Baha Mar's Claim Against Harrah's Is Meritless

Tuesday, 02 February 2010 00:00 News Editor
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A New York judge has delivered a seeming knock-out blow to Baha Mar's legal action against Harrah's Entertainment over their collapsed $2.6 billion Cable Beach joint venture, dismissing the developer's breach of contract, fraud and negligent misrepresentation claims, and branding as "meritless" a key part of its case against the gaming giant.


Judge Charles Ramos, sitting in the New York State Supreme Court, ruled that Harrah's and its Caesars Bahamas Investment Corporation subsidiary "validly exercised their right to terminate" the joint venture agreement with Baha Mar, and that the latter "has no obligation to consummate" the deal to redevelop the Cable Beach strip.

And Judge Ramos's judgment, a copy of which has been obtained by Tribune Business, awarded "reasonable" legal and expert witness fees, plus others costs, to Caesars and Harrah's - giving them, in effect, a complete victory.

While disappointing for Baha Mar, the outcome is unlikely to have any bearing on negotiations with its new Cable Beach redevelopment partners, the China Export-Import Bank and China State Construction. As previously revealed by Tribune Business, all commercial and business issues between the Chinese state-owned entities and Baha Mar have been resolved, and it seems possible that the deal will be sealed in the 2010 first half once both sides' attorneys complete the appropriate legal documents and land conveyancings.

Back on the Harrah's case, Judge Ramos recounted how its Caesars Bahamas subsidiary had sought the court's declaration that it had "properly exercised its right to terminate" under Article 10 of the 'Subscription Agreement', which set out both sides' rights and obligations when it came to contributing equity capital into the joint venture.

Baha Mar, though, had countered that because Caesars Bahamas executed the Supplemental Heads of Agreement with the Bahamian government that was signed on January 31, 2008, it had "committed" itself to the project. As a result, Article 10 could not be used to permit a breach of the Supplemental Heads of Agreement, the developer claimed.

Judge Ramos noted that that Article 10 stated: "This agreement may be terminated, and the transaction contemplated abandoned at any time prior to closing by either investor if the closing has not occurred by March 15, 2007, or such other date, if any, as the investors agree........"

The judgment noted that while Baha Mar and Harrah's both agreed via letter to extend the closing until December 31, 2007, this date had passed and no mutual agreement was reached to extend it as required by the agreement.

Judge Ramos said the "plain language of Article 10 grants either party an unconditional right to terminate the agreements and abandon the project at any time prior to closing".

And he rejected Baha Mar's argument that the signing of the Supplemental Heads of Agreement committed Harrah's to proceed with the project, as it "did not, and could not", have bound the gaming giant in this fashion, dismissing these arguments as meritless.

The judgment noted that Baha Mar and Harrah's were not obliged to contribute their 57/43 share of equity financing to the joint venture company until after the relevant Subscription and Investor agreements were completed.

They were to make a collective $280 million equity injection, with the $2.1 billion balance to come from project financing.

Finding that the supplemental Heads of Agreement did not cut across the ability of Harrah's to terminate its involvement in the project prior to closing, Judge Ramos found: "The Supplemental Heads of Agreement is an agreement between the Bahamian government, Baha Mar Development and the joint venture company.

"Caesars Bahamas itself is not a party to the supplemental Heads of Agreement or the original Heads of Agreement. The original Heads of Agreement is between the Bahamian government and Baha Mar Development Company. Caesars Bahamas executed the Supplemental Heads of Agreement as a shareholder of the joint venture company, and not as a party to the Heads of Agreement or this supplement...."

Conditions

Noting that their agreements set conditions that had to be fulfilled prior to their joint venture partnership closing, Judge Ramos disagreed with John Forelle, Baha Mar's vice-chair and counsel, that the Supplemental Heads of Agreement was the only closing condition that had to be met.

"Baha Mar's assertion that the execution the Supplemental Heads of Agreement was the only relevant condition precedent to closing, and that the parties did not intend to maintain a walk-away right after execution of the Supplemental Heads of Agreement, is meritless," Judge Ramos said.

"Execution of the Supplemental Heads of Agreement was one of at least 19 conditions that had to be fulfilled prior to closing."

The judgment said Baha Mar did not dispute that some conditions had yet to be fulfilled when Caesars Bahamas terminated their agreement on March 6, 2008. And there was nothing to suggest that Harrah's and its subsidiary had abandoned their termination rights, or insistence on these conditions being met prior to closing.

In fact, Harrah's had continued to insist on the latter being fulfilled. Judge Ramos published an e-mail from Scott Wiegand, Harrah's in-house counsel, to Baha Mar in which he said: "It looks as if you [Baha Mar] are seeking our agreement that all conditions to closing are satisfied by this Supplemental Heads of Agreement.

"That certainly isn't the case. There are a list of others, including parliamentary approvals and the like, which remain outstanding."

And a later e-mail from Mr Wiegand said: "We will fix to state that this Supplemental Heads of Agreement satisfies only certain specific conditions precedent in the Subscription Agreement, not all conditions."

Baha Mar then proposed inserting a term in the draft Supplemental Heads of Agreement stating that this "satisfies the conditions for closing" as envisaged by their agreement.

Mr Wiegand, though, responded: "We can't say this. This tees up a larger discussion than the supplemental Heads. This Supplemental Heads of Agreement might satisfy certain conditions in the Subscription Agreement, not all of them, and there remain a number of issues of closing and in the joint venture agreement itself."

Judge Ramos revealed that Baha Mar had twice requested closing date extensions from Harrah's and Caesar's Bahamas.

Request

The first request, on December 29, 2007, had sought an extension to January 31, 2008, and the second, on February 13, 2008, had wanted one until April 30, 2009.

Caesars Bahamas declined both requests, and Judge Ramos concluded: "In light of documentary evidence demonstrating that Caesars Bahamas continued to insist on completion of contractual conditions after execution of the Supplemental Heads of Agreement, Baha Mar fails to establish its prima facie entitlement to summary judgment on its claim for breach of contract."

Judge Ramos said there was evidence "that Baha Mar understood the execution of the Supplemental Heads of Agreement was one of several conditions to closing that remained to be satisfied".

He drew upon a Baha Mar attorney's e-mail, which said that "other things" had to be complete for the joint venture agreement to take effect.

These included finalising an agreement over land purchases/transfers with John Issa, SuperClubs Breezes' owner, Central Bank of the Bahamas approvals and the Parliamentary resolutions (eventually granted) that transferred Crown and Treasury land to the Cable Beach redevelopment project. Harrah's attorney requested that "other things" remain in the Supplemental Heads of Agreement, to which Baha Mar's attorney replied: "We will fix to state that this Supplemental Heads of Agreement satisfies only certain specific conditions precedent in the subscription agreement, not all conditions."

The phrase was removed from the final draft, with Baha Mar's vice-president saying this was done so as to not "risk upsetting the apple cart. For one thing, technically the language doesn't say the Supplemental Heads of Agreement is the sole condition necessary for closing; it isn't exclusive as a matter of plain English interpretation".

As a result, Judge Ramos found that Harrah's and Caesars Bahamas had proven their case for a summary judgment that they were entitled to terminate their involvement in the project.

Source: The Tribune