As we discussed in our Nov. 21 blog post, a group of 46 investors and hedge funds have filed a $700 million lawsuit against the developers of the stalled Fontainebleau casino and resort on the Las Vegas Strip. The plaintiffs leveled an array of allegations against Fontainebleau Resorts LLC and Turnberry West Construction Inc. and the companies’ executives. For instance, plaintiffs say that the defendants covered up cost overruns and other problems associated with the 2008-9 recession while convincing investors to put more money into the project.

The defendants in this complex business litigation denied defrauding investors and at a Nov. 21 hearing asked the Clark County District Court to dismiss the lawsuit on the grounds that some of the plaintiffs were not original investors but hedge funds that had bought the debt owed by Fontainebleau. Defense attorneys argued that Nevada law prevents parties with assigned debt to sue the debtor for fraud.

But in a ruling dated Dec. 7, the judge presiding over the case denied most of the defendants’ motion to dismiss. He said that whether all of the plaintiffs have standing to sue can be determined later in the legal process. He also found that plaintiffs had provided enough detail into how Fontainebleau and Turnberry West had allegedly defrauded investors to avoid dismissal, though he dismissed similar claims against individual officers with those companies.

Some of the other claims were also dismissed, but the bulk of the suit will now move forward into the discovery stage, where both sides will gather evidence.

Source: VEGAS INC, “Fontainebleau Las Vegas fraud lawsuit to continue,” Steve Green, Dec. 7, 2011