Officials in the suburb of Tempe have filed a lawsuit in Maricopa County Superior Court against the proposed project's developer, Ciudad del Lago, seeking unspecified damages and a termination of the contract. Ciudad del Lago--a consortium of lead developer Belz Enterprises, Peabody Hotel Group and Fluor Daniel Inc.--failed after more than three years to obtain financing to build the $220-million, 1,000-room hotel.

The hotel was to be the centerpiece of a two-mile long lake, Tempe Town Lake, which runs near Downtown Tempe. The Peabody Hotel was eventually expected to create 4,300 jobs and contribute $1.3 million toward the annual operating expenses, the city's lawsuit says.

An attorney representing lead developer Marty Belz says he plans to file a multimillion-dollar lawsuit against Tempe for terminating the agreement. Belz had sought a $40-million settlement from tempe to walk away from the project, but Tempe declined the proposal.