More News on Sonics Lawsuit

[betts]

Unless Schultz wins his suit, there is a lease with Oklahoma City beginning in 2010. Were I Bennett, I would drop this suit if the judge delays the trial, as they won't be playing in OKC this fall anyway if that happens. I would then spend all my efforts trying to buy out the lease. Because, unless the ownership of the team reverts back to Schultz, it's completely useless for Seattle to build a new arena or fix up the Key unless they're trying to get a different NBA team. So, barring a problem with the Schultz lawsuit, Seattle would be stupid not to settle out of court. They may be stupid, but Bennett could well lose this first lawsuit anyway, which would keep him in Seattle for the next two years anyway and cost him all the accrued legal fees.

[metro]

It won't revert back to Schultz, if Schultz wins it will go into a constructive trust.

betts, I'm wondering from a legal opinion (perhaps Mid or Doug can chime in), if it's possible for Bennett to move in 2010 with the lawsuits still going on or delayed.

[betts]

It won't revert back to Schultz, if Schultz wins it will go into a constructive trust.

betts, I'm wondering from a legal opinion (perhaps Mid or Doug can chime in), if it's possible for Bennett to move in 2010 with the lawsuits still going on or delayed.

I know people are saying Schultz could file an injunction to keep the team from moving. But there will be no lease with the Key Arena. The Sonics' owners are prevented from signing an extension with Seattle by their lease with Oklahoma City.

Yes, I too would like to hear what a lawyer has to say on this matter. I would hope the lawsuit would be over in two years, because, were Schultz to get an injunction, then Bennett for sure would be stupid to press on with this lawsuit. It will only cost him money, and have no effect on the location of the team.

[OKCMallen]

This certainly is becoming complicated. WIth the approval of the OKC/Ford Center lease and the Sonics...that would be a lot of "undoing" the court would have to do. Plus, great point betts, there's still no lease with KeyArena, and there can't be one freely negotiated now. So it's like: WTF. What can we even do here if Seattle/Schultz somehow wins? I don't think you can FORCE Clay & Co. into extending the lease, and if SChultz wins, there's not even a sure-buyer right now....

[Midtowner]

Y'all should go check out Doug's site. He's writing a pretty decent memo regarding the whole situation.

[Kerry]

Clay can't be forced into signing a lease in Seattle. In fact, it would be illegal. The Sonics lease with OKC says the Sonics cannot extend or sign a new lease with Seattle.

[OKCMallen]

Analysis: City's Sonics options limited
Either sue or settle for an NBA future
By GREG JOHNS
P-I REPORTER

As the city of Seattle and Sonics ownership continue on their collision course toward a June trial date over the KeyArena lease situation, three simple scenarios remain: The city will win the lawsuit, lose the lawsuit or settle the lawsuit in the six weeks that remain before the trial.

Each scenario is fraught with variables that would determine the future of professional basketball in Seattle. Here's a look at the potential outcomes:


The city wins the court case

On the surface, this seems the best outcome for Seattle and its sports fans. But even a favorable ruling from Judge Marsha Pechman wouldn't represent an all-out victory for the city.

A court victory would merely lock the Sonics into playing their home games at KeyArena for the final two years of their lease, through the 2009-10 NBA season. The team would still be free to move to Oklahoma City in 2010 and, indeed, NBA owners have already voted to approve that move, even though another relocation rubber-stamp vote would be required at that point.

From a purely fiscal perspective, a court win would be a money loser for the city. If the Sonics move in two years, the city will still owe about $25 million on the bonds used to finance KeyArena's last remodel in 1994. That number currently sits at $37 million, with the city paying $6.3 million a year toward ultimate debt retirement in 2014.

Assuming attendance and interest in the team wane in two lame-duck seasons, the city will need to dip into its general fund for more than $6 million over those two years to make up for the expected revenue shortfall.

The original concept of the KeyArena remodel was that Sonics-related revenue from suites, club seats, naming rights and admission taxes would cover operating costs and payments of the $74 million in construction bonds. But since 2001, revenue has declined to the point where the city has had to subsidize the facility from its general coffers.

Tom Israel, director of finance for Seattle Center, said Sonics revenue for 2007 was about $3.3 million, leaving a $3 million shortfall for the city to absorb in order to make the $6.3 million debt payment. With the team's continuing struggles and uncertain future, Seattle Finance Director Dwight Dively expects that subsidy to continue in the $3 million range each year the Sonics remain at KeyArena under their current lease.

Thus the idea of "bleeding (Clay) Bennett" and making the Sonics chairman pay by binding the Sonics to KeyArena for two more years would have a similar, though smaller, effect on the city itself, given an offer to buy out the lease would presumably take care of that remaining debt. But that factor isn't weighing into Mayor Greg Nickels' decision to fight the Sonics chairman in court.

"This has never been about the money, and it's not now," said City Attorney Tom Carr. "Obviously the city doesn't like losing money and budgets are tight, but it's really about having pro basketball in Seattle. That's what (the original) $74 million investment in KeyArena was about and why we're suing to enforce the lease now."

What a court victory would buy is two more years for the city to see if a solution might evolve. In theory, that would be two years in which to convince the Legislature to help fund a KeyArena remodel or for area business leaders to unearth a privately funded arena solution that would help make the NBA again work financially in Seattle.

Some feel if the region comes up with a modern facility, the NBA will find a way to keep a team in a city that has 41 years of history with the league.

There is risk in this scenario, given that a full-court legal battle with the NBA would do little to quiet the growing discord between NBA commissioner David Stern and city officials. Not to mention an all-or-nothing court fight excludes the possibility of any settlement that might pave the way for a replacement franchise or help pay off the remaining arena debt.

If the only benefit of a court victory is to have the current Sonics play two more money-losing seasons in Seattle before fleeing to Oklahoma, that would seem a shallow victory to most.

Yet the flip side is that a victory in Pechman's court could put the city in stronger negotiating position to gain a replacement franchise after the trial, given the NBA and Bennett would then know the only way to avoid two extremely difficult seasons in Seattle would be to negotiate their way out.

Some Sonics fans don't want the city to give an inch to Bennett and would be furious if a settlement to allow the team's departure occurred after Seattle had actually won in court.

Carr said it's always possible to negotiate a post-trial agreement, but downplayed the likelihood of one.

"It would have to be something acceptable, and I haven't seen anything indicating that," he said. "I'm not optimistic about resolving this (outside the courtroom)."

Another element to the city's case is its relationship to a separate lawsuit filed by former Sonics majority owner Howard Schultz, who wants the court to rescind his 2006 sale to Bennett's group. That suit also has been assigned to Pechman.

If the city wins its case, Schultz has more time to pursue his allegations that Bennett's group failed to abide by a good-faith agreement to keep the Sonics in Seattle.

Should the city lose, Schultz likely would seek an injunction to prevent the team from being moved to Oklahoma City before his own trial.

Talk of a preliminary injunction being filed by Schultz's lawyers before the city's June trial seems unlikely, given that they'd need to essentially lay their case before the judge at that point without benefit of discovery and hope for a favorable ruling. By waiting for the city's trial, Schultz could gain the same outcome without waging, and paying for, his battle prematurely.


The city loses the court case

This is clearly the worst-case scenario for those hoping to save pro basketball in Seattle, since a defeat in Pechman's court would allow the Sonics to move immediately to Oklahoma City.

All that would be left to work out would be the financial obligation required from the Sonics to pay off the remaining two years of rent on their lease. The team's lawyers filed a motion last week asking Pechman to make that financial determination during the trial rather than leaving it hanging for another court battle.

The city responded Wednesday by saying it would seek a six-month trial delay, as well as a jury decision, if Pechman agrees to include the financial decision in the upcoming case.

This particular battle should not be mistaken for a buyout offer. A buyout would be a way for the Sonics to avoid the whole legal scrum and just move to Oklahoma by satisfying the city in a settlement. The Pechman decision refers to what amount of money the city would be legally owed under the terms of the lease, should the Sonics win their case and be allowed to move immediately.

Ultimately, a loss in court would leave the city with no remaining leverage. The Sonics could move, the league would have no motivation to guarantee any future team and KeyArena would still have a large debt with no major tenant.

A KeyArena analysis done for the city by an independent group in 2006 said if the Sonics did depart, the city would still need to spend at least $20 million to upgrade the facility to keep it competitive for other events.

That report indicated Key- Arena could remain viable if the Sonics moved, but would need to be dramatically restructured if another competing multipurpose arena were built in the Seattle area for pro basketball.


The sides agree to settle

Lots of areas of gray in this scenario, which could include any variety of agreement between the city, Sonics and NBA. There's plenty of motivation for all parties to settle, so don't be surprised if this is the ultimate outcome as the trial date nears.

Nickels and Deputy Mayor Tim Ceis insist they're not interested in settling, but that could change if Bennett and Stern offer up a scenario in which the city can save both face and money.

Carr rejected Bennett's $26.5 million buyout offer in February, but that attempt generated interest from the City Council, which remains fiscally responsible for solving Seattle Center issues.

Given that Stern said the Sonics will lose $30 million a year if forced to continue at KeyArena, it seems as if any offer of less than $60 million would save Bennett and his partners money. Not to mention, the Oklahoma City owners are eager to avoid all this unpleasantness and begin reaping the rewards of moving to their hometown.

Former U.S. Sen. Slade Gorton, who heads the city's legal front, has said it would make sense now to pursue an agreement with Bennett as long as such a settlement included a guarantee of a replacement team.

But Carr, the man ultimately responsible for such negotiations, said Gorton was offering his own opinion, and the city's position has never wavered.

"The city's stance is we're going to trial," Carr said. "There's nothing on the table. We don't have a settlement position. We had the $26 million offer and rejected it. There really isn't anything else. There has been no offer and nothing to consider."

Common sense -- and Carr himself -- indicate there is always a price that could entice city leaders. But Bennett would need help from Stern in coming up with any solution that involved either assuring an expansion team or relocation of an existing franchise to Seattle.

Bennett appears quite willing to leave the Sonics' name and history with Seattle. His lawyers included that as part of the initial $26.5 million buyout offer.

Additionally, Bennett indicated in an e-mail obtained by the city's lawyers that he likes the idea of allowing Oklahoma City a fresh start with an all-new team name and colors.

The hard part figures to be assuring Seattle in any of these scenarios that it might have another team to call the Sonics at some point down the road. Unless that little problem can get resolved, any sort of settlement before the June 16 trial seems unlikely and the sides will duke it out in U.S. District Court.

[SouthsideSooner]

Sonics raise claim of 'unseemly alliance'
By GREG JOHNS
P-I REPORTER

The ongoing legal saga between the Sonics and city of Seattle took a new twist Friday with the team's lawyers filing papers claiming "an unseemly alliance" between the K&L Gates law firm, developer Matt Griffin and the city.

K&L Gates, hired by Mayor Greg Nickels to represent the city in its court battle with the Sonics' Oklahoma ownership group, also was representing Griffin as he worked with the city in an attempt to put together a $300 million KeyArena remodel project in conjunction with Microsoft chairman Steve Ballmer, Costco CEO Jim Sinegal and software mogul John Stanton.

In their latest motion, the Sonics lawyers renewed previous charges that the city's lawsuit over the KeyArena lease is part of a plan designed to force a sale to Griffin's group instead of merely solving a dispute over the lease's specific performance clause.

"Particularly based on over a thousand additional documents Griffin just produced, it is clear that the plan from the start was to use this litigation to create financial bleeding for the (Pro Basketball Club) to force them to sell to Griffin's group," the motion says.

"This scheme was jointly developed by the City, Griffin and K&L Gates, which until just a few weeks ago represented both the City and the Griffin group."

Sonics raise claim of 'unseemly alliance'

[OKCMallen]

This actually doesn't hurt us any. Still need to win in June to have them this year.


U.S. District Court Judge Marsha Pechman wasted no time in settling one issue of the impending trial between the city of Seattle and the Sonics' ownership group, issuing an order Tuesday that denies the team's motion to include the determination of its financial obligations should it win at trial.

The decision means the trial remains scheduled for a June 16 start. Should the city lose on the specific performance question in that case, a second trial would likely be needed to determine the amount of money the Sonics would need to pay in order to satisfy their rent obligations and be free to move to Oklahoma City.

That second trial wouldn't preclude the team from moving by next season, but the city could appeal that decision and seek a stay pending the appeal that would prohibit the move until the case is resolved.

In other words, Clay Bennett's ability to move the franchise to Oklahoma by next season remains very up in the air as the legal drama plays out.

Tuesday's decision by Pechman puts to rest a question that arose April 24 when the Sonics' lawyers filed a motion asking that the question of how much money Bennett's ownership group would need to pay to satisfy the lease obligations be determined during the June trial.

But the city's attorneys countered by successfully arguing that the motion changed the complexity of the case, saying they'd need a six-month delay if the motion was granted.

The Sonics filed a brief Monday saying they'd withdraw the motion if such a delay were necessary, but Pechman resolved that situation with Tuesday's order denying the motion altogether.

She noted that the Sonics agreed at a Jan. 29 scheduling conference that the entire case revolved around a "single declaratory issue" over whether the city is entitled to specific performance of having the team play the remaining two years of games at KeyArena under its current lease.

Pechman said the request to expand the scope of the argument should have been made at the time of the scheduling conference, during which she set the format for the six-day bench trial to begin June 16 in her U.S. District courtroom.

"Defendant does not offer any reason why the counterclaim could not have been brought in the original pleadings," Pechman said in her ruling. "In light of the accelerated trial schedule, granted at Defendant's request, the Court finds that Defendant's proposed amendment would be prejudicial to the City's development of discovery in this case."


Judge rejects Sonics' motion

[metro]

I agree, if we win in June, the team will probably move and then discuss financial "damages" later as Seattle delays it. If we loose, it's a moot point. If we loose I hope Clay and boys hang in there to 2011.

[OKCMallen]

I do too. I'll send them a check for $50 to help with legal fees.

I have a bad feeling we're not going to win that suit, though. Seems like a great use of the court's equity powers to enforce the specific performance clause. Need to SETTLE SETTLE SETTLE.

[Midtowner]

I do too. I'll send them a check for $50 to help with legal fees.

I have a bad feeling we're not going to win that suit, though. Seems like a great use of the court's equity powers to enforce the specific performance clause. Need to SETTLE SETTLE SETTLE.

This shows nothing except for the fact that the court thinks there should be two trials. It's right. The damages issue will be greatly different whether the specific performance part of the contract is enforceable or not and the complexity of the trial would also be greatly different.

If the Sonics win the specific performance issue, expect a quick settlement.

If not, the team will be here in 2011.

[edcrunk]

do we know exactly what this "single declaratory issue" says? i've heard people in seattle mention that the lease says they are bound to play and cannot buy out.

[Midtowner]

do we know exactly what this "single declaratory issue" says? i've heard people in seattle mention that the lease says they are bound to play and cannot buy out.

It's whether the city is entitled to specific performance of its lease. The Sonics want out, but are currently enjoined by a temporary injunction issued by the District Court saying they can't move pending the outcome of the current suit.

There will be a trial on June 12th after which I'm sure the judge will take the matter under advisement for a short period of time and issue a ruling.

The people in Seattle are sort of right -- that this is the issue. The outcome has not yet been determined.

I will say as I have said before that specific performance is something called an "equitable remedy." Equitable remedies mean that the party will be ordered to do something. Generally, in court, we award cash damages. Courts prefer to award cash damages and generally will only award equitable relief when cash is inadequate.

The Sonics' attorneys will doubtless be arguing that Seattle is entitled to the amounts due under the lease, just like if a tenant moved out of an apartment early.

The city of Seattle will be arguing that aside from the value (which is a loss to them) the city receives from the lease, there are a lot of indirect benefits, i.e., sales tax revenue, economic impact, etc. which come as a direct result of the existence of this lease. They will also argue that even if those indirect remedies are enforceable, the equitable relief should still hold since it's in the contract.

Both positions have their merits. Hazarding a guess as to how this goes would be fruitless at this point. We'll see sometime after the 6-day trial.

For us future Sonics fans, the question is really this: Should we be saving our pennies to buy tickets in 2008, 2009, 2010 or 2011?

There is no equitable remedy short of Shultz' cockamamie lawsuit that'll keep the Sonics in Seattle past the 2010 season.

[OKCMallen]

This shows nothing except for the fact that the court thinks there should be two trials. It's right. The damages issue will be greatly different whether the specific performance part of the contract is enforceable or not and the complexity of the trial would also be greatly different.

If the Sonics win the specific performance issue, expect a quick settlement.

If not, the team will be here in 2011.

I think you're conflating damages and specific performance. Basically, there will be no "damages" if the team is held to specific peformance (i.e.- Sonics have to play out the lease). They would have fulfilled their contractual obligation as defined and mandated by the court, so how would there be a breach or damages?

Anyway, like everyone abov eyou said, yes, this basically means very little. It's important to note that the June trial date did not get delayed as a result. The judge could have granted the Sonics' request to enumerate damages in the same trial AND delayed the trial at the same time.
(Nice little primer on equitable v. legal remedies! )

[Midtowner]

I think you're conflating damages and specific performance. Basically, there will be no "damages" if the team is held to specific peformance (i.e.- Sonics have to play out the lease). They would have fulfilled their contractual obligation as defined and mandated by the court, so how would there be a breach or damages?

If specific performance is ordered, the city might be going for attorney's fees. I guarantee you that the issue of damages won't be dead either way. It'll be still alive, but as I said, vastly different. How I know this is that there are biglaw (spelling intentional) firms on both sides of the case. They will never not file a motion when it is possible to file a motion (regardless of the merit of that motion). Those guys are in the game for one reason and one reason only -- to bill their rich clients for as many hours as humanly possible.

[OKCMallen]

Attorneys fees = type of monetary relief. Damages = type of monetary relief. Damages != attorneys fees. No big deal, just good to be specific when using terms of art.

[Midtowner]

Point taken, lesson learned

[HOT ROD]

by the way, OKC would only have to wait until 2010 (not 2011) if Specific Performance is enforced.

Just thought I'd chime that in - it's only two basketball seasons away; and that's worse case scenario.

[metro]

HOTROD, doesn't the contract state that they have to play through the 2010 season? Even if it says through 2010, I highly doubt the NBA will allow Bennett to move New Years 2011 in the middle of the season. I'm sure their re-approval of relocation would be contingent upon the completion of the season.

[OKCMallen]

Current season: 07-08
Next Season: 08-09
Last Season in Key: 09-10
OKC: 10-11

DOes that sound right?

[BDP]

The city of Seattle will be arguing that aside from the value (which is a loss to them) the city receives from the lease, there are a lot of indirect benefits, i.e., sales tax revenue, economic impact, etc. which come as a direct result of the existence of this lease. They will also argue that even if those indirect remedies are enforceable, the equitable relief should still hold since it's in the contract.

This is an interesting argument. Is there any precedent for it?

Obviously, the fact that this lease is with the municipality itself changes it's nature a bit, but if they were successful with this argument, wouldn't it then be possible for cities to sue every time a business with a measurable impact on the local economy leaves the market? Or then couldn't, say, a mall tenant sue an anchor tenant for the economic benefit the anchor provided to the smaller tenant if that tenant decide to leave?

We all know these organizations argue their positive economic impact as leverage in lease negotiations, but on what basis can the courts make them legally responsible for that benefit?

Obviously, if the Sonics break their lease, they are responsible for any direct loss of revenue generated by and negotiated for in the terms of the lease. But making them responsible for the tangential economic benefit seems pretty far reaching and would also make room for tons of suits by cities and other merchants against large scale businesses that want to move away from the market.

I don't have any knowledge of case history on these types of things, but I'd be interested in knowing what kind of legal reasoning is used to support a claim and what prevents such arguments from applying to all instances where a lease of any kind is broken?

[SouthsideSooner]

If the Sonics have to play out their lease out, the last season in Seattle is 09/10. The team would begin play in OKC for the 10/11 season which begins in November of 2010.

[Midtowner]

This is an interesting argument. Is there any precedent for it?

Sort of. When the Minnesota Twins found themselves in the same situation as the Sonics -- wanting out and fighting a specific performance clause in a lease sought to get out -- the city government sued. In Minnesota (not the same jurisdiction, so this isn't binding by any means), the Minnesota Appellate Court (which is really, really not persuasive since it's an intermediate court) affirmed a district court's holding that:

A use agreement between a governmental sports facilities commission and a professional baseball team may not be a *218 typical commercial lease for which money damages can fully compensate the nonbreaching party for damages, when the agreement provides that the benefit of the bargain to the commission is the teams promise to play its home games at the publicly funded and operated stadium. Metropolitan Sports Facilities Com'n v. Minnesota Twins Partnership, 638 N.W. 2d 214 (Minn.App., 2002).

The prose of the District court's opinion (the lower court whose opinion was sustained) really tugs at the 'ol heart strings:

. . . The balance of harms weighs in favor of granting the temporary injunction. Baseball is as American as turkey and apple pie. Baseball is a tradition that passes from generation to generation. Baseball crosses social barriers, creates community spirit, and is much more than a private enterprise. Baseball is a national pastime. Locally, the Twins have been part of Minnesota history and tradition for forty years. The Twins have given Minnesota two World Series Championships, one in 1987, and one in 1991. the Twins have also given Minnesota legends such as Rod Carew, Tony Oliva, harmon Killebrew, Kent Hrbek, and Kirby Puckett; some of which streets are named after. These legends have bettered the community. Most memorably, these legends, volunteered their time to encourage and motivate children to succeed in all challenges of life. Clearly, more than money is at stake. The welfare, recreation, prestige, prosperity, trade and commerce of the people of the community are at stake. The Twins brought the community together with Homer Hankies and bobblehead dolls. The Twins are one of the few professional sports team in town where a family can afford to take their children to enjoy a hot dog and peanuts at a stadium. The vital public interest, or trust, of the Twins substantially outweighs any private interest. Private businesses were condemned to build the Metrodome. In condemnation proceedings, the building of the Metrodome was deemed to be in the interest of the public. The Commission, the State, citizenry and fans will suffer irreparable harm if the Twins do not play the 2002 baseball games at the Metrodome. See City of New York v. new York Jets Football Club, Inc., 90 Misc. 2d 311, 394 N.Y.S.2d 799 (New York Co., Sup. Ct. 1977); City of new York v. New York Yankees, 117 Misc. 2d 332, 337, 458 N.Y.S.2d 486, 490 (New York Co. Sup. Ct. 1983).

As I said, that's not even of strong persuasive value. Further, this stuff was only used to grant a temporary injunction, not a permanent one, and certainly not upholding the specific performance clause of the Minnesota Twins contract. The aftermath of this case was that the team and the city came to a new agreement, the owner sold, I guess he got a "sweet flip" or something of that nature, and the Twins stayed.

Obviously, the fact that this lease is with the municipality itself changes it's nature a bit, but if they were successful with this argument, wouldn't it then be possible for cities to sue every time a business with a measurable impact on the local economy leaves the market? Or then couldn't, say, a mall tenant sue an anchor tenant for the economic benefit the anchor provided to the smaller tenant if that tenant decide to leave?

I don't know if I'd extend the rule that far. I suppose such a case could be used to argue in favor of such a proposition. I'd argue (and I think it'd be a good argument) that the relationship between the city and an NBA team is different than a relationship between the city and a car manufacturer. For example, we don't name streets after employees of the month at the GM plant, for a sports franchise? You betcha. The relationships are just different. I think that the argument from the get-go is a loser, extending the rule past something so intertwined with the city and its identity is even more of a loser.

We all know these organizations argue their positive economic impact as leverage in lease negotiations, but on what basis can the courts make them legally responsible for that benefit?

Do you know what the difference between a federal District Judge and God is?

-- God doesn't think he's a federal District Judge. The basis would be that there is harm done, that the city can prove it, and that the judge buys what the city is selling. That, of course, remains to be seen. As Mallen pointed out, damages don't even become an issue unless the PBC wins round 1.

Obviously, if the Sonics break their lease, they are responsible for any direct loss of revenue generated by and negotiated for in the terms of the lease. But making them responsible for the tangential economic benefit seems pretty far reaching and would also make room for tons of suits by cities and other merchants against large scale businesses that want to move away from the market.

I don't have any knowledge of case history on these types of things, but I'd be interested in knowing what kind of legal reasoning is used to support a claim and what prevents such arguments from applying to all instances where a lease of any kind is broken?

See above

[OKCMallen]

BDP: some of your points actually help Seattle's position. Because the harms of the Sonics leaving to the local economy are subtle, attenuated, and hard to enumerate, the Sonics' presence there is basically irreplaceable by just cash. Just because they take a lot of logical steps to prove those damages, that doesn't mean the damage doesn't occur. In that case, it often makes more sense for a court to award specific performance. (Take all that with a grain of salt as being very general overviews.)