Lucky Dragon Hotel & Casino – Debtors Accuse Snow Covered of Running “Parallel Disposition Transaction”

October 19, 2018 – Lucky Dragon Hotel & Casino (“Plaintiffs’’) filed a complaint against Snow Covered Capital [Docket No. 894]. The Plaintiffs allege, “The Lucky Dragon Hotel and Casino primarily consists of 2 entities. The LP, which owns the real estate and improvements at 300 West Sahara Avenue, Las Vegas, Nevada (the ‘Property’), and employed 68 full time and 30 part-time people. The gaming, hotel and resort operations are then owned and controlled by the LLC, which also leased the employees from the LP. The capital structure between the companies includes…2 loans from Snow Covered, including an initial construction loan facility, as well as a revolving loan. More pointedly, on or around May 3, 2016, Snow Covered loaned the LP $30,000,000, as well as an additional $15,000,000 on a revolving basis, pursuant to a construction loan agreement, a secured promissory note, and a line of credit note, each dated on or around May 3, 2016 (collectively, the “Loans”). The Loans were secured by, among other things, a construction deed of trust with assignment of leases and rents, security agreement and fixture filing, dated May 3, 2017 (the “Deed of Trust”), covering the Property. Snow Covered admits its liens do not extend to the assets of the LLC. The Deed of Trust was recorded on May 11, 2016 as Document No. 2016-5ll-0002786. 

 

On September 1, 2017, Snow Covered recorded a Notice of Default with the Clark County Recorder, starting the foreclosure process with respect to the Property. The Debtors understand the foreclosure sale is now set for October 30, 2018….Following a review of a portion of the documents produced by Snow Covered, it now appears the lender engaged in a parallel disposition transaction process for the Lucky Dragon assets….In order to effect a successful sale process, Innovation Capital introduced potential bidders to Snow Covered with the expectation that Snow Covered would work within the Debtors’ court-approved sale process, especially given the fact the Debtors’ exclusivity period had been extended. Instead, Snow Covered used these introductions (and the information it received through its discussions with Innovation Capital) for its own agenda. Indeed, it has become apparent that Snow Covered’s goal was to stymie the Debtors’ sale efforts, use the fruits of that process, and effect a sale transaction solely for Snow Covered’s benefit.

 

Upon information and belief, the Plaintiffs contend it is Snow Covered’s plan to sell the Property quickly and move the proceeds out of the Defendant’s custody and control. Alternatively, the Plaintiffs believe that upon the foreclosure of the Property, it is Snow Covered’s intent to remove the Property from the Defendant’s custody and control….In the absence of any credible evidence to prove that Snow Covered possesses any amount of meaningful assets, the Debtors are justified in their fear that following the sale of the Property from Snow Covered to a third-party, the Debtors will be left with no source to collect the funds at issue should they ultimately prevail on the Surcharge Motion. Accordingly, the Debtors file this Complaint asking that this Court: (i) enjoin Snow Covered from selling the Property; and/or (ii) direct Snow Covered to place and maintain $4,000,000 in a segregated account to account for administrative expenses incurred in the Debtors’ jointly-administered cases.”