Glendale seeks to skip payment to Coyotes; legal analysts weigh in on case
GLENDALE, Ariz. -- The city of Glendale filed a motion this week in Maricopa County Superior Court, seeking court approval to skip a $3.75 million quarterly payment to the Arizona Coyotes.
Private attorney Cynthia Ricketts, hired by the city, filed a motion Wednesday asking a judge to allow Glendale to either withhold the fourth-quarter payment due July 1 to IceArizona or deposit the money in an escrow account.
The City Council voted last week to terminate a 15-year, $225 million lease agreement with the Coyotes that it signed less than two years ago, citing conflict-of-interest issues covered under Arizona Revised Statute 38-511.
The city says two former Glendale employees who worked on the arena management deal that was approved in July 2013 later went to work for the Coyotes, forming the basis of their case. They are former city attorney Craig Tindall, who now serves as general counsel for the Coyotes, and former assistant city manager Julie Frisoni, who was the city's public relations director at the time the deal was created and signed. Frisoni now runs her own P.R. firm and was asked to serve as a consultant on the Coyotes' recent bid to host the World Junior Championship.
In its motion, the city introduced some (but likely not all) of the evidence it will use to plead its case, mostly in the form of correspondence by Frisoni and Tindall. Ricketts called it a "general overview" of a conflict-of-interest claim and that the "complete facts" would be filed later.
The $3.75 million payment the city is seeking to withhold is its final quarterly payment for fiscal year 2014-15 for the Gila River Arena lease and management agreement. The motion did not explain why Glendale waited about 22 months after Tindall was hired by the Coyotes to raise the conflict-of-interest issue.
A judge granted the Coyotes' request for a temporary restraining order last Friday.
FOX Sports Arizona reached out to attorney Rodney Smith, director of the sports law and business program at ASU's Sandra Day O'Connor College of Law, and attorney Monica Lindstrom, who serves as KTAR's legal analyst, for their thoughts on the motion and its related exhibits. (You can read the motion and several of the exhibits by clicking on the links in the sidebar to this article.)
Attorney Dan Barr of Perkins Coie noted that "the whole point of a temporary restraining order (TRO) is to preserve the status quo. The status quo is that the City of Glendale and the Coyotes continue to perform their respective obligations under the lease just as they did before the City Council took its action. One of Glendale's obligations is to make a quarterly $3.75 million payment. If Glendale is excused of that obligation, then a major reason for the TRO has been bypassed, and the Coyotes suffer a harm the TRO is meant to protect against."
Here are Smith and Lindstrom's full thoughts along with a few questions and answers.
1. "The City of Glendale has a stronger factual case than was first revealed, and it is complemented by the deference courts often extend to cities or governmental entities in this regard. Nevertheless, it is far too early to say that they will prevail on this issue. The City of Glendale acknowledges that they had ample advice from other sources and that Tindall's advice was less substantive and more about the nature of the agreement as compared to past matters (like the failed deal with Greg Jamison). One would wonder whether such general advice is sufficient to reach the level of being significantly involved."
2. "Even if the City of Glendale prevails on the prior point, they still will have to respond to the argument that they waived the conflict, and that the Coyotes justifiably relied on that waiver. The Coyotes continue to have a strong argument here, I believe; an argument that is buttressed by the fact that, for the purposes of the present motion, the COG is arguing that the Coyotes assumed the risk of cancellation. This strengthens the argument that the Coyotes were relying on the waiver, and the City should have known that the Coyotes would rely on the waiver as opposed to assuming such a risk.
"COG argues that the Coyotes should have known that they were accepting all the risk by hiring the two employees. It is equally clear that the City should have understood that the Coyotes would be relying on the waiver. Put another way, the Coyotes never would have entered into the agreement had they believed that, despite the waiver as to Tindall (the real focus of the COG's case on the conflict issue), the COG was reserving the unilateral right to cancel the contract. There would have been no deal. The COG therefore can be assumed to have known that the Coyotes would be relying on the waiver and that their actions in canceling despite this knowledge was in a sense fraud in the inducement (they induced the Coyotes into the agreement on dishonest grounds). The City cannot have it both ways."
3. "The City wants the court to defer to their interpretation. That may happen. They have also given the court a Solomon-like out for the present -- put the dollars in an escrow account. The court might decide to do that."
4. "Finally, I remain perplexed as to why they are persisting in doing this. If they prevail, they are giving notice to future contracting parties that they will seek to find ways out of agreements that a subsequent council finds unattractive. As I noted previously, this surely harms their brand.
"If I were representing a party considering entering into a contract with COG, I would have to tell them that they have a very particular risk of the City reneging on the ground that a court might defer to the city under some statute like the present one. In short, there is little reason to trust in the city's willingness to keep their promises. I am also troubled that, despite the reference in one of the emails to bed taxes (hotel taxes and revenue flowing to the COG), the COG has not done an impact statement. How much are they really losing? Does it really make sense for them to proceed before they have that knowledge?
"In short, even if they win legally, and they still have hoops to jump through, the COG may find that they are still the big losers -- having tarnished their reputation and possibly having left substantial dollars on the table in the form of secondary revenues generated by the agreement.
"Many a client has struggled mightily to find a way out of a contract, and then lost. That may still happen to the COG. That will mean they still have to cover the cost of the contract, legal fees, transaction costs (the city leaders are spending time litigating not governing), and harm to their reputation as an entity that does not keep its promises.
"Even if they win, they will still have substantial costs. Is this about money, as they assert, or is it about something else? I have not been able to answer that question."
Question: Do you see anything here that suggests their claim against Frisoni has validity?
Smith: "The case is weaker here. In fact, one element may cut the other way, at least in the public eye: In raising Frisoni they make it clear that they were aware of possible revenues from bed taxes, etc. Nevertheless, they have not done their due diligence (that I know of) regarding an economic impact statement. This is a point that is more political than legal."
Question: Based on the evidence presented to date, who has the stronger case, in your opinion?
Smith: "While there is some chance the court will defer to the COG, I still believe the Coyotes have the stronger case. I will not be surprised to see the Court take the middle ground and put the dollars in escrow, but that is not a win on the merits."
1. "The City of Glendale wants the Court to relieve it of (the final quarter payment) requirement, or alternatively, allow the City to place the payment into an escrow account to keep it safe. If the Court isn't willing to do that, as a last request, the City is requesting the bond (required to be paid by the Coyotes) be increased by $3.75 million to protect the City (if the City wins, it wants to be able to get that money back, and if it's handed to the Coyotes, it may never recover it.) This is a very reasonable position to take. At the hearing, Judge Bergin asked questions about the payment, since it was based on services already rendered. Glendale explains that under the statute it could be relieved of the requirement to pay.
"I could see the Judge ordering the payment into escrow. That is the middle of the road."
2. "I thought Glendale made a very good point in regard to the "Self-Dealing Statute." Glendale points out in the motion that the situation with Tindall and Frisoni is exactly what the law is there to prevent; self-dealing by government employees. It insightfully explains that this "conflict" cannot be waived under the law because to allow a self-dealing employee to waive his or her own conflict would defeat the entire purpose of the law. Well stated."
3. "Glendale made a good point when it explained that "as a political subdivision of the state of Arizona, (it) is entrusted with preserving and protecting public funds." That is why it is canceling the agreement and asking the Court to order it doesn't have to make any further payments. This could help it save some face in the court of public opinion."
4. "Remember, this law does not require that Tindall or Frisoni did anything wrong or that they defrauded anyone, it just requires that they were 'significantly involved in initiating, negotiating, securing, drafting or creating' the agreement. That is where the fight will focus."
Question: Isn't the whole point of a TRO to preserve the status quo and be sure each side is performing its obligation?
Lindstrom: "Agreed that the purpose of a TRO is to maintain the status quo. However, a TRO is just that, temporary, and as such, it can be modified. Glendale is not taking the position it won't make the payment; it is taking the position it wants the payment protected in the event it wins the lawsuit. The request to modify the TRO is not unreasonable in light of the City's interests. It wants some type of protection. In asking for the modification it has put forth enough facts that the judge can rely on to grant the motion to modify."
Question: How does their argument for conflict of interest mesh with the waiver in Tindall's severance agreement? In other words, what is the purpose of having that waiver if it does not protect him? Also, can you explain the notion of self-dealing and the argument that it applies (or does not apply) to Tindall and Frisoni.
Lindstrom: "This is not an issue of protecting Tindall, it doesn't appear the City is going after Tindall personally or asking for return of the amounts paid to him under the severance agreement. The issue is whether there are enough facts to support the cancellation under the law. Glendale is arguing the situation under the law cannot be waived in a severance agreement. An employee of the City, who is acting in the role of the employee, cannot waive his own conflict with the city. That flies in the face of the purpose of a law against "self-serving" actions. However, Glendale's attorneys drafted and negotiated the severance agreement with Tindall. Tindall did not draft the agreement and negotiate it on behalf of Glendale. So the argument that Tindall couldn't waive the conflict on behalf of Glendale likely won't go far.
"Self-serving: The law exists to allow the City to cancel a contract in the event an employee of the City negotiated a contract that the employee personally benefitted from to the detriment of the City. So, if Tindall negotiated the agreement between the City and the Coyotes and he personally benefitted from the contract to the detriment of the City, then that would be "self-serving." Same with Frisoni. Glendale could argue that Tindall did personally benefit from the negotiating because a month after the agreement was inked he was hired as counsel for the Coyotes. Same with Frisoni, after she helped with the negotiation she went out on her own and was hired as a consultant by the Coyotes."
Question: In its motion Glendale discusses preserving and protecting public funds. Does this argument matter when COG has a legally binding contract? Why would the court be sympathetic to COG's argument?
Lindstrom: "This is a 'public policy' argument. Lawyers will often cite public policy as a last argument since it is persuasive but not binding. It is questionable whether the agreement is legally binding since there is a law that allows the cancellation. If there are enough facts to support the cancellation under the law, then the contract is not binding. This argument helps Glendale look like it has the right intention at heart. Legally does it matter? Maybe not, but it does in the court of public opinion."
Question: Based on the evidence presented to date, who has the stronger case in your opinion?
Lindstrom: "So far, I believe IceArizona has the stronger argument. Glendale provided email strings, but I am not sure if the emails show 'significant' involvement with the agreement under the law. Without more I would argue the few emails are not enough. The law uses the qualifier 'significant,'not just 'any involvement.' "