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Appeals court revives MBIA lawsuit against Sports Authority

Here we go again.

A lawsuit against the agency that pays the debt on Houston’s sports stadiums is back on following an appeals court ruling.

Last April, a state district court judge ruled that a bond insurer could not sue the Harris County-Houston Sports Authority or the Harris County Sports & Convention Corp., saying they were immune from such legal action as government agencies.

MBIA Insurance Corp., with the National Public Finance Guarantee Corp., sued the Sports Authority in January 2013, asking that the cash-strapped agency be forced to collect more money to cover its obligations, including additional parking and admissions taxes at Reliant – now NRG – Stadium, and seeking damages for other alleged breaches of contract. The sports corporation, the county agency that manages NRG Park, also was listed as a party in the suit.

In an opinion issued last week, a three-judge panel from the First Court of Appeals ruled that the Sports Authority had waived its immunity when it entered into an agreement with MBIA – now National – that provided that the company, which insures $1 billion in bonds, would guarantee regularly scheduled principal and interest payments on them.

Upholding part of state District Court Judge Elaine Palmer’s decision, it also ruled that the sports corporation was not liable because the company had not accused it of breach of contract.

Sports Authority Chairman J. Kent Friedman said it has not yet decided whether to ask the First Court for a re-hearing, to appeal to the Texas Supreme Court or to “go ahead and try the case.” Deadlines to request a re-hearing or appeal are next month.

“I continue to be very confident in our position in the litigation,” he said. “All it really did is allow them the right to proceed with their lawsuit.”

See here, here, and here for the background. The Court’s opinion is here, and if like me your eyes glazed over after about five seconds, you can skip to the end and confirm that the bottom line is that the Harris County-Houston Sports Authority does not have immunity and thus can be sued, but the Harris County Sports & Convention Corporation does have immunity as Judge Palmer ruled and thus cannot be sued. The matter is now back in the 215th Court, pending a decision by either party to appeal the part of the ruling they didn’t like. Also, I’m glad to see that we seem to be done with that “Kenny Friedman” business, and J. Kent Friedman is once again being called “J. Kent Friedman” as well he should be. So there you have it.

MBIA appeals lawsuit dismissal

Here’s the brief that MBIA has filed with the First District Court of Appeals to overturn the dismissal of their lawsuit against the Harris County-Houston Sports Authority and the Harris County Sports & Convention Corporation. The issues presented for review are pretty straightforward:

1. The Sports Authority was authorized to waive its purported governmental immunity by the Texas State Legislature in Texas Government Code Section 1371.059(c), and it clearly and unambiguously waived any such claim of immunity in the operative deal documents.

2. The Sports Authority also waived its governmental immunity to suit, as provided in Texas Local Government Code Section 271.152, by entering into contracts for goods or services relating to the issuance of approximately $1 billion in bonds.

3. The Sports Authority, a joint creation of the City of Houston and Harris County, had no right to governmental immunity when it issued bonds in its proprietary capacity after a public vote by the citizens of Houston.

4. The Sports Corporation waived its governmental immunity to suit, as provided in Texas Local Government Code Section 271.152, by entering into contracts for goods or services.

I’ll leave it to the lawyers to evaluate their chances. Typically, it will be months, if not more than a year, to get an answer on this. In the meantime, I came across this link about the Sports Authority’s bond rating. The improving economy has the ratings services optimistic about its revenues in the near term. Take a look if you’re into that sort of thing.

Someone attempted to do something about MBIA and the Sports Authority

And others expressed their disapproval about it. What the “it” is, and who it was that was trying to do “it” remain unclear.

Who dunnit?

Who dunnit?

A surprise legislative maneuver has local government lobbyists scrambling to defend the agency that pays the debt on Houston’s sports stadiums against an alleged takeover attempt by the company that insures its bonds.

The insurer, MBIA, has hired lobbyists to circulate language that would prevent the Harris County-Houston Sports Authority from spending money on anything other than debt service and legally required payments without its creditors’ approval.

Sports Authority chairman J. Kent Friedman said the draft, which names neither the Sports Authority nor MBIA, appears innocuous at first glance.

“It’s extremely well done. You have to be an insider to know what this really does,” he said. “In effect, they would take over running the Sports Authority. I’m convinced they’ll try to stick it on some other piece of legislation at the end of the session, on the floor so it’ll get as little notoriety as possible, and try to slip it through.”

A Houston-area lawmaker had considered attaching the language to a pending financial transparency bill, Friedman and others said, but quickly dropped it when a lawyer whose feedback he had sought realized its implications. The legislator could not be reached Friday.

[…]

Harris County lobbyist Cathy Sisk called the legislative maneuver “bizarre,” saying the insurer appears to be trying to get lawmakers to do what a judge did not.

“We’ve pretty much alerted everybody in the delegation to watch for it,” Sisk said. “I’d like to think that means it doesn’t have much of a chance of being attached to anything, but you never know. Anything can happen in the Texas Legislature.”

City of Houston lobbyist Kippy Caraway said her team also is on alert.

Kevin Brown, a spokesman for MBIA affiliate National Public Finance Guarantee Corp., said what the firm seeks in its lawsuit against the Sports Authority and the goals of the draft amendment are different.

“The legislation that we have been promoting seeks to achieve greater transparency and accountability from certain governmental entities that are in financial distress,” he said. “The Sports Authority’s opposition to that legislation should raise serious questions for Houstonians and other stakeholders about the authority’s financial condition and the reasons for its objections.”

The draft amendment runs two pages and would apply to a “political subdivision in condition of financial stress,” as defined by five points that describe the Sports Authority.

The amendment says such an entity “may not, unless authorized by (its) creditors” spend money on anything other than debt service, payments required by law or a contract, or to maintain its assets. The draft also would, among other things, require the entity to submit to its creditors a plan stating how it will address its financial woes.

See here, here, and here for the background on MBIA and the Sports Authority. Frankly, the most important piece of information in this article is that the Chair of the Sports Authority is now being referred to as “J. Kent Friedman” again, after a brief run of being called “Kenny Friedman”. Whether this represents a return to copy-editing standards on the part of the Chron or the documenting of a brief midlife crisis on Friedman’s part also remains a mystery.

Things that the story left a mystery:

1. The identity of the legislator. Why wouldn’t you just say who the legislator was? So what if he couldn’t be reached for a comment by the time the story went to print? The fact that this amendment was drafted and this legislator was shopping it around before pulling it back isn’t in dispute, so no one’s reputation is on the line. What purpose is being served by holding back this information?

2. The full text of the amendment. Reporter Mike Morris has clearly seen it, since he quotes from it, but it runs two pages and all we get is a couple of sentence fragments. The amendment was apparently not filed, since I can’t find it via an amendment search using the phrase “political subdivision in condition of financial stress” or a combination of the words. But clearly it exists, so a document could be made of it and uploaded somewhere for the rest of us to see.

3. The bill that the unnamed legislator was going to try to attach it to. At this point in the session, it could only be attached to a Senate bill, and if adopted it would thus require a conference committee to get the different versions straightened out for final votes. If we knew the Senate bill in question, we could then ask the Senate author what he or she thinks of this maneuver. Given all of the sturm und drang we’ve seen recently, that might have made for a more interesting story than the one we got.

As it happens, from prior communication I’ve had with MBIA representatives, I was able to get answers to these questions. The bill in question was SB14, specifically the committee substitute CSSB14, authored by Sen. Tommy Williams. The House legislator was Rep. Jim Pitts, who was the House sponsor for the bill. I don’t know how you can call Rep. Pitts, who is based in Waxahachie, a “Houston-area lawmaker”, but I suppose that’s a minor quibble at this point Rep. Jim Murphy. The amendment, which was drafted but not officially filed, is here. Again, I’m not sure why this information wasn’t in the story. Be that as it may, MBIA disputed Friedman’s contention that this was an attempt to “take over” the agency, saying that the main purpose of the legislation was to enhance transparency and accountability. At last report, a point of order had been sustained against CSSB14 in the House, so this is all likely moot at this point. But we still should have known more about what was happening at the time.

UPDATE: I have since been informed by Judge Emmett’s office that the legislator was Rep. Jim Murphy, not Rep. Jim Pitts. I suspect this was a matter of confusing one Jim for another.

MBIA lawsuit against Sports Authority dismissed

I haven’t seen a story about this in the print edition for whatever the reason.

A state district court judge on Tuesday ruled that the Harris County-Houston Sports Authority cannot be sued by the company that insures the $1 billion in debt that the agency services on local sports stadiums.

Bond insurer MBIA, with the National Public Finance Guarantee Corp., sued the Sports Authority in state district court in January, requesting that the cash-strapped agency be forced to collect more money to cover its obligations. Other local entities were listed as defendants, including the Harris County Sports & Convention Corp., the county agency that manages Reliant Park.

In granting two pleas to jurisdiction, 215th District Court Judge Elaine Palmer also ruled that the Sports Corp. cannot be sued. The Houston Texans and Livestock Show & Rodeo were also listed as defendants in the lawsuit.

Attorneys representing both sides made their cases in front of Palmer on Friday with the Sports Authority arguing it is immune from suit as a governmental agency created by the state Legislature.

Some folks from MBIA reached out to me a couple of weeks ago, presumably because I’d been blogging about this and had expressed some befuddlement about the finer points of the issues. As a result of that conversation, I now have a copy of the original complaint and response filed by MBIA, and a slightly better understanding of the whole thing as well. Though I am not a lawyer in addition to not being a finance guy, I confess that I am somewhat uneasy with the idea of a quasi-government entity like the Sports Authority being granted immunity like this. Hypothetically speaking, what if there had been an allegation of actual malfeasance? What would be the recourse in a case like that? I suppose the answer is that the County Attorney would investigate and hand things over to the DA if appropriate. While I have no doubt that Vince Ryan and his staff would be more than equal to that task, it seems there might be the potential for a conflict of interest. I don’t know. Any lawyers out there want to offer an opinion on this?

Anyway. I also received the following statement from Kevin Brown, a spokesman for National:

National and MBIA respect but disagree with the Court’s decision. This ruling raises a red flag for anyone doing business with governmental entities in Texas and calls into question whether their contracts are enforceable. We intend to appeal promptly and look forward to presenting our arguments to the Court of Appeals.

So it ain’t over yet. I’ll let you know when I hear more.

Sports Authority gets sued

MBIA, the company that insures the Harris County-Houston Sports Authority’s bonds, has filed a lawsuit to force the Sports Authority to collect more money to pay its obligations.

If MBIA must cover payment shortfalls and cannot reimburse itself from the authority’s reserves, the amount owed to the insurer will accumulate with interest. In such a scenario, MBIA officials have said, hotel and car rental taxes would be tied up for years paying off MBIA when those dollars could have been put toward local projects had the bonds been paid off on time.

Authority Chairman Kenny Friedman said MBIA’s urgency is driven by a desire to skirt its obligation to pay the bonds, an accusation the insurer denies. The authority bought bond insurance for a reason, Friedman said, and added that neither the stadium homes of the Texans, Rockets and Astros – which the authority was created to finance – nor the land under them are at risk.

“It’s a frivolous lawsuit. I think it’s designed to get them some perceived PR advantage,” the agency’s chairman said. “We’re the third-largest county in the country and we’re not going to be bullied by a second-rate insurance company. What MBIA is looking for is a bailout, and it’s just not something we’re going to do.”

It was MBIA’s 2009 downgrade that strained the authority’s reserves in the first place, Friedman said.

After MBIA’s downgrade, $125 million in variable-rate bonds the authority sold to help build Reliant Stadium were converted into a loan due in 2014 rather than the original 2030. The authority since has struggled to make much larger payments under this “term-out,” and MBIA has had to cover shortfalls seven times, including last November, reimbursing itself each time from the authority’s reserves. Three term-out payments remain.

Again with the “Kenny Friedman” stuff. Did I miss a memo or something? Is there a new style guide out that says the name “J. Kent Friedman” is, like, so 2012? First this and then David Ward – where will it end?

Ahem. See here for the background. I don’t know who’s right and who’s wrong, but I do know that if MBIA prevails, the price of tickets and parking at Reliant will go up, because the current tax levied on tickets and parking, which is where the revenue to pay off these obligations comes from, are lower than the law allows them to be. You Texans and Rodeo season ticket holders might want to keep an eye on this.

The Sports Authority’s finances are back in the news

I still have no idea whether this is something we need to worry about or not.

The firm that insures the Harris County-Houston Sports Authority’s $1 billion in bonds – sold to finance the homes of the Texans, Rockets and Astros – is calling on the cash-strapped authority to bolster its depleted reserves and warning of potential consequences if it does not.

MBIA Insurance Corp. Assistant Vice President Kenneth Epstein said this week the authority’s reserves are half what they should be and that the bulk of the agency’s debt, issued in 2001, has fallen short of revenue projections every year but one since then.

“We’ve been a willing participant over the last four years in trying to come up with a solution to the authority’s problems. The authority has not come back with any solution to what’s been happening,” Epstein said. “We want the authority to recognize that a problem exists, to bring people to the table, and to try to come up with a solution.”

The depleted reserve should be $55 million but is $25.4 million, Epstein said, putting the authority “in a very precarious position” and limiting its ability to handle dips in hotel and car rental taxes, its main revenues.

Sports Authority Chairman Kenny Friedman said the group is looking for a deal that could let it replenish its reserves and lower its payments in the long term, but said his board does not share MBIA’s urgency. The deal is structured to protect the city’s and county’s credit ratings and the stadiums, he noted.

“They are focused on what they should be focused on, which is protecting MBIA’s insurance obligations, and we’re focused on what we should be focused on, which is what’s right for this community and for these venues,” Friedman said. “We’re not going to do a deal just because it’s good for MBIA. It’s going to have to be good for the community. If we find one of those, we’ll do it.”

Friedman called MBIA’s concerns “strange” given that the insurer’s 2009 downgrade amid the financial crisis contributed to the strain on the reserves.

Important question: Are “Kenny Friedman” and J. Kent Friedman the same person? Because if they are, it’s the first time I’ve ever heard the name “Kenny Friedman”.

Be that as it may, see here, here, and here for some background. Not being a finance guy, I struggle to understand this stuff every time it comes up. County Judge Ed Emmett is quoted in the story telling MBIA to calm down, which reassures me somewhat but doesn’t really clarify things. I don’t know what else to add to this, so just consider this latest chapter in the saga noted for the record.