Oct. 03, 2011--The bankrupt Hooters Las Vegas hotel-casino rolled out what looks like a "divide and conquer" strategy Monday in its latest effort to fend off foreclosure by its main creditor.

The strategy was revealed in Hooters' latest legal salvo at creditor Canpartners Realty Holding Company IV LLC, which Hooters describes as an opportunistic distressed debt investor.

In a Bankruptcy Court filing in Las Vegas, Hooters' attorneys said an effort by Canpartners to narrow the bankruptcy case to a Canpartners-Hooters dispute could jeopardize the rights of third parties -- some 80 holders of $3 million in Hooters' bond debt.

"Such conduct should be of concern to U.S. Bank (agent for the bond holders) as the entity responsible for protecting the rights and interests of all the holders of the senior secured notes," Hooters' filing said in what appeared to be an invitation for U.S. Bank to join the fray.

The 696-room Hooters on Tropicana Avenue, east of the Las Vegas Strip, filed for Chapter 11 bankruptcy protection and reorganization on Aug. 1 to block a foreclosure planned by Canpartners.

Hooters says it was unable to meet its debt obligations because the global recession reduced visitation to Las Vegas and hurt its business.

Canpartners says Hooters can't compete in part because the Hooters casino brand has failed in Las Vegas.

The Hooters filing Monday was in response to an unusual request to U.S. Bankruptcy Judge Bruce Markell by Canpartners on Sept. 20 that he narrow the bankruptcy case to a Canpartners v. Hooters showdown.

That way, Canpartners said, it could proceed with its foreclosure right away.

Canpartners in the September filing asked that Hooters be required to set aside $2 million so small trade creditors and individuals could get paid immediately, rather than having to wait for the bankruptcy case to run its course. That could take months or years.

Canpartners, in last month's filing, also complained Hooters was hoarding some $9.9 million in cash -- Canpartners' cash collateral -- for use in a hopeless effort to attract capital or sell the property in a bid to avoid foreclosure.

Canpartners says it holds all but $3 million of Hooters' bank and bond debt.

That debt is worth $181 million on paper, but Hooters has complained that Canpartners picked up most of the debt for just 22 cents on the dollar.

Attorneys for Hooters, besides arguing Canpartners' plan jeopardizes the rights of holders of the $3 million in debt not held by Canpartners, called Canpartners' motion "manipulative" and its legal theories a "perverse misconstruction" of the bankruptcy law.

Hooters complained Canpartners is attempting an end-run around the bankruptcy law that gives Hooters a 120-day period since its bankruptcy filing in which it exclusively can propose a plan of reorganization.

The plan "simply runs roughshod over obvious and fundamental Bankruptcy Code provisions and Bankruptcy Rules," said Hooters' response, filed by attorneys with the Las Vegas law firm Gordon Silver.

Markell hasn't indicated when he'll rule on this dispute, in which Hooters says its fundamental bankruptcy reorganization rights are under attack.

Hooters has been on the defensive in its bankruptcy case since the first hearing last month, when Markell noted the property -- valued by Canpartners at $75 million -- is so deeply underwater.

"Either you give up the keys pretty quickly, or you get a consensual (reorganization) plan or you've got some new value (investment)," Markell said during that hearing.

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