Melnyk's CSMI ordered to post $2.5 million contingency in LeBreton suit
Capital Sports Management Inc. and companies owned by businessmen John Ruddy and Graham Bird are still exploring the evidence underpinning each others' claims in a huge legal action.
James Bagnall, Ottawa Citizen
Publishing date: Dec 17, 2020 • Last Updated 1 hour ago • 4 minute read
Two years after Ottawa Senators’ owner Eugene Melnyk launched his $700 million suit over the failed LeBreton Flats project, it seems these proceedings haven’t advanced very far.
The principals in this mega-action — Melnyk’s Capital Sports Management Inc. and companies owned by local businessmen John Ruddy and Graham Bird — are still exploring the evidence underpinning each others’ legal claims, a process that will likely continue for another couple of months.
CSMI has alleged that Ruddy and Bird breached duties of good faith and misused confidential information, while the defendants have countersued for more than $1 billion. Ruddy has claimed Melnyk’s suit was both “meritless” and “an abuse of process.”
At some point, perhaps February, the parties will meet with a judge to see if there are grounds for a settlement or, failing that, to determine the focus for trial. If this action does go to trial, it would likely require at least two months in front of a judge or jury, and would probably not begin for another 12 to 18 months. So, mid-2022-ish.
In short, the ramifications of the breakdown of the Rendezvous LeBreton partnership — which had proposed transforming LeBreton Flats into a residential and entertainment district — could be with us for a very long time. Certainly the rancour between the principals hasn’t dissipated, judging by a recent legal decision by Alexandre Kaufman, the case management master for the Superior Court of Ontario.
Kaufman ruled Nov. 26 that CSMI should set aside $2.5 million in three tranches to cover the legal costs of entities controlled by Ruddy and Bird, in the event that CSMI and Melnyk lose this proceeding. Ruddy and Bird had been seeking security of about $5.5 million.
“The ruling dramatically reduced the amount that was originally sought by the defendants,” said CSMI lawyer Robert Brush, “The defendants can only access these letters of credit if they are able to successfully defend against CSMI’s $700 million lawsuit.”
Ruddy and Bird advanced their motion out of concern that CSMI lacks sufficient assets to cover court costs they are likely to incur.
At first glance this suggests Melnyk is strapped for cash. However, CSMI is just one of several entities controlled by Melnyk through Capital Sports Holdings. Other entities include the Ottawa Senators and a company that owns the Canadian Tire Centre. Melnyk also has business interests outside sports.
It hasn’t been a good year for hockey. The Senators played only 85 per cent of the fiscal 2020 season thanks to the pandemic and received fewer proceeds than normal from the National Hockey League’s revenue sharing formula. Forbes Magazine in its annual analysis of NHL teams estimates the Senators lost US$2.9 million in the year ended last summer. The new season won’t start until January at the earliest.
However, CSMI is the corporate vehicle through which Melnyk proposed his Rendezvous LeBreton partnership with Ruddy. So it is CSMI that is potentially liable for Ruddy’s and Bird’s legal fees, according to Kaufman. The court master noted that while CSMI’s ability to pay defendants’ legal costs if so ordered, depends ultimately on Melnyk or his holding company, “there is no evidence on the record” about Melnyk’s overall financial position.
Until the pandemic, CSMI generated about $1 million annually managing three Sensplex recreational facilities in Ottawa. This dropped to $565,300 in the fiscal year ended June 30. CSMI lost $1.2 million in fiscal 2020 and $450,000 the year before.
The court decision also revealed that CSMI is indebted to Melnyk who advanced it a $13.1 million loan. Melnyk has agreed that in the event of a legal loss, Ruddy and Bird are entitled to proceeds before CSMI repays any of this loan.
Regardless, Kaufman wrote in his decision, “there are good reasons to believe CSMI has insufficient assets in Ontario to pay (defendants’) costs.”
That was one of several metrics the court’s master used to determine that CSMI should post $2.5 million with the court by way of security for the defendants’ legal costs. Roughly half a million dollars is to be posted by Boxing Day with another $1 million once the case is ready to be tried, and $1 million more no later than 60 days before trial.
Ruddy and Bird claimed to have spent nearly $1 million to date on legal fees and expect they will spend another $4.5 million, assuming the matter goes to trial.
Kaufman estimated that a future trial, which would take place in Ottawa, would require about 50 days. “This is a complex commercial claim between sophisticated parties,” he noted.
Separately, Melnyk has resolved a much simpler, unrelated legal case without going to trial. Early this year he reached a tentative settlement with the Mohegan Gaming Tribal Authority, which had sued Melnyk to recover more than $1 million in alleged gambling debts and interest. Melnyk’s lawyer, Sheldon Plener confirmed “the matter was closed and details are confidential to all parties involved.”
A lawyer who represented the Connecticut casino involved did not return an e-mail query.
https://ottawacitizen.com/business/l...breton-lawsuit
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