Las Vegas’s $1.9M fine to Moulin Rouge site tossed by judge

When the city of Las Vegas demolished four properties at the site of the former Moulin Rouge a few years ago, there was no controversy over the $2.2 million cost for the work.

After failed redevelopment and a bankruptcy that left investors on the hook, the site was placed in a court receivership. The properties were considered nuisances, plagued by criminal activity, fires and general deterioration, and the city had declared them an imminent hazard.

But when a designee of the City Council also authorized $1.9 million in civil penalties to be assessed as liens against the properties, the receiver protested. Resource Transition Consultants, LLC, claimed the charges were arbitrary and that the city had exceeded its authority.

Unlike the city’s abatement-related costs, which were supported by Resource Transition Consultants and also assessed as liens, the civil penalties were not approved by the District Court. Instead, the issue was handled through a city administrative hearing.

Now, a Clark County District Court judge has struck down the city’s civil penalties against the properties that comprised the historic Moulin Rouge in a case that appears destined for the Nevada Supreme Court.

A May 2019 decision by council designee John Boyer to authorize the charges was reversed by District Judge Elizabeth Gonzalez on July 8. In her ruling, she wrote that Boyer lacked the power to authorize the penalties “based on the amount in controversy.”

Nearly two weeks later, with the city attorney’s office believing Gonzalez’ ruling to be “legally improper,” the City Council voted unanimously to appeal to the state’s high court.

Attorney Scott Fleming, who represented Resource Transition Consultants in the lawsuit against the city, said he believed there was a “very good chance” that the Supreme Court would uphold the ruling.

“We thought it was a well-reasoned, thoughtful decision,” Fleming said in a recent phone interview.

Overstepping boundaries

Among their bevy of arguments, lawyers for the court-appointed receiver pushed back against the amount of penalties that a city council designee could authorize. They argued that while the city charter provided that misdemeanor violations could go before a “hearing commissioner,” their authority was equal to a municipal judge.

Since the municipal court’s jurisdiction in tax or assessment cases is limited to matters up to $2,500, attorneys said, then the city council designee should have been equally restricted.

Boyer’s authorization of $1.9 million in civil penalties, they said, surpassed his authority by more than 760 times.

But the city’s attorneys rejected the premise that the city council designee was acting as an extension of the court. They said the designee, as someone acting in place of the city council, held authority to impose daily civil penalties under state and city law.

Investors to see small returns

After years of would-be deals, the Moulin Rouge site was officially sold in December for $3.1 million to an Australia-based investment firm planning to construct a casino. The foreign firm, BBC Capital — which assigned its interest to Nevada-based RAH Capital — also assumed liability for nearly $2 million in liens largely associated with tearing down the old buildings.

Three of four parcels were included in the sale, with a buyer option to purchase the fourth. But that fourth parcel also had the bulk of assessed civil penalties, or $1.8 million, making it less attractive.

Kevin Hanchett, the court-appointed receiver, said last week that he expected the buyer would exercise its option on the fourth parcel should Gonzalez’s ruling to vacate all civil penalties hold up.

“We’d love to be able to persuade the city not to take this up on appeal and just let the transaction go through,” Fleming said.

Resource Transition Consultants asked the court earlier this month to approve distributing more than $1 million in sale proceeds to investors. Sale of the fourth parcel would allow another $100,000 to be repaid, Fleming said. But proceeds still only represent a fractional return on investment: More than 350 investors sank $19 million into the Moulin Rouge site in 2006.

In Gonzalez’s decision last month, the judge also ruled that an abatement lien in the amount of $194,000, which had not received court approval, should be vacated as well because Boyer lacked jurisdiction. That lien was unrelated to the four court-authorized abatement liens that totaled $2.2 million.

Contact Shea Johnson at sjohnson@reviewjournal.com or 702-383-0272. Follow @Shea_LVRJ on Twitter.