By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Resorts World Bimini's first developer was yesterday granted one final chance to perfect a $600m damages lawsuit against its Genting partner for allegedly turning the project into "a financial wasteland". 

Judge Joan Lenard, sitting in the south Florida federal court, ruled that the initial claim launched by Gerardo Capo's RAV Bahamas "cannot proceed" because it failed to name BB Entertainment, Resorts World Bimini's immediate holding company, as a party in the action.

She found the claim "must be brought on behalf of" BB Entertainment, in which RAV Bahamas has a 22 percent minority equity stake, because all the lawsuit allegations are derived from purported "wrongful conduct" that harmed Resorts World Bimini's holding company.

As a result, Judge Lenard determined that BB Entertainment is "an indispensable party" to the dispute with the Malaysian resort and gaming conglomerate. Its non-inclusion meant RAV Bahamas' original lawsuit was dismissed, but the judge has now given Mr Capo and his family 21 days in which to file a new lawsuit that addresses the flaws she identified.

With the Resorts World Bimini battle kept alive for at least another three weeks, Judge Lenard wrote: "This case concerns a business relationship gone wrong. RAV partnered with Genting to develop and operate a casino resort in The Bahamas.

"Genting, a Delaware corporation and worldwide resort operator with its Resorts World branded properties, 'convinced RAV that, together, they could build a world class resort and casino in Bimini, which would yield significant returns for RAV'. RAV, a Bahamian corporation and large landowner on Bimini, sought Genting’s resources and expertise and contributed the 20 acres on which the resort sits."

BB Entertainment, a Bahamian-domiciled company, was incorporated to develop, own and operate Resorts World Bimini, the island's largest investment and so-called 'anchor project', which employs hundreds of Bahamians. It was initially owned 50/50 by Genting and RAV Bahamas, with the Malaysian conglomerate holding its ownership through a separate Bahamian entity, BB Investment Holdings.

Ultimately, RAV Bahamas' ownership stake was diluted to its present 22 percent, with Genting now holding 78 percent. "To RAV’s dismay, Resorts World Bimini has been a financial failure. BB Entertainment has not distributed any profits to RAV and the venture has racked up nearly $1bn in debt," Judge Lenard wrote.

"RAV alleges the debt is illegitimate and Genting is responsible, as it has deliberately '“used BB Entertainment as its financial wasteland'. RAV claims that Genting’s fraudulent accounting practices have drowned BB Entertainment in illegitimate debt to diminish the value of RAV’s shares.

"In sum, RAV alleges Genting schemed to steal its land such that 'if and when the.. resort is sold, RAV would never realise any money from that sale and would never receive any money for the land and licences it contributed."

RAV Bahamas' original lawsuit, which alleged multiple counts of fraud, negligence and tortious interference against Genting, invoked the south Florida district court's "diversity jurisdiction" because it involved corporate entities domiciled in The Bahamas and New York that are outside its jurisdiction.

It is essentially accusing Genting of using its 78 percent majority ownership, plus Board and management control, to conceal how it funnelled hundreds of millions of dollars in liabilities incurred elsewhere in its global empire on to the Bimini resort’s books.

In response, Genting Americas and its affiliates have vehemently denied all of RAV Bahamas’ various assertions. They, in turn, have accused their minority partner of trying “to extract an exorbitant payment” by mounting its $600m damages claim, while also seeking to “inflict severe reputational damage” on the publicly-listed resort, gaming and leisure group through a series of “baseless” allegations.

And the Malaysian conglomerate, in seeking to dismiss the lawsuit, asserted that RAV Bahamas' claims "must be brought in a derivative shareholder action with BB Entertainment joined as a nominal defendant". This was because BB Entertainment, rather than RAV Bahamas, is the entity suffering direct damage if the allegations are true, rather than the latter, whose harm is "derived" or indirect.

Genting added that, if the south Florida court was to find BB Entertainment should be joined as a defendant, it would defeat use of the "diversity" clause because both the latter entity and RAV Bahamas are domiciled in this nation.

"As to direct harm, all five counts of RAV’s complaint allege that Genting caused illegitimate expenses and debt to be recorded on BB Entertainment’s books," Judge Lenard wrote. "Here, the complaint’s core allegation is that Genting engaged in self-dealing and financial misconduct by burdening BB Entertainment with illegitimate or excessive debt, thereby depleting the value of the company’s primary asset - land originally contributed by RAV.

"While RAV may perceive this as a personal injury stemming from the loss of the value of its land, the land was contributed to BB Entertainment and thus became a company asset. Any diminution in value resulting from mismanagement or fraudulent encumbrances harms BB Entertainment directly, and RAV only derivatively, in its capacity as a shareholder.

"Because RAV’s alleged injury flows from the initial harm to BB Entertainment, RAV fails to establish 'direct harm'," the judge added. "In its [reply] RAV attempts to recast its allegations asserting it 'is unequivocally the only victim in this case because the illegitimate debt effectively wipes out RAV’s entire contribution, while not harming BBE and benefitting BB Investment Holdings'.

"Specifically, RAV argues that 'the illegitimate debt placed on BB Entertainment’s books is not a harm to BB Entertainment' as it is 'payable only upon BB Entertainment’s death' and 'only one shareholder, RAV, feels the illegitimate debt’s harm because the other shareholder, BB Investments Holdings, stands to collect 90 percent of that debt'."

Judge Lenard, branding RAV Bahamas' reasoning as "nonsensical", added: "As discussed, all five counts of RAV’s complaint allege wrongful conduct resulting in increased debt to BB Entertainment. To say the debt did not harm BB Entertainment is nonsensical.

"Debt that a company wrongfully incurs, and cannot pay off, harms the company while it is alive, and insolvency or dissolution is a materialisation of that harm. In sum, the court finds RAV’s reply argument unavailing."

Judge Lenard also rejected RAV Bahamas' claims to have suffered "special injury". Noting that no evidence has been produced to show Genting owed it "any special duty", she added: "RAV contends it suffered a 'special injury' because it contributed land and now claims to have lost the value of that contribution.

"But RAV cites no authority for the notion that the form of a shareholder’s capital contribution, whether cash, services or property, transforms a generalised corporate injury into a personal one.... A loss in value of contributed land is economically indistinguishable from a loss in the value of contributed cash or other asserts.

"In both cases, the shareholder’s alleged harm arises solely from the reduced value of their equity interest - an injury shared equally by all shareholders when the corporation is mismanaged. Allowing a shareholder to pursue direct claims based on the form of the contributed assert would undermine the direct/derivative distinction and open the door to individualised direct claims cloaked in corporate loss."

Judge Lenard said the relief sought by RAV Bahamas, namely the $600m damages and unwinding of debt liabilities alleged to have been improperly incurred, would also benefit BB Entertainment. This, she added, was further confirmation of the case's "derivative nature".

Finding that BB Entertainment must be joined as a party to the lawsuit, the judge ruled: "The court will grant RAV one opportunity to amend the complaint to conform with" her derivative findings and address any repercussions this has for the "diversity" clause given that Mr Capo's vehicle and BB Entertainment are Bahamian entities. RAV Bahamas now has 21 days to file its revised complaint.