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49ers Intercept Mayor With Lawsuit

After weeks of widely broadcast threats from Santa Clara Mayor Lisa Gillmor to take over Levi’s Stadium operations, the San Francisco 49ers responded with a lawsuit charging that the Santa Clara Stadium Authority (SCSA) and SCSA Chair Gillmor are acting in bad faith, trying to break the stadium management contract with the 49ers and bring in a new management company. The 49ers are also demanding a legal statement from the City that they’re in compliance with the contract terms–an estoppel–which they say is per the terms of contract. The City Council has refused to provide this.

This is the second legal action the city is engaged in with the 49ers. The first is arbitration over the stadium facilities rent reset.*

“The Stadium Authority refused to engage in good faith negotiations with the [49ers Stadium] Management Company for the purpose of resolving whatever differences between the parties may exist,” says the 49ers complaint. The 49ers “are informed and believe” the SCSA “has conducted itself in this manner with the aim of eliminating the change of a businesslike resolution of whatever real and imagined concerns it may have about the operation and management of the stadium.

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The complaint continues, saying the Stadium Authority has “falsely accused Management Company of having failed to perform its obligations under the Stadium Management Agreement, despite the absence of any good faith basis for such charges.

When asked to specify the nature of any failure of performance on the part of Management Company, Defendants failed and refused to do so and …threatened to terminate the Stadium Management Agreement and to replace Management Company.

Further, the 49ers allege “the Stadium Authority now has embarked on a scheme to concoct and fabricate false accusations of breach or nonperformance by Management Company in order to create a pretext for terminating the Stadium Management Agreement.”

The 49ers are asking for a judicial declaration of both parties’ contractual rights and obligations, and attorney fees.

The history of the controversy begins with Ad Hoc Stadium Authority Measure J Audit Committee, chaired by Gillmor. This committee was tasked with the job of supervising a review conducted by Harvey M. Rose Associates (HMR) of the city’s internal practices for stadium-related time-tracking. HMR is a management consulting company known for its public policy analysis and conducting internal operations reviews for public agencies.

Stadium financials are audited every year by licensed CPAs from KPMG, and have received a clean report every year.

Shortly after the committee started meeting, the mission morphed into a review of the 49ers’ stadium operations reporting. About two months ago City Council Members began saying that critical “documents” haven’t been provided to HMR. The day before Thanksgiving, the city sent the 49ers a 30-day demand letter comprised of a bullet list of stadium manager responsibilities, titled “possible breaches,” without identifying anything specific that the 49ers had failed to do.

These charges of non-compliance have been answered by the 49ers in several entensive point-by-point letters–enumerating items that have been provided to the Ad Hoc committee including–documents published on the city website, specially-prepared reports and internal stadium operations procedures and handbooks.

The 49ers have also made confidential records–security plans (which are already shared with the police and fire departments) and the details of individual deals with event promoters–available for review at the 49ers office.

“The Manager made all documents requested by you available to you and your staff in a meeting on November 18, 2016,” the 49ers wrote in its Jan. 6 letter. “In addition, [the] Manager offered numerous times, in our correspondence, by phone, and in public meetings, to make all requested documents available to any member of the Board or any designated staff member in a manner that satisfies all of the SCSA’s requests for information, while protecting SCSA’s interests.

“Manager requested meetings with staff, Board members and/or counsel to SCSA for the purpose of resolving any issues as to the nature of the document production,” continues the letter. “SCSA has not accepted any of the dates that Manager offered or offered any other dates.

The Council is demanding that those confidential records be delivered to City Hall.

Not all public agency records are subject to the California Public Records Act. But last year’s apparent leaks of confidential information about the departure of former City Manager Julio Fuentes and stadium rent negotiations to the Metro and Mercury News lead to questions about whether these stadium event records would be similarly vulnerable.

This detailed information would be quite valuable for companies bidding on a stadium management contract–although it could hurt long-term City revenues by making promoters and event planners think carefully what would be shared when they bring their events to Levi’s Stadium.

At the end of the day, Mayor Gillmor will likely find that the legal goal post is too high. Two of three parties have to agree in order to dissolve the stadium management contract. Those parties are the Santa Clara Stadium Authority, the 49ers Stadium Company, and the 49ers Management Company.

The Council approved this arrangement, described in the Stadium Management agreement in 2012, and hammered out over the two previous years. As City Council Member since 2010, and previously chair of Santa Clarans for Economic Progress–the Yes on J Political committee lobbying to build the stadium–Gillmor had several opportunities to structure the business relationship differently.

A hearing for the case–number 17-CV-304903–is scheduled for April 25 at 2:15 p.m. at the Santa Clara Superior Court in San José.

*Arbitration is a privately conducted lawsuit, where the judge–the arbitrator–is hired by the parties, the proceedings don’t have to be public, and the decision can’t be appealed. The Stadium Facilities rent is part of the total stadium rent established in the 2012 lease contract, and it’s calculated to cover operating expenses. The largest expense is outstanding debt, which is significantly less than anticipated in 2012.

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