Assignment 3

Name: Emil Alturk & Meghana Thammareddy

(Team 2)

Course: The Internet law &policy Issues

(MGMT 688)

Area of focus: The MGM Mirage Case

Instructor: Prof. Diana Walsh

July 9, 2015

Date:

Case Number and Citation:

The case is Infinity World Development Corp. v. MGM Mirage,
CA4438, Delaware Chancery Court (Wilmington).
Facts:
MGM Mirage and Infinity World, a subsidiary of Dubai World,
undertook a joint venture to develop a 67-acre parcel in Las
Vegas. The purpose was to create a mixed-use residential, resort,
and retail complex. MGM managed the permitting and
construction while Infinity provided marketing and financing
arrangements. During this time economic conditions became
dire; they agreed to scale down the project, but construction
costs skyrocketed and MGM asked Infinity to make capital
contributions far exceeding original estimates. Then in MGMs
next 10-K filing, the company stated, There is substantial doubt
about our ability to continue as a going concern. Infinity filed
suit for a declaratory judgment to relieve it of obligations under
the JVA, asserting that MGM was in default of the agreement.
Detailed Case Understanding and Summary
Kirk Kerkorians MGM Mirage was sued by state-owned Dubai
World, which claimed the casino company violated their
agreement to build the CityCenter project on the Las Vegas strip.

Infinity World Development Corp. asked to be relieved of its

obligations under the joint venture, according to the lawsuit filed
yesterday in Delaware Chancery Court. The unit of Dubai World
accused MGM Mirage of breaching an agreement to jointly
design, construct and operate the development.
Dubai World is moving to protect its half-interest in CityCenter
and is placing a higher priority on that project than its 9.4
percent stake in MGM Mirage, said Michael Paladino, an analyst
with Fitch Ratings in New York. Dubai World is the secondlargest MGM shareholder behind Kerkorians 54 percent, and at
current prices, its stake in the parent company is worth about
$76 million.
Its not a good sign for the continued viability of MGM itself,
Paladino said today in an interview. The lawsuit is seeking to
preserve the CityCenter joint venture, but that is clearly a
negative sign for the MGM Mirage corporate credit.
Fitch Ratings today reduced its issuer default rating on the
company to C from CCC.
Yvette Monet, an MGM Mirage spokeswoman, had no immediate
comment on the complaint.
MGM Mirage rose 6 cents to $3.11 at 4:15 p.m. in New York
Stock Exchange composite trading. The shares have plummeted
77 percent this year. Last week, the company won a two-month

reprieve from banks to come up with a debt restructuring plan as

auditors questioned its ability to stay in business. Banks granted
the company covenant waivers on a $7 billion bank-loan facility
until May 15 of 2009

Plaintiff and Defendant arguments:

Plaintiff : Dubai World filed suit for a declaratory judgment to
relieve it of obligations under the JVA, asserting that MGM was
in default of the agreement.
Defendant: MGM claiming that losing its financial partner may
increase the financial pressure and lead to bankruptcy.
Issue:
1. Decide whether or not MGM was in default?
2. Are there any options to solve the problem?
Answer:
1. MGM was in default since it is responsible in the joint
venture for managing and permitting the construction while
Dubai world was the financier of the project and when
economic conditions became dire the construction costs
became very high exceeding the budget that was agreed on
with Dubai world in the joint venture which is a an alliance
between two companies for a defined and limited purpose

where in an agreement these two companies contribute

products or services for a common enterprise so based on
that the initial budget was agreed upon between the two
parties but when the construction budget became higher it
is not the responsibility of Dubai world to pay the difference
in price which will be a breach of the agreement and not as
the written budget in the contract so it has to sue MGM
since it can't handle the expenses and be relieved of the
joint venture agreement.
And more over this section seeks a judicial declaration that
MGM has defaulted on its obligations in connection with a
joint venture with Infinity to design construct and operate a
development on the Las Vegas Strip in Las Vegas, Nevada
called City center (the joint venture). In particular. The
agreement governing the joint venture includes as an event
of the default a written admission by MGM of its inability to
pay its debts as they mature; MGMs material breach of a
representation and warranty; or a breach by MGM of any of
its obligations under the JV agreement. A default in a one of
these area would be a event of default that relieves Infinity
of its obligations; MGM has defaulted in all three.

2. MGM and Dubai world have 4 options which are:

After a detailed discussions about the case and consequences

of the case we have arrived at four alternative and obvious
choices to solve the problem and they are as follows
To cancel the joint venture agreement which will force
MGM to look for a new corporation to fund the project.
To cancel the old joint venture agreement and make a new
one based upon the new budget or a budget they both agree
on that Dubai world financial capital is capable of handling.
To keep the joint venture agreement but look for a third
company to join the agreement as a financer to help Dubai
world handle the expenses and continue the project.
To find a way to reduce the construction expenses by
making an audit between the two companies and make a
third neutral company check it to reach an agreement on
the budget.
But in the due course of the case and court proceeding
The casino company said March 17 that it would finish the
CityCenter on schedule. Once it opens in December, cash flow
from the project will exceed potential savings from postponing
construction, MGM Mirage Chief Executive Officer James
Murren said on a conference call that day.
Infinitys complaint alleges that MGM Mirage has lowered its
total revenue estimates for the project from $2.2 billion in
October to $1.6 billion this month.
Infinity is seeking a court order excusing the company from all
future performance under the joint venture agreement and an
award of unspecified damages.

The Fitch downgrade affects MGM Mirages $7 billion credit

facility, $6.2 billion of outstanding senior unsecured debt, $848
million of outstanding senior subordinated debt and $750 million
of senior secured notes, the New York-based rating company said
today in a statement. Fitch said it wouldnt provide a rating
outlook due to the high level of credit risk inherent in a C
rating.
Dubais Dalton said the company is anxious to see MGM
Mirage work out its financial problems.
We dont believe May 15 is very far away and there is absolutely
no certainty that MGM is going to be able to continue after that
date, Dalton said. We want to see some certainty in the long
term before we want to continue with our obligations under the
joint venture.

Rule:
1. Basic requirements for a contract:
a.Mutual assent (Offer & acceptance)
b. Consideration: Something of legal value given in exchange for
a promise
2.Joint Venture agreements definition (JVA): They are strategic
alliances for a limited purpose with two entities agreeing to
contribute products or services for a common enterprise. Each
entity retains ownership of their assets , and any joint venture
profits are taxes according to each entity's status.