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Tuesday, April 21, 2009

Fooling SL Green

SL Green's lawsuit against Delaware North, conveniently timed as the latest round of bidding for the racino at Aqueduct begins, accuses the company of engaging in brazen lies and outright deception, and violating basic contractual agreements as it won the bidding to build and operate the VLT parlor. It also, in my mind, calls SL Green's own judgment into serious question; and reveals what is, at least to me, a surprising twist regarding its racino bid.

It's the dealings between the two companies when they were part of our old Friends at Empire Racing that's at the center of the complaint, which recounts, in sufficient detail, the confidentiality and non-compete covenants that were part of Delaware North's agreement to join the group in 2006.

The key point of the complaint as I see it is this (and you can read the document, in pdf form, here if you scroll down)(and you may notice that this article in the Observer was updated with a correction after yours truly left a comment pointed out a factual error...and they didn't even say thank you!):

As you may recall, Governor Spitzer, upon taking office in January 2007, discarded the work of the Ad Hoc Committee (quite possibly the most transparent process in the history of Albany), which selected Excelsior to run the franchise. He eventually decided, some nine months later, to split the franchise between NYRA and a racino operator to be determined. However, the Senate, led by Joe Bruno, opposed the plan and held new hearings of its own. So, with hope that it still had a shot at the entire franchise, Empire was at the crossroads. Should it abandon its racing bid and shoot for the racino? Or press on for the big prize?

This was a critical decision, as Empire would have to spend additional time and money to develop a stand-alone VLT bid (even though the Legislature appeared to be opposed to the Governor's proposed bidding process). Yet if the Governor did reach agreement with the Legislature on the revised bidding process, Empire wanted to remain in consideration for the award of the VLT Rights.
So, according to the Plaintiff, Empire "originally concluded" that it would participate in both of the bidding processes in order to protect its interests. However, Delaware North had something to say about that.
While various members of Empire initially favored participating in the Governor's bidding process, DNC argued against Empire submitting a stand-alone bid for the VLT Rights. Ultimately, DNC -- which was brought into Empire specifically for its VLT experience -- convinced Empire not to submit an expression of interest or to undertake any work to prepare a separate bid for the VLT Rights. On October, 3, 2007, for example, DNC argued to the Empire Executive Committee that Empire could not put together a credible bid for the VLT Rights in the short time permitted under the Governor's bidding process.....Had DNC not urged against it, Empire would have prepared a bid for the VLT Rights at that time.
It was just six days later than Delaware North resigned from the Empire board, and "attempted to tender back its ownership interest in Empire." And it was on October 15 that the company announced its new partnership with the Saratoga racino to bid for the racino itself. SL Green accuses Delaware North of having made "statements to the Empire Executive Committee...made solely to wrongfully deceive Empire into refraining from preparing and proceeding with a VLT bid."

Oh man. It's almost difficult to believe that a company could be so audaciously deceptive. But what's harder to believe is SL Green's claim that, even after being double-crossed in this fashion, it still attempted to partner with Delaware North; and not only that, it "gave DNC access to the confidential and proprietary information in support of the VLT bid that Empire and SL Green had continued to develop after DNC's purported withdrawal. That information included SL Green's design and development plans and economic proposals for its bid for the Aqueduct VLT Rights."

Of course, Delaware North went it alone, and "used its access to SL Green's confidential and proprietary information to make DNC's own bid more competitive with SL Green's, thus again breaching its duties to SL Green!" Exclamation point is mine....are you kidding me? If fool me once, shame on you; fool me twice, shame on me is an accepted legal principle, this case will be thrown out on its face.

What came as a surprise to me is the fact that, according to the complaint, Empire Racing "appointed SL Green as the successor-in-interest to Empire for purposes of pursuing" the racino.
In return, among other things, SL Green agreed that should it win the bid for the VLT Rights at Aqueduct, it would make certain monetary payments to Empire.
I've never before read of Empire, whatever was left of it, being involved in the SL Green/Hard Rock Cafe bid. I don't recall Empire ever officially disbanding; it suffered some flesh wounds
as partners withdrew. So I wonder which Empire principals would have received what kind of payments (among other things) had SL Green prevailed. And whether this relationship was disclosed to officials in Albany. It's certainly obvious why SL Green wouldn't want to be associated with that brand name given its past relationships and missteps.

Seems as if the Empire That Won't Go Away never completely did. However, we also learn in the summons that "On or about April 17, 2009, Empire ceased operations and is entering dissolution." So the Empire is apparently dead. Maybe.


Anonymous said...

Watchful Horseman

Alan, good analysis, but don't be too sure, on this case being thrown out on it's face, as a summons, doesn't parlay the underlying agenda(s).

Anonymous said...

Alan, a fairly reasonable analysis of the litigation, but somewhat biased against S.L. Green and your old favorite group to beat up Empire Racing. The reason that S.L. Green and Delaware North returned to the table together was probaly twofold; DelNorth realized the Governor's 'split" of racing and gaming was a dead deal, at least in December 2007 and S.L. Green only shared critical information with it's disgruntled partner after a confidentiality and non-disclosure agreement was signed. One can't blame S.L. Green for believing that DelNorth would obey the legal aspects of an NDA. Turns out DNC may not have, so why try and make S.L. Green look like fools?

Alan Mann said...

>>Alan, a fairly reasonable analysis of the litigation, but somewhat biased against S.L. Green and your old favorite group to beat up Empire Racing.

I didn't have any agenda whatsoever upon starting to write this post. But the idea that SL Green would again share confidential information with a partner that had proven to be so untrustworthy strains credibility and makes me skeptical of the entire complaint...especially given the timing. Why would it matter to them that Delaware North signed new agreements if they so blithely disregarded them the first time? I certainly have no agenda nor desire to defend Delaware North as you probably know. But I find aspects of this hard to believe. And no, any involvement by Empire doesn't help in my mind, I'll readily admit to that.

Anonymous said...

I guess we'll all know if what is alleged is all true or not once depositions and testimony of S.L. Green and DelNorth pricipals, along with those unnamed State officials beins. As to why file now? If you were a party to a business transaction and you were wronged, wouldn't you put forth your case to the courts at a point and time when you felt some sort of action would be immediately considered and of most value?

Anonymous said...

Keep painting the SL Green team as a bunch of business boobs and you are going to look silly in the end.

Alan Mann said...

I don't need anyone's help to look silly. And if their account is true - that they shared confidential information about their VLT bid after Delaware North flat out lied to them twice when confronted about rumors that they were going to launch a separate bid, after they violated their agreements with Empire, and after they deceived Empire by telling them to not bid on the VLT's and then turned around and did so themselves....then SL Green doesn't need my help to look like boobs.

Anonymous said...

So S.L. Green purportedly plays it by the book, and the allegations in the litigation are that DelNorth does not. How could S.L. Green have prevented DelNorth from breeching the rules of good business conduct and judgment in a State procurement process? They had no control over that, only over the plea to the courts for a ruling.

jk said...

Brodeur blew it with 0.2!!

I thought I had seen it all.

I am looking forward to tonight's game, should be a good one.

SL Green's stock price is in the toilet, maybe they can come up with the cash, maybe not. Probably not if they spend all of their money on lawyer fees.

Alan Mann said...

>>Brodeur blew it with 0.2!!
I thought I had seen it all.

Yeah, but he was interfered with, didn't you hear him whine? Looking forward to a better effort from my team tonight. As solid as Varlamov was the other night, I still don't think he's really been tested, and I'm hoping that the Rangers can generate some persistent pressure, create some traffic and get to some rebounds tonight (and actually put them in the net instead of off the post!)

Anonymous said...

The "fool me twice" analogy is cute and surely entertaining, but its merely a sideshow to the real circus that may be coming to town, presuming the allegations in the suit are on target. Tom Precious wrote in his piece yesterday on the suit, that "Delaware North was holding secret talks with state officials about splitting away from Empire to submit its own Aqueduct bid," a claim at the time that DelNorth denied. If in fact, during sworn testimony given by State or DelNorth officals it turns that these secret talks went on as alleged by S.L. Green/Empire, a clear violation of a NY state procurement, that prohibits this sort of contact between state officals and members of the bidding teams would have improperly occured. If substantiated, my guess is Del North is disqualified from playing anymore, and if DelNorth was indeed "coached" by the state to focus on the upfront payment, as DelNorth is on record previously saying to the Buffalo press, then someone from DelNorth or the administration might well face criminal prosecution as well.

Having watched this process play out from the beginning, I am thinking we need some under oath answers to the questions put forth in order to understand the magnitude of this filing. I can't even venture to guess what the ultimate conclusion to the convoluted franchise award process will be. Probably lots more drama to come.

Alan Mann said...

I'm getting beat up here a bit over this post, and I guess with good reason, so let me clarify that these charges against Del North are quite serious and certainly no joke...and I don't for a second believe or think that the suit should be thrown out. However, I can't for the life of me understand how SL Green, having been burned once by Del North, would possibly reveal to them the most proprietary of information regarding their VLT bid. That just doesn't make sense.

Anonymous said...

Is Empire's dissolution anything to do with it's principal, Jeff Tucker, in deep doo-doo over the Fairfield Greenwich Group and L'Affaire Madoff mess? Just wondering. He literally bet the ranch on Bernie and lost./S/greenmtnpunter

Anonymous said...

Let's not get hysterical here.

The New York State Procurement Law is patently inapplicable in the Aqueduct VLT situation. The law authorizing the NYRA franchise specifically provides the selection is to be determined upon agreement of the Governor, Senate Majority Leader and Assembly Speaker.

In other words, the legislature basically took the process outside the State Procurement Law.

The amazing thing is ... no one seems to care. You'd think the Attorney General or State Comptroller, both of whom have powers under State procurement, would have complained. Nope.

Not even a peep out of the goo-goos or the newspapers.

Anonymous said...

The legislature had no right to take the gaming piece out of the franchise procurement process. This has been an ongoing rub amongst the combatants and the state since the spring of 2008 when the VLT bidders made their last public VLT presentations in Albany, and then Operations Director Paul Francis announced that the State procurement rules were no longer applicable!

The old Pataki Ad Hoc Committee specifically incorportaed State procurement rules into its procedures and later the Spitzer Administration added even more stringent restrictions on contacts, communications, etc. as part of its so called "Integrity Standards" for the procurement.

Don't trust this writer, just look it up as it will be a part of the record. Wht Spitzer started out tightening up the process started by the Ad Hoc committee per section 208 11.(a-g) of the Racing Franchise Law and then adandoned, or tried to, in April 2008 is a puzzle?

It will be curious to see if the State procurement laws, versus the Spitzer administration selection process announced in April 2008, will result in litigation of its own?

Anonymous said...

This blog and comment thread is more insightful, revealing and thorough than the commercial press has ever been relative to the same topics. Some very informed opinions being shared, but are any of the pols listening? Thanks for peeling the onion to reveal the fire behind the smoke, and let's hope the 'GooGoos' (that's a new one for me) et al can't duck and run from the issues anymore. Behind what bushes are they hiding right now?

Anonymous said...

'goo-goos' : good government groups

Anonymous said...

Anon 6:41 p.m. wrote:

The old Pataki Ad Hoc Committee specifically incorportaed State procurement rules into its procedures and later the Spitzer Administration added even more stringent restrictions on contacts, communications, etc. as part of its so called "Integrity Standards" for the procurement.

Don't trust this writer, just look it up as it will be a part of the record.

I think I found that reference from a Tom Precious piece, 3/15/2007; Rifkin said the state's new strict procurement procedures will cover the franchise process, which limits the kinds of contact the bidders can have with the Spitzer administration. "Failure to fully cooperate will result in disqualification," Rifkin wrote.

Anonymous said...

Before we begin to wax nostalgic for the good old ethical days of the Spitzer Administration, let’s recollect ...

When the Rifkin Panel was established, they conducted ... a single public meeting in April 2007. By all accounts, the group never met again as a panel. Instead, Spitzer’s personal staff met and decided everything - leaving the other panelists, Senate Racing Committee Ranking Minority Leader John Sabini, Assembly and Racing and Wagering Committee Chairman Gary Pretlow and Racing and Wagering Board Chairman Daniel Hogan on the sidelines.

The Rifkin Panel did initially maintain applicants for the franchise needed to follow the State Procurement laws; it is, however, patently clear Mr. Rifkin failed to follow it himself.

If you recollect, following the announcement of the NYRA selection for the franchise, the State Senate held a hearing on the Spitzer MOU. During this meeting, it was disclosed that Mr. Rifkin had made numerous unilateral contacts with NYRA, working to change the racing/gaming franchise into two separate franchises: one, awarded to NYRA for racing and the other for gaming. The concept of two franchises, a material change, was not publicly announced or bid.

I vaguely recollect during the hearing Capital Play complained that they were not offered thirty years that the Spitzer memorandum finally recommended for NYRA. They also stated they stated they were first contacted about revising their submission to reflect the new bifurcated franchise concept only the Friday prior to Labor Day. The return date for submission was Tuesday. Apparently Excelsior and Empire were afforded more time to adjust their materials.

During the Senate hearing, Paul Francis described all the projections and analyses undertaken in the review yet to date nothing has been publicly released. At the same time Patrick Foye stated that discussions were held with stakeholders, legislative staff and legislative leaders - all apparently in private. They met with each bidder as well, again, apparently in private. Who knows what was discussed? No report or documents were ever released.

The State Procurement process is relatively open. I guess no one wanted that.

The really unfortunate thing is the Spitzer and Paterson administrations could have issued a binding RFP with the winner selected by defined, pre-determined criteria. Instead, they all wanted to keep the real State Procurement law out of the process and maintain a political component for the decision making.

Too bad.

Anonymous said...

Politics and "magic" characterize the NYRA selection, so its no surprise that Spitzer wanted to control the gaming award outside of state procurement laws as well to assure a certain winner. Its also typical for elected officials to tell the public one thing about "transparency" (one of Eliot's favorite words) and do the exact opposite in the privacy of their own sanctums.

Why Governor Paterson embraced such filthy work is beyond me. Perhaps his fear of the alleged rogue police unit and their mysterious powers, which he announced on day one of his office, along with his claims of prior personal fouls, had the Governor 'bound" to follow the path already established by his predecessor, of course before his personal misdeeds were finally laid out and used against him?

There is way too much money at stake, for both the state and the gaming operator, to permit pay-to-play, political leverage, or any kind of shakedown to effect the determination. Even though this Governor can't read with his own eyes, I know that he can see.