384 part 10, # 72 09-MD-2106 DE 384 part 11, # 73 09-MD-2106 DE 385 part 1, # 74 09-MD-2106 DE 385 part 2, # 75 09-MD-2106 DE 386 part 1, # 76 09-MD-2106 DE 386 part 2, # 77 09-MD-2106 DE 386 part 3, # 78 09-MD-2106 DE 386 part 4, # 79 09-MD-2106 DE 386 part 5, # 80 09-MD-2106 DE 386 part 6, # 81 09-MD-2106 DE 386 part 7, # 82 09-MD-2106 DE 387 part 1, # 83 09-MD-2106 DE 387 part 2, # 84 09-MD-2106 DE 388, # 85 09-MD-2106 DE 389 part 1, # 86 09-MD-2106 DE 389 part 2, # 87 09-MD-2106 DE 389 part 3, # 88 09-MD-2106 DE 389 part 4, # 89 09-MD-2106 DE 390, 392-394, # 90 1 10-cv-20236 Dkt. Sheet - flsd, # 91 10cv20236 DE #1-27, 29-31, 45, 53, 60-65, 67-70, 73, # 92 1 09-cv-23835 Dkt. Sheet - flsd, # 93 09cv23835 DE 112, 115-126, # 94 09cv23835 DE 130, 134, 135 and 145)(Copies have been distributed pursuant to the NEF - MMM)

Case 1:09-md-02106-ASG Document 377 Entered on FLSD Docket 12/04/2013 Page 1 of 5

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Miami Division
CASE NO.: 09-2106-MD-GOLD/GOODMAN
IN RE:
FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION
MDL NO. 2106
This document relates to all actions.
______________________________________/
NOTICE OF FILING ON THE PUBLIC RECORD
NON-DEPOSITION EXHIBITS PREVIOUSLY FILED
UNDER SEAL RELATED TO SUMMARY JUDGMENT DOCUMENTS
Defendant Bank of America N.A. (“BANA”) hereby gives notice that it is filing on the
public record certain documents, previously filed under seal related to BANA’s Motion for
Summary Judgment and Plaintiffs’ Motion for Partial Summary Judgment in the above-titled
case.
On October 4, 2013, this Court issued an Order Upon Mandate [D.E. #368] requiring the
parties to specify, by district court docket entry number, which documents previously filed under
seal could be unsealed. 1 However, because the parties could not view the sealed entries on the
electronic CM/ECF docket in this case—and therefore, could not determine which district court
docket entry numbers corresponded to each sealed document—the Court later issued a Sua
Sponte Order Regarding Mandate and Documents Filed Under Seal [D.E. #370] requiring the

1

The parties previously filed with the Eleventh Circuit a letter dated December 14, 2012,
identifying documents and testimony that should remain sealed. Since that time, the parties have
determined that certain evidence included on that list no longer needs to remain sealed and, upon
further review of the record, the parties have identified other evidence that should remain sealed
which was inadvertently omitted from the letter.

Case 1:09-md-02106-ASG Document 377 Entered on FLSD Docket 12/04/2013 Page 2 of 5

parties to make a recommendation by November 1, 2013 regarding how they proposed to comply
with this Court’s October 4, 2013 Order Upon Mandate.
On November 1, 2013, the parties filed a Joint Notice Regarding Proposal for Partially
Unsealing Summary Judgment Filings [D.E. #373]. The parties proposed submitting to the
Court redacted copies of all memoranda of law and statements of material facts, in addition to
one copy of each exhibit and a single compilation of each witness’s deposition transcript
excerpts cited in all memoranda of law. On November 5, 2013, this Court entered an Order
Approving Joint Proposal [D.E. #374], approving the parties’ joint proposal and ordering the
parties to file via CM/ECF redacted copies of the summary judgment memoranda of law,
statements of facts, and exhibits, on or before December 6, 2013.
BANA previously filed under seal the non-deposition exhibits listed below on August 5,
2011, September 9, 2011, and September 27, 2011. In compliance with this Court’s Order
Approving Joint Proposal, BANA now files the following non-deposition exhibits on the public
record:2
NON-DEPOSITION EXHIBITS CITED BY BANK OF AMERICA, N.A.
No.
Exhibit
BATES or Docket Nos.
Filing Status
Non-Deposition Exhibits to Cantor Declaration
1
Cantor Decl. Ex. 24
No Bates Number
Publicly filed (attached)
2
Cantor Decl. Ex. 25
Second Amended
Publicly filed (attached)
Complaint for Breach of
Contract, Breach of the
Implied Covenant of Good
Faith and Fair Dealing, and
Declaratory Relief, Case
1:09-md-02106-ASG Doc.
2

Additional documents previously filed under seal related to BANA’s Motion for Summary
Judgment and Plaintiffs’ Motion for Partial Summary Judgment, including the Cantor
Declarations, deposition exhibits, memoranda of law, and statements of facts, will be filed under
separate cover.
2

Case 1:09-md-02106-ASG Document 377 Entered on FLSD Docket 12/04/2013 Page 3 of 5

NON-DEPOSITION EXHIBITS CITED BY BANK OF AMERICA, N.A.
No.
Exhibit
BATES or Docket Nos.
Filing Status
15
3
Cantor Decl. Ex. 26
Amended MDL Order
Publicly filed (attached)
Number Eighteen;
Granting in Part and
Denying in Part Motions to
Dismiss [DE 35]; [DE 36];
Requiring Answer to
Complaints; Vacating Final
Judgment, Case 1:09-md02106-ASG Doc. 80
4
Cantor Decl. Ex. 27
Complaint, Brigade
Publicly filed (attached)
Leveraged Capital
Structures Fund, Ltd., et al
v. Fontainebleau Resorts,
LLC, et al, No. A-11637835-B
5
Cantor Decl. Ex. 29
Avenue Term Lender
Publicly filed with
Plaintiffs’ Amended
redactions (attached)
Responses to Second Set of
Interrogatories from
Defendant Bank of
America, N.A.
6
Cantor Decl. Ex. 30
MON 000044-45
Filed under seal
7
Cantor Decl. Ex. 31
VEN 000803-06
Filed under seal
8
Cantor Decl. Ex. 32
SPT 000179-81
Filed under seal
9
Cantor Decl. Ex. 33
BGD 004016-18
Filed under seal
10
Cantor Decl. Ex. 88
Order Dismissing Parties
Publicly filed (attached)
Without Prejudice Pursuant
to Notice of Voluntary
Dismissal [DE 65];
Directing Clerk to Take
Action, Case 1:09-md02106-ASG Doc. 68
11
Cantor Decl. Ex. 89
No Bates Number
Publicly filed (attached)
12
Cantor Decl. Ex. 90
Answer of Defendant Bank Publicly filed (attached)
of America, N.A., Case
1:09-md-02106-ASG Doc.
88
Non-Deposition Exhibits to Cantor Opposition Declaration
13
Cantor Opp. Decl. Ex. 28
No Bates Number
Publicly filed (attached)

3

Case 1:09-md-02106-ASG Document 377 Entered on FLSD Docket 12/04/2013 Page 4 of 5

NON-DEPOSITION EXHIBITS CITED BY BANK OF AMERICA, N.A.
No.
Exhibit
BATES or Docket Nos.
Filing Status
14
Cantor Opp. Decl. Ex. 29
Second Amended
Publicly filed (attached)
Complaint for Breach of
Contract, Breach of the
Implied Covenant of Good
Faith and Fair Dealing, and
Declaratory Relief, Case
1:09-md-02106-ASG Doc.
15
15
Cantor Opp. Decl. Ex. 30
Answer of Defendant Bank Publicly filed (attached)
of America, N.A., Case
1:09-md-02106-ASG Doc.
88
16
Cantor Opp. Decl. Ex. 31
Expert Report of Saul
Publicly filed with
Solomon
redactions (attached)
17
Cantor Opp. Decl. Ex. 32
VEN 000803-06
Filed under seal
18
Cantor Opp. Decl. Ex. 33
SPT 000179-81
Filed under seal
19
Cantor Opp. Decl. Ex. 34
BGD 004016-18
Filed under seal
20
Cantor Opp. Decl. Ex. 100
BGD 000845-49
Publicly filed (attached)
21
Cantor Opp. Decl. Ex. 101
Complaint, Brigade
Publicly filed (attached)
Leveraged Capital
Structures Fund, Ltd., et al
v. Fontainebleau Resorts,
LLC, et al, No. A-11637835-B
Non-Deposition Exhibits to Cantor Reply Declaration
22
Cantor Reply Decl. Ex. 25
BGD 000845-49
Publicly filed (attached)

Date: Miami, Florida
December 4, 2013
By: /s/ Jamie Zysk Isani
Jamie Zysk Isani
Jamie Zysk Isani (Florida Bar No. 728861)
HUNTON & WILLIAMS LLP
1111 Brickell Avenue, Suite 2500
Miami, Florida 33131
Telephone: [phone]
Facsimile: [phone]
E-mail: [e-mail]
-and-

4

Case 1:09-md-02106-ASG Document 377 Entered on FLSD Docket 12/04/2013 Page 5 of 5

Bradley J. Butwin (pro hac vice)
Jonathan Rosenberg (pro hac vice)
Daniel L. Cantor (pro hac vice)
William J. Sushon (pro hac vice)
O’MELVENY & MYERS LLP
7 Times Square
New York, New York 10036
Telephone: [phone]
Facsimile: [phone]
E-mail: [e-mail]
[e-mail]
[e-mail]
[e-mail]
Attorneys for Defendant Bank of America, N.A.

CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing was served by transmission
of Notice of Electronic Filing generated by CM/ECF on December 4, 2013 on all counsel or
parties of record on the Service List below:
J. Michael Hennigan, Esq.
Kirk Dillman, Esq.
Robert Mockler, Esq.
MCKOOL SMITH, P.C.
865 South Figueroa Street, Suite 2900
Los Angeles, California 90017
Telephone: [phone]
Facsimile: [phone]
E-mail:
[e-mail]
[e-mail]
[e-mail]

David A. Rothstein, Esq.
Lorenz Michel Pruss, Esq.
DIMOND KAPLAN & ROTHSTEIN, P.A.
2665 South Bayshore Drive
Penthouse 2-B
Miami, Florida 33133
Telephone: [phone]
Facsimile: [phone]
E-mail:
[e-mail]
[e-mail]

Attorneys for Plaintiffs Avenue CLO Fund, Ltd. et al.
By:

5

/s/ Jamie Zysk Isani
Jamie Zysk Isani, Esq.

Page 1 of
· Case 1:09-md-02106-ASG 'Unpreceq.ented' Disruption (Update3)- Bloomberg
Highland Shuts Funds Amid Document 377-1 Entered on FLSD Docket 12/04/2013 Page 1 of3 3

om berg
Highland Shuts Funds Amid 'Unprecedented'
Disruption (Update3) ·
By PietTe Paulden- Oct 16, 2008

bet. 16 (Bloomberg) -- Highland Capital Management LP will close its flagship Highland Crusader
Fund and another hedge fund after losses on high-yield, high-risk loans and other types of debt,
according to a person with knowledge of the decision.
Highland, whose total assets under management has shrunk to about $35 billion from $40 billion
.in March, will wind down the Crusader fund and the Highland Credit Strategies Fund over the next
three years, said the person, who declined to be named because the decision isn't public. The hedge
funds had combined assets of more than $1.5 billion.
The Highland Credit Strategies fund suffered from ' 'unprecedented market volatility and
disruption," according to a letter to investors that was obtained by Bloomberg News. Barclays
Capital Inc. seized $642 million of leveraged loans from Highland yesterday and is offering the
debt for sale in an auction today, according to a person with knowledge of the situation.
Highland, founded by ,Tames Dondero and Mark Okada in Dallas in 1993, follows firms including
Sailfish Capital Partners LLC and Peloton Partners LLP in closing funds after the seizure in
financial markets choked off credit and sent asset values plummeting. The average price of actively
traded high-yield, or leveraged, loans has dropped to 71.2 cents on the dollar from 100 cents in
June last year, according to Standard & Poor's.
CLOs
Highland, the world's largest non-bank buyer ofleveraged loans last year, also manages
collateralized loan obligations and in March raised $1 billion to buy distressed loans. CLOs are
created by bundling together loans and repackaging them into new securities. Leveraged loans· are
rated below Baa3 by Moody's Investors Service and BBB- by S&P and are used to fund privateequity acquisitions.
The Markit LCDX, a benchmark credit-default swap index used to hedge against losses on
leveraged loans, dropped 1.5 percentage point to a mid.:.price of 82.5 percent of face value today,

http://www .bloomberg.com/apps/news?pid=21 070001 &sid=agiw6VSt2goi

7/28/2011

Highland Shuts Funds Amid Document 377-1 Entered on FLSD Docket 12/04/2013 Page 2 of3 3
Case 1:09-md-02106-ASG 'Unprecedented' Disruption (Update3)- Bloomberg
Page 2 of

according to Goldman Sachs Group Inc. The index falls as credit risk increases. The index series
fell to a record low of 81 on Oct. 10.
Bids for the Barclays auction were due by 2 p.m. today in NewYork,according to documents
obtained by Bloomberg News. The sale will close at 4:30p.m.
Barclays spokesman Brandon Ashcraft declined to comment.
'Highly Constrained'
The firm plans to sell 20 percent of the Highland Credit Strategies Fund's assets in the next six
months and a further 20 percent in the following six months, the letter said. Closing the fund will
avoid forced sales that would result in lower prices, the person said.
' 'The environment is one where the fundamental tools to manage the Credit Strategies funds'
trading, hedging, shorting and financing are highly constrained, and in some cases unavailable;"
the letter said.
Highland has a separate closed-endretail fund that is also called the Highland Credit Strategies
Fund, which isn't being shut down, the person said. The investment firm manages about $7 billion
in mutual funds, including the Highland Distressed Opportunities fund.
The Crusader fund is dowii more than 30 percent thisyear, the person said. The fund slumped 14
percent in January after reporting 40 percent gains in 2006 and a 4-5 percent loss in 2007.
Hedge Funds Fall
Hedge funds fell4.7 percent in September, the worst month for the $1.9 trillion industry since the
collapse of Long-Term Capital Management LP in 1998, according to Hedge Fund Research Inc.
The drop has dragged the Chicago-based research firm's Weighted Composite Index down 9·4
percent so far this year, on pace for the biggest annual loss since HFR started keeping records in
1990 ..
Citadel Investment Group Inc.'s biggest hedge fund fell as much as 30 percent this year because of
losses on convertible bonds, stocks and corporate debt, two people familiar with the Chicago-based
firm said yesterday. Kenneth Griffin, who founded Citadel in 1990, said in a letter to investors this
week that returns for the $10 billion Kensington Global Strategies Fund may swing wildly as·
markets are battered by the global credit crunch.
To contact the reporter on this story: Pierre Pauldctl. in New York at ppaulden(ivbloombcrg.net

http://www.bloomberg.com/apps/news?pid=21.070001&sid=agiw6VSt2gol

7/28/2011

Highland Shuts Funds Amid Document 377-1 Entered on FLSD Docket 12/04/2013 Page 3 of3 3
Case 1:09-md-02106-ASG 'Unprecedented' Disruption (Update3)- Bloomberg
Page 3 of

To contact the editor responsible for this story: .Emma .Moodv at emoodvCiDbloomberg.net
©2010 BLOOMBERG L.P. ALL RIGHTS RESERVED.

http://www. bloomberg.com/apps/news ?pid=21 070001 &sid=agiw6VSt2goi

7/28/2011

Case 1:09-md-02106-ASG Document 377-2 Entered on FLSD Docket 12/04/2013 Page 1 of 39
Case 1:09-md-021 06-ASG Document 15

Entered

on FLSDDocket 01/15/2010

Page 1 of 39

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO.: 09-MD-02106-CIV-GOLD/MCALILEY
· [original SDFL action 09-21879]

IN RE: FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION.

) Case No. 09-CV-01047-KJD-PAL
)
)

MDL No. 2106

)
)

AVENUE CLOFUND, LTD., et al.,

)
)

Plaintiffs,

· )
)

vs.

)
)

BANK OF AMERICA, N.A., et al.,

)
)

Defendants.

_________________________________

)
)

SECOND AMENDED COMPLAINT FOR BREACH OF CONTRACT,
BREACH OF THE IMPLIED COVENANT OF GOOD FAITH
AND FAIR DEALING, AND DECLARATORY RELIEF
. JURY TRIAL DEMANDED
This action is brought by the Plaintiffs, each of which is a lender under a June 6, 2007
Credit Agreement (the "Credit Agreement"), by and am.ong, inter alia, Fontainebleau Las Vegas,
LLC and Fontainebleau Las Vegas II, LLC (together, the "Borrower"), the lenders referred to
therein, and Bank of America N.A, in various capacities (in all capacities, "BofA"), against
Defendants Bankof America, N.A., Merrill Lynch Capital Corporation, J.P. Morgan Chase
Bank, N.A., Barclays Bank PLC, Deutsche Bank Trust Company Americas, The Royal Bank of
Scotland PLC, Sumitomo Mitsui Banking Corporation, Bank of Scotland, HSH Nordbank AG,
MB Financial Bank, N.A., and Camulos Master Fund, L.P. ("Defendants"), in their capacities as
lenders under the Credit Agreement, as well as Bank of America, NA, in its capacities as

Case 1:09-md-02106-ASG Document 377-2 Entered on FLSD Docket 12/04/2013 Page 2 of 39
Case 1:09-md-02106-ASG Document 15

Entered on FLSD Docket 01/15/2010 Page 2 of39

Administrative Agent tmder the Credit Agreement and as Disbursement Agent under the related
1

Master Disbursement Agreemc:nt. Plaintiffs allege for their complaint as follows:
JURISDICTION AND VENUE

1.

This Court has jurisdiction over the subject matter of this action pursuant to

12 U.S.C. § 632 because defendants BofA, JPMorgan Chase Bank, N.A. and MB Financial
Bank, N.A. are national banking associations organized under the laws of the United States and
the action arises out of transactions involving international or foreign banking or other
international or foreign financial operations, within the meaning of 12 U.S.C. § 632.
2.

Venue in the United States District Court for the District of Nevada is proper

because the Project is located in Nevada and many of the acts and transactions at issue occurred
in Nevada.
PARTIES

Plaintiffs
3.

Plaintiff Avenue CLO Fund, Ltd. is a company with limited liability

incorporated under the laws of the Cayman Islands.
4.

Plaintiff A venue CLO II, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
5.

Plaintiff Avenue CLO III, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
6.

Plaintiff Avenue CLO IV, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
7.

Plaintiff Avenue CLO V, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.

1

Capitalized terms not otherwise defmed herein have the meaning used in the Credit Agreement
or, if applicable, the Disbursement Agreement.

-2-

Case 1:09-md-02106-ASG Document 377-2 Entered on FLSD Docket 12/04/2013 Page 3 of 39
Case 1:09-md-021 06-ASG Document 15

8.

Entered on FLSD Docket 01/15/2010 Page 3 of 39

Plaintiff Avenue CLO VI, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
9.

Plaintiff Brigade Leveraged Capital Structures Fund, Ltd. is an exempted

company with limited liability incorporated under the laws of the Cayman Islands.
10.

Plaintiff Battalion CLO 2007-I Ltd. is an exempted company with limited

liability incorporated under the laws of the Cayman Islands.
11.

PlaintiffCanpartners Investments IV; LLC is a limited liability company formed

under the laws of California.
12.

Plaintiff Canyon Special Opportunities Master Fund (Cayman), Ltd. is an

exempted company with limited liability incorporated under the laws of the Cayman Islands.
13.

Plaintiff Canyon Capital CLO 2004 1 Ltd. is an exempted company with limited

liability incorporated under the laws of the Cayman Islands.
14.

Plaintiff Canyon Capital CLO 2006 1 Ltd. is an exempted company with limited

liability incorporated under the laws of the Cayman Islands ..
15.

Plaintiff Canyon Capital CLO 2007 1 Ltd. is an exempted company with limited .

liability incorporated under the laws of the Cayman Islands.
16.

Plaintiff Caspian Corporate Loan Fund, LLC is .a limited liability company

formed under the laws of Delaware.
17.

Plaintiff Caspian Capital Partners, L.P. is a limited partnership formed under· the

laws of Delaware.
18.

Plaintiff Caspian Select Credit Master Fund, Ltd. is a company with limited

liability formed under the laws .of the Cayman Islands.
19.

Plaintiff Mariner Opportunities Fund, LP is a limited partnership formed under

the laws of Delaware.
20.

Plaintiff Mariner LDC is company with limited duration formed under the laws

of the Cayman Islands.

-3-

Case 1:09-md-02106-ASG Document 377-2 Entered on FLSD Docket 12/04/2013 Page 4 of 39
Case 1:09-md-021 06-ASG Document 15

21.

Entered on FLSD Docket 01/15/2010 Page 4 of 39

Plaintiff Sands Point Funding Ltd. is a company with limited liability

incorporated under the laws of the Cayman Islands.
22.

Plaintiff Copper River CLO Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
23.

Plaintiff Kennecott Funding Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
24.

PlaintiffNZC Opportunities (Funding) II Limited is a company with limited

liability incorporated under the laws of the Cayman Islands.
25.

Plaintiff Green Lane CLO Ltd. is a company with limited liabil{ty incorporated

under the laws of the Cayman Islands.
26.

Plaintiff 1888 Fund, Ltd. is a company with limited liability incorporated under

the laws of the Cayman Islands.
27.

· Plaintiff Orpheus Funding LLC is a limited liability company formed under the

laws of Delaware.
28.

Plaintiff Orpheus Holdings LLC is a limited liability company formed under the

laws of Delaware.
29,

PlaintiffLFCQ LLC is a limited liability company formed under the laws of

Delaware.
30.

Plaintiff Aberdeen Loan Funding, Ltd. is a company with limited liability

incorporated under the laws of the Cayman Islands.
31.

Plaintiff Armstrong Loan Funding, Ltd. is a company with limited liability

incorporated under the laws of the Cayman Islands.
32.

Plaintiff Brentwood CLO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
33.

PlaintiffEastland CLO, Ltd. is a company with limited liability incorponi.ted

under the laws of the Cayman Islands.

-4-

Case 1:09-md-02106-ASG Document 377-2 Entered on FLSD Docket 12/04/2013 Page 5 of 39
Case 1:09-md-02106-ASG Document 15

34.

Entered on FLSD Docket 01/15/2010 Page 5 of 39

Plaintiff Emerald Orchard Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
35.

PlaintiffGleneagles CLO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
36.

Plaintiff Grayson CLO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
37.

PlaintiffGreen.briar CLO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
38.

PlaintiffHighland·Credit Opportunities CDO, Ltd. is a company with limited

liability incorporated under the laws of the Cayman Islands.
39.

Plaintiff Highland Loan Funding V, Ltd. is a company with limited liability

incorporated under the laws of the Cayman Islands.
40.

Plaintiff Highland Offshore Partners, L.P. is a limited partnership formed under

the laws of Bermuda.
41.

. Plaintiff Jasper CLO, Ltd. is a company with limited liability incorporated under

the laws of the Cayman Islands.
42.

Plaintiff Liberty CLO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
43.

Plaintiff Loan Funding IV LLC is a limited liability company formed under the

laws of Delaware.
44.

Plaintiff Loan Funding VII LLC is a limited liability company formed under the

laws of Delaware.
45.

Plaintiff Loan Star State Trust is a trust formed under the laws of the Cayman

Islands.
46.

Plaintiff Longhorn Credit Funding, LLC is a limited liability company formed

under the laws of Delaware.

-5-

Case 1:09-md-02106-ASG Document 377-2 Entered on FLSD Docket 12/04/2013 Page 6 of 39
Case 1:09-md-021 06-ASG Document 15

47.

Entered on FLSD Docket 01/15/2010 Page 6 of 39

Plaintiff Red River CLO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
48.

Plaintiff Rockwall CDO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
49.

Plaintiff Rockwall CDO II, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
50.

Plaintiff Southfork CLO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
51.

Plaintiff Stratford CLO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
52.

Plaintiff Westchester CLO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
53.

PlaintiffiNG Prime Rate Trust is a business trust formed under the laws of

. Massachusetts.
54.

PlaintiffiNG Senior Income Fund is a statutory trust formed under the laws of

Delaware.
55.

PlaintiffiNG International (II)- Senior Bank Loans Euro is a SICAV (Societe

d'Investissement a Capital Variable) formed under the laws of Luxembourg.
56.

PlaintiffiNG Investment Management CLO I, Ltd. is a company with limited

liability incorporated under th~ laws of the Cayman Islands.
57.

PlaintiffiNG Investment Management CLO II, Ltd. is a company with limited

liability incorporated under the laws of the Cayman Islands.
58.

PlaintiffiNG Investment Management CLO III, Ltd. is a company with limited

liability incorporated under the laws of the Cayman Islands.
59.

PlaintiffiNG Investment Management CLO IV, Ltd. is a company with limited

liability incorporated under the laws of the Cayman Islands.

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60.

Entered on FLSD Docket 01/15/2010 Page 7 of 39

PlaintiffiNG Investment Management CLO V, Ltd. is a compan:Y with limited

liability incorporated under the laws of the Cayman Islands.
61.

Plaintiff Carlyle High Yield Partners 2008-1, Ltd. is an exempted company with

limited liability incorporated under the laws of the Cayman Islands.
62.

Plaintiff Carlyle High Yield Partners VI, Ltd. is an exempted company with

limited liability incorporated under the laws of the Cayman Islands.
63. ·

Plaintiff Carlyle High Yield Partners VII, Ltd. is an exempted company with

limited liability incorporated under the. laws of the Cayman Islands.
64.

Plaintiff Carlyle High Yield Partners VIII, Ltd. is an exempted company with'

limited liability incorporated under the laws of the Cayman Islands. ·
65.

Plaintiff Carlyle High Yield Partners IX, Ltd. is an exempted company with

limited liability incorporated under the laws of the Cayman Islands.
66.

Plaintiff Carlyle High Yield Partners X, Ltd. is an exempted company with

limited liability incorporated under the laws of the Cayman Islands ..
67.

Plaintiff Carlyle Loan Investment, Ltd. is an exempted company with limited

liability incorporated under the laws of the Cayman Islands.
68.

Plaintiff Centurion CDO VI, Ltd. is a company with limited liability

incorporated under the laws of the Cayman Islands.
69.

Plaintiff Centurion CDO VII, Ltd. is a company with limited liability

incorporated under the laws of the Cayman Islands.
70.

Plaintiff Centurion CDO 8, Limited is a company with limited liability·

incorporated under the laws of the Cayman Islands.
71.

Plaintiff Centurion CDO 9, Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
72.

Plaintiff Cent CDO 10 Limited is a company with limited liability incorporated

under the ·laws of the Cayman Islands.

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73.

Entered on FLSD Docket 01/15/2010 Page 8 of 39

Plaintiff Cent CDO XI Limited is a company with limited liability incorporated

under the laws of the Cayman Islands.
74.

Plaintiff Cent CDO 12 Limited is a company with limited liability incorporated

under the laws, of the Cayman Islands.
75.

Plaintiff Cent CDO 14 Limited is a company with limited liability incorporated

under the laws of the Cayman Islands.
76.

Plaintiff Cent CDO 15 Limited is a company with limited liability incorporated

under the laws of the Cayman Islands.
77.

PlaintiffVenture II CDO 2002, Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
78.

PlaintiffVenture III CDO is a company with limited liability incorporated under

the laws of the Cayman Islands.

79.

PlaintiffVenture IV CDO Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
80.

PlaintiffVenture V CDO Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
81.

Plaintiff Venture VI CDO Limited is a company with limited liability.

incorporated under the laws of the Cayman Islands.
82.

PlaintiffVenture VII CDO Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
83.

PlaintiffVenture VIII CDO Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
84.

PlaintiffVenture IX CDO Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
85.

Plaintiff Vista Leverag;ed Income Fund is a company with limited liability

incorporated under the laws of the Cayman Islands.

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86.

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Plaintiff Veer Cash Flow, CLO, Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
87.

Plaintiff Genesis CLO 2007-1 Ltd. is a company with limited liability

incorporated under the laws of the Cayman Islands.
88.

Plaintiff ARES Enhanced Loan Investment Strategy III, Ltd. is a company with

limited liability incorporated under the laws of the Cayman Islands.
89.

Plaintiff Primus CLO I, Ltd. is an exempted company with limited liability

incorporated ·under the laws of the Cayman Islands.
90.

Plaintiff Primus CLO II, Ltd. is an exempted company with limited liability

incorporated under the laws ofthe Cayman Islands.
91.

Plaintiff Cantor Fitzgerald Securities. is a general partnership formed under the

laws ofNew York.
92.

i

Plaintiff Olympic CLO I Ltd. is a company.with limited liability incorporated

under the laws of the Cayman Islands.
93.

. Plaintiff Shasta CLO I Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
94.

Plaintiff Whitney CLO I Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
95. .

Plaintiff San Gabriel CLO I Ltd. is a company with limited liability incorporated

under the laws of the. Cayman Islands.
96.

Plaintiff Sierra CLO II Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands.
97.

Plaintiff Rosedale CLO, Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands, BWI.
98.

Plaintiff Rosedale CLO II Ltd. is a company with limited liability incorporated

under the laws of the Cayman Islands, BWI.

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PlaintiffSPCP Group, LLC is a limited liability company formed under the laws

.of Delaware.
100.

Plaintiff Stone Lion Portfolio L.P. is a limi.ted partnership formed under the laws

of the Gayman Islands.
101.

Plaintiff Venor Capital Master Fund, Ltd. is a company with limited liability

incorporated under the laws of the Cayman Islands.
Defendants
102.

Defendant BofA is a nationally chartered bank with its main office in Charlotte,

North Carolina. Under the Credit Agreement and other Loan Documents, BofA acted in several.
capacities, including as a Revolving Facility lender, as Issuing Lender, and as Swing Line
Lender. In addition, BofAserved as Administrative Agent to all of the Lenders under the. Credit
Agreement and as Disbursement Agent to all of the Lenders under the Disbursement Agreement.
BofA agreed to fund $100 mil.lion under the Revolving Facility.
103.

Defendant Merrill Lynch Capital Corporation is a Delaware corporation with a

principal place of business inN ew York. Merrill Lynch Capital Corporation, which is now
indirectly owned byBofA, agreed to fund $100 million under the Revolving Facility.
104.

Defendant J.P. Morgan Chase Bank, N.A. is a nationally chartered bank with its

headquarters in New York, New York. J.P. Morgan Chase Bank, N.A. agreed to fund
$90 million under the Revolving Facility.
105.

Defendant Barclays Bank PLC is a public limited company in the United

Kingdoni with its principal place of business in London, England. Barclays Bank PLC agreed to
fund $100 million under the Revolving Facility.
106.

Defendant Deutsche Bank Tmst Company Americas is a New york State-

chartered bank with its principal office, in New York, New York. Deutsche Bank Tmst
Company Americas agreed to fund $80 million under the Revolving Facility.

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107.

Defendant The Royal Bank of Scotland PLC is a banking association organized

under the laws of the United Kingdom with a branch in New York, New York. The Royal Bank
of Scotland PLC agreed to fund $90 million under the Revolving Facility.
108.

Defendant Sumitomo Mitsui Banking Corporation is a Japanese corporation with

offices in New York, New York. Suniitomo Mitsui Banking Corporation agreed to fund
$90 million under the Revolving Facility.
109.

Defendant Ballk of Scotland is chartered under the laws of Scotland, with its

principal place of business in Edinburgh, Scotland. Bank of Scotland agreed to fund
$72.5 million under the Revolving Facility.
110.

Defendant HSH Nordbank AG is a German banking corporation with a branch in

New York, New York. HSH Nordbank AG agreed to fund $40 million under the Revolving
Facility.
111.

Defendant MB Financial Bank, N.A. is a nationally chartered bank with its main

office iri Chicago, Illinois. MB Financial Bank, N.A. agreed to fund $7.5 million under the
Revolving Facility.
U 2.

Defendant Camulos Master Fund, L.P: is a Delaware corporation with its

principal place of business in Stamford, Connecticut. Camulos Master Fund LP agreed to fund
$20 million under the Revolving Facility.
FACTUAL BACKGROUND
THE FONTAINEBLEAU PROJECT

113.

Between March and June 2007, Plaintiffs or their predecessors were approached

by a syndicate of investment bankers, led by Bane of America Securities and including other
affiliates of the Defendants, to participate in a $1.85 billion bank financing (the "Credit
Agreement Facility") for the development and construction of the Fontainebleau Resort and
Casino in Las Vegas, Nevada (the "Project"). The Project is designed to be a destination casinoresort on the north end of the Las Vegas Strip, situated on approximately 24.4 acres. The Project
.consists of a 63 -story glass skyscraper featuring over 3,800 guest rooms, suites and

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condominium units; a 100-foot.high three-level podium complex (the "Podium") ho~sing
casino/gaming areas, restaurants and bars, a spa and salon, a live entertainment theater and
rooftop pools; a parking garage with space for more than 6,000 vehicles; and a 353,000 squarefoot convention center. The Project is also designed to feature retail space (the "Retail Space")
of approximately 286,500 square-feet, including retail shops, restaurants, and a nightclub. The
Retail Space is being developed by indirect subsidiaries of the Borrower's parent company (the
"Retail Borrowers").
114.

The total Project costs were to be funded primarily from cash provided by the

developers of the Project, the proceeds of the $1.85 billion bank financing, the proceeds of a
$675 million 2nd Mortgage Note offering (the "Second Lien Facility"), and proceeds of a
$315 million facility (the "Retail Facility") provided to the Retail Borrowers to finance
construction of the retail portion of the Project (including $83 million in certain ''Shared Costs"
for construction improvements to the Podium which was to be owned by Borrower following
completion of construction).
THE CREDIT AGREEMENT AND DISBURSEMENT AGREEMENT
ll5.

On June

6, 2007, the Credit Agreement was entered into among numerous

lenders, including Plaintiffs and Defendants, and the Borrower. BofA and its counsel served as
the principal architects of the Credit Agreement and related Loan Documents, including the
Disbursement Agreement. The Credit Agreement included commitments for three kinds of
loans: (a) a $700 million initial term loan facility (the "Initial Temi Loan Facility"); (b) a
$350 million delay draw term facility (the "Delay Draw Facility," and together with the Initial
Term Loan Facility, the "Term Loan Facility"); and $800 million revolving loan facility (the
"Revolving Facility"). The Initial Term Loan Facility was funded upon the closing of the Credit·
Agreement in June 2007. The related Second Lien Facility and Retail Facility closed at the same
time.
116.

Obligations outstanding under the Term Loan Facility and the Revolving Facility

are equally and ratably collateralized by mortgages on the real property comprising the Project

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and by security interests on all personal property of the Borrower. The personal property
security interests as well as statutory and/or common law rights of setoff also extend to deposit
accounts, including the Bank Proceeds Account and the Bank Funding Account established
pursuant to the terms of a Master Disbursement Agreement (the "Disbursement Agreement").
The Disbursement Agreement governs disbursement of all funds under the Credit Agreement,
the Second Lien Facility and the Retail Facility.
117.

Plaintiffs are each lenders under the Term Loan Facility. Lenders under the

Term Loan Facility are referred to herein as "Term Lenders." Defendants, including BofA, are
each lenders under the Revolving Facility. Lenders under the Revolving Facility are referred to
herein as "Revolving Lenders." Although certain of the Revolving Lenders are also Term
Lenders, BofA is not a Term Lender. In addition to ,its capacity as a Revolving Lender, BofA
also served as Administrative Agent to all of the Lenders under the Credit Agreement, and as
Disbursement ~gerit to all of the Lenders under the Disbursement Agreement.
118.

Each ofthe lenders who agreed to providing financing under the Credit

Agreement relied upon the obligation ofthe other lenders to comply with their funding
obligations under the Credit Agreement. The loans available under the Credit Agreement were
the principal source of construction financing for the Project and, along with a completion
guaranty and the Retail Facility, were intended to be virtually the oniy source of construction
financing remaining after junior sources (equity and second mortgage bonds) were utilized.
Because all lenders would suffer if the amount of financing available for construction proved to
be insufficient to complete the Project (and, as a result, their collateral value would be
destroyed), the Credit Agreement requires that, in the absence of a Stop Funding Notice
(described below) or the termination of a Facility by the Required Lenders following an Event of
Default, each Lender is required to continue to make Loans into the Bank Proceeds Account.
119.

Consistent with that agreement among the Lenders, the Credit Agreement and

other Loan Documents create a two-step mechanism for the Borrower to obtain loan proceeds
under the Term Loan Facility and the Revolving Facility prior to the Opening Date of the

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Project. Under the first step, the Borrowers must submit to the Administrative Agent a notice of
borrowing (the "Notice of Borrowing") specifying the requested loans and designated borrowing
date; The Credit Agreement requires that the Administrative Agent promptly notify each lender
of aN otice of Borrowing. Once notified, each lender is contractually required to make its prorata share of the requested loans available to the Administrative Agent prior to 10:00 AM on the
designated borrowing date, subject only to identified conditions precedent. Although Revolving
Loans made after construction is completed (referred to in the Credit Agreement as "Direct
Loans") are expressly subject to conditions precedent in Section 5.3 of the Credit Agreement.
(including the requirement that each representation and warranty under the Loan Documents be
true and correct and the absence of aDefault or Event of Default), Revolving Loans made during
construction (referred to as "Disbursement Agreement Loans") and Delay Draw Term Loans are
expressly conditioned "only" upon the conditions precedent inSection 5.2 of the Credit
Agreement (which, unlike Section 5.3, does not include the requirement that each representation
and warranty under the Loan Documents be true and correct, nor the absence of a Default or
Event of Default). The proceeds ofDe1ay Draw Term Loans and Revolving Loans are, under the
first step, deposited into the Bank Proceeds Account.
120.

2

Under the second step, in order to access those funds from the Bank Proceeds

Account to pay for the cost of the Project, the Borrowers must submit an advance request
(typically monthly) pursuant to the Disbursement Agreement (the "Advance Request"). The
Disbursement Agreement establishes: (a) the conditions precedent, which are set forth in Section
3.3 of the Disbursement Agreement, to be satisfied prior to approval of the Advance Request by
the Disbursement Agent; (b) the relative sequencing of disbursements from the proceeds of

2

With respect to the $700 million Initial Term Facility, the funds were deposited into the Bank
Proceeds Account on the Closing Date (June 6, 2007), and thus, were made subject to different
conditions precedent that those applicable to the Delay Draw Term Loans and Revolving Term
Loans.

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various facilities and debt

inst~ments;

and (c) the obligations of the various agents to make

disbursements to the Borrowers of loan proceeds from the Bank Proceeds AccoUnt.
12L

The Term Lenders are intended third-party beneficiaries of the Disbursement

Agreement, which, in pertinent part, governs the disbursement of the funds loaned by the Term
Lenders. The Disbursement Agreement expressly provides that BofA is granted security
interests in the Bank Proceeds Account, for the benefit of the lenders. (Disbursement
Agreement, § 2.3). ·The Disbursement Agreement states that the provisions of Article 9 (which
governs the duties and obligations ofBofA as Disbursement Agent) are for the benefit ofthe
Lenders (which includes the Plaintiffs), and that BofA is responsible and liable to the Term
Lenders as a consequence of its performance under the Disbursement Agreement.
(Disbursement Agreement, § 9.1 0).
122.

As Disbursement Agent and Administrative Agent, BofA assumed responsibility

for the proper administration of the construction loans and disbursement of funds to be used by
the Borrower to construct the Project. BofA agreed to exercise commercially reasonable efforts
and utilize commercially prudent practices in the performance of its duties. Disbursement
Agreement, § 9.1. BofA's duties included ensuring that funds were disbursed to the Bank
Funding Account only if all of the conditions precedent to disbursement of funds under Section 3
of the Disbursement Agreement were satisfied, including that, as of the Advance Date: (a) each
representation and warranty of each Project Entity in Article 4 was true and correct as if made on
such date; (b) there was no Default or Event of Default under any of the Financing Agreements;
(c) the In Balance Test was satisfied; (d) there had been no development or event since the
Closing Date that could reasonably be expected to have a Material Adverse Effect on the Project;
and (e) the Retail Agent and Retail Lenders under the Retail Facility had made all Advances
required of them under the Advance Request. (Disbursement Agreement,§§ 3.3.2, 3.3.3, 3.3.8,
3.3.11, 3.3.23).
123.

If all of the applicable conditions precedent for the advance of funds were

satisfied, the Disbursement Agreement provided fo~ the Disbursement Agent and the Borrower

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to execute an Advance Confirmation Notice and, with respect to the use of funds in the Bank
Proceeds Account advanced by the Term Lenders, to deliver the notice to BofA as
Administrative Agent. Upon receipt of such notice, BofA would make the advances
contemplated under the Advance Confirmation Notice. (Disbursement Agreement,§ 2.4.6).
124.

If not all of the conditions precedent to an Advance were satisfied, or if the

Administrative Agent notified the Disbursement Agent that a Default or Event of Default had
occurred, then the Disbursement Agent was required to provide notice (a "Stop Funding Notice")
to theBorrowers and each Funding Agent, including the Administrative Agent. (Disbursement
Agreement,§ 2.5.1). If a Stop Funding Notice were issued, no disbursements could be made,
and the funds would remain safely in the Bank Proceeds Account until all of the conditions
precedent were satisfied, including the absence of any Default or Event of Default. In addition,
the lenders have no obligation to fund until the circumstances associated with the Stop Funding
Notice have been resolved. (Credit Agreement§ 2.4(e)).
125.

Under Section 9.2.3 of the Disbursement Agreement, "if the Disbursement

Agent is notified that an Event of Default or a Default has occurred and is continuing, the
Disbursement Agent shall promptly and in any event within five Business Days provide notice to
each of the Funding Agents of the same and otherwise shall exercise such of the rights and
powers vested in it by this Agreement and the documents constituting or executed in connection
with this Agreement, and use the same degree of care and skill in their exercise, as a prudent
person would exercise or use under the circumstances in the reasonable administration of its own
affairs." As noted above, among the powers and duties vested in BofA under the Disbursement
Agreement upon receiving notice of a Default or Event of Default was the power and duty to
issue a Stop Funding Notice.
LEHMAN'S FAILURE TO FUND UNDER THE RETAIL FACILITY
126.

As evidenced by the terms of the Disbursement Agreement, the three "Financing

Agreements" covered by that agreement-'- the Credit Agreeme~.t, the Second Mortgage
Indenture, and the Retail Facility Agreement- are closely interrelated, and the proceeds

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available under each facility were integral to the construction, completion and ultimate success
of the Project.
127.

As a result ofthe·syndication of the Retail Facility, Lehman Brothers Holdings,

Inc. ("Lehman"), which served as Retail Agent, was .the largest Retail Lender, responsible for
$215 million, or 68.25%, of the Retail Facility. As ofthe Closing Date, $125.4 million of the
Retail Facility was advanced, leaving $189.6 million to be advanced. Much ofthatsum was
earmarked to pay Shared Costs to complete the Podium and to complete the Retail component of
the Project. Thus, the successful completion of the overall Project depended heavily on .the
proceeds to be made available pursuant to Lehman's commitment under the Retail Facility.
128.

In September 2008, Lehman filed for bankruptcy protection. According to a

proof of claim filed by the Retail Borrower in Lehman's bankruptcy case, beginning in
September 2008 and on four occasions thereafter, Lehman failed to honor "its obligation to fund
a total of$14,259,409.74 under the Retail Facility," and the.rehy defaulted in its lending
obligations under the Retail Facility Agreement (the "Lehman Defaults"). Those defaults
prevented satisfaction of numerous conditions precedent to the approval of Advance Requests,
including the following:
•

Section 3.3.23 of the Disbursement Agreement requires that "[i]n the case of each
Advance from the Bank Proceeds Account made concurrently with or after
Exhaustion of the Second Mortgage Proceeds Account, the Retail Agent and the
Retail Lenders shall, on the date specified in the relevant Advance Request, make
any Advances required of them pursuant to that Advance Request."
•

Lehman, as Retail Agent and as a Retail Lender, did not make the
Advances required of it pursuant to at least five Advance Requests
between September 2008 and March 2009.

•

Section 3.3.3 of the Disbursement Agreement provides that "[n]o Default or
Event of Default shall have occurred and be continuing." A "Default" or "Event
of De~ault" under the Credit Agreement constitutes a "Default" or "Event of

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Default" under the Disbursement Agreement. (Disbursement Agreement, Ex. A).
Under Section 8G) of the Credit Agreement, the breach by "any Person" of a
"Material Agreement" constitutes an Event of Default (and, prior to the expiration
of any notice or other grace period, a Default) if such breach could reasonably be
expected to result in a Material Adverse Effect. Schedule 4,24 of the Credit
Agreement lists, as Material Agreements, "[t]he 'Financing Agreements' as
defined in the Disbursement Agreement." Credit Agreement, Schedule 4.24.
That definition of"Financing Agreements" includes the "Facility Agreements,"
which in tum includes the "Retail Facility Agreement." As stated above, the
failure of the Project Entities to receive material amounts of funding and the
resulting uncertainty over receiving the balance of Lehman's commitment
threatened completion of the Project.
•

Accordingly, Lehman's breach of the Retail Facility was a Default, based
upon Section 8G) of the Credit Agreement.

~

Section 3.3.2 requires that each representation and warranty by each Project
Entity in Article 4 be true and correct as if made on ·such date. One such
representation is that "[t]here is no default or event of default under any of the
Financing Agreements." (Disbursement Agreement, at§ 4.9.1).
•

That representation was not true and correct when made on or. after
September 2008, based upon the Lehman Defaults under the Retail
Facility (one ofthe Financing Agreements).

•

Section 3.3 .11 requires that, prior to any disbursement, there has been no change
in the economics or feasibility of constructing and/or operating the Project, or in
the financing condition, business or property of the Borrowers, any of which
could reasonably be expected to have a
•

Mater~al

Adverse Effect.

Lehman's bankruptcy filing, and the uncertainty that Lehman would fulfill
its loan commitment or that any other lender would assume Lehman's

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commitment under the Retail Facility, threatened the successful
completion of the Project and thus could reasonably be expected to have a
Material Adverse Effect.
129.

BofA, as Disbursement Agent, received notice of the Lehman Defaults from one

or more of the Term Lenders. In September and October 2008, at least one of the Term Lenders
wrote to BofA and expressed the position that Lehman's failure to comply with its funding
obligations under the Retail Facility meant that certain of the conditions precedent to
disbursement of funds under Section 3.3 of the Disbursement Agreement were not satisfied. In
response, BofA refitsed to do anything, instead asserting that its function as Disbursement Agent.
was purely administrative in nature.
130.

BofA refused to address the Lehman Defaults in large part because it wished to

preserve its ongoing business relationship with the Borrower and its principal indirect owners,
including Jeffrey Soffer. For example, BofA was the agent and a lender tmder a loan facility
used to renovate the Fontainebleau Hotel in Miami, which was indirectly owned by the
Borrower's indirect parent. BofA also made loans to Tumberry Associates (of which Soffer is a
principal) or its affiliates. The close relationship between BofA on the one hand, and the
Borrower and related parties on the other, was further evidenced by the fact that the Borrower's
chief financial officer, priorto taking that position, worked for eight years at Bane of America
Securities (which served as an co-lead arranger and joint underwriter of the Credit Agreement).
131.

BofA' s refusal to address the Lehman Defaults continued even after Moodys

Investment Service announced on November 6, 2008 that it had downgraded the Credit
Agreement Facility to B3 from B 1. In that announcement, Moodys expressed its opinion that the
outlook was "negative" in recognition of the challenges faced by the Borrowers' parent in
resolving the. potential fimding shortfall related to the Lehman Default.
132.

In wrongful and willful derogation of its duties and responsibilities as

Disbursement Agent and Administrative Agent, BofA approved Advance Requests and issued
Advance Confirmation Notices after, and despite notice of, the Lehman Defaults. Likewise,

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BofA, as Administrative Agent, made Advances to the Borrowers pursuant to the Advance
Requests. In total, those Advances (excluding debt service paid to the Lenders) exceeded
$680 million, the last made on or about March 25, 2009 (the "March 25 Advance"). Each
approval and/or Advance by BofA following the date it received notice of the Lehman Defaults
was improper and constituted bad faith, gross negligence and/or willful misconduct on the part of
BofA.
DEFAULT BY FIRST NATIONAL BANK
OF NEVADA UNDER CREDIT AGREEMENT
133.

On July 25, 2008, First National Bank ofNevada, was closed by the Office of

the Comptroller of the Currency. The Federal Deposit Insurance Company ("FDIC")
subsequently was appointed as receiver. First National Bank of Nevada had made a commitment
of $1,666,666 under the Term Loan Facility and a commitment of $10,000,000 under the
Revolving Facility. According to the Borrower, FDIC has repudiated the commitments of First
National Bank of Nevada under the Credit Agreement. As a result, beginning in January 2009,
the Borrower's calculation of Available Funds under the In Balance Test was therefore reduced
by the amount of the total commitment by First National Bank ofNevada ($11,666,666):
134.

The FI>IC's repudiation of First National Bank ofNevada's commitment

constituted, as a matter of law, a breach of that bank's obligation under the Credit Agreement.
Such a breach by a party to a MaterialAgreerrient (which the Credit Agreement was) was a
Default, based upon Section 8(j) of the. Credit Agreement. It also prevented the Borrower from
satisfying Section 3.3.2 of the Disbursement Agreement, which conditioned any disbursement
upon the truth of the Borrower's representations and warranties under Article 4, in particular the
rypresentation and warranty pursuant to Section 4.9.1 that there existed no defaults or events of
default under any of the Financing Documents.
135.

Notwithstanding the fact that the conditions precedent for disbursement under

Section 3.3 of the Disbursement Agreement by virtue of the Default resulting from the FDIC' s
repudiation of the Credit Agreement were not satisfied, BofA wrongfully and willfully continued

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to issue Advance Confirmation Notices, and failed to issue a Stop Funding Notice. Instead, the
amounts requested by the Borrower continued to be disbursed by BofA.
BofA'S CHANGE OF APPROACH AS DISBURSEMENT AGENT
136.

As a result ofBofA's acquisition of Merrill Lynch that closed in December

2008, BofA effectively (through its indirect ownership of Merrill Lynch) doubled its level of
commitment as a Revolving Lender, and became responsible for $200 million- or 25% - of the
total original Revolving Loan commitment.
137.

Prior to February 2009, the Borrowers did not request any advances under the

Revolving Facility (other than for letters of credit), and instead used proceeds of the Initial Term
Loan Facility, the Second Lien Facility and other proceeds to pay Project Costs. As explained
above, during that period of time, BofA willfully and wrongfully disregarded its obligations as
Disbursement Agent and Administrative Agent, taking the position that its role was purely
administrative in nature. That passive approach changed dramatically after February 13, 2009,
when the Borrower submitted an Advance Request that included the first request for an Advance
under the Revolving Facility, in the amount of $68 million.
138.

As a Revolving Lender, BofA was required to

financ~

a portion of that Advance

Request, and thus for the first time faced the prospect of sharing loan exposure with the Term
Lenders if the Project failed. In response to the Advance Request in February 2009, BofA wrote
a detailed letter to the Borrower on Friday, February 20, 2009. BofA began the letter by insisting
upon "strict compliance" wi~h the deadline of the 11th day of the month to submit Advance
Requests established under Section 2.4.1 of the Disbursement Agreement, despite the fact that
three of the previous four Advance Requests, each of which had been accepted, were submitted
late, including as recently as October 16, 2008 and November 17, 2008. Commenting on the
submission of the Advance Request "at a time of continued deterioration of both the national
economy and the Las Vegas marketplace," BofA also raised numerous questions. Among those
questions was a request to "comment on the status of the Retail Facility, and the commitments of
the Retail Lenders to fund under the Retail Facility, in particular, whether you anticipate that

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Lehman Broth~rs Holdings, Inc. will fi..md its share of requested loans, and whether the other
Lenders under the Retail Facility intend to cover any shortfalls." With the Borrower insisting.
upon disbursement of funds no later than February 25, 2009, BofA demanded that the Borrower
supply detailed written responses to the questions by no later than Monday, Febmary 23, 2009the very next business day.
139.

On Febmary 23,2009, the Borrower sent a response to BofA. In that letter, the

Borrower sidestepped BofA's request for comment on whether it anticipated that Lehman would
fi..md its share of the Retail Facility, or on whether the other Retail Lenders intended to cover any
shortfalls. But the J?orrower did not (nor could it) deny that Lehman was in default of its
obligations .
. 140.

Not<.vithstanding the unanswered questions, and the fact that numerous

conditions to approval of the Advance Request were not satisfied, BofA did not issue a Stop
Funding Notice. Instead, it approved the Advarice Request and issued an Advance Confirmation
Notice. The amounts requested by the Borrower accordingly were disbursed.
THE MARCH 2 AND MARCH 3 NOTICES OF BORROWING
141.

On March 2, 2009, the Borrowers issued a notice of borrowing to borrow the

.

entire amount of $350 million available under the Delay Draw Facility and to borrow
$670 million available lmder the Revolving Facility (the "March 2 Notice"). The next day, the
Borrowers issued another notice ofborrowing to correct a "scrivener's error" made in calculating
the amount sought under the Revolving Facility (the "March 3 Notice"), reducing the requested
amount to approximately $656 million. Both notices caused the Delay Draw Facility to be fully
drawn.
142.

As described above, the lenders under the Credit Agreement expressly agreed

among themselves and with the Borrower that the Revolving Loans (those that were
Disbursement Agreement Loans) and Delay Draw Loans are not; at the time of the borrowing
request, conditioned on the absence of any Defaults or Events of Default (as that term is defined
in the Credit Agreement), nor conditioned on the tmth and correctness of the representations and

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warranties in the Loan Documents. Rather, the Delay Draw Facility knders and the Revolving
Facility lenders could refuse to fund their obligations orily if their commitments were validly
terminated by the Required Lenders of a loan facility in accordance with section 8 of the Credit
Agreement following an Event of Default, or pursuant to Section 2.4 of the Credit Agreement, if
BofA as Disbursement Agent issued a Stop Funding Notice to the Administrative Agent.
143.

As of March 2 and March 3, the Revolving Lenders had not terminated their

commitment, and BofA had not issued a Stop Funding Notice. Accordingly, because the Delay
Draw Facility was fully drawn, the Revolving Lenders were obligated to fund their commitment.
Although BofA submitted the March 2 Notice and the March 3 Notice to the Lenders, it stated
that the notices did not comply with the terms of the Credit Agreement. BofA advised the
lenders that an ad hoc steering committee formed by BofA supported BofA's position.
144.

In its correspondence to the Borrowers, BofA took the position that the March 2

Notice and the March 3 Notice did not comply with the Credit Agreement because they
contained simultaneous requests for borrowing under both the Delay Draw Facility and the
Revolving Facility. A simultaneous request for loans under the two facilities, however, is not
prohibited under and is consistent with the Credit Agreement.
145.

The pretext for BofA's position was Section 2.1(c)(iii) of the Credit Agreement,

which provides that no more than $150 million of Revolving Loans can be outstanding unless the
Delay Draw Facility has been "fully drawn." BofA asserted that "fully drawn" meant "fully
funded" rather than "fully requested." According to BofA, borrowing under the Revolving
Facility is limited to $150 million unless and until each of the Term Lenders fully funded its
commitment under the Delay Draw Facility.
146.

Significantly, the interpretation of Section2.1 (c)(iii) put forward by BofA in

early March 2009 was completely at odds with BofA's historical approval of each prior Advance
Request. As noted above, a condition precedent to BofA 's approval of any Advance Request is
the satisfaction of the "In Balance Test," a critical calculation that demonstrates whether the
remaining available financing is sufficient to cover the remaining anticipated costs required to

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__ complete the Project. The In Balance Test is satisfied when "Available Funds" exceed
"Required Costs." (Disbursement Agreement, Ex. A). One component of"Available Funds" is
"Bank Revolving Availability," defined to mean "as of each date of determination, the
aggregate principal amount available to be drawn on that date under the Bank Revolving
Facility." (Disbursement Agreement, Ex. A) (emphasis added).
147.

Each ofthe prior Advance Requests approved byBofA was supported by an Iri

Balance Report that included "Bank Revolving Availability" equal to the full amount of the
Revolving ,Facility- $800 million (reduced to $790 million in Jaimary 2009 after First National
Bank ofNevada went into receivership) -·despite the fact that, at such time, the Delay Draw
Facility was not fully funded. Had the full amount of the Revolving Facility not been included in
each of the prior In Balance Report calculations, the resulting calculations would have
demonstrated that the Project was at all times enormously out of balance. As a result, BofA
would have been prevented from making any of the prior Advance Requests, and the Project
never could have been constructed.
148.

In order to allow the full amount of the Revolving Facility to be included in the

In Balance calculation, however, BofA had to conclude that the entire Revolving Facility was
"available to be drawn on th[e] date" of the In Balance Test determination. BofA could not
reach this conclusion unless it interpreted "drawn" to mean "requested." "Drawn" could not
mean "funded" because, by virtue of the fact that the Borrower had never previously requested
the full amount of the Revolving Facility (an obvious condition precedent to its funding), that
amount was never available to be funded as of the date of any Advance Request. On the other
hand, because the Revolving Facility at all times remained unfunded, the entire amount was
always available to be requested. Thus, the term "drawn," as used in the definition of Bank
Revolving Availability, and as applied by BofA when it approved all prior Advance Requests,
can only mean "requested."
149.

Similarly, only ifBofA understood the term "drawn," as used under Section-

2.1 (c )(iii) in referring to the Delay Draw Facility, to mean "requested" rather than "funded,"

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would it have been justified in concluding (as it repeatedly did) that the full amount of the
Revolving Facility was "available to be drawn" as of the date of each Advance Request. IfBofA
understood "drawn" as used in Section 2.1 (c)(iii) to mean "funded" rather than "requested," then.
the Bank Revolving Availability- the amount "availabfe to be drawn on th[ e] date" of each In
Balance Test- could not have exceeded $150 million unless and until the Delay Draw Loans
were fully funded. Until that occurred (which it never did), the In Balance Test would never be
satisfied, and there would never be disbursements to fund constmction of the Project. That was
· not the intent of the parties who drafted the Credit Agreement and other Loan Documents.
150.

Notwithstanding the fact that satisfaction of the In Balance Test is a condition

precedent to any Advance (past, present or future) under the Disbursement Agreement, BofA did
not issue a Stop Funding Notice on March 3 or at aliy time thereafter. Under BofA's new, afterthe-fact position that "drawn" means "funded," however, the Borrower had never satisfied the In
Balance Test and all prior disbursements were improper. BofA was therefore obligated to (but
did not) issue a Stop Funding Notice.
151.

· Faced with BofA's refusal to process the March 2 Notice and the March 3

Notice, the Borrower issued a revised Borrowing Notice on March 9, 2009, directed s·olely to the
Delay Draw Facility lenders for the full amount of their $350 million commitment (a figure that
included the $1,666,666 portion committed by First National Bank ofNevada). That Borrowing
Notice was attached to a letter from the Borrower to BofA in which the Borrower asserted that
the Lenders were, by their actions or inactions in response to the March 2 Notice and March 3
Notice, in default of the Loan Documents. The Borrower also reiterated its concern that BofA
was acting in its own self-interest and against the interest of the Borrower and several of the
other lenders.
152.

Under section 2.1 (b )(iii) of the Credit Agreement, any proceeds of the Delay

Draw Facility must be used first to repay any "then outstanding" Revolving Loans. At the time
of the March 9 Borrowing Notice, $68 million had been advanced by the Revolving Lenders in
Febmary 2009. Thus, as a Revolving Lender, BofA stood to benefit by failing to issue a Stop

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Funding Notice prior to March 9, 2009, because such notice would have suspended any Delay
Draw Loans otherwise to be used to repay BofA's 25% share of the $68 million of then
"outstanding" Revolving Loans.
153.

Acting at all times in bad faith and with gross negligence and willful

misconduct, BofA processed the March 9 Notice and sent it to all Delay Draw Facility lenders.
BofA advised the Lenders that the revised Borrowing Notice complied with the Credit
Agreement and that the Delay Draw Lenders were required to ftmd. In the absence of any Stop
Funding Notice that would have suspended their obligation to fund, the Delay Draw Term
Lenders could not rely on the failure to fund by the Revolving Lenders, or by any individual
Delay Draw Term Lenders or upon the Lehman default. That is because, under Section 2.23(g)
of the Credit Agreement, "the obligations of the Lenders to make Term Loans and Revolving
Loans ... are several and not joint. The failure of any Lender to make any Loan ... shall not
relieve any other Lender of its corresponding obligation to do so .... " Thus, the Delay Draw
Term Lenders were left with no choice but to fund, or else face·a claim for breach of contract.
154.

Accordingly, on or about March 10, 2009 or thereafter, Plaintiffs complied with

their Delay Draw Facility commitments and honored their obligations to fund the Delay Draw
Facility. BofA used a portion of those funds to immediately repay itself and the other Revolving
Lenders the then-outstanding balance of the $68 million under the Revolving Facility, thereby
unjustly emiching BofA and the other Defendants, to the detriment of the Plaintiffs.
155.

On March 16, 2009, the Borrower sent another .letter to BofA in which it stated .

its continued belief that the lenders who had not funded were in default of their funding
obligations. Shortly thereafter, on March 19, 2009, certain Term Lenders wrote to BofA to
demand that the Revolving Lenders, including BofA, honor the March 2 and 3 Notice of
Borrowing. They explained why BofA's newly-minted interpretation of"fully drawn" was
wrong. They also noted the conflict of interest that BofA had as a result of its Revolving
Commitment exposure. The Term Lenders demanded that BofA either correct its conduct or
resign. At that time, BofA refused to do either.

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THE MARCH 25 ADVANCE

156.

On March 11,2009, the Borrowers sent BofA the March 25 Advance Request,

requesting disbursement in the amount of$138 million (ofwhich about $4 million was for debt
service under the Credit Agreement). In response, BofA sent correspondence in which it once
again reserved the right to demand "strict conformity" with the Disbursement Agreement, and
expressed to the Borrower the need to conclude "our review of the substance of those
documents." Because BofA used the proceeds of the Delay Draw Loans to repay to itself and the
other Revolving Lenders the full amount of the then-outstanding $68 million in Revolving
Loans, none of the funds to be disbursed under the March 25 Advance Request included funds to
be loaned by the Revolving Lenders. Without its own money on the line; BofA reverted to the
laissez-faire approach that it had employed before Febmary 2009, prior to the Borrowers' first
request for Revolving Loans.
157.

As of no later than March 23,2009, BofA was on notice, from the Borrower and

otherwise, that certain of the Delay Draw Lenders had not funded their portion of the
commitment under the Delay Draw Facility in response to the March 9 Notice. Section 1.1 of
the Credit Agreement defines a "Lender Default" as "the failure or refusal (which has not been
retracted in writing) of a Lender to make available (i) its portion of any Loan required to be made
by such Lender hereunder .... " As of March 25, the amount of the unfunded commitment
totaled about $23.3 million (of which $1.67 million was attributable to First National Bank of
Nevada). 3 That unfunded commitment precluded BofA from disbursing any funds pursuant to
the March 25 Advance Request for a number of independent reasons.
158.

First, because the Credit Agreement, along with the Retail Facility, is one of the

Material Agreements on Schedule 4.24, the failure of any Delay Draw Lender to fund its
commitment was a Default by virtue of Section 8(j) of the Credit Agreement. (The same was, of

.\ A portion of that amount was subsequently funded, thereby curing any breach with respect to
those Term Lenders.

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course, true of the failure of the Revolving Lenders to fund on March 3 ). That meant that at least
one of the conditions precedent for disbursement of funds, Section 3.3 .3 of the Disbursement
Agreement, clearly had not been satisfied.
159.

Second, the Borrower could not, based on the failure as of March 25 to fund the

$23,333,333 in Term Loans, represent and warrant to be true and correct that no default existed
under.the Financing Agreements (here, the Credit Agreement), as required under Section 4.9.1 of
the Disbursement Agreement. (The same is true based on the failure of the Revolving Lenders to
fund). Thus, the Borrower could not satisfy the conditions under Section 3.3.2 of the
Disbursement Agreement.
160.

Third, under the new interpretation of Section 2.1(c)(iii) of the Credit Agreement

adopted by BofA and the other Revolving Lenders, the Revolving Lenders claimed to be relieved
of any obligation to fund more than $150 million of their $800 million commitment until the
Delay Draw Facility was fully ":fi.mded." The position ofBofA and the other Revolving Lenders
that no more than $150 million of the Revolving Facility was available to fund the Project if any
Delay Draw Lender failed to fund its commitment, and the Revolving Lenders' ongoing refusal
to fund, dearly constituted a change in the economics or feasibility of constructing the Project
that couldreasonably be expected to have a Material Adverse Effect, thereby precluding
satisfaction of Section 3.3.11 of the Credit Agreement.
161.

Fourth, the Borrower could not satisfy the In Balance Test. On March 23, 2009,

the Borrowers advised BofA that it would be submitting a calculation of the In Balance Test
reflecting arazor-thin cushion of only $13.8 million. That cushion included Available Funds
with two components that are, as explained below, incompatible: (a) $750 million in "Bank
Revolving Availability"; and (b) $21,666,666 under "Delay Draw Term Loan Availability,"
which represented the unfunded portion of the Delay Draw Loans (excluding First National Bank
ofNevada's portion). Depending on whether "fully drawn" was interpreted to mean "fully
funded" of"fully requested," either the $750 million or the $21,666,666 could be included as
Available Funds- but not both. If "fully qrawn" meant "fully funded," then the "Bank

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Revolving Availability" under the In Balance Test could not exceed $150 million unless and
until the Delay Draw Facility was in fact fully funded, thereby causing the In Balance Test to fail
by a spectacular margin. If, on the other hand, "fully drawn" meant "fully requested," then the
$21,666,666 in Term Loans that were requested but not funded would be excluded. That is
because "Delay Draw Term Loan Availability" is defined to mean, "as of each date of
determination, the then undrawn portion of the Delay Draw Term Loans." (Disbursement
Agreement, Ex. A)( emphasis added). If"drawn" meant "requested," then the "undrawn portion
of the Delay DrawTerm Loans" was zero as of March 25,2009. Either way, the Borrower could
not satisfy the In Balance Test, a condition to disbursement under Section 3.3.8 of the
Disbursement Agreement.
162.

In short, there was a myriad of facts - all known to BofA, and none requiring

any investigation, additional facts, or exercise of discretion by BofA - that precluded satisfaction
of the conditions precedent necessary for BofA to approve the March 25 Advance Request and
disburse the proceeds that had been advanced by the Term Lenders. Yet BofA knowingly and
intentionally chose to disregard those facts and to shirk its obligations as Disbursement Agent.
163.

Instead, in a March 23 letter to Fontainebleau lenders posted on Intralinks, BofA

flip-flopped yet again and took an entirely new position: "since the Borrower had requested all
of the Delay Draw Term Loans and almost all of the loans had funded," the Borrowers could
now request Revolving Loans in excess of$150 million. Under BofA's new position, "fully
drawn" now meant "almost fully funded." Because "almost all" of the Delay Draw Term Loans
had funded, BofA opined the entire amount of the Revolving Loan Facility could be used to
calculate "Bank Revolving Availability." The letter read in pertinent part:
Bank of America's position is that since the Borrower has requested all of the
Delay Draw Term Loans, and almost all of the loans have funded (whether or
not the outstanding $21,666,667 is ultimately received), Section 2.1 (c)(iii) now
permits the Borrower to request Revolving Loans which result in the aggregate
amount outstanding under the Revolving Commitments being in excess of
$150,000,000. As a result, we would permit the relevant portion of the Revolving
Commitment to be reflected in Available Funds. (Emphasis added)

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Notably, in its third interpretive iteration, BofA proposed to redefine "fully

drawn" to mean "almost fully funded" even though few, if any, of the other Revolving Lenders
had indicated that they agreed with BofA's position, let alone unconditionally waived any
argument that they were not required to fund the full amount of their commitment because of the
failure of certain Delay Draw Term Lenders to fund. The March 23 letter itself recognizes the
"divergence of opinions" as of that date among the Revolving Lenders. Indeed, within a week of
the disbursement under the March 25 Advance Request, BofA negotiated an Interim Agreement
with the Borrower, dated April1, 2009 and circulated to Term Lenders on April3, 2009, under
which any consent of the Revolving Lenders to treat the Delay Draw T~rm Loans as "fully
drawn" was conditioned upon the Borrowers' agreement to limit any requests under the
Revolving Loans in April and May 2009 to the amount of the Advance Requests plus $5 million
for each month. Under the Interim Agreement, "Bank Revolving Availability" on the dates of
those Advance Requests would have been capped at an amount far less than the total amount of
the Commitment.
165.

By virtue of the inability of the Borrowers to satisfY numerous conditions under·

Section 3.3 of the Disbursement Agreement, BofA was not authorized to approve the March 25
Advance Request nor issue an Advance Confirmation Notice, and was instead obligated to issue
a Stop Funding Notice. In breach of its duties as Disbursement Agent, BofA issued the Advance
Confirmation Notice and, as Administrative Agent, disbursed $134 million in proceeds that had
been advanced by the Term Lenders, including Plaintiffs.
EVENTS SUBSEQUENT TO THE MARCH 25 ADVANCE
166.

On or about Aprill3, 2009, shortly after Plaintiffs' funding of the Delay Draw

Facility and the release of approximately $134 million of those funds from the Bank Proceeds
Account, the Borrowers advised BofA and the Lenders that it could not meet the In Balance Test,
based upon a substantial increase in the figure they used to calculate Required Costs.
167.

On April20, 2009, BofA, in its capacity as Administrative Agent, sent a letter to

the Borrower, the Lenders and other parties, in which BofA advised that "the Required Facility

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Lenders under the Revolving Credit Facility have determined that one or more Events of Default
have occurred and are continuing .... " ·BofA did not, in that 'letter or in response to a letter sent
by certain Term Lenders the following day, identify those Events of Default that had been
determined to have occurred .. To the extent any Events of Default (or Defaults) had in fact
occurred and were continuing on that date, any such Events of Default (or Defaults) were known
or should have been known to BofA long before March 2009, and BofA breached its duties as
Disbursement Agent and Administrative Agent by failing to communicate them to the Tem1
Lenders, failing to issue a Stop Funding Notice, or failing to take any other required action.
168.

Pursuant to Section 8 of the Credit Agreement, BofA provided notice that the

Revolving Facility commitment was "terminated effectively immediately." Notably, BofA did
not purport to make its termination retroactive to a date prior to the March 2 Notice and March 3
Notice, ret1ecting BofA's understanding that such retroactive termination was not a remedy
available under the Credit Agreement or applicable law.
169.

On April21, 2009, the Borrower submitted a Notice of Borrowing (the "April21

Notice") to BofA, drawing $710 million under the Revolving Facility. In a separate letter sent
that same day by Borrower's counsel to BofA, the Borrower disputed the existence of any Events
..

of Default under the Credit Agreement. If the Borrower were able to demonstrate that no Events
of Default under the Credit Agreement had occurred or were continuing as of April20, 2009,
then Defendants were not authorized to terminate the commitment, and were obligated to fund
$710 million in response to the April21 Notice. Defendants did not provide such funding.
170.

BofA's failure to issue a Stop Funding Notice and its approval ofthe prior

Advance Requests was in bad faith and constituted gross negligence and willful misconduct. .
BofA promoted its own self-interest, to the detriment of the Term Lenders, by: 1) causing the
Revolving Lenders to refuse to fund their Revolving Loans, thereby reducing the collateral
available to the Temi Lenders; 2) causing the Delay Draw Lenders to fund their Loans, thereby
enabling the repayment of $68 million in Revolvin~ Loans and increasing the collateral available
to the Revolving Lenders on account of their existing claims arising from previously issued

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letters of credit under the Revolving Facility; and 3) causing disbursements to be made from the
Bank Proceeds Account to allow for construction to continue on the Project. All of those events
dramatically improved the negotiating leverage of BofA and other Revolving Lenders and
reduced the negotiating leverage of the Term Lenders, thereby positioning BofA to seek
concessions from both the Borrower and the Term Lenders in exchange for providing the funds
that already had been committed. Indeed, BofA applied that leverage to negotiate a term sheet
with the Borrower, circulated to the Term Lenders in mid-May 2009, under which the Revolving
Lenders would have obtained numerous concessions adverse to the interests of the Term
Lenders. That proposal failed only because certain of the Revolving Lenders other than BofA
were unwilling to advance funds even on those concessionary terms.
171.

On or about May 6, 2009, after having succeeded in maximizing its leverage

against the Term Lenders, BofA notified the lenders of its resignation as Disbursement Agent
and Administrative Agent.
172.

As a consequence of Defendants' wrongful and willful refusal to fund and their

termination of the Revolving Facility commitments, the Project has been derailed and the value
of the collateral securing Plaintiffs' loans has been substantially diminished. Moreover, BofA's
failure to perform its obligations as Disbursement Agent and Administrative Agent not only
reduced the amount and value of the collateral securing Plaintiffs' loans, but also required
Plaintiffs to advance Delay Draw Loans that, but for BofA's failure to satisfy its duties, would
have been suspended and ultimately terminated. Accordingly, Plaintiffs have suffered
substantial damages in an amount based upon their pro rata share of the funds wrongfully
disbursed from the Bank Proceeds Account and their pro rata share of the Delay Draw Loans for
which they seek compensation.
COUNT I
Breach of the Disbursement Agreement Against BofA

173.

. Plaintiffs reallege and incorporate each andevery allegation set forth in

paragraphs 1 through 172 herein.

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174.

The Disbursement Agreement is a valid and binding contract, pursuant to which

BofA agreed to act as Bank Agent and Disbursement Agent. The Disbursement Agreement was
intended to directly benefit Plaintiffs.
175.

Pursuant to the terms ofthe Disbursement Agreement, BofA had a duty to

exercise commercially reasonable efforts and use commercially prudent practices in performing
its obligations under the Disbursement Agreement, including its duty to fund Advance Requests
if, but only if, all conditions precedent to such funding were met and its corresponding duty to
issue Stop Funding Notices if all such conditions were not met or ifthere existed any Defaults

or

Events of Default.
176.

Beginning with Advance Requests made in September 2008, and continuing

through the March 25 Advance Request, BofA materially breached its duties under the
Disbursement Agreement by improperly approving Advance Requests that failed to meet one or
more of the conditions precedent under Section 3.3 of the Disbursement Agreement, improperly
issuing Advance Confirmation Notices, improperly failing to issue Stop Funding Notices as a
result of the failure of conditions precedent to these Advance Requests and Defaults, and
improperly disbursing funds from the Bank Proceeds Account pursuant to such deficient
Advance Requests.
177.

In breaching its duties under the Disbursement Agreement as· set forth herein,

BofA's actions constituted bad faith, gross negligence and willful misconduct, and favored its
own interests over those of the Term Lenders.
178.

Plaintiffs have suffered injury as a result of those breaches because, as a result of

BofA's approval of the Advance Requests and failure to issue Stop Funding Notices, the amount
and value of Plaintiffs' collateral has been and continues to be diminished, and Plaintiffs have
been required to fund the Delay Draw Loans. BofA's liability to Plaintiffs is not limited·under
Section 9.10 of the Disbursement Agreement by virtue of the fact that: (a) the limitation of
liability does not apply to claims asserted by Plaintiffs; (b) the limitation of liability does not

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apply to the conduct ofBofA for which BofA is liable; and (c) BofA's bad faith, gross
negligence and willful misconduCt are not subject to any limitation on liability.
COUNT II
.Breach of the Credit Agreement Against All Defendants

179.

Plaintiffs reallege a:nd incorporate each and every allegation set forth in

paragraphs 1 through 172 herein.
180.

The Credit Agreement is a valid and bipding contract, pursuant to which the

Defendants agreed to fund $790 million under the Revolving Facility.
181.

The March 2 Notice and March 3 Notice complied with all applicable conditions

under the Credit Agreement. Plaintiffs have performed all obligations required of them under
the Credit Agreement.
182..

The Revolving Loan Lenders had an obligation, not just to the Borrowers, but

also to their co-lenders, to fund in response to the Notices of Borrowing.
183.

Pursuant to the terms of the Credit Agreement, the Defendants were, and

continue to be, obligated to honor the Notices of Borrowing ..
184.

In the alternative, in the event that it is judicially determined that, prior to

April21, 2009, no Events of Default underthe Credit Agreement occurred that would authorize
termination of the Revolving Facility commitment, then Defendants also were required to fund
the sum of $710 million under the April 21 Notice.
185.

The Defendants' failure to honor the Notices of Borrowing constitutes a material

breach of their obligations mider the Credit Agreement.
186.

By repudiating their obligations to fund under the Revolving Facility, the

Defendants have breached the Credit Agreement.
187.

Plaintiffs, as parties to the Credit Agreement, are entitled to seek damages

against Defendants for their breach of the Credit Agreement.

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188.

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Plaintiffs hav~ suffered injury as a result of the breach because, as a result of the

Defendants' refusal to honor their obligation to fund the Revoiving Facility, the amount and
value ofPlaintiffs' collateral has been and continues to be diminished.
COUNT III
For Breach of the Implied Covenant of Good Faith and Fair Dealing Against BofA

189.

Plaintiffs reallege and incorporate each and every allegation set forth in

paragraphs 1 through 172 herein.
190.

The Disbursement Agreement contained an implied covenant of good faith

which prohibited BofA, in its capacities as Administrative Agent and Disbursement Agent, from
preferring its own interests and the interests of the Revolving Lenders over the interests of the
Term Lenders ..
191.

Defendants owed the implied covenant of good faith to Plaintiffs, who are

intended third-party beneficiaries under the Disbursement Agreement.
192.

BofA breached the implied covenant of good faith by: (a) preferring its own

interests and the interests of the Revolving Lenders (including BofA) over the interests of Term
Lenders when it improperly approved Advance Requests, issued Advance Confirmation Notices,
failed to issue Stop Funding Notices, and caused the disbursement of funds from the Bank
Proceeds Account; and (b) failing to communicate information to the Term Lenders regarding
Events of Default that were known of should have been known to BofA.
193.

Plaintiffs have suffered injury as a result ofBofA's breach of the implied

.covenant of good faith. BofA's liability to Plaintiffs is not limited under Section 9.10 of the
Disbursement Agreement by virtue of the fact that: (a) the limitation ofliability does not apply
to claims asserted by Plaintiffs; (b) the limitation of liability does not apply to the conduct of
BofA for which BofA is liable; and (c) BofA's bad faith, gross negligence and willful
misconduct are not subject to any limitation on liability.

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COUNT IV
Breach of the Implied Covenant of
Good Faith and Fair Dealing Against All Defendants

194.

Plaintiffs reallege and incorporate each and every allegation set forth in

paragraphs 1 through 172 herein.
.

195.

.

The Credit Agreement is a valid and binding contract, pursuantto which the

Defendants agreed to fund $790 million under the Revolving Facility.
196.

The Credit Agreement contains an implied covenant of good faith and fair

dealing. The covenant is intended to prevent parties to a contract from destroying or injuring the
right of other parties to enjoy the fruits of the contract.
197.

Defendants owed Plaintiffs a duty of good faith and fair dealing as parties to the

same Credit Agreement.
198.

BofA as Administrative Agent and the other Defendants breached the implied

covenant by adopting a contrived construction of the Credit Agreement in order to justify their
refusal to fund the March 2 Notice and the March 3 Notice.
199.

Plaintiffs have performedall obligations required of them under the Credit

Agreement.
200.

Plaintiffs have suffered injury as a result of the breach of the covenant because,

as a result of the Defendants' refusal to honor their obligation to fund under the Revolving
Facility, the amount and value of Plaintiffs' collateral has been and continues to be diminished.
Furthermore, Plaintiffs have been prevented from receiving the benefits of their bargain under
the contract because their ability to obtain repayment on their loans has been endangered.

COUNTY
· For Declaratory Relief Against BofA

201.

Plaintiffs reallege and incorporateeachand every allegation set forth in

paragraphs 1 through 172 herein.

202.

A dispute has arisen between Plaintiffs and BofA regarding BofA's obligations

to Plaintiffs as intended third-party beneficiaries under the Disbursement Agreement. Plaintiffs

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contend that BofA has breached that agreement by approving the Advance Requests and by
failing to issue a Stop Funding Notice. Plaintiffs are informed and believe and thereon allege
that BofA contends that it has acted in good faith and in compliance with its obligations under
the Disbursement Agreement.
203.

A judicial determination is therefore necessary to resolve this dispute and

ascertain the respective rights of the parties with regard to the actions and agreements referenced
in this complaint.
COUNT VI
For Declaratory Relief Against All Defendants

204.

Plaintiffs reallege and incorporate each and every allegation set forth in

paragraphs 1 through 172 herein.
205.

A dispute has arisen between Plaintiffs and Defendants regarding their

respective rights and obligations under the Credit Agreement. Plaintiffs contend that Defendants
have breached this agreement by failing to fund and by terminating their loan commitments
under the Revolving Facility. Plaintiffs are informed and believe and thereon allege that
Defendants contend that they have acted in good faith and in compliance of their obligations
under the Credit Agreement.
206.

A judicial determination is therefore necessary to resolve this dispute and

ascertain the respective rights of the parties with regard to the actions and agreements referenced
in this complaint.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs pray for judgment against the Defendants, and each of them,

(a)

For compensatory damages in an amount subject to proof at trial.

(b)

For a declaration that BofA has breached its contractual duties under the

Disbursement Agreement as set forth above entitling Plaintiffs to damages in an amount subject·
to proof at trial.

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(c)

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For a declaration that Defendants have breached their contractual duties under the

Credit Agreement as set forth above entitling Plaintiffs to damages in an amount subject to proof
at trial.
(d)

For a declaration thatPlaintiffs are excused from performance of any obligations

owing to Defendants under the Credit Agreement.
(e)

For a declaration that any claims asserted by Defendants against the Borrower

should be disallowed pursuant to 11 U.S. C. § 502(b).
(e)

For an award of the costs of suit including attorneys' fees to the extent available.

(f)

For any further relief as this Court deems just and proper.

JURY DEMAND
Plaintiffs demand a trial by jury for all issues so triable.

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DATED: January 15, 2010

Respectfully submitted,
/s/ David A. Rothstein
David A. Rothstein
Fla. Bar No.: 056881
DRothstein(a1dkrpa.com
DIMOND KAPLAN & ROTHSTEIN, P.A.
2665 South Bayshore Drive
Penthouse 2B
Miami, FL 331343
[phone]
Telephone:
Facsimile:
[phone]
-andHENNIGAN BENNETT & DORMAN LLP
. J. Michael Hennigan (pro hac vice)
Kirk D. Dillman (pro hac vice)
865 S Figueroa Street
Suite 2900
Los Angeles, CA 900 17
Email: [e-mail]
[e-mail]
Attorneys for Plaintiffs,
Avenue CLO Fund, Ltd., et al.

771957

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IN THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 09-MD-21 06~CIV-GOLD/BANDSTRA
In re:
FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION

This document applies to:
Case No.: 09-CV-23835-ASG
Case No.: 10-CV-20236-ASG

------------------------------~/
AMENDED 1 MDL ORDER NUMBER EIGHTEEN; 2 GRANTING IN
PART AND DENYING IN PART MOTIONS TO DISMISS [DE 35]; [DE 36];
REQUIRING ANSWER TO COMPLAINTS; VACATING FINAL JUDGMENT3

I.

Introduction
THIS CAUSE is before the Court upon the Revolving Lender Defendants' Motion

to Dismiss [DE 36] and Bank of America's fV1otion to Dismiss [DE 35] ("the Motions").
Responses and replies were timely filed with respect to both motions, see [DE 50]; [DE
52]; [DE 56]; [DE 57], and on May 7, 2010, oral argument was held. I have jurisdiction
pursuant to 12 U.S.C. § 632, as it is undisputed that both actions at issue are "suits of a
civil nature at common law ... to which [a] corporation organized under the laws of the
United States [is]a party [and which] aris[es] out of transactions involving international or.
foreign banking." Having considered the relevant submissions, the arguments of the

1

This Order corrects the inadvertent closure of the Aurelius Action. Count Ill of the
Aurelius Complaint remains pending and the final judgment issued in that case must therefore
be vacated.
2

3

Although not labeled as such, MDL Order Number Seventeen appears at [DE 74].

All docket entry citations refer to the MDL Master Docket- i.e., Case No.: 09-MD-21 06
(S.D. Fla. 2009)- unless otherwise indicated.

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parties, the applicable law, and being otherwise duly advised in the Premises, I grant the
Motions in part and dismiss certain claims for the reasons that follow.
II.

Relevant Factual and Procedural Background 4
Although the facts giving rise to the claims at issue are detailed in my August 26,

2009 Order Denying Fontainebleau's Motion for Partial Summary Judgment in the
Southern District of Florida Action, see generallyFontaineb/eau Las Vegas, LLC v. Bank
of America, N.A., 417 B.R. 651 (S.D. Fla. 2009) ("August26 Order"), I reiterate the relevant
factual background here with citations to the operative complaints 5 to ensure that the
record clearly demonstrates that the facts and inferences upon which this Order is
predicated are drawn only from the operative complaints and the referenced undisputed
central documents.
A.

The Credit Agreement and Disbursement Agreement

On June 6, 2007, Fontainebleau Las Vegas LLC and affiliated entities
("Fontainebleau") entered into a series of agreements with a number of lenders ("the
Lenders") for loans to be used for the construction and development of the Fontainebleau
Resort and Casino in Las Vegas, Nevada ("the Project"). (Avenue Compl. 6 at1{1{ 113-115);
4

For purposes of a motion to dismiss, I take as true all factual allegations in the
operative com'plaints and limit my consideration to the four corners of the complaints and any
documents referenced .in the complaints which are central to the claims. Griffin Industries, Inc.
v. Irvin, 496 F.3d 1189, 1199 (11th Cir. 2007); Wilchombe v. TeeVee Toons, Inc., 555 F.3d 949,
959 (11th Cir. 2009). To the extent the central documents contradict the general and
conclusory allegations of the pleading, the documents govern. See Griffin, 496 F.3d at 1206.
5

See note 5, infra.

6

The operative complaint in the case of Avenue CLO Fund, Ltd.,et a/. v. Bank of
America, N.A., eta/., Case No.: 09-CV-23835 [DE 84] (S.D. Fla. 2009), will be referred to
throughout as the "Avenue Complaint." The operative complaint in the case of ACP Master Ltd.
and Aurelius Capital Master, Ltd. v. Bank of America, N.A., eta/., Case No.: 10-CV-20236 [DE

2

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(Aurelius Com pl. at 1f 1f 2-4 ); see generally [DE 37-1] ("Cr. Agr."); [DE 37-2] ("Disb. Agr.").
Among the agreements entered into by Fontainebleau and the Lenders were a Credit
Agreement and a Disbursement Agreement. (Avenue Com pl. at 1f 115); (Aurelius Com pl.
at 1f 1f 3, 27). It is these two agreements that are the subject of the operative complaints.
In connection with the. June 6, 2007 loan transaction, Fontainebleau and the
Lenders entered into a Credit Agreement that provided, among other things, for a syndicate
of lenders to provide three kinds of loans to Fontainebleau: (a) $700 million initial term loan
·facility ("the Initial Term Loan"); (b) a $350 million delay draw term loan facility ("the Delay
Draw Term Loan"); and (c) an $800 million revolving loan facility ("the Revolving Loan").
(Avenue Com pl. at

1f 115);

(Aurelius Com pl. at

1f 1f 23-24 );

(Cr. Agmt. at 22, 38). The

Plaintiffs proceeding on the Avenue Complaint ("the Avenue Plaintiffs") are comprised of
certain term lenders that participated in either the Initial Term Loan and/or the Delay Draw
Term Loan. (Avenue Campi. at 1f 1f 115, 117). The Plaintiffs proceeding on the Aurelius
Complaint ("the Aurelius Plaintiffs") are successors-in-interes~ to certain Term Lenders that
participated in either the Initial Term Loan and/or the Delay Draw Term Loan (Aurelius
Compl. at

1f 1f

10, 25).

Both the Avenue and Aurelius Defendants (collectively

"Defendants") are lenders that agreed to fund certain amounts under the Revolving Loan.
(Avenue Com pl. at

1f 1f 102-112);

(Aurelius Compl. at 1f 1f 11-22). In addition to being a

Revolving Lender, Defendant Bank of America also was the Administrative Agent for
purposes of the Credit Agreement. (Cr. Agr. at 8).
While the Initial Term Loan was to be made on the date of closing, (Cr. Agmt. at 22), ·

27] (S.D. Fla. 201 0), will be referred to throughout as the "Aurelius Complaint."

3

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the borrowing of funds under the Delay Draw and Revolving Loans prior to the Project's.
opening date was governed by a two-step borrowing process set forth in the Credit and
Disbursement Agreements. (Aurelius Com pl. at 1I 32-33 ); (Avenue Com pl. at 1I 119). First,
Fontainebleau was required to submit a Notice of Borrowing to the Administrative Agent
(i.e., Bank of America) specifying the requested loans and the designated borrowing date.
(Aurelius Campi. at 1f 33); (Avenue Campi. at 1f 119); (Cr. Agmt. § 2.4(a)). Upon receipt
of each Notice of Borrowing, the Administrative Agent was required to notify each lender,
as appropriate, so that each lender could, "subject [] to the fulfillment of the applicable
conditions precedent set forth in Section 5.2 [of the Credit Agreement]" and in accordance
with Section 2.1, make its pro rata share of the requested loans available to the
Administrative Agent on the borrowing date requested by Fontainebleau. (Cr. Agr. § §
2.1 (c); 2.4(b )). Then, "[u]pon satisfaction or waiver of the applicable conditions precedent
specified in Section 2.1 ,"Section 2.4(c) of the Credit Agreement called for the proceeds
of the loans to be "remitted to the Bank Proceeds Account and made available to
(Fontainebleau] in accordance with and upon fulfillment of conditions set forth in the
Disbursement Agreement."
The second step in the borrowing process concerns Fontainbleau's access to the
funds remitted to the Bank Proceeds Account and is governed by the Disbursement
Agreement. To access these funds, Fontainebleau was required to fulfill certain conditions
set forth in the Disbursement Agreement- including, but not limited to, the submission of
an Advance Request to Defendant Bank of America as Disbursement Agent - at which
point the loan proceeds would be disbursed in accordance with the Disbursement
Agreement (Avenue Com pl. at 1[ 120); (Aurelius Campi. at 1I 37); see a/so (Disb. Agr. §

4

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§ 2.4, 3.3).
However,

pursuant to

Section

2.5.1

of the

Disbursement Agreement,

Fontainebleau's right to disbursements was not absolute. That section provides that
Defendant Bank of America (as Disbursement Agent) was required to issue a Stop Funding
Notice "[i]n the event that (i) the conditions precedent to an Advance [set forth in Section
3.3 of the Disbursement Agreement] have not been satisfied, or (ii) [Wells Fargo, N.A. or
Bank of America] notifies the Disbursement Agent [Bank of America] that a Default or an
Event of Default has occurred and is continuing .... " (Disb. Agr: § 2.5.1 ); (Aurelius
Compl. at

'lf

37); (Avenue Compl. at

1f

124). Under the Disbursement Agreement, the

issuance of a Stop Funding Notice has the effect of preventing disbursements from the
accounts subject to certain waiver provisions and limited exceptions not at issue. (Disb.
Agr. § 2.5.2) .
. As noted, Defendants' agreement to make Revolving Loans to Fontainebleau is
governed by Section 2.1 (c) of the Credit Agreement. The first sentence of Section 2.1 (c)
provides, in pertinent part, that "[s]ubjed to the terms and conditions [of the Credit
Agreement]/ each Revolving Lender severally agrees to make· Revolving Loans to
[Fontainebleau] provided that ... unless the Total Delay Draw Commitments have

bee~

fully drawn, the aggregate outstanding principal amount of all Revolving Loans and Swing
Line Loans shall not exceed $150,000,000." (emphasis in original). The second sentence
of Section 2.1 (c) provides that "[t]he making of Revolving Loans which are Disbursement
Agreement Loans shall be subject only to the fulfillment of the applicable conditions set

7

The provision reads."[s]ubject to the terms and conditions hereof." (Cr. Agr, § 2.1(c)).
Section 1.2 states that "hereof ... shall refer to this Agreement as a whole."
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forth in Section 5.2." (emphasis in original). Section 5.2 provides, in pertinent part, that
"[t]he agreement of each lender to make [the Revolving Loans at issue here] ... is subject
only to the satisfaction of following conditions precedent: (a) Borrowers shall have
submitted a Notice of Borrowing· specifying the amount and Type of the Loans requested,
and the making thereof shall be in compliance with the applicable provisions of Section 2
of this Agreement." 8
B.

The March 2009 Notices of

Bo~rowing

and Disbursements

On March 2, 2009, Fontainebleau submitted a Notice of Borrowing ("March 2
Notice") to Defendant Bank of America, as Administrative Agent, that simultaneously
"request[ed]" the entire amount available under the· Delay Draw Term Loan (i.e.,
$350,000,000) and the Revolving Loan (i.e., $670,000,000). 9 (Aurelius Campi. at 'l'f44);
(Avenue Com pl. at 1f 141 ). At the time of the March 2, 2009 request, approximately $68
million in Revolving Loans had previously been funded and remained outstanding.
(Aurelius Com pl. at 1f 45); (Avenue Com pl. at 1f 152). On March 3, 2009, Bank of America,
as Administrative Agent, wrote to Fontainebleau rejecting the March 2 Notice, stating that
the March 2 Notice did not comply with Section 2.1 (c)(iii) of the Credit Agreement, which
does not allow the aggregate outstanding principal amount of the Revolving Loans to

8

The second and third conditions precedent set forth in Section 5.2 are not relevant to
the claims at bar.
9

The Aurelius Complaint alleges that Fontainebleau issued a Notice of Borrowing
"drawing" the above-referenced loans on March 2, 2009. (Aurelius Compl. ,-r 44). However, the
Notice of Borrowing, which is reproduced in the body of the Complaint, states that
Fontainebleau was "requesting a Loan under the Credit Agreement." /d. at 11. Where there is
a conflict between allegations in a pleading and the central documents, the contents of the
·
documents control. See Section Ill, infra.

6

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exceed $150,000,000 unless the Delay Draw Term Loans have been "fully drawn."
(Aurelius Compl.

TI ,-r· 50-51); (Avenue Compl. at

~

,-r 143-45).

On March 3, 2009,

Fontainebleau wrote to Bank of America articulating its position that its March 2, 2009
Notice complied with the Credit Agreement because "fully drawn" meant "fully requested,"
not "fully funded," as Bank of America was contending. (Aurelius Campi. at ,-r ,-r 54-55);
(Avenue Campi. at,-r 141 ). Thus, according to Fontainebleau, the simultaneous request for
· the remainder of the Delay Draw Term Loan and the Revolving Loans complied with the
Credit Agreement because the Delay Draw Term Loans had been "fully drawn" by virtue
of having been "fully requested." /d.
On March 3, 2009, Fontainebleau issued another Notice of Borrowing ("the March
3 Notice), which was nearly identical to the March 2 Notice, but purported to correct a
"scrivener's error" in the March 2 Notice by reducing the amount of Revolving Loans
requested from $670,000,000 to approximately $656 million in order to account for
·approximately $14 million of Letters of Credit that were outstanding and had not been
considered in connection with the March 2 Notice. (Avenue Com pl. at ,-r 141 ); (Aurelius
Compl at ,-r 56). On March 4, 2009, Defendant Bank of America rejected the March 3
Notice for the same reason it rejected the March 2 Notice (i.e., the Notice, which
simultaneously requested $350,000,000 in Delay Draw Term Loans and Revolving Loans
in excess of $150,000,000 in Revolving Loans, did not comply with Section 2.1(c)(iii)
because the Delay Draw Term loans had not yet been "fully drawn"). (Aurelius Com pl. at

1f 57);

(Avenue Comp. at TI 144 ).
· In an attempt to remedy the "fully drawn" issue, Fontainebleau issued yet another

Notice of Borrowing on March. 9, 2009 ("the March 9 Notice"). (Aurelius Com pl. at ,-r 65)
7

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(Avenue Com pl. at ,-r 151 ). The March 9 Notice was directed solely

to the Delay Draw Term

Loan, requesting the full amount of the $350,000,000 commitment. /d. "Despite the fact
that Bank of America "received notice ... [i]n September and October 2008 that Lehman
[Brothers] fail[ed] to comply with its funding obligations under the Retail Facility" in violation
of Section 3.3.3 of the Disbursement Agreement, Defendant Bank of America did not issue
a "Stop Funding Notice." (Aurelius Compl. at1f~96-109); (Avenue Compl. at1f1f 129-133).
Instead, it processed the March 9 Notice and sent it to all the Delay Draw Term Lenders,
advising them that the March Notice complied with the Credit Agreement and that the
Delay Draw Lenders were required to fund. {Aurelius Compl. at 1f 66); (Avenue Com pl. at

1f 153).

Plaintiffs allege that Bank of America "willfully took no action in response to the

notice"· regarding Lehman Brothers' default, "favor[ed] its own interests over those of the
Delay Draw lenders" by failing to issue a Stop Funding Notice, (Aurelius Com pl. at 1f 1f 109,
151 ), and failed to act "because it wished to preserve its ongoing business relationship with
the Borrower and its principal indirect owners, including Jeffrey Soffer." (Avenue Compl.
at ,-r 129-30).
On or about March 10, 2009, Plaintiffs funded their commitments under the Delay
Draw Term Loans.

In all, the Delay Draw Term Loan Lenders funded approximately

$337,000,000 of the $350,00,000 Delay Draw Loan. 10 (Aurelius Compl.

1f 1f at

66-67);

(Avenue Com pl. at 1f 154 ). Of these Delay Draw Term Loan proceeds, $68,000,000 were
used to repay "then outstanding" Revolving Loans in accordance with Section 2.1 (b)(iii) of

10

The $13 million financing gap resulted from the failure of certain Delay Draw Term ··
Lenders to fund their respective portions of the Delay Draw Term Loans in response to the
March 9 Notice. (Avenue Campi. at 1I 157). This financing gap •. however, is irrelevant fo·r
purposes in this Order.

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the Credit Agreement, of which a twenty-five percent share was attributable to Bank of
America as a Revolving Lender. (Avenue Com pl. at 1f 1f 152-53). Then, on or about March
25,· 2009, Bank of America disbursed more than $100,000,000 of the Delay Draw Term
Loan proceeds to Fontainebleau pursuant to an Advance Request submitted on March 25,
2009. (Avenue Com pl. at

1f

165); (Aurelius Com pl. at TI 124 ). In addition, on or about

March 23, 2009, Bank of America sent a letter to Fontainebleau regarding the Revolving
Loans; the letter stated that because "almost all of the [Delay Draw Term Loans] have
funded ... Section 2:1 (c)(iii) now permits the Borrower to request Revolving Loans which
result in the aggregate amount outstanding under the Revolving Commitments being in
excess of $150,000,000." (Aurelius Campi. at TI 89); (Avenue Compt: at TI 163).
C.

Events Subsequent to the March 25 Advance

On April 20, 2009, Bank of America, "in its capacity as Administrative Agent, sent
a letter to [Fontainebleau], the Lenders and other parties, in which [Bank of America]
advised that .... [it has been] determined that one or more Events of Default have occurred
and are occurring" and stating that the Revolving Loan commitments were being
"terminated effective immediately" pursuant to Section 8 of the Credit Agreement ("the
Termination Notice").

(Aurelius Com pl. at TI 73); (Avenue Com pl. at TI

1f

167-68).

According to Plaintiffs, Bank of America was aware of these Events of Default prior to the
March 25,2009 Delay Draw Term Loan disbursement, but failed to take appropriate action
(e.g., issuing a Stop Funding Notice). (Aurelius Campi. at

1f 128);

(Avenue Campi. at

1f

167).
On April 21, 2009; Fontainebleau sent a Notice of Borrowing ("the April 21 Notice")
requesting $710,000,000 under the Revolving Loan facility; this Notice of Borrowing was
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not honored. (Aurelius Campi. at 1f 1f 71-72); (Avenue Campi. at 1f 169). Subsequent to
April 21, 2009, the Project was "derailed and the value of the collateral securing Plaintiffs'
loans [was] substantially diminished." (Avenue Campi. at 'TI 172); (Aurelius Compl. at

1f

153). Plaintiffs allege that they have been damaged by the derailment of the Project, the
diminution in the value of their collateral, and the purportedly improper March 25
disbursement of Delay Draw Term Loan proceeds; it is further alleged that these damages
were the result of Defendants' improper failure to fund the March 3, 2009 Notice and Bank
of America's material breaches of the Credit and Disbursement Agreements. (Aurelius
Campi. at 1f 151-53); (Avenue Compl. at 'TI 172).
Based on these allegations, the Avenue and Aurelius Plaintiffs filed the instant
lawsuits in June and September 2009, respectively. The Aurelius Complaint asserts three
causes ,af action. The first is a contract claim against all Defendants for breach of the
Credit Agreement as a result of their failure to fund the Notices of Borrowing submitted on
'

or about March 2 and 3, 2009. The second is also a contract claim for breach of the Credit
Agreement against all Defendants, but is predicated upon Defendants' failure to fund the
April 21, 2009 Notice of Borrowing. The third c·ount also sounds in contract, but asserts
a breach of the Disbursement Agreement against Bank of America.
The Avenue Complaint, on the other hand, asserts six causes of action: the first is
for breach of the Disbursement Agreement against Bank of America; the second is for
breach of the Credit Agreement against all Defendants; the third asserts that Bank of
America breached the implied coyenant of good faith and fair dealing by favoring its own
interests and those of the Revolving Lenders (including itself) over those of the Term.
Lenders and failing to communicate with the Term Lenders regarding Events of Default;
10

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the fourth alleges that all Defendants breached the implied covenant of good faith and fair
dealing by adopting a contrived construction of the Credit Agreement in order to justify their
refusal to fund the March 2 and 3 Notices; and finally, the fifth and sixth counts request
declaratory relief regarding the parties' rights and obligations vis-a-vis the Credit and
Disbursement Agreements. Pursuantto Rule 12(b )(6), Defendants now request dismissal
of Plaintiffs' breach of contract and implied covenant claims. See [DE 35]; [DE 36].
D.

The Southern District of Florida Action and the Current MDL Proceedings

When Fontainebleau's project was derailed in Spring 2009, Fontainebleau filed a
voluntary Chapter .11 petition in the United States Bankruptcy Court for the Southern
District of Florida. On the same day that Fontaineblea.u filed for bankruptcy protection, it
commenced an adversary proceeding against the Revolving Lenders (including Bank of
America) seeking, among other things, a ruling requiring the Revolving Lenders to "turn
over" the approximately $657 million requested via the March 3 Notice to the bankruptcy
estate in pursuant to 11 U.S.C. § 542(b) ("the Florida Action").

On June 9, 2009,

Fontainebleau filed a Motion for Partial Summary Judgment in the Bankruptcy Court as to
its turnover claim, and on June 16, 2009, Defendants filed a Motion to Withdraw the
Reference pursuant to 28 U.S.C. § 157(d). On August 4, 2009, I granted Defendants'
Motion to Withdraw the Reference in the Florida Action. After permitting the Term Lenders
to file an amicus brief, I denied Fontainebleau's motion for partial summary judgment,
concluding as a matter of law that, for purposes of the Credit Agreement, "fully drawn"
unambiguously means "fully funded." Fontainebleau Las Vegas, LLC v. Bank of America,

11

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N.A., 417 B.R. 651, 660 (S.D. Fla. 2009). 11
In December 2009, the Joint Panel on Multi-District Litigation ("the Panel") heard the
Avenue Plaintiffs' motion for centralization of their lawsuit and the Florida Action in the
Southern District of New York. Defendants and the Aurelius Plaintiffs objected, requesting
that the suits be transferred to the Southern District of Florida for pre-trial proceedings.
After considering the parties' positions, the Panel issued an Order finding "that
centralization under Section 1407 in the Southern District of Florida will serve the
convenience of the parties and witnesses and promote the just and efficient conduct of the
litigation." In re: Fontainebleau Las Vegas Contract Litigation, 657 F. Supp. 2d 1374, 1375
(J.P.M.L. 2009). Following the issuance of the Panel's Order, the Avenue Action was
transferred to me for pre-trial proceedings. Approximately one month later, the Aurelius
Action was also transferred to me as a "tag-along" action in accordance with the Panel's
directive.

/d. at 1374 n.2. As the MDL judge, I now consider the instant motions to

dismiss. See Rule 7.6, R.P.J.P.M.L. (providing that transferee district court may hear and
enter judgment upon a motion to dismiss).

Ill.

Standard of Review

For purposes of deciding a motion to dismiss, my review is limited to the four
corners of the operative complaint and any documents referred to therein that are central

11

Alternatively, I noted that "everi if my conclusion that 'fully drawn' unambiguously
means 'fully funded' is in error ... [Fontainebleau's] reasoning at best suggests that its
interpretation is a reasonable one, but not the conclusive one, and requires the denial of partial
summary judgment." /d. at 661. I further noted that "[e]ven if [Fontainebleau] is correct that the
term 'fully drawn' unambiguously means 'fully requested,' I am persuaded by Defendants'
arguments that they were entitled to reject the March 2 Notice on the basis of Plaintiffs default"
and found there to be "genuine issue[s] of material fact as to whether Borrower was in default
as of March 3, 2009." /d. at 663-65.
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to the claims at issue. Griffin Industries, Inc. v. Irvin, 496 F.3d 1189, 1199 (11th Cir. 2007);
Wilchombe v. Tee Vee Toons, Inc., 555 F.3d 949, 959 (11th Cir. 2009); see also Day v.
Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005) (noting that district courts "may consider a
document attached to a motion to dismiss without converting the motion into one for
summary judgment if the attached document is (1) central to the plaintiff's claim and (2)
undisputed"). Where there is a conflict between allegations in a pleading and the central
documents, it is "well settled" that the contents of the documents control. Griffin, 496 F.3d
at 1206 (quoting Simmons v. Peavy- Welsh Lumber Co., 113 F.2d 812,813 (5th Cir. 1940)).
Ttius, only the contents of the operative complaints and the undisputed central documents
will be considered for purposes of this Order.
In determining whether to grant Defendants' motions to dismiss, I must accept all
the factual allegations 12 in the complaints as true and evaluate all reasonable inferences
derived from those facts in the light most favorable to the Plaintiffs. Hill v. White, 321 F.3d
1334, 1335 (11th Cir. 2003);· Hoffend v. ·villa, 261 F.3d 1148, 1150 (11th Cir. 2001).
"Federal Rule of Civil Procedure 8(a)(2) requires only 'a short and plain statement of the
claim showing that the pleader[s] are entitled to relief,' in order to 'give the defendant[s] fair
notice of what the ... claim is and the grounds upon which it rests.' " Bell At/. Corp. v.
Twombly, 550 U.S. 544,555, 127 S. Ct. 1955, 1959 (2007) (quoting Conleyv. Gibson, 355.
U.S. 41, 47, 78 S.Ct. 99, 103 (1957)). "Of course, 'a formulaic recitation of the elements
of a cause of action will not do."' Watts v. Fla. lnt'l. Univ., 495 F.3d 1289, 1295 (11th Cir.
2007) (quoting Twombly, 550 U.S. at 555). "While Rule 12(b )(6) does not permit dismissal

12

Legal conclusions, on the other hand, need not be accepted as true. Ashcroft v.
Iqbal, 129 S.Ct. 1937, 1949-50 (2009).

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of a well-pleaded complaint simply because it strikes a savvy judge that actual proof of
those facts is improbable, the factual allegations must be enough to raise a right to relief
above the speculative level." Watts, 495 F.3d at 1295 (citing Twombly, 550 U.S. at 555)
(internal quotation marks omitted)). In other words, "[t]o survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief
that is plausible on its face.' " Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting

Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff[s] plead[]
factual content that' allows the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged." /d. It follows that "where the well-pleaded facts do
not permit the court to infer more than the mere possibility of misconduct, the complaint
has alleged -but it has not 'show[n] ' - 'that the pleader is entitled to relief.' " /d. at 1950
(quoting Fed.R.Civ.P. 8(a)(2)).

IV.

Analysis

A.·

Breach of Credit Agreement- Counts I and II of the Aurelius Complaint;
Count II of the Avenue Complaint

1.

Plaintiffs Lack Standing to Assert Claims for Failure to Fund

In support of their request for dismissal, Defendants contend that Plaintiffs lack
standing to pursue claims based on Defendants' alleged breaches of the Credit
Agreement.

I agree.

"Standing is a threshold jurisdictional question which must be

addressed prior to and independent of the merits of a party's claims.'' Bochese v. Town

of Ponce Inlet, 405 F.3d 964, 974 (11th Cir. 2005) (quoting Dillard v. Baldwin County
Comm'rs, 225 F.3d 1271, 1275 (11th Cir. 2000)).

Absent an adequate showing of

standing, "a court is not free to opine in an advisory capacity about the merits of a plaintiff's
14

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claims." /d. The burden of establishing standing is on the Plaintiffs. /d. at 976; see also
AT&T Mobility, LLC v. National Ass'n for Stock Car Auto Racing, Inc.; 494 F. 3d 1357, 1360
(11th Cir. 2007)
Pursuant to Article Ill of the United States Constitution, Plaintiffs "must establish that
[they] ha[ve] suffered an injury in fact" to have standing to challenge Defendants' failure
to fund under the Credit Agreement. 13 AT&T Mobility, 494 F.3d at 1360 (citing Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560 (1992)). "To establish injury in fact, [Plaintiffs]
must first demonstrate that [Defendants] ha[ve] invaded a legally protected interest derived
by [Plaintiffs] from the [Credit] Agreement between [Plaintiffs] and [Defendants]." !d.
(citation and internal quotation marks omitted). The question of whether, for standing
purposes, Plaintiffs have "a legally enforceable right" with respect to a contractual covenant
is a matter of state law. /d. (citation omitted); see also Mid-Hudson Catskill Rural Migrant
Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 173 (2d Cir. 2005) (Sotomayor, J.) (citing
various cases applying state law to determine whether parties had standing to sue for
breach of contract). Accordingly, I must look to New York law14 to determine whether

13

I recognize the parties' position that having "standing" to sue for a breach of a
contractual promise is distinct from the concept of Article Ill standing. [MTD Hr'g Tr. 3:25p.m.,
May 7, 2010] ("I have always just thought of this as having been innocently mislabeled. I agree
with [defense counsel] that when they said standing, what they really meant was the term
lenders don't have any contractual right"). While there is case law supporting this contention,
the· Eleventh Circuit treats the question of whether a party has a "legally enforceable right" with
respect to a contractual promise as an Article Ill issue. AT&T Mobility, LLC v. National Ass'n for
Stock Car Auto Racing, Inc., 494 F.3d 1357, 1360 (11th Cir. 2007); Bochese v. Town of Ponce
Inlet, 405 F.3d 964, 975-980 (11th Cir. 2005). Accordingly, I treat it as such. I emphasize·,
however, that this distinction has no bearing on the motions at bar, for Plaintiffs' contract claims
must fail if they lack standing, regardless of how the standing issue is framed.
14

At oral argument, the parties agreed that the question of whether Plaintiffs have a
legal right to enforce the Revolving Lenders' promise to fund the loans at issue must'be
determined pursuant to New York law. [MTD Hr'g Tr. 3:25p.m., May 7, 2010]. In determining

15

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Plaintiffs have standing to assert claims for breach of the Credit Agreement based on
Defendants' failure to fund the Revolving Loans pursuant to the March and April Notices
of Borrowing. (Cr. Agr. § 10.11) (stating that "rights and obligations of the parties under
this agreement shall be governed by, and construed and interpreted in accordance with the
law of the State of New York").
Under New York contract law, "[a] promise in a contract creates a duty in the
promisor to any intended beneficiary to perform the promise, and the intended beneficiary
may enforce the duty"; thus, only intended beneficiaries of a promise "ha[ve] the right to
proceed against the promisor" for breach of said promise. 15 Restatement (Second) of
Contracts§ 304 (1979); Hamilton v. Hertz Corp., 498 N.Y.S. 2d 706, 709 (N.Y. Sup. Ct.
1986) (citing Restatement (Second) of Contracts§ 304 (1979)). This well-established rule
applies with equal force to both bipartite and multipartite agreements. See Berry Harvester
v. Walter A. Wood Mowing & Reaping Machine Co., 152 N.Y. 540, 547 (N.Y. 1897)

(holding that a plaintiff may not enforce every promise contained in a multipartite
agreement; rather, the specific promise a plaintiff seeks to enforce must have been
intended for the plaintiff's benefit). Thus, in the context of a multipartite contract, "the mere
fact that [Plaintiffs] signed the agreement is not controlling; they may have enforceable

and applying the law of New York, I must follow the decisions ofthe state's highest court, and in
the absence of such decisions on an issue, must adhere to the decisions of the state's
intermediate appellate courts, unless there· is some persuasive indication that the state's
highest court would decide the issue otherwise. See Best Van Lines, Inc. v. Walker, 490 F.3d
239, 245 n. 9 (2d Cir. 2007).
15

While the Plaintiffs and Defendants disagree as to whether Plaintiffs were intended
beneficiaries of the Revolving Lenders' promise to fund, both sides appear to agree that one
must be an intended beneficiary of a promise in order to have a legal right to enforce it. [MTD
Hr'g Tr. 3:35 p.m. - 3:38 p.m.].

16

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rights under some of its provisions and not have enforceable rights under other provisions."

Alexanderv. United States, 640 F.2d 1250, 1253 (Ct. Cl. 1981) (finding that party to
agreement was not an intended beneficiary of a certain promise and therefore had no legal
right to enforce that promise and noting that Berry Harvester is a "leading case" on the
subject).

In such cases, the "critical inquiry is whether the parties to the agreement

intended to give [Plaintiffs] the right to enforce" the promise at issue at issue. 16 Hence, in
order to have standing to sue Defendants' for failure to fund the Revolving Loans, Plaintiffs
must adequately demonstrate that they are "intended beneficiaries" of Defendants' promise
to fund the Revolving Loans under the Credit Agreement.
The question of whether a party is an intended or incidental beneficiary of a
particular contractual promise can be determined "as a ma~ter of law" based on the parties'
intentions as expressed in the operative agreement. See generally Fourth Ocean Putnam
Corp~

v. Interstate Wrecking Co., Inc., 66 N.Y. 2d 38 (N.Y. 1985) (affirming lower court's

16

Although this argument was not raised in its opposition papers, counsel for the
Aurelius Plaintiffs asserted at oral argufTlent that Section 260 of New York Jurisprudence .
(Second) Contracts and Section 297 of the Restatement (Second) of Contracts support the
conclusion that all parties to a multipartite agreement are presumed to have a right to enforce .
every promise contained therein unless a party's right to enforce "is specifically severed." [MTD
Hr'g Tr. 3:38 p.m.]. Having reviewed these sections, I reject this contention and note that
Plaintiffs appear to have conflated two distinct concepts in advancing this argument: the first is
whether a party has a legal right to enforce a particular promise; the second is whether the right
to enforce a particular promise is held jointly or severally by multiple parties. The issue here is
not whether Plaintiffs and Fontainebleau have a "joint" or a "several" (i.e., separately
enforceable) right to enforce the Revolving Lenders' promise to fund; rather, the question is
whether Plaintiffs have any right whatsoever to enforce that promise. With respect to this
issue, it is clear that the Berry Harvester test controls- i.e., "[w]hether the right or privilege
conferred by the promise of one party to a tripartite contract belongs to one or both of the other
parties depends upon the intention of the parties; the mere fact that there are three parties to
the contract does not enlarge the effect of any promise, except as it may extend the advantage
to two persons instead of one where that is the intention." 22 N.Y. Jur. 2d Contracts§ 260
(2010) (citing Berry Harvester v. Walter A. Wood Mowing & Reaping Machine Co., 152 N.Y.
540 (N.Y. 1897)).
·

17

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determination that, as a matter of law, party was not an intended beneficiary); see also

Berry Harvester, 152 N.Y. at 547 ("whether the right or privilege conferred by the promise
of one party to a tripartite contract belongs to one or both of the other contracting parties
depend upon the intention as gathered from the words used ... "). 17 If the contractual
language is ambiguous, however, courts may consider the contractual language "in light
of the surrounding circumstances" in order to discern the intention of the parties. Berry

Harvester, 152 N.Y. at 547.
Traditionally, New York law held that "the absence of any duty ... to the beneficiary
[vis-a-vis a particular promise] ... negate[d] an intention to benefit" the beneficiary. Fourth

Ocean, 66 N.Y. 2d at 44-45. However, as New York's highest court has noted, that
requirement "has been progressively relaxed." /d. (citation omitted). Today, the rule is that
a beneficiary can establish that he has standing to enforce a particular promise "only if no
one other than the [beneficiary] can recover ifthe promisor breaches the [promise] or the
contract language . . . clearly evidence[s] an intent to permit enforcement by the
third-party." Abu Dhabi Commercial Bank v. Morgan Stanley & Co. Inc., 651 F. Supp. 2d
155, 172 (S.D.N.Y. 2009) (citations and internal quotation marks omitted) (emphasis
added);seea/so Fourth Ocean, 66 N.Y. 2d at45 (concluding that a third party to a promise
can·enforce the promise if "no one other than the third party can recover if the promisor

17

The fact that some of the cases cited involve third-party beneficiaries that were not
actually "parties" to the written agreements at issue does not render the cases inapposite. As I
have already explained, it is the intent of the parties with respect to the individual promise at
issue that is critical. See Berry Harvester, 152 N.Y. at 547 ("any party ... may insist upon the
performance of every promise made to him, or for his benefit, by the party or parties who made
it"). For example, in a tripartite contract setting where A makes an enforceable promise to B
that is·expressly intended for the benefit ofC, C is a "third-party beneficiary" of that promise
notwithstanding the fact that he, she, or it is technically a "party" to the written agreement.
18

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breaches or that the language of the contract otherwise clearly evidences an intent to
permit enforcement by the third party") (emphasis added).
Here, there is no ambiguity with respect to the promise at issue, which states that
"each Revolving Lender severally agrees to make Revolving Loans to Borrowers from time
to time during the Revolving Commitment Period." (Cr. Agr. § 2.1 (c)) (emphasis added).
· This promise creates a duty on the part of Defendants to make loans to Fontainebleau in
accordance with the Credit Agr~ement; it does not establish a duty to the Plaintiffs here or
"clearly evidence an intent to permit enforcement by [Plaintiffs]." Fourth Ocean, 66 N.Y.
2d at 45. Additionally, it is not the case that "no one other than [Plaintiffs] can recover if
[Defendants] breache[d]," id., as Fontainebleau would unquestionably be able to recover
if it were able to prove that it suffered damages as a result of Defendants' material breach
of the Credit Agreement. While I recognize that "the full performance of [Defendants'
purported obligation to fund the Revolving Loans] might ultimately benefit [Plaintiffs]," this,
at best, establishes that Plaintiffs were "incidental beneficiaries" of Defendants' promise
to Fontainebleau to make Revolving Loans. Fourth Ocean, 66 N.Y. 2d at 45; see also
Salzman v. Holiday Inns, Inc., 48 N.Y.S. 2d 258, 261 (N.Y. App. Div. 4th Dept. 1975)
(finding Holiday Inns, an interim lender, to be an incidental beneficiary of financing
agreement between plaintiff and permanent lender because agreement called for the
permanent lender to pay money to plaintiff, not Holiday Inns, and further noting that "the
typical case of an incidental beneficiary is where A promises B to pay him money for his
expenses [and] Creditors of B (though they may incidentally benefit by the performance
of A's promise) are not generally allowed to sue A") (citation and internal quotation marks

19

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omitted). 18
Because New York law requires that one be an "intended beneficiary" of a particular
promise in order to have a legal right to enforce that promise, and because Plaintiffs have
failed to adequately demonstrate that they were "intended beneficiaries" of Defendants'
promise to fund the Revolving Loans at issue, Counts I and II of the Aurelius Complaint
and Count II of the Avenue Complaint must be dismissed with prejudice. 19

2.

Even if Plaintiffs Had Standing to Enforce Defendants' Promises to
Fund, Defendants Were Not Obligated to Fund the March Notices
of Borrowing

Even if Plaintiffs had standing to enforce Defendants' promises to fund the
Revolving Loans at issue, Plaintiffs have not demonstrated that Defendants breached the
Credit Agreement by rejecting the March Notices of Borrowing because: (1) "fully drawn,"
as used in Section 2.1 (c )(iii) of the Credit Agreement, unambiguously means "fully funded";
and (2) the Delay Draw Term Loans had not been "fully drawn" atthe time Fontainebleau
submitted the March Notices of Borrowing.
Under New York law, a breach of contract claim "cannot withstand a motion to

18

Plaintiffs cite to Deutsche Bank AG v. J.P. Morgan Chase Bank, 2007 U.S. Dist.
LEXIS 71933 (S.D.N.Y. Sept 27, 2007), in support of the contention that they have a legally
enforceable right in Defendants' promise. to fund the Revolving Loans. This qase fails to
buttress Plaintiffs' position regarding standing, as it involved claims for declaratory relief, not
breach of contract- claims that have different requirements with respect to standing than the
contract claims at bar. Deutsche Bank, 2007 U.S. Dist. LEXIS 71933, * 5 (noting that parties
were only seeking "declaration[s]"); compare Fieger v. Ferry, 471 F.3d 637, 643 (6th Cir. 2006)
(discussing standing requirements in declaratory relief actions) with Alexander v. United States,
640 F.2d 1250, 1253 (Ct. Cl. 1981) (discussing standing require·ments in context of multi-party
contracts). Thus, contrary to Plaintiffs' contention, the Deutsche Bank court did not sub silentio ·
conclude that lenders are intended beneficiaries of other lenders' promises to fund a borrower's
loans.
19

See Section V, infra (explaining why the dismissal is with prejudice). ·

20

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dismiss if the express terms of the contract contradict plaintiff[s'] allegations of breach;''
Merit, No. 08-CV-3496, 2009 WL 3053739, *2 (S.D.N.Y. Sept. 24, 2009) (citing 805 Third
Ave. Co. v. M. W. Realty Assocs., 58 N;Y. 2d 451, 447 (N.Y. 1983)). Thus, courts are not

required to "accept the allegations of the complaint as to how to construe" the agreement
at issue. Merit, 2009 WL 3053739, *2. Instead, courts must enforce written agreements
according to the "plain meaning" of their terms. Greenfield v. Phi//es Records, 98 N.Y. 2d
562, 569 (N.Y. 2002). When interpreting the meaning of contractual provisions, courts are
generally required to "discern the intent of the parties to the extent their intent is evidenced
by their written agreement." lnt'l Klafter Co. v. Cont. Cas. Co., 869 F.2d 96, 100 (2d Cir.
1989) (citing S/att v. Slatt, 64 N.Y. 2d 966, 967 (N.Y. 1985)). Thus, "[i]n the absence of
ambiguity, the intent of the parties must be determined from their final writing and no parol
evidence or extrinsic evidence is admissible." /d. (emphasis added) (citation omitted).
However,"[e]xtrinsic evidence of the parties' intent may be considered ... if the agreement
is ambiguous, which is an issue of law for the courts to decide." Greenfield, 98 N.Y. 2d at
569.
Whether an agreement is "ambigu[ous] is determined by looking within the four
corners of the document, not to outside sources." Kass v. Kass, 91 N.Y. 2d 554, 556 (N.Y.
1998) (citation omitted). 20 "Consequently, any conceptions or understandings any of the

20

Plaintiffs urge me to consider the manner in which the word "drawn" is generally used
in New York statutory and case law in order to discern the intended meaning of the phrase "fully
drawn," citing to Hugo Boss F~shions, Inc. v. Fed Ins. Co., 252 F.2d 608, 617-18 (2d Cir. 2001)
for the proposition that "an established definition provided by state law or industry usage will
serve as a default rule ... unless the parties explicitly indicate, on the face of their agreement,
that the term is to have some other meaning." However, as the Second Circuit noted in the
sentence preceding the quote excerpted by Plaintiffs, "widespread custom or usage serves to
determine the meaning of a potentially vague term," not an unambiguous one. /d. (emphasis

21

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parties may have had during the duration of the contracts is immaterial and inadmissible."
lnt'l Klafter Co., 869 F.2d at 100. Under New York law, "[t]he test for ambiguity is whether
an objective reading of a term could produce more than one reasonable meaning."
McNamara v. Tourneau, Inc., 464 F. Supp. 2d 232, 238 (S.D.N.Y. 2006) (citing Collins v.
Harrison-Bode, 303 F.3d 429, 433 (2d Cir. 2002)). Thus, "[a] party ... may not create
·ambiguity in otherv.;ise clear language simply by urging a different interpretation." /d. (citing
Metro. Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884, 889 (2d Cir. 1990) ).
As I noted in my August 26 Order, a review of the Credit Agreement in its entirety
reveals no ambiguity as to the meaning of the term "fully drawn"; to the contrary, an
objective and plain reading of the agreement establishes that "fully drawn" in Section
2.1 (c)(iii) means "fully funded," and not "fully requested" or "fully demanded," as Plaintiffs
suggest.

In re Fontainebleau Las Vegas Holdings, LLC, 417 B.R. at 660. 21

This

added). Because the Credit Agreement unambiguously establishes that "fully drawn" means
"fully funded," I decline to consider "extrinsic evidence" such as custom, industry usage, or the
parties' course of dealing. tnt'/ Klafter Co; v. Cont. Cas. Co., 869 F.2d at 100; see also [DE 50]
(noting in their opposition to Defendants' Joint Motion to Dismiss that "Term Lenders agree ...
that the parties' course of dealing is not an appropriate consideration in determining, on a
motion to dismiss, whether it is reasonable to interpret "drawn" to mean "demanded").
However, it .does bear mentioning that even the cases cited by Plaintiffs indicate that, in the
context of term loans, "draw" means "fund," as compared to "request" or "demand." See e.g.,
Destiny USA Holdings, LLC v. Citigroup Global Markets Realty Corp., 2009 WL 2163483, *1,
*14 (N.Y. Sup. Ct. July 17, 2009) (concluding that Destiny Holdings was entitled to preliminary
injunction requiring Citigroup to fund "pending draw requests," thus indicating that draw means
"fund" or "funding" and not "request" or "demand"), aff'd as modified on other grounds, 889
N.Y.S. 2d 793 (N.Y. App. Div. 4th Dept. 2009) ..
21

While it could be argued that the doctrine of "nonparty preclusion" should apply to
preclude Plaintiffs from relitigating the meaning of "fully drawn" given that they filed an amicus
brief in the Florida Action regarding the very same issue, this doctrine was not raised by the
Plaintiffs and I decline to apply it sua sponte. See Griswold v. County of Hillsborough, 598 F.3d
1289, 1292 (11th Cir. 2010) (clarifying doctrine of nonparty preclusion in light of recent
Supreme Court decisions on the subject).

22

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conclusion comports not only with the plain language of the Credit Agreement, but also
with the "structure of the lending facilities, as discerned from the Credit Agreement itself,
. [which] reflects the parties' intent to employ a sequential borrowing and lending process
that places access to Delay Draw Term Loans ahead of Revolving Loans when the amount
sought under the Revolving Loan facility was in excess of $150 million." !d. at 660.
To support their argument that my prior ruling regarding the unambiguous meaning
of "fully drawn" was erroneous, Plaintiffs proffer various hypotheticals purporting to
demonstrate that interpreting "fully drawn" to mean "fully funded" would lead to patently
unreasonable results that could not have been intended by the parties to the Credit
Agreement. Such arguments are not relevant or proper, for "[a]n ambiguity does not exist
by virtue of the fact that one of a contract's provisions could be ambiguous under some
other circumstances." Bishop v. National Health Ins. Co., 344 F.3d 305, 308 (2d Cir.
2003). To the contrary, contract law is clear insofar as "a court must look to the situation
before it, and not to other possible or hypothetical scenarios" when considering a contract
in order to determine whether an ambiguity exists. /d.; Donoghue v. IBC USA

(Publications), Inc., 70 F.3d 206, 215-16 (1st Cir. 1995) (noting that "a party claiming to
benefit from ambiguity ... must show ambiguity in the meaning of the agreement with
respect to the very issue in dispute . . . [because] courts consider contentions regarding
ambiguity or lack of ambiguity not in the abstract and not in relation to hypothetical disputes
that a vivid imagination may conceive but instead in relation to concrete disputes about the
meaning of an agreement as applied to an existing controversy"). 22

22

Even if I were to consider Plc:tintiffs' hypotheticals, it would not alter my conclusion
regarding the meaning of "fully funded," as the proffered hypotheticals fail to account for critical
23

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In sum, having considered the arguments of the parties regardi.ng the meaning of
"fully drawn," I conclude, for the reasons set forth above, as well as those set forth in my
August 26 Order - which I expressly incorporate by reference into this Order- that the
plain language, purpose, and structure of the Credit Agreement leads to the inexorable
conclusion that "fully drawn" unambiguously means "fully funded" for purposes of Section

2.1 (c)(iii) of the Credit Agreement. 23 Accordingly, even if my conclusion that Plaintiffs lack
standing is in error, Plaintiffs' claims for failure to fund the March Notices of Borrowing fail
as a matter of law because Defendants had no obligation to make Revolving and Swing

provisions of the Credit Agreement. For example, the hypothetical set forth in Paragraph 43 of
the Aurelius Complaint ignores the existence of Section 5.2(c), entitled "Drawdown Frequency,"
which vests the Administrative Agent (i.e., Bank of America) with broad discretion to permit
Disbursement Agreement loans to be made more frequently than once every calendar month.
If Bank of America were to arbitrarily withhold its consent in such a scenario, it would be
exposing itself to a potential claim for breach of the implied covenant of good faith and fair
dealing. Dalton v. Educational Testing Service, 87 N.Y. 2d 384, 389 (N.Y. 1995) (noting that
where a "contract contemplates the exercise of discretion, [the implied covenant of good faith]
includes a promise not to act arbitrarily or irrationally in exercising that discretion").
23

While I recognize that· "[i]t is reasonable to assume that the same words used in
different parts of the instrument are used in the same sense," it is beyond dispute that the very
same terms can have different meanings for purposes of a single agreement where "a different
meaning is indicated" by the agreement itself. Johnson v. Colter, 297 N.Y.S. 345 (N.Y. App.
Div. 4th Dept. 1937) (citation omitted). This is especially true in the context of agreements
spanning hundreds of pages that cover varying topics. For example, the word "draw" might
have a different meaning when used to refer to "drawing" on a letter of credit than when used in
reference to "drawing" on different sources of information, "drawing" on a chalkboard, or having
"drawn" on a revolving credit facility. Thus, I emphasize that I am not concluding that "draw"
must always mean "fund" for purposes of the Credit and Disbursement Agreements. Instead,
my conclusion is limited to the meaning of "fully drawn" for purposes of Section 2.1 (c)(iii).
However, I note that a review of other relevant provisions appears to buttress my conclusion
that, in the context of Term Loans and Revolving Loans, "fully drawn" unambiguously means
"fully funded." Fo·r example, Section 5.2(c), entitled "Drawdown Frequency," provides that
Disbursement Agreement loans "shall be made no more frequently than once every calendar
month." (emphasis added). Thus, this provision, which regulates the frequency of "drawdowns"
vis-a-vis Revolving and Term Loans, indicates that a "drawdown" is the equivalent of •imaking"
(i.e., funding) a Revolving or Delay Draw Term Loan, and not a "request" or "demand" for such
a loan.
24

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Line Loans in excess of $150,000,000 until: (a) the Delay Draw Term Loans were fully
funded; or (b) the provisions of Section 2.1 (c)(iii) were validly waived.
B.

Breach of the Disbursement Agreement Against Bank of America- Count
I of the Avenue Complaint and Count Ill of the Aurelius Complaint

In addition to the Credit Agreement claim discussed above, Plaintiffs have each
asserted a contract claim against Bank of America for breach of the Disbursement
Agreement.

In order to state a claim for breach of ·contract under New York law, 24 a

Plaintiff must adequately allege: (1) the existence of a contract, (2) the plaintiff's
performance under the contract, (3) the defendant's breach of that contract, and (4) ·
resulting damages. JP Morgan Chase v. J.H. Elec. of New York, Inc., 893 N.Y.S. 2d 237,
239 (N.Y. App. Div. 2d Dept. 201 0). Here, Defendant Bank of America does not: dispute
the existence of a contract, Plaintiffs' performance, or resulting damages. Instead, Bank
of America argues that Plaintiffs have failed to adequately allege a breach of the
Disbursement Agreement.
In considering Bank of America's argument,

start with Section 2.5.1 of the

Disbursement Agreement, which requires Bank of America to issue a Stop Funding Notice
"[i]n the event that[] the conditions precedent to an Advance have not been satisfied." The
conditions precedent to an Advance are set forth in Section 3.3 of the Disbursement
Agreement. One of the conditions set forth in Section 3.3 is that "[n]o Default.or Event of
Default shall have occurred and be continuing." (Disb. Agr. § 3.3.3). The term "Default"
is specifically defined in the Disbursement Agreement as "(i) any of the events· specified

24

Like the Credit Agreement, the Disbursement Agreement also contains a New York
choice-of.:.law clause. (Disb. Agr. § 11.6).

25

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in Article 7 ... and (ii) the occurrence of any 'Default' under any Facility Agreement."
(Disb. Agr, Ex. A at 10). "Facility Agreement" is also specifically defined in the Agreement
as "the Bank Credit Agreement, the Second Mortgage Indenture and the Retail Facility.·
Agreement." /d. at 12.
In Paragraphs 129-132 of the Avenue Complaint and Paragraphs 103-111 of the
Aurelius Complaint, Plaintiffs allege specific facts supporting the reasonable inference that
Bank of America; as Disbursement Agent, received notice from a lender in Fall 2008 that
Lehman Brothers defaulted under the Retail Facility Agreement and yet failed to issue a
Stop Funding Notice. Defendant Bank of America does not dispute this. Instead, Bank
of America argues that: (1) the claim is insufficient because the Plaintiffs' "fail[ed] to attach
th[e] purported 'notice' or even identify the lender who sent the alleged communications";
and (2) pursuant to Section 9.3.2 of the Disbursement Agreement, Bank of America was
"entitled to rely on certifications from [Fontainebleau] as to satisfaction of any requirements
and/or conditions imposed by th[e] [Disbursement Agreement]." [DE 35, pp. 10, 13]. I
reject Bank of America's first argument, for at the Rule 12(b )(6) stage, I must accept all of
Plaintiffs' factual allegations in the complaints as true-i.e., Plaintiffs need not support their
factual allegations with documentary evidence at this stage of the proceedings. See Hill,
321 F.3d at 1335.

Bank of America's second argument also fails, as there are no

allegations on the face of the operative complaints establishing that Fontainebleau
!'certif[ied]" that Lehman Brothers had not defaulted under the Retail Facility Agreement,2 5

25

At oral argument, I asked whether there is "anything that anyone could point to in the
complaint one way or the other that refers to Fontainebleau affirmatively certifying that there
was no default"; counsel for Bank of America was unable to reference any such allegation.
[MTD Hr'g Tr. 04:19p.m.].

26

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While it can certainly be inferred that such representations were made given that
Fontainebleau submitted various Advance Requests subsequent to the Fall of 2008,
inferences of this nature are not appropriately drawn at this stage. To the contrary, it is
well-settled that I must evaluate all reasonable inferences in favor of the Plaintiffs. Wilson
v. Strong, 156 F.3d 1131, 1133 (11th Cir. 1998). Because Plaintiffs' complaints adequately
allege facts indicating that Bank of Amerfca knew of Lehman Brothers' default under the
Retail Financing Agreement and failed to issue a Stop Funding Notice in violation of the
Disbursement Agreement, Count Ill of the Aurelius Complaint and Count I of the Avenue
Complaint will not be dismissed.
C.

Breach of the Implied Covenant of Good Faith and Fair Dealing Against
Bank of America- Count Ill of the Avenue Complaint

Count lit of the Avenue Complaint asserts that Bank of America breached the
implied covenant of good faith and fair dealing when it "improperly approved Advance
Requests, issued Advance Confirmation Notices, failed to issue Stop Funding Notices, []
caused the disbursement of funds from the Bank Proceeds Account: and [] fail[ed] to
communicate information to the Term Lenders regarding Events of Default that were
known o[r] should have been known to [Bank of America]." (Avenue Com pl. at,-[ 192).
While it is well-settled that breach of the implied covenant of good faith gives rise
to a stand-alone cause of action under New York law, see Granite Partners, L.P. v. Bear,
Steams & Co:, 17 F. Supp. 2d 275,305 (S.D.N.Y. 1998) (noting that "[b]reach of the [good .
faith] covenant gives rise to a cognizable claim"), it is equally settled that "New York law
... does not recognize a separate cause of action for breach of the implied covenant of
good faith and fair dealing when a breach of contract claim, based upon the same facts,

27

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is also pled." Harris v. Provident Life & Accident Ins. Co., 310 F.3d 73, 81 (2d Cir. 2002).
In their opposition papers, the Avenue Plaintiffs acknowledge this rule, but contend that it
does not apply because its implied covenant claim is predicated, in part, upon the factual
allegation that Bank of America "failed to communicate information regarding defaults,"
while its Disbursement Agreement claim is not. [DE 52]. This argumentis not a novel one,
and has been roundly rejected by New York courts. Alter v. Bogoricin, No. 97-0V-0662,
1997 WL 691332, *1, *7-*8 (S.D. N.Y. Nov. 6, 1997) (rejecting similarargument, dismissing
implied covenant claim, and noting that it has been observed that "every court fac~d with
a complaint brought under New York law and alleging both breach of cont.ract and breach
of a covenant of good faith and fair dealing has dismissed the latter claim as duplicative").
The critical inquiry in this respect is not whether the two claims are founded upon
identical facts, but whether the relief sought by Plaintiffs "is intrinsically tied to the damages
allegedly resulting from [the] breach of contract." /d. (quoting Canstarv. J.A. Jones Constr.
Co., 622 N:Y.S. 2d 730, 731 (App. Div. 1st Dept. 1995)); Deer Park Enterprises, LLC v. Ail
Systems, Inc., 870 N.Y.S. 2d 89, 90 (N.Y. App. Div. 2d Dept. 2008). Because the relief
sought by Avenue Plaintiffs in connection with their implied covenant claim against Bank
of America is "intrinsically tied to the damages allegedly resulting from [the] breach of
~ontract"

alleged in Count I, this claim must be dismissed. Deer Park Enterprises, 870

N.Y.S. 2d at 90 (reversing lower court's denial of motion to dismiss and concluding that "[a]
cause of action to recover damages for breach of the implied covenant of good faith and
fair dealing cannot be maintained where the alleged breach is 'intrinsically tied to the
damages allegedly resulting froma breach of the contract' ")(quoting Canstar, 622 N.Y.S.

28

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2d at 731).
D.

Breach of the Implied Covenant of Good Faith and Fair Dealing Against
All Defendants - Co'unt IV of the Avenue Complaint

The final Claim I must address is the Avenue Plaintiffs' claim against all Defendants
for breach of the implied covenant of good faith and fair dealing in connection with the
Credit Agreement. In support of this claim, the Avenue Plaintiffs allege that Defendants
"breached the implied covenant [of good faith] by adopting a contrived construction of the
Credit Agreement in order to justify their refusal to fund the March 2 Notice [of Borrowing]
and the March3 Notice [of Borrowing]." (Averiue Com pl. at 1]"198). Under New York law,
claims for breach of the implied covenant of good faith are unsustainable as a matter of
law if a plaintiff "seek[s] to imply an obligation of the defendants which [is] inconsistent with
the terms of the contract" at issue. Fitzgerald v. Hudson Nat'/ Golf Club, 783 N.Y.S. 2d
615, 617-18 (N.Y. App. Div. 2d Dept. 2004) (affirming dismissal of implied covenant claim
where plaintiff sought to imply an obligation inconsistent with the terms of the contract); see
also Dalton v. Educational Testing Service, 87 N.Y. 2d 384, 389 (N.Y. 1995). Because
I have concluded that the purportedly "contrived construction" of "fully drawn" is, in fact, the
correct interpretation, this claim fails as a matter of law, as it seeks to impose an obligation
-i.e., a particular construction of the Credit Agreement's terms- that is inconsistent with
the terms of the agreement.
V.

Conclusion.

Based on the foregoing, I conclude that - with the exception of Count I of the
Avenue Complaint and Count Ill of the Aurelius Complaint- all claims asserted by the
Plaintiffs warrant dismissal.

The dismissal of these claims is with prejudice for two

29

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reasons. First, the facts, circumstances, and applicable law indicate that any attempt to
amend the dismissed claims would be futile; and second, Plaintiffs have failed to state a
claim despite having previously amended their complaints. 26 Novoneuron Inc. v. Addiction
,J.::?esearch Institute, Inc., 326 Fed. Appx. 505, 507 (11th. Cir. 2009) (affirming dismissal with

prejudice where Plaintiff amended as a matter of right and later decided to litigate the
merits of Defendant's motion to dismiss rather than requesting leave to amend); Butler v.
Prison Health Services, lric., 294 Fed. Appx. 497, 500 (11th Cir. 2008) ("The district court

... need not allow an amendment ... where amendment would be futile.") (cites and
quotes omitted).
___ I note that I would normally be inclined to afford Plaintiffs an opportunity to amend
their complaints to assert claims founded upon contractual promises of which they were
the intended beneficiaries (e.g., promises set forth in the lntercreditor Agreement to which
the parties alluded during oral argument). However, because the parties have indicated
that the promises contained in the lntercreditor Agreement are not germane to this action,
[MTD Hr'g Tr. 3:26 p.m. - 3:28 p.m.], I see no reason to invite further amendments.

Based on the foregoing, it is hereby
ORDERED AND ADJUDGED that:
1.

Defendants' Motions to Dismiss [DE 35]; [DE 36] are GRANTED IN PART
AND DENIED IN PART.

2.

Counts I and II of the Aurelius Complaint are DISMISSED WITH
PREJUDICE.

26

The Avenue Complaint was amended twice. The Aurelius Complaint was amended

once.

30

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3.

Entered on FLSD Docket 06/0i/2010 Page 31

of 31

Counts II, Ill, and IV of the Avenue Complaint are DISMISSED WITH
PREJUDICE.

4.

Count VI of the Avenue Complaint is DISMISSED WITHOUT PREJUDICE
AS MOOT.

5.

Defendant Bank of America shall Answer Paragraphs 1-178 and 201-203 of
the Avenue Complaint no later than Friday June 18, 2010.

6.

Defendant Bank of America shall Answer Paragraphs 1-131 and 146-153 of
the Aurelius Complaint no later than Friday June 18, 2010.

7.

No later than Friday June 18, 2010, the Avenue Plaintiffs shall file a Notice
with this Court stating whether Count V of the Avenue Complaint seeks
deClaratory relief pursuant to state or federal law.

8.

The Clerk is directed to send a copy of this Amended Order to the Clerk of
the Judicial Panel on Multidistrict Litigation.

9..

The Final Judgment previously issued in the Aurelius Action, see Case No.:
10-CV-20236, [DE 53] (S.D. Fla. May 28, 2010), is hereby VACATED.

DONE AND ORDERED IN CHAMBERS at Miami, Florida this 28th day of May,
2010.

THE HONORABLE ALAN S. GOLD
UNITED STATES DISTRICT JUDGE
cc: Magistrate Judge Bandstra
Counsel of record

31

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Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 2 of 46

1
2
3

4

COMP
TAYLORL. RANDOLPH
Bar No. 10194
RANDOLPH LAW FIRM, P.C.
2045 Village Center Circle, Suite 100
Las Vegas, Nevada 89134
Tel. [phone]
[e-mail]

Electronically Filed

03/25/2011 01:05:08 PM

5

CLERK OF THE COURT

Attorney for Plaintiffs

6
7
8
9

DISTRICT COURT

10

CLARK COUNTY, NEVADA

11

12
BRIGADE LEVERAGED CAPITAL
STRUCTURES FUND, LID.; BATTALION CLO
2007-I LTD.; CANPARTNERS INVESTMENTS
14 IV, LLC; CANYON SPECIAL OPPORTUNITIES
MASTER FUND (CAYMAN), LTD.; CASPIAN
15
CORPORATE LOAN FUND, LLC; CASPIAN
CAPITAL PARTNERS, L.P.; CASPIAN SELECT
16 CREDIT MASTER FUND, LTD.; MARINER
LDC; CASPIAN ALPHA LONG ·cREDIT FUND,
17
L.P.; CASPIAN SOLITUDE MASTER FUND,
L.P.; OLYMPIC CLO I LTD.; SHASTA CLOI
18
LTD.; WHITNEY CLO I LTD.; SAN GABRIEL
CLO I LTD.; SIERRA CLO IT LID.; ING PRIME
19 RATE TRUST; lNG SENIOR INCOME FUND;
ING INTERNATIONAL (II)- SENIOR LOANS;
20 · lNG INVESTMENT ·MANAGEMENT CLO I,
LTD.; lNG INVESTMENT MANAGEMENT CLO
21
II, LTD.; lNG INVESTMENT MANAGEMENTCLO ITI, LTD.; ING INVEStMENT
22
MANAGEMENT CLO IV, LTD.; ING
.
INVESTMENT MANAGEMENT CLO V, LTD.;
23
PHOENIX CLO I, LTD.; PHOENIX CLO II, LTD.;
PHOENIX CLO III, LTD.; VENTURE II CDO
24
2002 LIMITED; VENTURE III CDO LIMITED;
VENTIJRE IV CDO LIMITED; VENTURE V
25
CDO LIMITED; VENTURE VI CDOLIMITED;
VENTIJRE VII CDO LIMITED; VENTURE VID
26
CDO LIMITED; VENTURE IX CDO LIMITED;
VISTA LEVERAGED INCOME FUND; VEER
27
CASH FLOW, CLO, LIMITED; MONARCH
MASTER FUNDING LID.; NORMANDY HILL
28
MASTER FUND, L.P.; GENESIS CLO 2007-1
LID.· SCOGGIN CAPITAL MANAGEMENT II

Case No. A - 11 - 6 3 ·7 8 3 5 - B

13

iManage\1708231.5

Dept, No.

XI

COMPLAINT AND JURY DEMAND
. FOR FRAUD~ BREACH OF
FIDUCIARY DUTY, NEGLIGENCE
AND CONSPIRACY

BUSINESS COURT REQUESTED

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 3 of 46

1
2

3

LLC; SCOGGIN INTERNATIONAL FUND LTD;
SCOGGIN WORLDWIDE FUND J.,TD; SPCP
GROUP, LLC; SOLA LTD; SOLUS CORE
OPPORTUNITIES MASTER FUND LTD.;
STONE LION PORTFOLIO L.P.; VENOR
CAPITAL MASTER FUND, LTD.,

4
Plaintiffs,

5

vs.
6

7

8
9

10
11

12

FONTAINEBLEAU RESORTS, LLC;
TIJRNBERRYLTD.; TURNBERRY
RESIDENTIAL LIMITED PARTNER, L.P.;
TURNBERRY WEST CONSTRUCTION, INC.;
JEFFREY SOFFER; ANDREW KOTITE; RAY
PARELLO; BRUCE WEINER; GLENN
SCHAEFFER; JAMES FREEMAN; DEVEN
KUMAR; HOWARD KARAWAN; WIDTNEY
THIER; UNION LABOR LJEE INSURANCE
COMPANY; CROWN LIMITED; CROWN
SERV1CES (US) LLC; JAMES PACKER; and .
DOES 1 through20,
Defendarits.

13
14

15
16

17

18
19

20
21

22

23
24
25

26
27
28

iManage\1708231.5

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 4 of 46

1

COMPLAINT FOR MISREPRESENTATION, BREACH OF FIDUCIARY DUTY;
NEGLIGENCE AND CONSPIRACY

2
Plaintiffs, by and through the1r undersigned counsel, allege upon personal knowledge as to

3
themselves and their own acts, and upon information and belief as to all other matters, as follows:

4
I. .

INTRODUCTION

5
1.

This action seeks to recover for the misrepresentations, negligence and breaches of

6

("Plaintiffs").

8
2.

Plaintiffs are lenders under a June 6, 2007 Credit Agreement (the "Credit Agreement")

9
for the development and construction of the Fontainebleau Resort and Casino in Las Vegas, Nevada

10
(the "Project"). The Project was to include a sixty-three story glass skyscraper featuring over 3,800
11

guest rooms, suites and condominium units; a 100-foot high, three level podium complex housing

12
casino/gaming areas, restaurants and bars, a spa and salon, a live entertainment theater and rooftop

13
pools; a 353,000 square-foot convention center; a high-end reta4 space including shops and

~f~

restaurants; and a nightclub.

15
3.

The borrowers under the Credit Agreement were Fontainebleau Las Vegas, LLC

16
("FBLV') and Fontainebleau Las Vegas II, LLC (the "Borrowers"). The Borrowers were wholly17
owned. indirect subsidiaries of Defendant Fontainebleau Resorts, LLC (''FBR"), a company founded
18
and substantially. owned by.Defendant Jeffrey Soffer to develop and operate the Fontainebleau hotels

19
in Miami and Las Vegas. Soffer, FBR and the other individual Defendants who were officers,

20
directors and/or managers ofFBR and FBLV (collectively, the "FBR Defendants") directed and
21
controlled the activities of the Borrowers.

22
4.

The general contractor r~sponsible for the construction of the Project was Defendant

23
Tu.rnberry West Construction ("TWC"), an affiliate ofDefendant Turnberry Residential Limited

24
Partners, L.P. {"TRLP"). TWC and TRLP were also founded and substantially owned by Soffer and

25
controlled by Soffer, the FBR Defendants and the officers and the ipdividual Defendants who were

26
officers, directors and/or managers ofTWC and TRLP (the "Tumberry Defendants").
27
5.

Beginning in March 2007, Soffer and the FBR Defendants solicited Plaintiffs to

28
-1iM.anage\1708231.5

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 5 of 46

1

participate in the Credit Agreement. In various oral arid written communications, Soffer and the FBR

2

Defendants repeatedly misrepresented the status of the Project and its anticipated costs~ In particular,

3

Defendants represented that the Project budget provided to the lenders, including Plaintiffs,

4

accurately represented all of the anticipated costs to complete the Project, that the construction

5 . drawings for the Project were substantially complete, and that Defendants had committed
6

construction contracts in hand for the majority ofthe work to complete the Project. In fact, none of

7

this was true. As Defendants knew but failed to disclose, their own internal budget for the Project

8

was nearli$100 million more than what was reflected in the budgets provided to the Plaintiffs, the

9

construction drawings were not substantially complete (indeed were never complete), and that the

10 . "committed contracts" provided to the Plaintiffs substantially understated the known costs for f:he
11

work. Had Plaintiffs knovm the true facts, they would not have agreed to participate in the Credit

12

Agreement.

13
14
· 15

6.

Defendants' breaches of their duties to Plaintiffs continued after the Credit Agreement

closed. Defendants had a duty to exercise reasonable care to ensure that the Project was managed
competently, that it accurately reported the financial condition and progress of construction and that

16

the Project was completed in accordance with the budgets and cost reports provided to Plaintiffs_

17

Defendants did not do so. Instead, Defendants failed to oversee the Project and failed to ensure that

18

lenders received accurate infomiation about its financial condition.

19

7.

By 2008, Defendants knew or should have known that the actual cost to complete the

20

Project had escalated by h~dreds· of millions of dollars, well in excess of the financing available to

21

complete the Project. As Defendants knew, these cost ·overruns caused numerous conditions

22

precedent to disbursement of funds under the Credit Agreement to fail. Rather than apprise the

23

'lenders of these cost overruns and thereby eliminate future funding, the FBR and Turnberry

· 24

Defendants and others, including defendants James Packer and his oompanies ·crown Limited and

25

Crown Services (US) LLC (the "Packer Defendants"), conspired and agreed to keep this information

26

from the lenders. They accomplished this, in part, through false certifications to the lenders and an

27

elaborate set of double books that hid the true progress, scope and cost of the Project from the

28

lenders.

-2-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 6 of 46

1

8.

When Lehman Brothers Holdings, Inc. ("Lehman;'), the biggest lender under the

and Tumberry Defendants further

2

Retail Facility, filed for b~ptcy in September 2008, the FBR

3

conspired with each other and with Union Labor Life Insurance Company ("ULLICO") to have

4

ULLICO front Defendants' payment of Lehman's portion of draw requests under the Retail Facility

5

in order to create the false impression that an existing, institutional lender had or would be willing to

6

step in to take over Lehman's commi1ment. As Defendants knew, such payments by Defendants

7

caused additional conditions precedent to disbursem~t of funds under the Credit Agreement to fail.

8

Again, had the true facts been disclosed to the lenders, financing under the Credit Agreement would

9

have come to a halt.

10

9.

Defendants committed these acts and engaged in these con.Spiracies at a time when the

11

Borrowers were inSolvent and thus when their controlling entities,officers and directors owed

12

:fiduciary duties to the creditors of the Borrowers, including Plaintiffs. In reliance on Defendants'

13

misrepresentations, Plaintiffs funded hundreds of millions of dollars of Loans that they would not

14

have fuilded, and would not have been required to :fimd, had they known the true facts.

15

10.

In ecu·~y 2009, Defendants' scheme began to unraveL fu April2009, certain of the

16

lenders declared a default under the Credit Agreement, and the Borrowers filed for bankruptcy

17

protection shortly thereafter.

18

11.

Plaintiffs bring this action to recover the damages they have incurred as a result of

19

Defendants' misrepresentations and breaches of :fiduciary duties.

20

II.

21

12.

JURISDICTION AND VENUE

Jurisdiction is proper in this court because it is a case that is excluded by law from the

22

original jurisdiction of justices' courts. Nev. Const. Art. 6, § 6. The amount in controversy exceeds

23

$1 0,000; the jurisdictional threshold for District Court. Nev. Rev. Stat. Ann. § 4.370.

24

25

13.

Venue is.properbecause at least one ofthe defendants resi~es in this county. Nev;

Rev. Stat. Ann. § 13.040.

26

Ill.

PARTIES

27

A.

Plaintiffs

28

14.

Unless otherwise noted, the term ''Plaintiff' and "Plaintiffs" shall include Plaintiffs'

-3-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 7 of 46

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2

3
4

5
6
7

8
9
10
11

12

13
14
15
16
17
18
19

predecessors in interest.
15.

PlaintiffBrigade Leveraged Capital Structures Fund, Ltd. is an exempted company

with limited liability incorporatt;:d under the laws o:f the Cayman Islands.
16.

Plaintiff Battalion CLO 2007-I Ltd. is an exempted company with limited liability

incorporated under the laws of the Cayman Islands.
17.

.Plaintiff Canpartners Investments IV, LLG is a limited liability company fonned

under the laws of California.
18.

Plaintiff Canyon Special Opportunities Master Fund (Cayman), Ltd. is an exempted

company with limited liability incorporated under the laws of the Cayman Islands.
19.

Plaintiff Caspian Corporate Loan Fund, LLC is a limited liability company formed

under the laws of Delaware.
20.

Plaintiff Caspian Capital Partners, L.P. is a limited partnership formed under the laws

of Delaware.
21.

Plaintiff Caspian Select Credit Master Fund, Ltd. is a company with limited liability

formed· under the laws of the Cayman Islands.
22.

Plaintiff Mariner LDC is company with limited duration formed under the laws of the

Cayman Islands.
23.

Plaintiff Caspian Alpha Long Credit Fund, L.P. is a limited partnership formed under

the laws of Delaware.

20

24.

21

laws ofDelaware.

22

25.

23
24

25
26
27
28

Plaintiff Caspian Solitude Master Fund, L.P. is a limited partnership .fonned under the

Plaintiff Olympic CLO I Ltd. is a company with limited liability incorporated under

the laws of the Cayman Islands.
26.

Plaintiff Shasta CLO I Ltd. is a company with limited liability incorporated under th~

Iavrs of the Cayman Islands.
·27.

· Plaintiff Whitney CLO I Ltd. is a company with limited·Hability incorporated under

the laws of the Cayman Islands.
28.

Plaintiff San Gabriel CLO I Ltd. is a company with limited liability incorporated

-4-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 8 of 46

1
2

3
4
5

under the laws of the Cayman Islands.
Plaintiff Sierra CLO II Ltd. is a company with limited liability incorporated under the

29.

laws of the Cayman Islands.
30.

PlaintiffiNG Prime Rate Trust is a business trust formed under the laws of

Massachusetts.

6

31.

7

Delaware.

8

32.

PlaintiffiNG Senior Income Fund is a statutory trust formed under the laws of

9

10
11
12

13
14

15
16
17

18
19
20

21
22
23

24
25

26
27

28

PlaintiffiNG International (II)- Senior Loans is a SICAV (Societe d'Investissement a

Capital Variable) fonned under the laws of Luxembourg.
;B.

PlaintiffiNG Investment Management CLO I, Ltd. is a company with limited liability.

incorporated under the laws of the Cayman Islands.
34.

PlaintiffiNG Investment Management CLO II, Ltd. is a company with limited

liability incorporated under the laws of the Cayman Islands.
35.

Plainti.ffiNG Investment Management CLO III, Ltd. is a company with limited

liability incorporated under the laws of the Cayman Islands.
36.

Plaintiff ING Investment Management CLO N, Ltd. is a company with limited

liability incorporated under the .laws of the Cayman Islands.
37.

PlaintiffiNG Investment Management CLO V, Ltd. is a company with limited

liability incorporated under the laws of the c·ayman. Islands.
38.

. Plaintiff Phoenix CLO I, Ltd. is a company with limited liability incorporated under

the laws of the Cayman Islands.
39.

PlaintiffPhoenix CLO II, Ltd. is a company with limited liability incorporated under

the laws of the Cayman Islands.
40.

Plaintiff Phoenix CLO III, Ltd. is a company with limited liability incorporated under

the laws of the Cayman Islands.
41.

Plaintiff VentUre II CDO 2002 Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
42.

Plaintiff Venture III CDO Limited is a company with limited liability incorporated

-5-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 9 of 46

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2
3

4
5
6

7
8
9
10
11
12
13
14
15
16

17
18
19
20
21
22

23
24

25
26
27
28

under the laws of the Cayman Islands.
43.

PlaintiffVenture IV CDO Limited is a company with limited liability incorporated

under the laws of the Cayman Islands.
44.

Plaintiff Venture V CDO Limited is a company with limited liability incorporated

under the laws of the Cayman Islands.
45.

Plaintiff Venture VI CDO Limited is a company with limited liability incorporated

under the laws of the Cayman Islands.
46.

PlaintiffVenture VII CDO Limited is a company with limited liability incorporated

under the laws of the Cayman Islands.
47.

PlajntiffVenture VIII CDO Limited is a company with limited liability incorporated

under the laws of the Cayman Islands. ·
48.

Plaintiff Venture IX CDO Limited is a company with limited liability incorporated

under the laws of the Cayril.an Islands.
49.

Plaintiff Vista Leveraged Income Fund is a company with limited liabxlity

incorporated under the laws of the Cayman Islands.
50.

PlaintiffVeer Cash Flow, CLO, Limited is a company with limited liability

incorporated under the laws of the Cayman Islands.
51.

Plaintiff Monarch Master Funding Ltd. is a· company with limited liability

incorporated under the laws of the Cayman Islands.
52.

PlaintiffNormandy Hill Master Fund, L.P. is an e~empted limited partnership formed

under the laws of the Cayman Islands.
53.

Plaintiff Genesis CLO 2007-1 Ltd. is a company with limited liability incorporated

under the laws of the CaJI?lan Islands.
54.

Plaintiff Scoggin Capital Management II LLC is a limited liability company formed

under the laws of Delaware.
55.

Plaintiff Scoggin International Fund Ltd is a limited liability company formed under

the laws of the Cayman Islands.
56.

Plaintiff Scoggin Worldwide Fund Ltd is a limited liability company formed under the

-6-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 10 of
46

I
2 ·

laws of the Cayman Islands.
57.

3

Delaware.

4

58.

Plaintiff SPCP Group, LLC is a limited liability company formed under the laws of

5

6
7
8

Plaintiff Sola Ltd is an exempted company with limited liability incorporated under

the laws of the Cayman Islands.
59.

Plaintiff Solus Core Opportunities Master Fund Ltd. is an exempted company with

limited liability incorporated under the laws of the Cayman Islands.
60.

Stone Lion Portfolio L.P. is a limited p3rtnership formed under the laws of the

9

Cayman Islands.

I0

6I.

11

Plaintiff V enor Capital Master Fund, Ltd. is a company with limited liability

incorporated under the laws of the Cayman Islands.

12

B.

·nerendanu

13

62.

Defendant Fontainebleau Resorts, LLC ("FBR") is a Delaware corporation with its

14
15
16

principal place ofbusiness in Florida.
63.

Defendant Turnberry Residential Limited Partner, L.P. (''TRLP") is a Delaware

limited partnership.

17

64.

Defendant Tumberry West Construction, Inc. ("TWC") is a _Nevada corporation.

· 18

65.

Defendant Turnberry Ltd. is a Florida limited partnership.

19

66.

Defendant Jeffrey Soffer is a citizen of the State ofFlorida. Soffer was, at all relevant

20

times, the Chairman and CEO ofFBR and a. member of its Board of Managers. Soffer is also one of

21

two members of the Board of Directors ofFontainebleau Las Vegas Corp. Soffer owns or controls

22

the Tumberry companies. He was, at all relevant times, President, Treasurer, Secretary and Director

23

ofTWC~ Soffer is the manager of the general partner of both TRLP ari.d Tumberry Ltd.

24

67.

Defendant Albert Kotite is a citizen of the State of Florida. Kotite is the Executive

25

Director ofFBR and a member of its Board of Managers. Kotite is also one of two members of the

26

Board ofDirectors ofFontainebleau Las Vegas Corp.

27
28

68.

Defendant Ray Parella is a citizen of the State of Florida. Parello is a member of the

Board ofManagers ofFBR. Parello currently serves as Director of Finance forTurnberry

-7-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 11 of
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1

Associates.

2

69.

3
4
5

6
7

8
9
10
11
12

13
14
15
16
17

Defendant Bruce Weiner is a citizen of the State of Florida. Weiner is a member of

the Board of Managers ofFBR.

70.

Defendant Glenn Schaeffer is a citizen of the State of Nevada. Schaeffer was a

member of its Board ofManagers ofFBR until May2009.

71.

Defendant James Freeman is a citizen of the State ofNevada. Freeman was the Senior

Vice President and ChiefFinanci!ll Officer or FBR.

72.

Deffm:dant Deven Kumar is a citizen ofNevada. Kumar was the Senior Vice ):>resident

Of Development and Finance at FBR.
73.

Defendant Howard Karawan is a citizen of the State of Nevada.. Karawan was the

Chief Operating Officer ofFBRand was later ChiefRestructuring Office ofFBLV.

74.

Defendant Whitney Tiller is a citizen of the State ofNevada. Thier was the general

counsel ofFBR and later counsel to FBLV.
75.

Defendants FBR, Soffer, Kotite, Parello, Weiner, Schaeffer, Freeman, Kumar,

Karawan and Thier are collectively referred to as the FBR Defendants.
76.

Defendant. Union Labor Life Insurance Company ("ULLICO") is a Maryland

Corporation, headquartered in Washington, DC.

18

77.

Defendant Crown Limited ("Crown") is an Australian company.

19

78.

Defendant Crown Services (US) LLC ("Crown Services") is a limited liability

20
21

company formed under the laws ofNevada. Defendallt Crown controls Crown Services.
79.

Defendant James Packer ("Packer'') is a citizen of Australia. Packer is the Executive

22

Chairman of Crown and owns a controlling interest in Crown. Defendants Crown, Crown Services

23

and Packer are collectively referred to as the "Packer Defendants".

24

80.

Each of the Defendants has directly or indirectly conducted substantial~ continuous,

25

and systematic business in this district, and/or has caused or directed acts to occur in this district out

26

of which Plaintiffs' claims !Uise. The individual defendants personally participated in the unlawful

27

acts and misconduct asserted herein.

28

81.

Plaintiffs are ignorant of the true names and capacities of Doe Defendants 1 through

-8-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 12 of
46

1

25, inclusive, and therefore sue such defendants by such :fictitious names. The Plaintiffs will amend

2

this Complaint to allege their true names and capacities when ascertained. Each of the fictitiously

3

named defendants is responsible in some manner for the occurrences herein all~ged, and the

4

Plaintiffs' harm and damages as herein alleged was proximately caused by such defendants. Each of

5

the Doe Defendants is a joint venturer, co-conspirator, and/or participant in the violations and

6

unlawful and tortious actions alleged herein.

7

82.

Each of the Defendants acted as the agent, co-conspirator and co-venture partner

8

and/or alter ego of each other Defendant in the furtherance of the joint venture, and each shared in the

9

control and management of the conspiracy alleged herein and in furtherance of the joint venture in a

10

common course of conduct alleged herein .. Eac~ .Qefendant was a direct, necessary and substantial

11

participant in the common enterprise and common course of conduct complained of herein and at all

12

relevant times knew (or was deliberately reckless in not knowing) of its overall contribution to, and

13

furtherance of, their illicit common enterprise, and acted within the scope of its agency as a co-

14

venturer. Each Defendant mutually agreed with every other Defendant on an objective, purpose and

15

course of action to accomplish the wrongful conduct set forth herein, with the intent of injuring

16

Plaintiffs, or with reekless disregard toward Plaintiffs, knowing that such injuries would certainly

17

result.

IV.

18
19

83.

THE FONTAJNEBLEAU PROJECT AND ENUTIES

Defendant Soffer is the son of Donald Soffer, a prominent real estate developer who

20

developed, among other projects, the City of Aventura, Florida. In 2005, Soffer and his partners

21

purchased the iconic Fontainebleau Miami Hotel. Soffer conceived of The Fontainebleau Resort and

22

Casino in Las Vegas, Nevada as the first step in the development of upscale Fontainebleau resorts

23

throughout the world.

24

84.

The Project was designed to be a destination casino-resort on the north end of the Las

25

Vegas Strip, situated on approximately 24.4 acres. It was to include a 63-story glass skyscraper

26

featuring over 3,800 guest rooms, suites and condomiriirim units; a 1 00-foot high three-level podium

27

complex housing casino/gaming areas, restaurants and bars, a spa and salon; a live entertainment

28

theater and rooftop pools; a parking garage with space for more than 6,000 vehicles; and a 353,000

-9-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 13 of
46

1

square-foot convention center. The Project also was to include approximately 286,500 square-feet of

2

retail space, including retail shops, restaurants, and a nightclub.
85.

3

Soffer and Defendant Schaeffer founded FBR in2005 to develop and operate the

4

Fontainebleau hotels in Miami and Las Vegas. FBR was controlled by a Board of Managers

5

consisting of Defendants Soffer, Schaeffer, Kotite, Parello and Weiner (the ''FBR Board of

6

Managers"). The officers ofFBR included Defendants Soffer, Freeman, Karawan, Kumar and Thier

7

(the "FBR Ds & Os" and, collectively with FBR and the FBR Board of Managers, the "FBR

8

Defendants").

9

86.

FBR c:r:eated several subsidiaries to develop the Project, including the Borrowers,

10

Fontainebleau Las Vegas Capital Corp. and Fontainebleau Las Vegas Holdings, LLC (the "Project

11

Entities"). Each of the Project Entities was wholly owned, directly or indirectly, by FBR and largely

12

controlled by the FBR Board of Managers. The board of directors of Fontainebleau Las Vegas

13

Capital Corp. consisted of Soffer and Kotite.

14

The general contractor for the Project was Defendant Turnberry West Construction ·

87.

15

('"'WC'~.

16

affiliate of Defendants TRLP and Tumberry Ltd., and was created for the purpose of overseeing the

17

construction of the Project

18

TWC (collectively with TRLP and Tumberry Ltd., the "Tumberry Defendants") is an

88.

Through his position on the Board of Managers and in the Turnberry Defendants, as

as his ownership interests in the Fontainebleau and Turnberry entities, Soffer personally

19.

well

20

exercised substantial control over the Project, including decisions regarding Project development,

21

financing and consbuction.

22

V.

23

89.

THE CREDIT AGREEMENT FACILITY

The Project costs were funded primarily from cash provided by the developers of the

24

Project and the proceeds of three facilities: a $1.85 billion bank financing (the "Credit Agreement

25

Facility"), a $675 million 2nd Mortgase Note offering, and a $315 million facility to finance

26

construction of the retail portion of the Project (the "Retail Facility"). Each of these facilities closed

27

in June 2007.

28

90.

The Credit Agreement included the following commitments: a $700 million initial

-10-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 14 of
46

.

.

1

term loan facility (the "Initial Term Loan Facility"); a $350 million delay draw term facility (the

2

"Delay Draw Facility," and together with the Initial Term Loan Facility, the "Term Loan Facility'');

3

and an $800 million revolving loan facility. Plaintiffs are each lenders under the Term Loan Facility

4

and are assignees (direct or indirect) of the original Term Lender, Bank of America, N.A. The Initial

5

Term Loan Facility was funded upon the closing of the Credit Agreement in June 2007.
The Credit Agreement and other loan documents created a two-step mechanism for

91.

6

7

the Borrowers to obtain access to loan proceeds for the payment of"Project Costs" to construct the

8

Project. The Borrowers first were required to submit to the Administrative Agent a Notice of

9

Borrowing specifying the requested loans and designated borrowing date. A proper Notice of

10

Borrowjng obligated the lenders to transfer the requested funds into a Bank Proceeds Account. In

11

order to access the funds in the Bank Proceeds· Account-to pay for the costs of the Project, the

12

Borrowers were required to submit an Advance Request to the Disbursement Agent pursuant to the

13

terms of a Master Disbursement Agreement, which was executed concurrently with the Credit

14

Agreement.

15

92.

Each Advance Request was required to. contain, among other things, certifications by

16

the Project Entities~ TWC, and others attesting to the accuracy of various information and

17

representations, including: that there was no Default or Event of Default under any of the Financing

18

Agreements; that the Remaining Cost Report set forth all "reasonably anticipated Project Costs

19

required to" complete the Project; that the In Balance Test was satisfied, the critical calculation to

20

determine whether the Borrowers' available resources exceeded the remaining costs to complete the

21

Project, which was the primary secmity for the loans; that there had been no devt?lopment or event

22

since the Closing :Oate that could reasonably be expected to have a Material Adverse Effect on the

23

Project; and that each of the Retail Lenders, including Lehman, had made all advances required of

2.4

them under the Retail Facility.

25
26

VI.

DEFENDANTS' PRE-CLOSING MISREPRESENTATIONS AND OMISSIONS
93.

In March 2007, Soffer and the other FBR Defendants approached Plaintiffs and their

27.

predecessor lenders to secure their participation in the Credit Agreement Facility. In connection with

28

these efforts, Defendants repeatedly represented that (i) the Project budget provided to the lenders

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46

1

was an accurate, good faith and consentative estimate of the amounts needed to complete the Project,

2

including all Proje.ct costs, and that the budget allowed for a financial cushion sufficient to complete

·3

the Project even if debt and equity sources were insufficient; (ii) the ProjeCt Entities had "committed

4

construction con:tracts" for a large percentage of the work for the Project; and (iii) the construction

5

drawings for the Project, the documents that would define every aspect of the construction, were

6 · substantially complete. Without the representations and assurances provided by the FBR Defendants,
7

Plaintiffs and their predecessor lenders never would have agreed to participate in the Credit

8

Agreement Facility.

9

94.

Defendants knew or should have known that these representations were not true. The

10

FBR Defendants' made these representations both orally and in writing, including in the following

11

written materials provided to prospeetive lenders, including Plaintiffs (collectively, the "Offering

12

Materials"):

13

•

March 2007 Offering Memorandum. FBR and its arranging banks prepared and

14

provided to potential lenders, including Plaintiffs, a Confidential Offering

15

Memorandum outlining the material facts concerning the Project and related

16

fmancings. The Offering Memorandum included a letter from FBR, signed by its

17

Senior Vice President and Chief Financial Officer, Jim Freeman, stating in pertinent

1.8

part that "the infOJ;rnation contained in the Confidential Offering Memorandum does

19

not contain any'untrue statement of material factor omit to state a material fact

20

necessary in order to make the statements contained therein, in light of the

21

circumstances under which they were made as part of the overall transaction, not

72

materially misle~g."

23

•

March 6, 2007 Lender Presentation. On March 6, 2007, FBR and its arranging banks

24

held a Prospective Lenders Meeting at the Intercontinental The Barclay Hotel in New

25

York. The meeting was attended by, among others, Defendants S(_)ffer, Schaeffer,

26

Kotite, Freeman 'and Weiner. During that meeting, Defendants described the Project

27.

and the proposed financing to prospective lenders and provided a written Lender

28

Presentation to meeting participants.

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46

1

95.

Defendants knew or should have known that·these representations were not true.

2

A.

Defendants Misrepresented that the Budget for the ProJect Was Sufficient to
Complete Construction

96.

In the Off~ng Materials, the FBR Defendants presented a budget for the hard and

3
4

soft costs to construct the Project of $1.829 billion (the "Construction Budgef'). Defe~dant Freeman

5
presented the Construction Budget at the Lender Meeting. FBR and Freeman represented thatthe

6
Construction Budget was sufficient to cover all anticipated construction costs, excluding the retail

7
compOnents. FBR explained in the Offering Memorandum that the Construction Budget was the

8
product of"a detailed budgeting and design process" and represented that it was "conservative~" with
9
substantial allowance for contingencies.
10

97.

At the closing of the Credit Agreement Facility, the FBR Defendants caused FBLV to

11

deliver budgets, including the Cons~ction Budget, to Plaintiffs and the other lenders. FBLV, as

12

.

"

directed by Defendants, rei.Jeatedly attested to the accuracy of these Budgets, including in the

13
Disbursement Agreement executed by FBLV, among others. Thus, Red.ta:l C of the Disbursement
14
Agreement states that the "Construction Budget includes the costs of all elements of the Project,"
15
with certain limited enumerated exceptions. The Disbursement Agreement further provides:

16
Each of the Budgets delivered on the Closing Date:
17

18

(a) are, to the Project Entities' [including FBLV's] knowledge~ as ofthe date oftheir
delivery, based on reasonable assm;nptions as to all legal and factual matters material to the
estimates set forth therein;

19
(b}are, as of the date of their delivery, consistent with the provisions of the Operative
·
Documents in all material respects;

20
21
22

23

(c) set forth (for each Line Item Category, and in total), as of the date of their delivery, the
amount of all reasonably anticipated Project Costs required to achieve Final Completion;
and
(d) fairly represent, as of the date of their delivery, the Project Entities expectations as to
the matters covered fh:ereby.

24

Disbursement Agreement, § 4.17.1.

25
98.

The FBR Defendants also caused FBLV to deliver at closing a Remaining Cost Report

26
based upon the Construction Budget. The Remaining Cost Report, as defined in the Credit

27
Agreement and Disbursement Agreement, set forth, line by line, the anticipated budgets for the

28
construCtion of the Project. The Remaining Costs set forth in this Report provide a key input into the

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Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 17 of
46

1

"In Balance Test."

2

99.

The In Balance Test measures whether the Available Funds for the project exceed the

3

Remaining Costs. In other words, the In Balance Test establishes whether there are sufficient funds,

4

from cash on hand and funds available from the various loan facilities, to complete the Project. The

5

higher the anticipated costs to complete, as reflected in the Remaining Cost Report, the more cash or

6

financing would be needed to ensure that the In Balance Test did not fail. Thus, the Remaining Cost

7

Report was a crucial document that allowed lenders, including the Plaintiffs, to assess the financial

8

viability and progress of the Project. A failure of the In Balance Test meant that the Lenders'

9

primary source of security was .impaired. Accordingly, satisfying the In Balance Test was a

!-.

10
11

12
13

condition precedent to Closing and to any Advances under the Disbursement Agreement.
100.

At Closing and at the direction of the FBR Defendants, FBLV attested to the accuracy

of the Remaining Cost Report. Among other things, FBLV represented that:
•

the budget line items included "for each Line Item Category, an amoUn.t no less than

14

the total anticipated Project Costs from the commencement through the completion of .

15

the work contemplated by such Line Item Category, as determined by the Project

16

Entities";

17

•

Completion as d~terrnined by the Project Entities";

18
19

•

the listing of costs previously incurred "is true and accurate in all material respects";
and

20
21

the other line items included "the associated anticipated exp~nses though Final

•

the Construction Budget portion of the Remaining Cost Report "sets forth, as of the

22

date of their delivery, and based on reasonable assumptions as to all legal and factual

23

matters material to the estimates set forth therein, the amolllit of all reasonably

24

anticipated Project Costs required to achieve Final Completion."

25
26
27
28

Disbursement Agreement, § 4.17 .2.
101. . Further, upon Closing, FBLV, at the direction of the FBR Defendants, submitted the
Project Entity Closing Certificate, which included similar representations, including:
•

aU of the representations FBLV had made in the financing documents, including the

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46

1

2

Credit Agreement and the Disbursement Agreement, were true;
•

«The Project Entities have made available to the Construction Consultant true, correct

3

and complete copies of' documents including the Budgets and Plans and that "[s]uch

4

documents contain all material information (and do not contain any misstatements of

5

material information) pertaining to the Project reasonably necessary for the

6

Construction ConsUltant" to evaluate the project and prepare its own closing

7

certificate;

8

•

"accurately reflect the status of the Project as of that date"; and

9

10

•

11

102.

12

the Remaining Cost Report and other cost reports submitted by FBLV on Closing

"the In Balance Test is satisfied.''
Soffer and the other FBR Defendants were responsible for ensuring that these

representations were accurate and that there had been no change in the economic feasibility of

13 . cortstructing and/or operating the Project, or in the :financial condition, business or property of the
14

Project entities, any of which could reasonably be expected to have a material adverse effect on the

15

Project_ They did not do so.

16

103. . The FBR Defendants knew or should have known, but failed to disclose to the

17

Lenders, that the representations on Closing were.false. Internal cost estimates available to the FBR

18

Defendants, including those set forth in a report FBR conunissioned from Cummins LLC in late

19

2006, showed that the actual costs needed to construct the Project were at least $100 million higher

20

than the budgets provided to the Lenders. The FBR Defendants internally referred to the budget

21 . J?rQvi<led to the Lenders as the "Bank Budget'' and the actual, higher budget that they hid from the
22

Lenders as "Jeff's Budget," "Soffer's Budget," or the ''Real Budget."
I

23

104.

Soffer told the other FBR Defendants and the Turnberry Defendants that he intended

24

to raise additional equity at some point in the future to cover the anticipated $1 00 million shortfalL

25

He said that he wanted to wait to do so, however, because he believed that it would be easier and less

26

dilutive ofhis own equity to raise funds after the financing deal had closed and substantial

27

construction on the Project had been completed.

28

105.

Had the true costs of the Project been reflected in the Remaii:ring Cost Report and the

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46

1

In Balance Test, the Project would hl;}.Ve been out of balance as of the Closing Date, and the Credit

2

Facility would not have closed.

B.

Defendants Misrepresented that the Construction Drawings for the Project Were
_Substantially Complete.

106.

3

In the Offering Materials and at the Lender Meeting, Soffer and the oilier FBR

4
5
Defendants also made specific representations about the status of the construction drawings for the

6
Project. Construction drawings are architectural drawings that are used by the contractors to define

7
the work to be done. The drawings typically include renderings of all aspects oftheproject,
8
including mechanical, structural, electrical, and interior design elements. Construction drawings are

9
used, among other things, to obtain permitS and other approvals. Because theY define what will

10

actu~Ily be built, .completed construction drawings is a critical step

11

in the project budgeting and

development process. Construction drawfugs allow contractors to understand exactly what they will
12
be required. to do and so eruiure that the construction bids and contracts finalized on the basis of the

13
drawings are accurate and complete, which in tum reduces the likelihood of additional, unanticipated

14
costs. As Defendants knew, representing that the construction drawings were substantially complete

15
would give prospective lenders like Plaintiffs :further comfort that the Project was well planned and

16
would stay on budget and on schedule.
17
107.

The Offering Memorandum represented the construction drawings for the project as

18
substantially complete:
19
Construction Drawings ("COs'') at the Fontainebleau Las Vegas are
substantially complete with 80% CDs for tower and garage/convention
issued onFebruary 1, 2007. 100% CDs for the tower are expected
March 12,2007. 100% COs for garage/convention are expected April
4, 2007 and 80% CDs for the podium are expected in April/May 2007.

20
21
22
108.

At the March 6; 2007 lender presentation, Soffer and his team again represented that

23
the co:o.struction drawings were "substantially complete," with 80-100% of the drawings to be

24
completed before closing. A ''Transaction Update" issued .April 18, 2007 confirmed that

25
"Construction Drawings ("CDs")" were "substantially complete."
26
109.

At the time of Closing; the FBR Defendants caused FBLV to make further

27
representations regarding the progress and accuracy of construction drawings:
28
The Plans and Specifications (a) are, to the Project Entities'
knowledge, based on reasonable assumptions as to all legal and factual
-16-

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1

matters material thereto) (b) are, and except to the extent permitted
under Sections 6.1 and 6.2 will be from time to time, consistent with
the provisions of the Operative Documents in all material respects, (c)
have been prepared in good faith with due care, and (d) fairly represent
the Project Entities' expectation as to the matters covered thereby. The
Final Plans and Specifications (i) have been prepared in good faith with
due care, and (ii) are accurate in all material respects and fairly
represent the Project Entities' expectation as to the matters covered
thereby.

2
3
4
5
6
7

Disbursement Agreement, § 4.31.
110.

Contrary to the repeated representations by the FBR Defendants, the construction

8

drawings were not ''substantially complete." As the FBR Defendants knew or should have known,

9

delays in the design process prior to Closing caused significant delays in the preparation of

10

completed construction drawings. At the tiine the Offering Memorandum was issued, less than 50%

11

of the drawings for the podium portion of the Project were complete. Indeed, final construction

12

drawings were not complete even as late as 2009.

13

111.

Instead of acknowledging the delay in development of :final construction drawings, the

14

FBR Defendants directed the architect for the ·Project "to produce false sets of drawings to maintain

15

the permit process" so that Defendants "could commence construction in order to meet the opening

16

date ofNovember 2009." According to the .architects, Bergman, Walls and Associates, Ltd.

17

("BWA"): "Extensive and useless hours were spent by BWA to create these false documents. For

18

more than 12 months BWA was updating and revising two separate and distinct sets of Construction

19

Documents thus doubling our man-hours. These sets consisted of false permit documents and

20

Construction Documents for the Contractor." The FBR Defendants knew or should have known, but

21

failed to disclose to the Lenders that the construction drawings presented to the Lenders were nut the

22

actual construction.drawings and that the actual construction drawings were not "substantially

23

complete."

c.

Defendants Misrepresented that they Had Substantial Committed Contracts for
the Construction of the Project.

112.

24

To provide further assurances that the Project would remain on budget and on

25
26
schedule, Soffer and the other FBR Defendants represented that the Project would enter into
27
"committed contracts" with subcontractors for large portions of the anticipated costs of the Project.

28
The existence of committed contracts was important to prospective lenders because committed

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Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 21 of
46

1

contracts reduce the risk of cost overruns by locking in the cost for those elements.

2

113.

The Offering Materials stated that the Borrowers would "enter into committed

3

contracts totaling no less than 60% of hard costs prior to closing and 95% ofhard costs and 50% of

4

certain FF&E costs prior to the initial advance under the Credit Facilities." In the "Transaction

5

Update" issued Apri118, 2007, Defendants again reiterated.the promise to enter into committed

6

contracts "totaling no less than 60% of hard costs prior to closing and 95% of hard costs and 50% of

7

certain FF&E costs prior to the initial advance."

8

114.

The financing agreements repeated Defendants' representations regarding the
I

· 9

committed contracts that the Borrower and its general contractor, Defendant TWC, had entered into.

1()

Upon closing, Defendants provided a schedule of the contracts that showed committed contracts

11

t9taling more thari 60% of Total Hard Costs.

12

115.

But as the FBR Defendants knew or should have known, but failed to disclose to the

13

Lenders, there were not committed contracts in place that covered 60% of the hard costs of the

14

Project, at the Closing Date or at any time prior.

15

116.

For example, two of the largest contracts listed in the schedule of committed contracts

16

included with the Closing documents were with W & W Steel. W & W Steel had two large

17

subcontracts for steel for different parts of the Project, which, taken together, were worth $231

18

million. Prior to the Closing Date, however, FBLV and TWC lmew or should have known that W &

19

W Steel had made crucial miscalculations in the amount of steel need~ for the Project, failing to

20

include in their bid ten thousand tons of structural steel needed for construction. Adding the cost of

21·

that steel, which was a necessary component of the Project, raised the cost of theW & W Steel

22

contracts by tens of millions of dollars. The FBR Defendants and the Tumberry Defendants had a

23

duty to disclose this information to the lenders prior to Closing, but failed to do so.

24

VII.

DEFENDANTS' POST-CLOSING MISREPRESENTATIONS AND OMISSIONS

25

A.

Defendants' Scheme

26

117.

After the Closing Date, the cost to complete the Project increased dramatically as a

27

result of Defendants' unilateral and undisclosed decisions to upgrade and expand various aspects of

28

the Project. By mid-2008, Soffer, Kumar and others at FBR and TWC calculated the costs required

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Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 22 of
46

1

to complete the construction of the Project at :more than $300 million in excess of the ConstrUction

2

Budget provided to the Lenders.

3

118.

The FBR Board of Managers was aware of the substantial cost overruns and, in

4

November 2008, required Soffer to provide a "comfort letter'' pursuant to which Soffer agreed (1) not

5

to transfer or dispose of specified assets prior to the completion of the Project, including a yacht

6

valued at $178 million, a Boeing 737 jet valued at $57 million and interests in various companies

7

valued at $116 million, and (2) to invest, at the request of the Board of Managers, ''in FBR or an

8

affiliate thereof, an aggregate amount [up to $75 million], which investment shall be used solely to

9

fund the costs of[the Project].''

10

119.

As a result ofthe cost overruns, the anticipated cost to fund the Project significantly

11

exceeded the funds available to pay these costs. Had these increases been disclosed to the Lenders, it

12

would have revealed, among other things, that the In Balance Test could not be satisfied. This would

13

have prevented Defendants from accessing any funds under the Credit Agreement and brought the

14

Project to an immediate halt. Instead, those funds would have remained in the Bank Proceeds

15

Account and ultimately been returned to the Plaintiffs and other Lenders who maintained a valid,

16

perfectedpriority lien on those funds while they remained on deposit.

17
18

120.

Defendants knew or should have known about the substantial cost overruns.

Defendants kept the true cost of the Project from the Lenders through two sets of books: one for their

19 . own internal use that allowed them to keep track of the actual progress, scope and cost of the- Project;
20

and a second set for use with the Lenders that disclosed only the progress, scope and costs that would

21

cause the Project to appear "in balance." In this way, the Defendants were able to secure continued

22

funding under the Credit Agreement Facility while failing to infonn the Lenders of the mounting cost

23

overruns.

24

121.

Defendants' scheme involved, first and foremost, the manipulation of change orders

25

for the Project. Change orders are directions from a project owner or a general contractor to perform

26

work that is different from and!or in addition to the original scope. In the normal course, change

27

orders are formally approved and reflected in the project budget before the additional or revised work

.28

is begun, and certainly before it is completed.

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Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 23 of
46

1

122.

Defendants were required to inform the lenders of all approved change orders.

2

·Accordingly, if Defendants formally approved the change orders required for the expanded Project,

3

the lenders would discover the enormous cost incn:ases, and Defendants' scheme would be revealed.

4 · Defendants knew or should have knovm, but failed to disclose to Plaintiffs, that there were hundreds
5

of millions of dollars of change orders for work required to complete the Project that were not

6

reflected in the various reports and certifications Defendants made to the lenders. Defendants

7

''pocketed" these change orders, prevailing upon subcontractors to perform the additional work

8

required to complete the Project before a formal change order was approved while, atthe same time~

9

delaying th~ change order approval process so as not to alert the lenders to the additional scope and

10

11

costs.
123.

Defendants failed to inform the LeiJtders of the actual scope and increased cost ofthe

12

Project by keeping a duplicate set of books and entries, one for their own internal use to track the

13

actual scope, progress and cost of the Project and another for presentation to the Lenders to secure

14

advances from the Credit Agreement Facility:

15

•

Change Order Logs. Defendants maintained two sets of change order logs. One set
accurately tracked all change orders that Defendants had directed subcontractors to

16

((xecute, regardless of whether the change orders had been put through the formal

. 17
18

approval process (the "Actual Change Order Log"). The Actual Change Order Log

19

was used by the Defendants to plan and monitor the progress of the construction of the

20

Project. Defendants did not provide the Actual Change Order Log to the Lenders.

21

Instead, they provided the Lenders a partial change order log that included only those

22

change orders that would continue to misrepresent the Project to be in balance and

23

within the Bank Budget (the "Bank Change Order Log'').

24

•

Anticipated Cost ReQorts. To track the costs required to complete the Project,

25

Defendants maintained Anticipated Cost Reports ("ACRs"). As with the change order

26

logs, Defendants kept two sets of ACRs. The Real ACRs reflected all of the costs

27

Defendants knew would be required to complete the Project, including the ''pocketed"

28

change orders. The Bank ACRs consisted of a subset of the Real ACRs.

-20_;

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 24 of
46

1

•

Budgets. The Defendants' manipulation of the change orders and ACRs carried over

2.

into their calculation of the Project budgets. The Bank Budget, based on the Bank

3

ACRs, reflected the original budget presented to the Lenders, as modified by formally

4

approved and disclosed change orders. The Soffer Budget or Real.Budget, showed all

5

of the items included in the Bank Budget, plus all of the "pockc;eted" change orders and

6

real anticipated costs reflected in the Real ACR.

7

124.

Defendants tracked the status of the change orders, anticipated costs and budgets in

8

detailed Microsoft Excel spreadsheets. The spreadsheets showed, column by column: (i) the Bank

9

Budget, including .changes to the budget that had been formally approved by the lenders; (ii) the

10

additional changes to the Bank Budget contemplated in the Soffer Budget and refl.ecting the

11

"pocketed" change orders; and (iii) the difference between the two budgets.

12

B.

Defendants' Misrepresentations and Omissions

13

125.

Each month, to obtain release of funds, the Credit Agreement and other loan

14

documents required the Borrower to submit to Plaintiffs' agent, BofA, a "Draw Request,'' which

15

included :budgets, cost reports and various certifications. If the materials provid~ in the Draw

16

Request showed that the applicable conditions precedent for the advance of funds were satisfied,

17 . BofA, the Disbursement Agent, could (assuming it did not have contrary or inconsistent information)
18

19

release. the requested funds to the Borrower. (Disbursement Agreement, § 2.4.6).
126.

Beginning no later than mid-2007, in connection with the Draw Requests, Defendants

20

made material misrepresentations regarding the status of the Project and provided false, misleading

21

and incomplete information about change order logs, cost reports and budgets, which they

22

represented to be true and eomplete. These misrepresentations were contained in documents and

23

reports including the following.

24

•

Advance Request. The Advance Request was the Borrowers' formal request for :funds

25

under the financing agreements. Defendant Freeman executed the Advance Requests

26

on behalf of the Borrowers. In the Advance Request, at the Defendants' direction, the

27

Borrowers attested to the accuracy and completeness of the information regarding

28

budgets and costs that were provided with the Draw Request, including the Remaining

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Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 25 of
46

1

Cost Reports, the In Balance Report and the General Contractor's Advance

2

Certificate. Because the information provided by the Borrowers did not disclose the

3

true anticipated costs and budgets for the Project but instead showed the incorrect cost

4

information reflected in the Bank Budget, the Bank Change Order Log and the Bank

5

ACR, Defendants' representations in the Advance Requests were false and omitted

6

material information about the Project.

7

•

Remaining Cost Reports. The Remaining Cost Reports were spreadsheets that were

8

supposed to show the anticipated costs to complete the Project. The Remaining Cost

9

Reports did not reflect Defendants' true estimates of Project costs but instead reflected

10

11

the false information contained in the Bank Change Order Logs and the Bank ACR.

•

In Balance Report. The In Balance Reports were supposed to show the difference

12

between funds available to the Project (from the Credit Agreement Facility and other

13

sources) and the anticipated remaining costs on the Project, as reflected in the

14

Remaining Cost Reports. Defendants submitted In Balance Reports that reflected

15

incorrect budgets and estimates of anticipated costs and failed to show the actual costs

16

Defendants knew would be needed to complete the Project. Accordingly, the In

17

Balance Reports continue4 to show that the Project was in balance when in fact the

18

anticipated costs greatly exceeded the available funds to pay for them.

19

•

General Contractor Advance Certificate. In the General Contractor Advance

20

Certificates, which were submitted with each Draw Request, TWC certified that its

21

budgets were accurate and complete. Defendant Soffer executed the General

22

Contractor Advance Certificates for October and November 2008. The budgets TWC

23

submitted to the Lenders we~e based on Defendants' false change orders and cost

24

reports, and the General Contractor Advance Certificates were therefore false and

25

misleading.

26

•

Budget Amendment Certificate. The Borrowers were required to request approval for

27

amendments to the Project budgets by submitting Budget Amendment Certificates:

28

The Budget Amendment Certificates, which Defendant Freeman signed, certified that

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Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 26 of
46

1

the budgets and cost estimates contained therein were accurate and complete, and

2'

based on good faith asswnptions. The Budget Amendment Certificates did not reflect

3

Defendants' real budgets (i.e., the Soffer Budget) or their actual good faith estimates

4

of project costs but instead reflected the incorrect Bank Budgets, Bank Change Order

5

Logs and Bank ACRs. In fac~ the Soffer Budget was hundreds of millions of dollars

6

higher than the budgets Defendants certified as correct in the Budget Amendment

7

Certificates.

8

•

Lender Updates. Defendants periodically held conference calls with Plaintiffs and

9

other lend~s in connection with the Draw Requests. On those calls, and in the written

10

"Lender Updates" that Defendants distnbuted to lenders, Defendants represented that

11

the Bank Budget was the actual budget and failed to infonn the lenders of the
. existence of the Soffer Budget and the fact that, according to Defendants' true cost

12
13

information, the Project had experienced hundreds of millions of dollars in

14

undisclosed change orders and cost overruns. On these calls, Defendants consistently

15

stated, incorrectly, that the Project was "on time and on budget."

. 16

127.

If Defendants had incorporated accurate and complete information regarding the

17

budgets and costs to complete the Project into the materials submitted in connection with the Draw

i8

Requests, they would have shown that the Project was well over budget and could not be completed

19

without significant additional funds. As a result, the In Balance Test would have failed and

20

Borrowers would not have been able·to access additional funding under the Credit and Disbursement

21

Agreements.

22

Vlll. PACKER CONSPIRES WITH SOFFER TO CONCEAL THE COST OVERRUNS ON

23

THE PROJECT

24

128.

Defendant Crown

is an Australian gaming and entertainment company that is

25

controlled by Defendant Packer, who is reported to be the wealthiest man in Australia. Defendant

26

Crown Services is aN evada-based affiliate of Crown that acted on behalf of Crown in connection

27

wi1;h the Project. Todd Nisbet, the Executive Vice President for Design and Construction of Crown,

28

and a principal in Crown Services, along with Packer, had primary responsibility for the Packer

-23-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 27 of
46

1

Defendants' participation in the Project and was involved on a regular basis in the management and

2

oversight ofthe Project.·

3

129.

In April2007, Crown purchased a 19.6% interest

in FBR for $250 million.

4

Thereafter, the Packer Defendants learned that the Project was significantly over budget, that the

5

existing funding for the Project was insufficient to complete the Project and that the FBR and

6

Tumberry Defendants had been misrepresenting the facts concerning the acfual status of the Project

7 · to the Lenders in order to secure continued funding for the Project under the. Loans. The Packer
8

Defendants recognized that if the Lenders learned the truth about the Project, the Lenders would

9

cease funding, and the value of Crown's investment in FBRwould plummet.

10

130.

Accordingly, in late 2007 or early 2008, the Packer Defendants, including Packer,

11

convened a meeting in Las Veg~ with the FBR Defendants, including Soffer, to determme how

12

jointly to proceed. At that meeting and thereafter, and at the direction of Packer, the Packer

13

Defendants agreed and conspired with the FBR Defendants to continue to misrepresent the financial

14

status of the Project to the Lenders and to conceal from the Lenders, including the Plaintiffs, the truth

15

regarding the cost overruns on the Project in order to secure the continued financing for the Project.

16 ·

131.

Thereafter, the Packer Defendants continued their involvement in the management and

17

oversight of the Project, including efforts to reduce the cost of the known overruns that were beillg

18

concealed from the Lenders so as to help delay the Lenders' ultimate discovery of the true facts. As

19

a result, the Packer Defendants actively assisted the FBR Defendants and the Turnberry Defendants

20

in misrepresenting the true financial condition of the Project and in concealing from the lenders the

21

existence and magnitude of the Soffer Budget and the cost overruns.
IX.

22
23

132.

DEFENDANTS' SCHEME UNRAVELS

Without financing sufficient to pay for the true costs of constructing the Project, it was

24

only a matter of time before Defendants' scheme wa~ exposed. Defendants forestalled this result by

25

delaying payment to subcontractors-in some cases until subcontractors threatened to walk off the

26

jo~and by raising

27

should have known, the Proje~t was facing a deficit of more than $300 million dollars.

28

133.

additional equity. By the smnmer of 2008, however, as Defendants knew or

At a meeting at Soffer's home in Aspen, Colorado held in October 2008 and attended

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Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 28 of
46

1

by Kumar and TWC's Chief Executive Officer, Bob Ambridge, Soffer acknowledged that an

2

additional $325 million above and beyond all existing financing and equity contributions would be

3

required to complete the Project. Kumar and Ambridge informed Soffer that they believed the

4

shortfall was much greater, as much as $375 million.

5

134.

Again, in January 2009, Soffer acknowledged. the existence of the shortfall in a

6

telephone call with Ambridge and Kumar. By mid-February 2009, Kumar and Ambridge explained

7

to Soffer in a meeting in Las Vegas that the shortfall had increased by another $100 million.

8
9

135.

To make matters worse, in September 2008 Lehman Brothers Holdings, Inc.

(''Lehman") filed for bankruptcy protection. Lehman was the largest lender under the Retail Facility

10

that provided financing for the construction of the retail portion of the Project. Lehman's

11

bankruptcy, its resulting failure to pay its portion of draws under the Retail Facility as they came due

12

and the prospect that Lehman would fail to fund its remaining commitment under the Retail Facility

13

prevented s·atisfaction of numerous conditions :Precedent to the approval of Advance Requests and the

14

disbursement of funds under the Loans. Had disbursements stopped in September 2008, as they

15

should have, all or nearly all of th~ funds advanced by Plaintiffs would have remained safely in the

16

Bank Proceeds Account and ultimately been recovered.

17

136.

Unfortunately, this did not happen. Bank of America ("BofA") failed to take the steps

18

required of it as Administrative and Disbursement Agent under the Credit Agreement to ensure that

19

funding and disbursements did not continue in the face of Lehman's breaches and defaults. And

20

while BofA's breaches were not thereby excused or mitigated, the FBR Defendants, aided by

21

ULLiCO, actively concealed the full extent of Lehman's impact on the Project fr?m the Lenders in

22

an effort to increase the likelihood that Loans would continue to be :fu.llded and disbursed.

23

137.

In September 2008, the FBR Defen_dants caused FBR (ot an affiliate) to pay Lehman's

24

portion of the September 2008 draw request under the Retail Facility. Defendants knew that payment

25

of Lehman's portion of draw requests by FBR would highlight the funding gap created by Lehman's

26 . banlcruptcy and increase the likelihood that the Lenders would refuse to continue funding.
27

Accordingly, although Freeman advised BofA that FBR had funded Lehman's portion, Thier and the

28

other FBR Defendants took steps to ensure that documents filed publicly during that period,

-25-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 29 of
46

1

including documents submitted in connection with the Lehman bankruptcy proceedings, concealed

2

that fact from the other lenders.

3
4

138.

In December, Lehman notified the FBR Defendants that it would ~ake no further

payments under the Retail Facility.

5

139.

In order to further conceal FBR's payment of Lehman's draws, FBR initiated

6

discussions with ULLICO, one of the other lenders under the Retail Facility. ULLICO invested on

7

behalf of union interests and was committed "to serving the needs of unions, union leaders, union

8

employers and union members and their families." Thus, ULLICO's interest in the Project included

9

both its financial commitment as well as the preservation of the jobs of the 3,000 union members

10

working on the Project Those jobs all would be lost if disbursements under the Loans ceased and the

11

Project was shut down. Although ULLICO was unwilling to take over Lehman's funding obligations

12

under the Retail Facility; in whole or in part, it was willing to make it appear that it had or would in

13

the hopes that BofA might thereby overlook Lehman's breaches and defaults and continue disbursing

14

funds for the Project.

15

140.

In order to accomplish this scheme, beginning in December 2008, ULLICO entered

16

into a series of Guaranty Agreements with Soffer, FBR and TR.LP. These agreements provided that

17

ULLICO would pay Lehman's portion of the Retail Facility in the first instance but that Soffer, FBR

18

and TRLP would guaranty such payments and reimburse ULLICO within 30 days. By "fronting" .

19

payments on behalfofFBR and Soffer, ULLICO helped create a false impression that an existing,

20

institutional lender had or would be willing to step in to take over Lehman's commitment.

21

141.

ULLICO fronted Lehman's draw obligations under the Retail Facility in December

22 . 2008, and January, February and March 2009. Defendants did not disclose the "frontirig''
23

arrangement to the Plaintiffs and actively concealed the existence of the Guaranty Agreement from

24

them.

25

142. . Had DI.rLICO, the FBR Defendants and the Tumberry Defendants disclosed the true

26

nature of their scheme to the Lenders, BofA could not have hidden from the conclusion that the

27

conditions precedent to funding under the Loans had not been satisfied~ and the Borrowers would not

28

have been able to access Plaintiffs' funds.

-26-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 30 of
46

1

143.

By early2009, Defendants were unable to access additional equity fundirig, and

2

subcontractors were in revolt over delayed payments for cOmpleted work. To access additional

3

·needed funds, Defendants were forced to disclose some of the additional change orders they had

4

''pocketed" and kept from the Lenders. But while Defendants at this point revealed some of the

5

additio!lal costs, they expressly decided not to expose what TWC's ChiefExecutive Officer, Bob

6

Ambridge, characterized to Kumar as the "big lie," namely that the Project WaS massively over

7

budget. Instead, Defendants informed the Lenders of only $60 million in change orders and

8
9
10

· additional costs and continued to conceal the remaining undisclosed change orders and additional
costs and to submit Draw Requests that they new to be materially false.
144.

As 2009 wore on, however, Defendants could no longer conceal that the budgets were

11

inaccurate and that the costs to complete the Project were not in line with the incorrect estimates they

12

had provided to the Lenders. On April 13,2009, the Borrowers advised the Lenders that they could

13

not meet the In Balance Test, based upon an increase of $157 million in the figure they used to

14

calculate anticipated costs on the Project. OnApril20, 2009, BofA, acting on behalf of certain of the .

15

Lenders, declared a default under the financing agreements. The Borrowers and certain affiliates

16

filed for bankruptcy on June 10, 2009, which i~self constitutes a default under the financing

17

agreements.

18.

COUNTI

19

Fraud/Aiding and Abetting Against the FBR Defendants and the Tumberry Defendants

20

145.

Plaintiffs reallege and incorporate the preceding paragraphs as though fully set out.

21

146.

To induce Plaintiffs to provide funding for the Project and to enter into the Credit

22

Agreement and Disbursement Agreement, the FBR Defendants misrepresented facts and failed to

23

disclose material facts, as more fully described above. Among other things, the FBR Defendants

24

represented or perriritted to be represented:

25

•

would incur to completion and was a "conservative" estimate of such costs;

26
27
28

that the Bank Budget was an accurate and good faith estimate of the costs the Project

•

that the Bank Budget would support payment of all anticipated construction costs for
the Project;

-27-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 31 of
46

1

•

2

complete"; and

3

•

4
5

that the construction drawings for the Project were accurate and "substantially

that FBLV and TWC had entered into committed contracts for 60% of hard costs for
the Project.

147.

These representations were false. The FBR Defendants omitted the true facts about

6

the Project, including those regarding the existence and nature of the Real Budget, the additional

7

anticipated costs they expected to incur in bringing the Project to completion, the delay~ in

8

completion of the construction drawings, the fact that the drawings presented to the Plaintiffs were

9

false drawings, and the additional costs that would be incurred under the so-called committed

10
11

contracts.

148.

The Tumberry Defendants were aware of the misrepresentations and omissions made

12

by the FBR Defendants. The Turnberry Defendants intended to and did assist and provide material

·13

assistance to the FBR Defendants in making misrepresentations and failing to disclose material facts

14

to Plaintiffs.

15

149.

Unaware of the true facts, and in reliance on the misrepresentations and omissions of

i6

the FBR Defendants and the Turnberry Defendants, Plaio.tiffs provided funding to the Project

17

pursuant to the Credit Agreement and Disbursement Agreement. If Plaintiffs had been aware of the

18

true facts, they would not have agreed to provide the funding and would not have executed the Credit

19

Agreement or the Disbursement Agreement.

20

150.

As a direct and proximate result of the misrepresentations and omissions by the FBR

21

Defendants and the Tumberry Defendants' assistance in these misrepresentations and omissions,

22

Plaintiffs have incurred and continue to incur damages in excess· of$1 0,000.

23
24

151. · Defendants' acts were performed with oppression, fraud and malice, thereby entitling
Plaintiffs to punitive rl;amages in excess of$10,000.

25

COUNTII

26

Fraud!Aiding and Abetting Fraud Against the FBR Defendants~ the Tli.rn.berry Defendants and
the Packer Defendants

27
152.

Plaintiffs reallege and incorporate the preceding paragraphs as though fully set out.

153.

To induce Plaintiffs to provide funding for the Project through provision of Advances

28

-28-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 32 of
46

1

in response to Notices of Borrowing and Draw Requests, the FBR Defendants and the Tumberry

2

Defendants made intentional misrepresentations of fact and failed to disclose material facts, as more

3

fully described above. Among other things, the FBR Defendants and the Turnberry Defendants

4

represented to Plaintiffs or their agents, in connection with Draw Requests and in other oral and

5

written communications, that:
•

6

the Remaining Cost Reports submitted to lenders, including the Plaintiffs, accurately
presented all of the costs they expected the Project to incur to completion;

7

8

•

they were not aware of additional anticipated costs on the .Project;

9

•

the In Balance Report was accurate and the In Balance Test was satisfied;

10

•

the Bank Budget was the true budget that accurately presented the Defendants' .good

11

faith estimate of all Project costs; and
•

12

the Project was "on time and on budget."

13

These repreSentations were false. The FBR Defendants and Turnberry Defendants omitted and

14

concealed the true facts regarding the existence and magnitu<Je of the Real B1,1dget, the additional

15 - costs they incurred and expected to incur on the Project; and th~ existence and dollar valu~ of change
16

orders that had been agreed to without formal approval or disclosure to the lenders, including

17

Plaintiffs.

18

154.

Each of the FBR Defendants, the Turnberry Defendants and the Packer Defendants

19

was aware of the misrepresentations and omissions made by the other Defendants. Each of the FBR

20

Defendants, the Turnberry Defendants and the Packer Defendants intended to assist the others in

21

defrauding Plaintiffs and did in fact provide material assistance to them in making misrepresentations

22

and failing to disclose material facts to Plaintiffs.

23

155.

Unaware of the true facts, and in reliance on the misrepresentations and omissions of

24

Defendants, Plaintiffs continued to provide funding to the Project through Advances pursuant to the

25

Credit Agreement and Disbursement Agreement. If at any time Plaintiffs and their agents had been

26 · aware of the true facts, the conditions precedent to further Advances would not have been satisfied
27
28

and Plaintiffs would not have been required to provide further funds to the Project.
156.

As a direct and proximate result ofDefendants' fraud and aiding andabetting fraud,

-29-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 33 of
46

1
2

3

Plaintiffs have incurred and continue to incur damages in excess of $10,000.

157.

Defendants' acts were performed with oppression, fraud and malice, thereby entitling

Plaintiffs to punitive damages in excess of$10,000.

4

COUNTill

5

Fraud!Aiding and Abetting Fraud.Re Retail Facility Against the FBR Defendants, the
Turnberry Defendants and ULLICO

6
158.

Plaintiffs reallege and incorporate the preceding paragraphs as though fully set out.

159.

To induce Plaintiffs to provide funding for the Project through provision of Advances

7

8
in response to Notices of Borrowing and Draw Requests, the FBR Defendants and the Turnberry
9

Defendants made intentional misrepresentations of fact and failed to clisclose material facts regarding
10
the funding of Lehman's portion ofthe Retail Facility, as more fully described above. Among other

11
things, ULLICO, the FBR Defendants and the Turnberry Defendants or their agents represented that
12
ULLICO funded the Lehmanportion of the Retail Facility. These representations were false.

13
160.

ULLICO, the FBR Defendants and the Tumberry Defendants omitted and concealed

14

the fact that, through the "fronting'' arrangement, FBR and Soffer were funding Lelunan's portion of

15

.

.

the Retail Facility while making it appear that ULLICO was providing such funding.
16
-161.

ULLICO, the FBR Defendants and the Tumberry Defendants were aware of the

17
misrepresentations and omissions made by each other. Each ULLICO, the FBR Defendants and the
18
Tuinberry Defendants intended to assist each other in defrauding Plaintiffs and did in fact provide
19
material assistance to them in making mi,srepresentations and failing to disclose material facts to

20
Plaintiffs.
21
162.

Unaware of the true facts, and in reliance on the misrepresentations and omissions of

22
Defendants, Plaintiffs continued to provide funding to the Project through Advances pursuant to the
23

25.
further Advances would not have been satisfied and Plaintiffs would not have provided further funds

26
to the Project.
27
163.

As a direct and proximate result ofDefendants' fraud and aiding and abetting fraud,

28
Plaintiffs have incurred and continue to incur damages in excess of $10,000.
-30-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 34 of
46

1
2

164.

Defendants' acts were performed with oppression, fraud and malice, thereby entitling

Plaintiffs to punitive damages in excess of $10,000.

3

COUNTIV

4

Negligent Misrepresentation Against All Defendants

S

165.

Plaintiffs reallege and incorporat~ the preceding paragraphs as though fully set out.

6

169.

In making the representations described above, and in failing to disclose the matetjal

7

information, Defendants acted with the intent to induce, and did induce, Plaintiffs to provide funding

8

to the Project, to enter fnto the Credit Agreement and the Disbursement Agreement, and to continue

9

to provide funding pursuant to Advances.

10
11

12
13

14
15

167.

Defendants made the representations negligently and recklessly, with no reasonable

grounds for believing the statements to be true.
168.

As a direct result of Defendants' negligent and reckless misrepresentations, Plaintiffs

have incurred and continue to incur damages
169.

in excess of $10,000.

Defendants' acts were perform~d with oppression, fraud and malice, thereby entitling

Plaintiffs to punitive damages in excess of$10,000.

16

COUNTV

17

Negligence Against the FBR Defendants and the Turnberry Defendants

18

170.

Plaintiffs reallege and incorporate the preceding paragraphs ·as though fully set out.

19

171.

Defendants were responsible for ensuring that the terms and conditions precedent to

20

funding were being met, that the Project was being managed and administered such that the cost of

21

work would not exceed what was budgeted and financially available, and that the Project would be

22

completed within the approved schedule.

23

172.

Defendants also had a duty to ensure that the Project progress was· accurately reported,

24

both in tenns of cost and schedule, and that the projected cost to complete the work was accurately

25

reflected in the reports to lenders, including the Plaintiffs. Defendatits had a duty to ensure accurate .

26

reflection of any cost increases or change orders in the. various reports provided to Plaintiffs in

27

connection with Draw Requests_

28

173.

Defendants failed to exercise reasonable or ordinary care in the discharge of their

.:.31-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 35 of
46

1

duties in connection with the Project, and; in fact, were negligent and/or reckless in the performance

2

of their duties and/or acted in bad faith.

3

174.

As described in more detail above, among other things, Defendants:

4

•

Failed to ensure that the statements made to Plaintiffs in connection with Draw

5

Requests were accurate and complete;

7

•
•

Failed to ensure the timely reporting of changes to the Project and change orders;

8

•

Failed to monitor· subcontractors;

9

•

Failed to exercise reasonable diligence, oversight, monitoring and review ofTWC'~

6

project administration and management;

10
11

Failed to accurately monitor and report on project budgets and costs;

•

Failed to ensure that Project drawings and plans were substantially complete and

12

updated and that the plans were sufficient to build the Project in accordance with the

13

existing budgets; and

14

•

15
16
17

Failed to ensure that the Project had committed contracts as represented to Plaintiffs,
and that the comnritted contracts were in fact "committed."

175.

As a dir~ct and proximate result of Defendants failure to exercise due care, Plaintiffs

have been damaged in an amount in excess of $10,000.

18

COUNTVI

19

Conspiracy to Commit Fraud/Aiding and Abetting Fraud Against All Defendants

·20

176.

Plaintiffs reallege and incorporate the preceding paragraphs as though fully set out.

21

177.

Beginning in 2007, Defendants entered into a conspiracy in which they agreed to

22

misrepresentand omit material facts regarding the Project, and to conceal the true facts. Pursuant to

23

that conspiracy, Defendants engaged in the misrepresentations, omissions and other wrongful

24

conduct, as set out above. Each of the Defendants had knowledge of the object and purpose of the

25

conspiracy and intended to and did materially assist the conspiracy.

26
27
28

178.

As co-conspirators, Defendants are jointly and severely liable for the damages

incurred by Plaintiffs as a result oftheir conduct, in
179.

an amount in excess of $10,000.

Defendants' acts were performed with oppression, fraud and malice, thereby entitling

-32-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 36 of
46

1

Plaintiffs to punitive damages in excess of$10,000.

2

COUNTVll

3

Breach of Fiduciary Duty- Duty of Loyalty Against the FB D&O Defendants

4

180.

Plaintiffs reallege and incorporate the precedingparagraphsas though fully set out.

5

181.

Defendants Soffer, Kotite, Parello, Weiner, Schaeffer, Freeman, Kumar, Karawan and

·6

Thier ("FB D&O Defendants") were directors, managers and/or senior executive officers of the

7

Resort Entities, with management responsibility for those entities. As managers, directors and/or

8

senior executive officers of the Resort Entities, the FB D&O Defendants owed :fiduciary_duties to the

9

Resort Entities, which fiduciary duties included the duty ofloyalty. Additionally, as the Resort

10

Entities were insolvent or within the zone of insolvency, these defendants also owed fiduciary duties

11

to the Resort Entities' creditors, including Plaintiffs.

12

182.

As fiduciaries, the FB D&O Defendants were obligated by their duty ofloyalty to act

13

in a manner consistent with the best interests of the Resort Entities and its creditors, and with the

14

highest degree of good faith. By virtue of the acts and omissions described herein, the FB D&O

15

Defendants failed to act honestly and in good faith, thereby violating the duty of loyalty to the Resort

16

Entities. Among other things, the FB D&O Defendants misrepresented the financial condition of the

17

Resort Entities, misstated the budgets and anticipated costs of the Project, and concealed the true

18

facts about the budgets and financial condition of the Project

19

183.

·

As a direct and proximate result of the FB D&O Defendants' actions and omissions,

20

the Plaintiffs have been injured and suffered damages in an amount in excess of$1 0,000. The FB

21

D&O Defendants are jojntly and severally liable for Plaintiffs' losses.

22

23

184.

Defendants'· acts were performed with oppression; fraud and malice, thereby entitling ·

Plaintiffs to punitive damages in excess of$10,000.

24

COUNT VIII

25

Breach of Fiduciary Duty- Duty of Care Against the FB D&O Defendants

26

185.

Plaintiffs reallege and incorporate the preceding paragraphs as though fully set out

27

186.

The FB D&O Defendants were directors, managers aitd/or senior executive officers of

28

the Resort Entities, with mamigement responsibility for those entities. As managers, directors and/or ·

-33-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 37 of
46

1

senior executive officers of the Resort Entities, the FB D&O Defendants owed fiduciary duties to the

·2

Resort Entities, which fiduciary duties included the duty of care. Additionally, as tJ::!e Resort Entities

3

were insolvent or within the zone of insolvency, these defendants also owed fiduciary duties to the

4

Resort Entities' creditors, including Plaintiffs.

5

187.

As fiduciaries, these defendants were obligated by their duty of care to act at all times

6

.on an informed basis, using the·amount of care that a reasonable person would use under similar

7

circumstances, and to act with the highest degree of good faith. The FB D&O Defendants failed to

8

exercise the care, diligence, and skill that reasonable persons would exercise under comparable

9

circumstances, and instead acted in a grossly negligent manner, thereby violating their fiduciary

10

duties to the Resort Entities. Among other things, the FB D&O Defendants: failed to oversee the

11

construction of the Project in a manner that contained cost overrUn.s; approved and allowed TWC and

12

others to approve, informally and without proper oversight or disclosure, changes to the Project that

13

greatly increased the Resort Entities' liabilities; operated the Project in accordance with the

14

undisclosed Real Budget, which was hundreds of millions of dollars higher than what was presented

15

to the Plaintiffs and the other lenders, thus making it virtually impossi.ble.for the Project to be

16

completed with the funds that were available; and repeatedly misrepresented and omitted material

17

facts regarding budgets~ cost overruns and anticipated costs to completion.

18

188.

As a direct and proximate result of the FB D&O Defendants' actions and omissions,

19

the Plaintiffs have been injured and suffered damages in an amount in excess of$10,000. The FB

20

D&O Defendants are jointly and severally liable for :Plaintiffs' losses.

21
22

189.

Defendants' acts were performed with oppression, fraud and malice, thereby entitling

Plaintiffs to punitive damages in excess of $10,000.

23

PRAYER FOR RELIEF

24

WHEREFORE, Plaintiffs pray thatthis Court enter judgment in favor of Plaintiffs and

25

against Defendants, and each of them, as follows:

26

(a)

For damages in excess of$10,000.

27

(b)

For punitive damages in excess of$10,000.

28

(c)

For prejudgment interest.

-34-

Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 38 of
46

1

(d)

For an award of the costs of suit inCluding attorneys' fees to the extent available.

2

(e)

For any further relief as this Court deems just and proper_

3

JURY DEMAND

4

Plaintiffs demand a trial by jury for all issues so triable.

5

DATED this 25th day of March, 201 L

6
7

Respectfully submitted,

8

9
10

11
12

13

\\
--Ey. ~=.::::--_--,.......

-;:____-===

TAYLOR L. RANDOLPH
Bar No. 10194
RANDOLPH LAW FIRM, P.C.
2045 Village Center Circle, Suite 100
Las Vegas, Nevada 89134
TeL [phone]
[e-mail]
Attorney for Plaintiffs .

14
15

16
17

18
19
20

21
22

23
24
-25
26

27

28
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Case 1:09-md-02106-ASG Document 377-4 Entered on FLSD Docket 12/04/2013 Page 39 of
Page 1 of9
LIVEECF
46

U.S. Bankruptcy Court
District of Nevada (Las Vegas)
Adversary Proceeding#: 11-01130-mkn·
Assigned to: MIKE K. NAKAGAWA
Demand:

Date Filed: 05/02/11

Nature[s} of Sui( 01 Determination of removed claim or cause

Plaintiff
BRIGADE LEVERAGED CAPITAL
STRUCTURES FUND, LTD_.
X
X, X

BATTALION CLO 2007-I, LTD.
X
X, X
CANPARTNERSINVESTMENTS
IV,LLC.
X
X, X
CANYON SPECIAL
OPPORTUNITIES MASTER FUND
(CAYMAN), LTD.
X
X, X
CASPIAN CORPORATE LOAN
FUND,LLC.
X
~,X

CASPIAN CAPITAL PARTNERS,
L.P;
X
X, X
CASPIAN SELECT CREDIT
. MASTER FUND, LTD.
X

X; X
MARINERLDC
X
X, X

represented by TAYLOR L. RANDOLPH
RANDOLPH LAW FIRM, P .C.
2045 VILLAGE CENTER CR., SUITE
100
LAS VEGAS, NV 89134
702-877-1313
Fax : [phone]
Email: [e-mail]
LEAD ATTORNEY
represented byTAYLORL. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by
TAYLORL. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH.
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH.
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY ·
represented byTAYLORL. RANDOLPH
(See above for address)
LEAD ATTORNEY

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CASPIAN ALPHA LONG CREDIT
FUND,L.P.
X

X, X
CASPIAN SOLITUDE MASTER
FUND,L.P.
X

X, X
OLYMPIC CLO I LTD.
X

X, X
SHASTA CLO I LTD.
X

X, X
WHITNEY CLO I LTD.
X

X, X
SAN GABRIEL CLO I LTD.
X
X, X
SIERRA CLO II LTD.
X

X, X
lNG PRIME RATE TRUST
X

X, X
lNG SENIOR INCME FUND
X

X, X
lNG INTERNATIONAL (II)SENIOR LOANS
X

X, X
lNG INVESTMENT
MANAGEMENT CLO I, LTD.
X

X, X
lNG INVESTMENT
MANAGEMENT CLO II, LTD.
X
X, X
lNG INVESTMENT
MANAGEMENT CLO III, LTD.
X
X, X
lNG INVESTMENT
MANAGEMENT CLO IV, LTD.

represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
-represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY.
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by SAN GABRIEL CLO I LTD.
PROSE
.
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY·
represented by TAYLOR L. RANDOLPH
(See above for address)

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LEAD ATTORNEY

X

X, X
lNG INVESTMENT
MANAGEMENT CLO V, LTD.
X
X, X
PHOENIX CLO I, LTD.
X
X, X
PHOENIX CLO II, LTD.
X
X, X
PHOENIX CLO III, LTD.
X
X, X
Venture II CDO 2002 Limited
X
X, X
Venture III CDO Limited
X
X, X
VENTURE IV CDO LIMITED
X
X, X
Venture V CDO Limited
X
X, X
Venture VI CDO Limited
X
X, X
Venture VII CDO .Limited
X
X, X
Venture VIII CDO Limited
X
X, X
Venture IX CDO Limited
X.
X, X
Vista Leveraged Income Fund
X
X, X
VEER CASH FLOW CLO, LIMITED

X
X, X
MONARCH MASTER FUNDING,

represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented byTAYLORL. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented byTAYLORL. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented byTAYLORL. RANDOLPH
·
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by

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46

LTD.
X
X, X
NORMANDY HILL MASTER
FUND,L.P.
X
X, X
GENESIS CLO 2007-1 LTD.
X
X, X
SCOGGIN CAPITAL
MANAGEMENT II, LLC.
X
X, X
SCOGGIN INERNATIONAL FUND,
LTD.
X
X, X
SCOGGIN WORLDWIDE FUND,
LTD.
X
X, X
SPCP GROUP, LLC.
X
X, X
SOLA, LTD.
X
X, X
SOLUS CORE OPPORTUNITIES
MASTER FUND, LTD.
X
X, X
STONE LION PORTFOLIO LP.
X
X, X
VENOR CAPITAL MASTER FUND,
LTD.
.
X
X, X

TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY
represented by TAYLOR L. RANDOLPH
(See above for address)
LEAD ATTORNEY

v.
Defendant
FONTAINEBLEAU RESORTS, LLC.
X

represented by
STEVE MORRIS
MORRIS PICKERING & PETERSON
300 S. 4TH ST #900

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LAS VEGAS, NV 89101
(702) 474-:9400
Fax: [phone]
Email: [e-mail]

X, X

TURNBERRYLTD.
X

X, X
TURNBERRY RESIDENTIAL
LIMITED PARTNER, L.P.
X

represented by STEVE MORRIS
(See above for address)
represented by
STEVE MORRIS
(See above for address)

·x,x

TURNBERRY WEST
CONSTRUCTION, INC ..
X
. X, X
JEFFREY SOFFER
X
X, X
ANDREW KOTITE
X
X, X
RAYPARELLO
X

X, X
BRUCE WEINER
X
X, X
GLENN SCHAEFFER
X
X, X
JAMES FREEMAN
X
X, X
DEVENKUMAR
X
X, X
HOWARD KARAWAN
X
X, X

WHITNEY THIER
X
X, X
UNION LABOR LIFE INSURANCE

represented by
STEVE MORRIS
(See above for address)
represented by STEVE MORRIS
(See·above for address)
represented by ANDREW KOTITE
PROSE
represented by RAY P ARELLO
PROSE
represented by BRUCE WEINER
PROSE
represented by GLENN SCHAEFFER
PROSE
represented by JAMES FREEMAN
PROSE
represented by DEVEN KUMAR
PROSE
represented by JEFFREY R. SYLVESTER
7371 PRAIRIE FALCON RD., SUITE
120
LAS VEGAS, NV 89128
[phone]
Fax : [phone]
Email: [e-mail]
represented by WHITNEY THIER
PROSE
represented by uNION LABOR LIFE INSURANCE

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COMPANY
PROSE

·COMPANY
X

X, X
CROWN LIMITED
X

represented by CROWN LIMITED
PROSE

X, X
CROWN SERVICES (US) LLC.
X

X, X

JAMES PACKER
X

represented by CRAIG S. DUNLAP
FENNEMORE CRAIG, P.C.
300 S. FOURTH STREET #1400
LAS VEGAS, NV 89101
[phone]
Email: cdunlap@fclaw,com
represented by JAMES PACKER
PROSE

X, X
'

Filing Date

#

Docket Text
Notice of Removal of BRIGADE LEVERAGED CAPITAL
STRUCTURES FUND, LTD., BATTALION CLO 2007-I, LTD.,
CANPARTNERS INVESTMENTS IV, LLC., CANYON
SPECIAL OPPORTUNITIES MASTER FUND (CAYMAN),
LTD., CASPIAN CORPORATE LOAN FUND, LLC.,
CASPIAN CAPITAL PARTNERS, L.P., CASPIAN SELECT
CREDIT MASTER FUND, LTD., MARINER LDC, CASPIAN
ALPHA LONG CREDIT FUND, L.P., CASPIAN SOLITUDE
MASTER FUND, L.P., OLYMPIC CLO I LTD., SHASTA CLO
I LTD., WHITNEY CLO I LTD., SAN GABRIEL CLO I LTD.,
SIERRA CLO II LTD., ING PRIME RATE TRUST, ING
SENIOR INCME FUND, ING INTERNATIONAL (II)SENIOR LOANS, ING INVESTMENT MANAGEMENT CLO
I, LTD., ING INVESTMENT MANAGEMENT CLO II, LTD.,
ING INVESTMENT MANAGEMENT CLO III, LTD., ING
INVESTMENT MANAGEMENT CLO IV, LTD., ING
INVESTMENT MANAGEMENT CLO V, LTD., PHOENIX
CLO I, LTD., PHOENIX CLO II, LTD., PHOENIX CLO III,
LTD., Venture II CDO 2002 Limited, Venture III CDO Limited,
VENTURE IV CDO LIMITED, Venture V CDO Limited,
Venture VI CDO Limited, Venture VII CDO Limited, Venture
VIII CDO Limited, Venture IX CDO Limited, Vista Leveraged
Income Fund, VEER CASH FLOW CLO, LIMITED,
MONARCH MASTER FUNDING,LTD., NORMANDY HILL
MASTER FUND, L.P., GENESIS CLO 2007-1 LTD.,
SCOGGIN CAPITAL MANAGEMENT II, LLC., SCOGGIN
INERNATIONAL FUND, LTD., SCOGGIN WORLDWIDE
FUND, LTD., SPCP GROUP, LLC., SOLA, LTD., SOLUS
CORE OPPORTUNITIES MASTER FUND, LTD., STONE
LION PORTFOLIO LP., VENOR CAPITAL MASTER FUND,

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05/02/2011

1

LTD. against FONTAINEBLEAU RESORTS, LLC.,
TURNBERRY LTD., TURNBERRY RESIDENTIAL LIMITED
PARTNER, L.P., TURNBERRY WEST CONSTRUCTION,
. INC., JEFFREY SOFFER, ANDREW KOTITE, RAY
PARELLO, BRUCE WEINER, GLENN SCHAEFFER, JAMES
FREEMAN, DEVEN KUMAR, HOWARD KARAWAN,
WIDTNEY TillER, UNION LABOR LIFE INSURANCE
COMPANY, CROWN LIMITED, CROWN SERVICES (US)
LLC.; JAMES PACKER. Fee Amount $250. (Attachments: # l
Exhibit A (coversheet)# ~Exhibit A# J Exhibit B (coversheet)# :!:
Exhibit B) (01 (Determination of removed claim or cause)
(DUNLAP, CRAIG) (Entered: 05/02/2011) .

Certificate of Service Filed by CRAIG S. DUNLAP on behalf of
CROWN SERVICES (US) LLC. (Related document(s) l Notice
ofRemoval filed by PlaintiffVenture II CDO 2002 Limited,
Plaintiff Venture III CDO Limited, Plaintiff Venture V CDO
Limited, Plaintiff Venture VI CDO Limited, Plaintiff Venture VII
CDO Limited, PlaintiffVentuni VIII CDO Limited, Plaintiff
Vista Leveraged Income Fund, Plaintiff Venture IX CDO
Limited, PlaintiffBRIGADE LEVERAGED CAPITAL
STRUCTURES FUND, LTD., PlaintiffBATTALION CLO
2007-I, LTD., PlaintiffCANPARTNERS INVESTMENTS IV,
LLC., Plaintiff CANYON SPECIAL OPPORTUNITIES
MASTER FUND (CAYMAN), LTD., PlaintiffCASPIAN
CORPORATE LOAN FUND, LLC., Plaintiff CASPIAN
CAPITAL PARTNERS, L.P., Plaintiff CASPIAN SELECT
CREDIT MASTER FUND, LTD., PlaintiffMARINER LDC,
Plaintiff CASPIAN ALPHA LONG CREDIT FUND, L.P.,
Plaintiff CASPIAN SOLITUDE MASTER FUND, L.P ., Plaintiff
OLYMPIC CLO I LTD., Plaintiff SHASTA CLO I LTD.,
PlaintiffWIDTNEY CLO I LTD., Plaintiff SAN GABRIEL CLO.
I LTD., Plaintiff SIERRA CLO II LTD., PlaintiffiNG PRIME
RATE TRUST, PlaintiffiNG SENIOR INCME FUND,.Plaintiff
ING INTERNATIONAL (II)- SENIOR LOANS, PlaintiffiNG
INVESTMENT MANAGEMENT CLO I, LTD., PlaintiffiNG
INVESTMENT MANAGEMENT CLO II, LTD., PlaintiffiNG
INVESTMENT MANAGEMENT CLO III, LTD., PlaintiffiNG
INVESTMENT MANAGEMENT CLO IV, LTD., PlaintiffiNG
INVESTMENT MANAGEMENT CLO V, LTD., Plaintiff
PHOENIX CLO I, LTD., PlaintiffPHOENIX CLO II, LTD.,
Plaintiff PHOENIX CLO III, LTD., PlaintiffVENTURE IV CDO
LIMITED, Plaintiff VEER CASH FLOW CLO, LIMITED,
PlaintiffMONARCH MASTER FUNDING, LTD., Plaintiff
NORMANDY HILL MASTER FUND, L.P., Plaintiff GENESIS
CLO 2007-1 LtD~, Plaintiff SCOGGIN CAPITAL
MANAGEMENT II, LLC., Plaintiff SCOGGIN
INERNATIONAL FUND, LTD., Plaintiff SCOGGIN
WORLDWIDE FUND, LTD., PlaintiffSPCP GROUP, LLC.,

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2

3

05/10/2011

05/10/2011

Certificate of Service Filed by JEFFREYR. SYLVESTER on
behalf of HOWARD KARAWAN (Related document(s) §
Answer to Complaint filed by Defendant HOWARD
KARAWAN.) (SYLVESTER, JEFFREY) (Entered: 05/10/2011) ·

1i

05/09/2011

Answer to Complaint Filed by JEFFREY R. SYLVESTER on
behalf of HOWARD KARAWAN (Related document(s) 1 Notice
ofRemoval(SYLVESTER, JEFFREY) Modified on 5/10/2011 to
relate to #1 (DeVaney, HA). (Entered: 05/09/2011)

1

05/06/2011

Scheduling Conference scheduled for 9/30/2011 at 09:30AM at
MKN-Courtroom 2, Foley Federal Bldg. (l<:sh) (Entered:
05/06/2011)

Q

05/05/2011

Stipulation By FONTAINEBLEAU RESORTS, LLC., JEFFREY
SOFFER, TURl'IDERRY LTD., TURNBERRY RESIDENTIAL
LIMITED PARTNER,.L.P., TURNBERRY WEST
CONSTRUCTION, INC. and Between All Parties Filed by
STEVE MORRIS ori behalf of FONTAINEBLEAU RESORTS,
LLC., JEFFREY SOFFER, TURNBERRY LTD., TURNBERRY
RESIDENTIAL LIMITED PARTNER, L.P., TURNBERRY
WEST CONSTRUCTION, INC. (MORRIS, STEVE) (Entered:
05/05/2011)

5

05/03/2011

Receipt of Filing Fee for Notice ofRemoval(11-01130)
[cmp,ntcrmvl] ( 250.00). Receipt number 10642511, fee amount$
250.00. (U.S. Treasury) (Entered: 05/03/2011)

1

05/03/2011

Plaintiff SOLA, LTD., PlaintiffSOLUS CORE
OPPORTUNITIES MASTER FUND, LTD., PlaintiffSTONE
LION PORTFOLIO LP., PlaintiffVENOR CAPITAL MASTER
FUND, LTD ..) (Attachments: #l Mailing Matrix) (DUNLAP,
CRAIG) (Entered: 05/03/2011).

Order Approving Stipulation To Extend Time To Answer Or
Otherwise Respond To The Complaint (Related document(s) 1
Stipulation filed by Defendant TURNBERRY WEST
CONSTRUCTION, INC., Defendant TURNBERRY LTD.,
Defendant JEFFREY SOFFER, Defendant FONTAINEBLEAU
RESORTS, LLC., Defendant TURNBERRY RESIDENTIAL
LIMITED PARTNER, L.P .. ) (had) (Entered: 05/10/2011)

PACER Service Center

II
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Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 1 of 35

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO 09-MD-02106-CIV-GOLD/GOODMAN

IN RE: FONTAINEBLEAU LAS VEGAS
CONTRACT LITIGATION
MDLNo. 2106
This document relates to all actions .

~---------------------------------/

.

A VENUE TERM LENDER PLAINTIFFS' AMEND;ED RESPONSES TO SECOND SET
OF INTERROGATORIES FROM DEFENDANT BANK OF AMERICA, N.A.
Pursuant to Federal Rules of Civil Procedure 29 and 33 and the Local Rules for the
Southem District of Florida, the Avenue Term Lender Plaintitis ("Plaintiffs") provide the
following Amended Responses to Defendant Bank of America, N .A.'s ("BofA") Second Set of
Interrogatories (the "Interrogatories") dated February 4, 2011.
PRELIMINARY STATEMENT
These responses, while based on diligent inquiry and investigation by Plaintiffs,
necessarily reflect only the current state of Plaintiffs' knowledge, ~derstanding, and belief,
based upon information known to them at this time.
Where a response is made to an interrogatory that seeks "information about the actions,
knowledge, status or operations of any Defendant(s) or third party in which Plaintiffs was not
directly involved, the information provided in such a response is based upon information from
documents and.testimony gathered during Plaintiffs' investigation of such rnatters and is
believed to be true.
Plaintiffs have not yet completed their investigation and have not completed their
preparation for trial. Plaintiffs 'expect that Oefendants may make legal or factual contentions
-1-

Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 2 of 35

presently unknown to and unforeseen .by Plaintiffs in response to which Plaintiffs may offer
different and additional facts. Accordingly, these responses are provided without prejudice to
Plaintiffs'· right to rely upon and use, at trial or otherwise, any information that it subsequently
discovers, or that proves necessary in explanation, response or rebuttal to any contention of any
witness, or that was omitted from these responses as a result of mistake, inadv·ertence, surprise,
or oversight; and Plaintiffs reserve the right to further amend or supplement these responses with
such information, without in any way obligating it to do so other than as required by law or
applicable rules. Each of the following responses is made solely for the purposes of this action.
GENERAL OBJECTIONS

The following General Objections apply to each of the Interrogatories, and shall have the
same force and effect as if fully set forth in response to each interrogatory:
1.

Plaintiffs object to the Interrogatories to the extent they call tor information

protected from disclosure by the attorney-client privilege, work product doctrine or any other
-

- ·r-

applicable privilege, doctrine or immunity against disclosure. The inadvertent disclosure by
Plaintiffs of any illformation that may be protected from disclosure by any such privilege,
doctrine or imrmmity shall not constitute a waiver thereof.
2.

Plaintiffs object to the Interrogatories to the extent they seek to impose greater

obligations than those imposed by the Federal Rules of Civil Procedti.re and any other applicable
statutes, rules and/or case law.
3.

Plaintiffs object to the Interrogatories to the extent they call for inf01mation that is

neither relevant to any claim or defense of any party to this action, nor reasonably calculated to
lead to the discovery of admissible evidence.
4.

Plaintiffs object.to the Interrogatories to the extent they seek speculation about the

actions or knowledge of third parties and not Plaintiffs.

' -2-

Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 3 of 35

5.

Plaintiffs object to the Interrogatories to the extent they are overbroad, unduly

burdensome and/or oppressive. ·
6.

Plaintiffs object to the Interrogatories to the extent they call for responses based

solely on publicly-available information, information that is more readily available to Defendants
than Plaintiffs, and/or information that is not within Plaintiffs'_
possession, custody or control, or
information that is available from other, more convenient, sources.
· 7.

Plaintiffs object to the .Interrogatories to the extent they aie vague, indefinite,

ambiguous, unduly repetitious,_ lack a readily discemable meaning, and/or require Plaintiffs to
speculate as to the response sought. Without waiver of these objections, where necessary,
Plaintiffs has made reasonable interpretations and respond according to such interpretations.

8.

Plaintiffs object to the Interrogatories to the extent they call for conclusions of

9.

Plaintiffs obj~ct to the definitions of"Identify" as overly broad and unduly

law.

burdensome to the extent the definitions purport to requiTe PI~intiffs to provide more information
that reasonably necessary for BofA to determine the document or comrtmnication or notification
being referred to.

.
10.

.

Plaintiffs object to Instruction B as unduly burdensome. Plaintiffs shall provide a

joint answer to each interrogatory. However, a representative authorized to sign on behalf of
each_
Plaintiffwill verify the responses.
11.

Plaintiffs object to Instruction F as unduly burdensome. Plaintiffs further object

to Instruction F to the·extent it is impossible to comply with. To the extent Plaintiffs do not
currently have documents in their possession, custody-or control, Plaintiffs wilt not know their
Date, author(s), addressee(s), recipient(s), subject matter or any other information. Plaintiffs
may not know w~ether any documents, now unavailable, exist or existed at one point in time.

..,

-..)-

Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 4 of 35

12.

Plaintiffs object to Instruction Gas unduly burdensome and oppressive. Plaintiffs

further object to Instruction G to the extent it calls for the production of infonnation protected by
the attorney-client privilege .or attorney work product doctrine or any other applicable protection.
To the extent Plaintiffs relied on any document to answer any interrogatory, all such nonprivileged documents have been or will·be produce~ in this litigation and therefore are equally
available to BofA.
13.

Plaintiffs object to these Intetrogatories to the extent that BofA has exceeded the

maximum number of intenogatories permitted under the Federal Rules of Civil Procedure.
14.

By asse1ting these objections, Plaintiffs do not waive their right to revise or

supplement these objections as may be necessary should new or different information become
known to them. These responses and objections are made without in any way waiving, but in.all
cases reserving:
a. Alt9bjections as to competency; relevance, materiality, privilege, and
admissibility as evidence for any purpose of any 'o f the information provided
herein;
b. The right to object on ·any ground.as to the use of the infonnation provided herein
at any trial or hearing in this .matter;
c. · The right at any time to revise, supplement, correct, or add to the responses.
Each of the above objections is incorporated by reference into each individual response
below, as if fully set forth therein.

INTERROGATORY NO. 1:
Do You contend that the Disbursement Agent should have issued a Stop Funding Notice ·
1.mder Section 2.5.1 of the Disburs~ment Agreement because the conditions precedent to an
Advance were not satisfied?

-4-

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RESPONSE TO INTERROGATORY NO. 1:
Pl~intiffs

object to Interrogatory No. 1 as vague and ambiguous to the extent it is not

limited in time. Plaintiffs further object that their claims and COIJ.tentions are set out in the
;perative Complaint in tlris action, which is incorporated herein. Subject to the foregoing
general·and specific objections, Plaintiffs respond as follows:
Yes. .

INTERROGATORY NO.2:
If Your response to Interrogatory No. 1 is anything other than an unqualified "No":
(a)

state the Date wl;len the Disbursement Agent should have issued the Stop FW1ding
Notice;

(b)

identify each Advance for which the conditions precedent were not satisfied; and

(c)

for each Advance identified in subpart (b), identify each condition precedent that
was not satisfied, and state the reason(s) why such condition precedent was not
satisfied.

RESPONSE TO INTERROGATORY NO.2:
.Plaintiff objects to Interrogatory No.2 on the grounds that it is compound and overbroad.
Plaintiffs also object to Interrogatory No. 2 to the extent it calls for the revelation of inf01mation
protected by the attorney-client privilege, attorney work product doctrine or any other applicable
privilege or doctrine. Plaintiffs further object to Interrogatory No.2 on the grounds that it is
unduly burdensome to the extent it requires Plaintiffs to provide every month, day and year on
which BofA should have issued a Stop Funding Notice, which it had a continuing obligation to
do ~pon the first failure of a condition precedent to an Advance. Subject to the foregoing general
and specific objections, Plaintiffs respond as follows: ·

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Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 6 of 35

Beginning in September 2008 and continuing through March 2009, BofA failed to issue
Stop Funding Notices and improperly disbursed Term Lender funds to the Borrowers in breach
of its obligations under the Disbursement Agreement. BofA's obligation to issue Stop Funding
Notices and to withhold disbursements stemmed, in part, from the following defaults:
•

1

The Lehman Defaults. On September 15,2008, Lehman filed for bankruptcy.
Lehman was the Retail Agent arid the largest R~tail Lender under the Loan
Agreement, dated as of June 6, 2007, between Fontainebleau Las Vegas Retail, LLC
as Bmrower and Lehman Brothers Holdings Inc., individually and as Agent ·for one
or more Co-Lenders, and as L~nder ("Retail Facility"). As such, Lehman's
bankruptcy created a hole in the financing for the Project. Andrei Dorenbaum,
Assistant General Counsel of Highland Capital Management, LP, a Term Lender,
notified J_effSusman at BofA by email on September 26, 2008 that Lelunan's
bankruptcy resulted in a breach of the Financing Agreements and prevented any
further disburse- ents being made. That same day Mr. Dorenbaum discussed
m

the ·

issue with Bill Scott,_BofA's attorney, who conveyed the conversation to BofA
employees including Jeff Susman, Jon Varnell, Bret Yunker, Brandon Bolio, and
David Howard. Other Lenders also expressed concern. On October 22, 2008, Sven
Schlolaut, Vice President at-HSH Nordbank AG, questioned BofA as to whether it
had a right to withhold funding·ifLehman was in default.

1

In addition to the defaults listed below, the Plaintiffs contend that the .failure by the Revolving
Lenders to fund the March Borrowing Notices constituted defaults and breaches that also
prevented BofA from disbursing funds. The Court granted the Revolving Lenders' Motion to
Dismiss claims arising out of their failure to fund the March Borrowing Notices, and the
Plaintiffs have appealed that Order. The Plaintiffs reserve their right to assert such additional
defaults and breaches if they are successful on appeal.

-6-

Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 7 of 35

•

Lehman failed to :fund the September 25,2008 Advance Wlder the Retail Facility,
which was funded instead by Fontainebleau Resorts, LLC ("FBR") ori September 26,

2008. BofA knew that FBR was considering funding Lehman's obligations and also
knew that such funding would cause various conditions precedent to funding under
the Disbursement Agreement to fail, thereby preventing any disbursements from
being made.
•

Jim Freeman ofFBR infmmed BofA that FBR was considering funding Lehman's
share of the September Advance. Before and/or shortly after the September Advance
was funded, BofA learned that FBR had in fact funded Lehman's share. BofA
learned this from, among others, TriMont Real Estate Advisors ("TriMont"), the
Servicer under the Retail Facility, certain Term Lenders, including Highland Capital
Management, LP,2 and certain industry analysts, 'including John Maxwell at Merrill
Lynch.3 .

•

At a minimum, BofA knew facts that put it on notice that FBR had paid Lehman's .
share of the September Advance. BofA had no information to suggest that Lehman
was paying its ol?liga:tions under the Retail Facility after it filed for bankruptcy.

9n September 26,2008, Andrei Dorenbaum emailed Bill Scott, BofA's attorney, and Jeff
Susman notifying BofA that ·
to the current
· Lehplan cannot make its
....--•u., under the retail

2

On
Dorenbaum
confirmation that the retail lenders funded and that
talked to Bill Scott and discussed the need
equity funding for the retail lenders does not satisfy the conditions precedent to nmding. Kevin
Rourke then emailed David Howard a summary of that conversation. On October 13, 2008, Mr.
Dorenbaum emailed Mr. Scott, notifying BofA that Lehman did not make the September 2008
payment.
.
.
3 On October 3, 2008, a Merrill Lynch analyst, John Maxwell, reported that equity sponsors

fi.mded the amount required from Lehman on the retail facility in September, 2008. This email
report was forwarded to John V3!Uell on October 10, 2008 by Kevin Rourke.
·

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Moreover, after the September Advance was paid; the Borrowers and FBR refused to
provide answers to express questions from BofA and others regarding the source of
funding for Lelunan's share of the September Advance. BofA knew that FBR was
responding evasively to these questions4 and that it was doing so on the advice of its
counsel. .Jim Freeman informed BofA representatives that FBR's counsel had
instructed him to- lini.it what information he provided regarding the funding of
Lehman's share of the September Advance. Freeman's non-responsive answers to
direct questions concerning the funding of Lehman's share of the September Advance
informed BofAthat someone other than Lehman had funded Lehman's share of the
September Advance. BofA's knowledge that FBR's counsel had asked Freeman to
limit what he said further informed BofA that FBR's counsel considered the fact of
Lehman's non-payment to be prejudicial to FBR's interests. Rather than act on this
knowledge as it was required to do under the Disbursement Agreement and in order
to create an appearance of plausible deniability, BofA turned a blind eye. BofA
knowingly and intentionally refused to demand that Freeman or FBR provide a
responsive, non-evasive and truthful answer to the ques~on of who funded Lehman's
share of the September Advance and refused to take steps to determine the answer to
that question from independent sources. As a result, FBR was permitted to and did
. pay all or portions of Lehman's obligations under the Retail Facility, as set forth
below.
~

The Borrowers and FBR a.lso refused to agree to a meeting with the Term Lenders to
explain the Lehman funding issue. In light of the information it had ft.·om FBR, BofA

4 On October 9, 2008, Kevin Rourke informed Jeff Susman and David Howard that a memo
posted by Fontainebleau did not address Highland's concerns.

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Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 9 of 35

understood that this unexplained refusal was a red. flag warning that the Borrowers
.
.
and FBR were concealing the fact that they had paid Lehman's share.
•

Consistent ·with its oQligation under the Disbursement Agreement to exercise
conunercially r~asonable effo.rts and to utilize commercially prudent practices in ·
administering the construction loan and in disbursing funds, BofA had a duty to
determine the true facts. BofA had the ability to do so by, among other things,
demanding a non-evasive answer from FBR and the Borrowers, by asking TriMont
and/or by asking Lehman. It failed to do so and instead continued to disburseTerm
Lender funds to the Borroyvers.

•

Lelnna~ ftuther tailed to fund, monthly advances under the Retail Facility on

December 29,2008, January 26,2009, February 25, 2009 and March 25,2009 as
required by the December 2008 through March 2009 Advance Requests. These
advances were funded in part by ULLICO and in part by FBR. In connection with
each suclt advance, TriMont informed BofA that ULLICO had funded Lehman's
share of the advance. BofA knew or should have known that Lehman's failure to
fund these advances was a lender detault under the Retail Facility that caused various
conditions precedent to :ftmding under the Disbursement Agree!fient to fail. BofA
nonetheless continued to disburse Term Lender funds to the Borrowers. -

In light ofFBR's known
concealments in September, BofA had a heightened duty to ensure that FBR was not
continuing to fund on behalf of Lehman. ·

.

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35

•

As described below, Lehman filing for bankruptcy (on September 15, 2008) and
every time Lehman failed to fund its commitment under the Retail Facility (on
September 25, 2008, December 29,2008, January 26, 2009, February 25,2009 and
March 25, 2009) resulted in various conditions precedent to funding to fail and
obligated BofA to issue a St<?P Funding Notice and to refuse to disburse funds.
BofA's obligation to do so continued day-to-day since the date of the first of these
events.

•

In Balance Defaults. Since May, 2008, BofA knew or should have known that the
Borrowers were concealing change orders and failing to provide budgets and other
required reports for the Project that accurately reflected the anticipated costs to
complete construction. Specifically, on May 28, 2008, Borrowers' CFO Jim Freeman
sent Jeff Susman, John V ameli and Bret Yunker a change order schedule showing
that there were approximately $201 million of change orders that had not previously
been disclosed· A large number of these change orders had been known to the
.
Borrowers for nearly a year. BofA did nothing to determine whether the change
orders were pending before they were-disclosed or whether there were any .additional
change orders, which both IVI and BofA believed existed.

•

In the tourth quarter of 2008, IVI again raised concerns about the comi?leteness and
accuracy of the information the Borrowers were reporting to BofA. Lenders also
expressed their concerns. On December 15, 2008 MaryKay Coyle, a Managing
Director at Deutsche Bank, emailed IVI and BofA questioning how ·the Project can
still be in balance and reporting that she had heard that there were cost overruns and
mat Moelis had been retained.to raise additional equity to fund the overruns. Having

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Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 11 of
35

received no response; she followed up about her concerns with BofA by email on
December 22,2008.
•

IVI's concerns continued in January and February 2009 as evidenced by IVI's
January 30; 2009 Project Status Report. IVI was n?t only conceme~ that all the
subcontractor claims had not been fully incorporated into the report but also that
LEED credits were not meeting projections. IVI believed that reporting the LEED
credits accurately could increase the Project costs by $15 million. The Lenders
continued to express concern. On February 12,2009, Mark Costantino, Executive
Director of JP Morgan, wrote to BofA concerned about "the status of the analysis of
subcontractor costs and potential cost overruns and the investigation of the LEED
credits." BofA was also concerned and sent a fetter to the Borrowers on Febmary 20,
2009 .inquiring about IVI's concerns. Borrowers' response to BofA's letter, however,
failed to answer BofA's questions. Borrowers further refused to meet with BofA and
the Lenders, strengthening BofA's concerns about the status of the Project and the
Borrowers' veracity.

•

IVI repeated its·concems in its March 3, 2009 report stating that "all subcontractor·
claims have not been ful~y incorporated into the report and potential acceleratipn
impact to meet the schedule has not been included" and that "the LEED credits are
tracking behind projections." IVI's skepticism regarding the information that the
Borrowers were providing was further expressed in a letter to the Borrowers dated
March 5, 2009, in which IVI explained: "At this point in the project, it is hard to
believe that there are no additional costs or claims out there." S-hortly thereafter, the
Borrowers reported that the Project was $35 million over budget and, after further
discussions with IVI, ultimately increased this amount to $50 million.

-ll-

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35

•

The Borrowers' March 11, 2009 Advance Request that did not include the additional
costs that had· been disclosed _ as rejected by IVI: BofA knew that IVI was still
w
concerned about the Borrowers' failure to accurately report cost information and that
I

.

IV!' s statements were inconsistent with the Borrowers' statements. IVI suggested
auditing :the Borrowers to certify the information they presented. BofA, however,
declined to direct IVI to do so.
•

Further increasing BofA.'s concern that the Borrowers were not providing accurate
I

information, the Borrowers proposed that BofA enter into a pre:-negotiation
agreement V':'ith them in early March 2009.
•

IVI approved a revised Advance Request on March 24, 2009, one day before the
Scheduled Advanc;:e Date. The In B~ance Report submitted with that Advance
Request reflected a positive "in balance" of approximately $14 million (less that the
I

$15 million in LEED costs that IVI believed the Borrowers had not reported).
I

Neverthel_ ss, BofA approved the Advance Request and disbursed the Term Lenders'
e
'

money to the Borrowers.
•

Only two weeks after BofA distributed approximately $135 million of Term Lender
loans on March 25,2009, the Borrowers provided BofA with change orders and
anticipated change orders totaling over $350 million, nearly $190 million of which
were admitted to be for previously committed construction costs. Had accurate
budget and change order information been reflected in the In Balance Test, it would
have shown that the In Balance Test tailed.

·-4

As explained below, the failure of the Borrowers to report known cost overruns and
the fact accounting for those costs resulted in the Project being out of balance resulted
in various conditions precedent to funding to fail and obligated BofA, upon learning

-12-

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Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 13 of
35

of the cost overruns to issue a Stop Funding Notice and to refuse to disburse funds at
latest by December 2008. BofA's obligation to do so continued day-to-day since that
time.
•

The Bank of Nevada Defaults. First National Bank of Nevada was a Revolving
Lender, an Initial Term Lender and a Delay Draw Term Lender under the .Credit
.
Agreement dated June 6, 2007 ("Credit Facility"). The Bank ofNevada was ~eized
by federal regulators on July 25, 2008. The Federal Deposit Insurance Corporation
was appointed as Receiver. On October 15,2008, Mutual of Omaha, who acquired
Bank of Nevada's retail customers' assets, informed BofA that the FDIC was
repudiating the Bank ofNevada's obligations under the Credit Facility, which FDIC
confirmed in.a letter to BofA on December 19,2008. Thereafter, Bank of Nevada
faile~

to fund its commitment in connection with the February 13, 2009 and March 9,

2009 Notices of Borrowing. The commencement ofthe action seeking to appoint
FDIC as Bank ofNevada's receiver (on, at the latest, July 25, 2008), the FDIC's
repudiation of the Bank ofNevada's obligations (on, at the latest, December 19,
2008), and Bank ofNevada's subsequent failure to fund its obligations (~n February
and March 2009) each·individually constitUted a default under and a breach of the
Credit Agreement and caused various conditions precedent to funding under the
Disbursement Agreement to fail, triggering BofA's obligation to issue a Stop Funding
Notice. BofA's obligation to do so continued day-to-day since the date of the fust of
these events. BofA nonetheless continued to disburse Term Lender funds to the
Borrowers. BofA's breach of its duties did not hrum the Term Lenders until
September 2008 when it began improperly d.isbursing the Term Lenders' funds.

-l3-

-----

-------------------------------------------------------------

Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 14 of
35

•

The Term Lender Defaults. Z Capital Finance LLC, Copper River CLO Ltd, LFC2.
Loan Funding LLC, Orpheus Funding LLC, Orpheus Holdings LLC, and Sands Point
Funding Ltd ("Defaulting Term Loan Lenders") were Delay Draw Term Lenders
under the Credit Facility. In March 2009, these Defaulting Term Loan Lenders failed
to fund the March 9, 2009 Notice of Borrowing in breach of their obligations under
the Credit Agreement. BofA was notified of these breaches and resulting defaults by
the Defaulting Term Len_ ers
d

wh~n they refused fqnd

as evidenced by ;BofA's letters

to the Defaulting Term Lenders dated March 9, 2009 and March 12,2009 confirming
that the Defaulting Term Lenders' were not funding. The Defaulting Term Lenders'
breaches of the Credit Agreement on March 9, 2009 caused various conditions ·
precedent to funding under the Disbursement Agreement to fail and triggered BofA's
obligation to issue a Stop Funding Notice. BofA's obligation to issue a Stop Funding
Notice continued day-to-day thereafter until the breaches were cured. BofA
nonetheless continued to disburse Term Lender funds to the Borrowers.
The Lehman Defaults, the In Balance Defaults, the Bank ofNevada Defaults, and the
Term Lender Defaults (collectively, the "Defaults") each constituted a "Default" and an "Event
of Default" under the Disbursement Agreement. An Event of Default under the Disbursement
Agreement includes any event listed in Article 7, including the occurrence of an "Event of
Default" under any Facility" Agreement (which includes the Credit Agreement). A Default under
the Disbursement Agreement includes any event listed in Articl~ 7, whether or not any
requirement for the giving notice, the lapse of time, or both has been satisfied, and the

-14-

Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 15 of
35

~ccurrence of any "Default" under any Facility Agreement (which inciudes the Credit
Agreement and the Retail Facility Agreement).
•

5

The pisbursement Agreement. Secti~n 7 .1.4(a) of th~ Disbursement-Agreement
provides that it is an Event ofD.efault if the Project Entities "fail to petform or
observe any of their respective obligations under Section[] ... 6.4 .. .. " Under Section
6.4, the Project Entities. covenant and agree that they will not "[d]irectly or indirectly,
amend, modify .. . any Line Item Categories or other provisi9ns of thy Resort
Budget..." except as provided therein. Under section 6.4.1(d), "[i]ncreases to the
aggregate amount budgeted for any Line Item Category in the Resort Budget will
only be permitted to the extent the increase does. not result in the failure of the In
Balance Test to be satisfied." As the Borrowers' additional change orders, which
BofA knew or should have known the Borrowers were concealing, increased the
budget and caused the In Balance Test to fail, there was an Event of Default under
Section 7.1.4(a).

•

Section 7.1.3 of th~ Disbursement Agreement provides that it is an Event of Default if
"any representation, warranty or certification confirmed or made. · by any of the
..
Project Entities ... shall be found to have been incorrect when made or deemed to be
made." As described above, the In Balance Defaults constituted Events of Default
tmder the Disbursement Agreement. As described below, beginning with Lehman's
bankruptcy in September 2008 and extending through the Term Lender Defaults in
· March 2009, the Lehman Defaults, Bank ofNevada Defaults, and Term Lender
Defaults constituted, individuaily and collectively, Defaults and Events of Default

5

D.A. Ex. A.
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Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 16 of
35

under the Credit Agreement and therefor~ the Disbursement Agreement. The
Lehman Defaults, In Balance Defaults, Bank ofNevada Defaults, and Term Lender
Defaults also prevented multiple conditions precedent from ~eing met. Each ·
Advance Request submitted by Fontainebleau from and after September 2008 (as
well as the re-certification on September 26, 2008), however, certified that no
Defaults or Events of Defaults existed and that all conditions precedent to the
Advance were satisfied. All such certifications were false and thus constituted Events
of Default tmder Section 7.1.3(c) of the Disburs~ment Agreement. .In addition, on
each Advance Date the Project Entities represented and warranted: (1) under section
4.9.1, that there was no default or event of default under any of the Financing
Agreements, which as described below was rendered false by the Lehman Defaults,
the Bank of Nevada Defaults and the Term Lender Defaults, (2) under section 4.~.2,
that there was no Default or Event of Default under the.Disbursement Agreement,
which was not true upon the occurrence of the In Balance Defaults, the Lehman
Defaults, the ·Bank ofNevada Defaults and/or the Term Lender Defaults as discussed
above; (3) under section 4.14, that the In Balance Test was satisfied as of the
Advance Date, which was rendered false by the In Balance Defaults; and (4) under
section 4.17 .2, that the Remaining Cost Reports, "with respect to the Project Costs
previously incu~ed, is true and correct in all material respects ... ", which was
similarly rendered false by the In Balance Defaults·. Each false representation
constituted another Event of Default under Section 7.1.3(c).
•

The Credit Agreement. A "Default" under the Credit Agreement means "any of the
events specified in Section 8 whether or not any requirement for the giving of notice,
. the lapse of time, or both, has been satisfied." An "Event of Default" is "any of the

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Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 17 of
35

events specified in Section 8 provided that any requirement for the giving notice, the
lapse of time, or both; has been satisfied." Section 8G) provides that the breach by
"any ?erson" of a "Material Agreement" (which includes the Credit Agreement and
6

the Retail Facility Agreement) constitutes a Default and an Event of Default (after
the giving of any applicable notice and the expiration of any applicable grace
period); provided the occurrence of sue~ a breach shall only constitute

an Event of

Default if such breach could reasonably be expected to result in a Material Adverse
Effect and continues unremedied for thirty days after the Companies become aware of
the breach_ the Companies received written notice from the Administrative Agent
or
or any Lender of the breach. Thus, the failure of the Project Entities to receive full
funding under the Retail Ag~eement and the Credit Agreement individually and
collectively constituted Defaults under the Credit Agreement. .FlUiher, as the failure
to obtain commitments to fill the financing holes left by these Defaults threatened the
completion of the Project, which was the primary collateral for the repayment of the
Term Lender loans, and thus could and would, if not cured, result in a Material
Adverse Effect, each of the Defaults individually and collectively constituted Events
of Default under the Credit Agreement:
Each of th~ Defaults also constituted a failure of multiple conditions precedents,
requiring BofA to issue Stop Funding Notices upop. their occurrence and every day thereafter
until and unless cured, and to withhold disbursement of funds, including:

6

C.A. Schedule 4.24, ~ 11.
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Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 18 of
35

•

Section 3.3.2 provides: "Each representation and warranty" of ... [e]ach Project EntitY
set forth in Article 4 ... shall be true and correct in all material respects.as if made on
such date."

•

In Section 4.9.1, th~ Project Entities represent and warrant that "[t]here is no default
or event of default under any of the Financing Agreements." The Financing
Agreements include the Disbursement Agreement, the Credit Agreement, and the
7

Retail Facility Agreement. The Lehman Defaults constituted a default of the Retail
Facility Agreement. The Retail Facility .defines "Lender Default" to be «the failure or
refusal (which has not been retracted in writing) of a Lender or Co-Lender to make
available its portion of ariy Loan when required to be made by it hereunder." A
"Defaulting Lender" is defined, in pertinent part, as "(i) any Lender or.Co-Lender ·
with respect to which a Lender Default is in effect" and "(ii) any Lender or CoLender that as a result of any voluntary action is the subject (as a debtor) of any
action or proceeding (A) under any existing or future law of any jurisdiction ...
relating to bankruptcy, insolvency, reorganization or rel~ef of debtors .... " Similarly,
the Term Lender Defaults and the Bank of Nevada Defaults constituted a default
under the Credit Agreement. The Credit Agreement qefines "Lender Default" as "the
failure or refusal (which has not been retracted in writing) of a Lender to make
available its portion of any Loan required to be made by such Lend~r hereunder." It
defines "Defaulting Lender" as "(i) any Lender to which a Lender Default is in effect,

(ii) any Lender that is the subject (as a debtor) of any action or proceeding (A) under
any exi.sting or future laws of any jurisdiction ... i·elating to bankruptcy, insolvency,

7 D.A. Ex. A.

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Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 19 of
35

reorganization or relief of debtors ...." Thus, the Lehman Defaults, the Bank of
Nevada Defaults and the Term Lender Defaults rendered false the representation and
warranty in Section 4.9.1 and caused the condition of Section 3.3.2 to fail.

•

In Section 4.9.2, the Project Entities represented and warranted that «[t]here is no
Default or Event of Default hereunder." As discussed above, the Lehman Defaults,
the In Balance Defaults, the Bank ofNevada Defaults and the Term Lender Defaults
·constituted Defa~ts and Events of Defaults under the Disbursement Agreement.

In

addition, as discussed above, the inaccuracy ofthese representations and warranties
and the other false certifications by the Project Entities caused Events of Defaults
under Sectlon 7.1 .3, fmther causing the condition of Section 3.3.2 to fail.
•

Section 4: 14 contains the representation and warranty that the In Balance Test is
satisfied as of the Advance Date. The In Balance Defaults rendered this
repre~entation false,

•

causing Section 3.3 .2 to fail.

Section 4.17.2 makes presentations and warranties.about the Remaining Cost Report,
including that information in the Remaining Cost Reports, '~with respect to Project
Costs previously incurred, is 1;rue and correct in all material respects ... " The In
Balance Defaults also rendered this representation false, causing Section 3 .3 .2 to fail.

•

Section 3.3.3 provides: ·"No Default or Event of Default shall have occurred and be
continuing." The Defaults caused the condition of Section 3.3 .3 to fail.

•

Section 3.3.8 required that the In Balance test be satisfied. BofA knew or should
have known that the Borrowers were concealing change orders and failing to provide
budgets and other requir.e d reports for the Project that acc:rrately reflected the
anticipated costs to complete construction, which prevented the satisfaction of the In
Balance Test by at the latest the December, 2008 Advance Request. In particular, for

-19-

.

Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 20 of
35

the March 25, 2009 Advance, the In Balance Test was not satisfied, as required under
Section 3.3.8. On March 23,2009, the Borrowers advised BofA that it would be
submitting a calculation of the In Balance Test reflecting a razor-thin cushion of only
$13.8 million. That cushion included Available Funds with two incompatible
components: (a) $750 million in "Bank Revolving Availability"; and (b) $21,666,666
under "Delay Draw Term Loan Availability," which represented the defaulted portion
of the Delay Draw Term Loans (excluding First National Bank ofNevada's portion).
Depending on whether "fully drawn" wa~ interpreted to mean "fully funded" or "fully
requested," either the $750 million or the $21,666,666 could be included as Available
Funds- but not both. Further, the Project was in balance by an amount less than the
additional $15 million in LEED costs that rvr:suspected existed. Thus, the condition
set forth in Section 3.3.8 failed.
•

Section 3.3.11 provides: "[T]here shall not have occurred.any change in the
economics or feasibility of constructing and/or operating the Project ... any of which
could reasonably be expected to have a Material Adverse Effect." The failure of the
Project Entities to receive full funding under the Retail Facility Agreement and the
Credit Agreement and the failure to obtain commitments to fill the financing holes
left by the Defaults threatened the completion of the Project, which was the primary
collateral for the repayment of the Term Lender loans, and thus could and would, if
not cured, result in a Material Adverse Effect. In addition, by December 2008, the
mounting undiscLosed cost overruns affected the ability of the Borrowers to construct
the Project and amounted to" a Material Adverse Effect. Further, starting in 2008, the
economic downturn, including the impact of Lehman's bankruptcy, the deteriorating
housing market in Las Vegas, and the lack of condominium sales by the Bonowers

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changed the economics or feasibility of constructing the Project and amounted to a
Material Adverse Effect. This was reflected by the fact that BofA downgraded the
project and referred the credit to its sp~ial assets group. Accordingly, the Section
3.3 .11 condition failed.
•

Section 3.3 .21 provides: "[T]he Bank Agent shall not have become aware ... of any .
information or other matter affecting ... the Project or the transactions contemplated
[by the Disbursement Agreement] that taken as a whole is inconsistent in a material
and adverse manner with the information or other matter disclosed to them
concerning ... the Project, taken as a whole." BofA's knowledge ofthe Defaults was
inconsistent with information disclosed to it by the Borrowers in each Advance
Request from and after September 2008 that stated there were no Defaults.and that all
conditions precedent to the applicable Advance were satisfied. Accordingly, the
Section 3).21 condition failed.

•

Section 3.3.23 provides: 'TT]he Retail Agent and the Retail Lenders shall> on the date
speclfi.ed in the relevant Advance Request, make any Advances required of them
pursuant to that Advance Request." Lehman's failure to fund its sqare of the
September and December, 2008 and the January through March 2009 Advances
under the Retail Facility caused this condition to fail.

•

Section 3.3 .24 provides: "[T]he Bank Agent shall have received such other
documents and e~idence as are customary for transactions of this type as the Bank
Agent may reasonably request in order to evidence the satisfaction of the other
conditions set forth above." Upon the occurrences of the Lehman Defaults and the Iri
Balance Default, BofA could have and should have requested additional information
in order to reconcile the inconsistent facts within its knowledge with the statements

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made by the Borrowers. In most instances BofA failed to do this. When BofA did
request additional information, such as when it requested information concerning who
funded the Lehman share of the September 2008 Advance in a letter dated September
30,' 2008 and information concerning cost overruns in a letter dated·February 20,
2009, the Borrowers refused to answer the questions, thereby causing this condition
to fail.

INTERROGATORY NO.3:
Do You contend that the Disbursement Agent should have issued a Stop Ftmding Notice
under Section 2.5.1 of the Disbursement Agreement because a Default or an Event of Default
occurred?

RESPONSE TO INTERROGATORY NO.3:
P_laintiffs object to Interrogatory No. 3 as vague and ambiguous to the extent it is not
limited in time. Plainti~fs further object to Interrogatory No. 3 because the information sought
by this inte1rogatory is encompassed within the information sought in response to Interrogatory
No. 1. Plaintiffs further object that their claims and contentions are set out in the operative
Complair?.t in this action, which is incorporated herein. Subject to the foregoing general and
specific objections, Plaintiffs respond as follows:
Yes.

INTERROGATORY NO. 4:
If Your response to Interrogatory No.3 is anything other than an unqualified "No":
(a)

state the Date when the Disbursement Agent should have issued the Stop Funding
Notice;

(b)

identify e~ch Default or Event of Default thatshould have resulted in a Stop
Funding Notice's issuance; and

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(c)

for each Default or Event of Default identified in subpart (b), describe in detail
any notification provided by the Controlling Person or a Lender to the
Disbursement Agent, Funding Agent or Bank Agent concerning that Default or
Event of Default, and state the Date of such notification.

RESPONSE TO INTERROGATORY NO.4:
Plaintiff objects to Interrogatory No.4 on the grounds that it is compound and
overbroad. Plaintiffs also object to Interrogatory No.4 to the extent it calls.for the revelation of
information protected by the attorney-client privilege, attorney work product doctrine or any
other applicable privilege or doctrine. Plaintiffs further·object to Int~rrogatory No.4 on the
grounds that it is unduly burdensome because it requires Plaintiffs to provide every month, day
and year on which BofA should have issued a Stop Funq.ing Notice, which it had a ·continuing
obligation to do upon the occurrence <?fthe frrst Default or Event of Default. Plaintiffs further
object to Interrogatory No. 4 on the grounds that it seeks information that is more readily
available to BofA than Plaintiffs or information that is available from other, more convenient,
sources. Plaintiffs further object to Interrogatory No. 4 because the information sought by this
interrogatory is encompassed within the information sought in response to Interrogatory No. 2.
Subject to the foregoing general and specific objections, Plaintiffs respond as follows:
Plaintiffs incorporate their response to Interrogatory No. 2 herein by reference..

INTERROGATORY NO. 5:
Do You contend that any Advance by the Disbursement Agent was improper because
·there was a Default and/or Event of Default under the Disbursement Agreement?

RESPONSE TO INTERROGATORY NO. 5:
Plaintiffs. object to Interrogatory No.5 because the information sought by this
interrogatory is encompassed within the infmmation sought in response to Interrogatory Nos. 1

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Case 1:09-md-02106-ASG Document 377-5 Entered on FLSD Docket 12/04/2013 Page 24 of
35

and 3. Plaintiffs further object that their claims and

~ontentions

are set out in the operative

· Complaint in this action, whi~h is incorporated herein. Subject to the foregoing general and
specific objections, Plaintiffs respond as follows:
Yes,

INTERROGATORY NO.6: ·
If Your response to Interrogatory- No.5 is anytping other than an unqualified '.' No":
(a)

·identify each Advance by the Disbursement Agent that you contend was
Improper;

(b) ·

identify every Default or Event of Default that you contend made. the Advance
improper and state the Date on which each such Default or Event of Default
occtirred; and

(c)

identify all notifications from a Lender to the Bank Agent or Disbursement Agent
of a Default or Event of Default.

RESPONSE TO INTERROGATORY NO.6:
Plaintiff objects to Interrogatory No. 6 on the grounds that it is compound and overbroad.
Plaintiffs also object to Interrogatory No. 6 to the extent it calls for the revelation of information
protected by the attorney-client privilege, attorney work product doctrine or any other applicable
privilege or doctrine. Plaintiffs further object to Interrogatory No. 6 on the grounds that it seeks
i,nformation that is more readily available to BofA than Plaintiffs or information that is available
from other, more convenient, sources. Plaintiffs further object to Interrogatory No. 6 because the
infmmation sought by this interrogatory is encompassed within the information sought in
response to Interrogatory Nos. 2 and 4. Subject to the foregoing general and specific objections,
Plaintiffs respond as follows:
Plaintiffs incorporate their response to Intenogatory No.2 herein by reference.

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