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VOL. 124 | NO. 105 | Monday, June 1, 2009

Why the Struggle to Control Beale Street Continues

By Bill Dries

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Eight blocks lie between the Shelby County Courthouse and Beale Street.

The courthouse’s seated representations of wisdom, justice, liberty and authority look southward toward the entertainment district. Sometimes, if the wind is blowing in the right direction, you can hear the band in Handy Park from the courthouse steps.

For much of their respective histories, the two very different worlds have met only when the forces of Beale Street could not settle their own differences peacefully – or at least definitively.

In the Chancery Court clerk’s office is a file as long as a judge’s bench that’s a testament to Beale Street’s continuing internal differences. The file is so large that at one time it had its own clerk.

The case that began as Beale Street Development Corp. vs. Performa Entertainment is 10 years old and counting. It has been dormant for years at a time. But it came back to life last year with a different alignment of defendants and plaintiffs as well as renewed vigor, much of it political. The city of Memphis is now the most vocal plaintiff.

The forces of modern day Beale Street are the city of Memphis, which has owned the three-block entertainment district since the days of urban renewal in the 1960s; the merchants who run the businesses; Performa Entertainment, which has a 52-year contract to manage and develop the district; and the Beale Street Development Corp., the nonprofit middleman between the city and Performa that helped the city get federal funding for Beale Street’s development.

Felix Larkett and Heather Pounds sway to the North Mississippi hill country blues of Richard Johnston, a one-man band, who plays every Friday and Saturday outside the New Daisy Theater on Beale Street. -- PHOTO BY LANCE MURPHEY

All involved agree it’s time for a change in how the district is managed. It’s the terms of that change they differ greatly on – at least by press time.

The dispute is over how all of those involved in Beale Street today will settle past accounts and set up the structure for what comes next.

The stakes are millions of dollars in revenue and control of the district.

“Performa has taken money that it has not earned,” said Ricky E. Wilkins, attorney for the city of Memphis, during a daylong hearing last month. The city wants lots of financial records to make its claim.

His co-counsel, Sharon Loy, told Special Chancellor Don Harris at the same hearing in April that Performa has “taken hundreds of thousands of dollars.”

“They use it like monopoly money,” she concluded.

Harris delayed a ruling for at least a month on another motion for summary judgment by the BSDC. A summary judgment would void the contract between the BSDC and Performa, at least until Performa almost certainly would appeal, leaving BSDC in charge of the district. It could also pave the way for some kind of settlement between the city and the BSDC with Performa out of the picture.

Performa’s attorneys argued they have made the records available repeatedly and that the search for information is not just about the legal claims.

“No one – there hasn’t been one person testify that there is any money missing – not a nickel,” Performa CEO John Elkington told The Memphis News. “The only thing I ever had to report, if you look at our lease, is I’ve got to report our gross income. We give them more than that. We give them our expenses.”

Two contracts are involved.

One is a 52-year agreement with a 32-year term followed by two 10-year options, signed in late 1982 by then-interim Memphis Mayor Wallace Madewell. It’s a contract between the city and the BSDC. The BSDC then entered into a contract in which Performa runs Beale Street. With the two contracts together, the BSDC is the middleman between the city, which owns the property, and Performa.

“It is clear that no one ever thought that we would make it,” Elkington said of the second contract. “They gave us complete latitude to do whatever we wanted to do. … All we have to do is at the end of the year show that the money that came from Beale Street was spent only on Beale Street. … No one has said the gross income is off. The only default is if our gross income is off more than 3 percent. It’s not off a half a percent. It’s not off at all.”

Not good enough

But Performa has been more than a manager and rent collector since the earliest days of the district, which recently celebrated its 25th anniversary of re-opening, when Elkington decided Performa would have to get into the restaurant business or watch the district tank. The leases Performa worked out with some of the clubs were also different, resulting in what is now a patchwork of arrangements for different businesses. The district struggled financially for at least its first decade.

Attorney Ricky E. Wilkins is spearheading the court push by the city of Memphis for more information on Beale Street’s complex cash flow. Performa Entertainment CEO John Elkington claims the drive is about more than getting information for the court case. -- PHOTO BY LANCE MURPHEY

“I didn’t pay myself a management fee for 15 years,” Elkington said. “And we accrued all the commissions down there for 10 years or 12 years.”

Wilkins has contended in court that Elkington has been using Beale Street revenues to finance other Performa ventures outside Beale Street and Memphis.

“I expected that there would be a drawn-out discovery process,” Wilkins told The Memphis News. “The bulk of what we’ve learned to date, we’ve learned pretty much through the discovery process that’s been under way since May or June of last year.”

The progress Wilkins describes is largely obscured from the public. Harris has placed most of the documents, including depositions and financial statements, under a protective order that bars their disclosure or the attorneys from commenting on the case.

That is because some of the information involving the businesses on Beale Street is considered proprietary. The other reason is Harris has said he doesn’t want the dispute tried in the media – at least the part he controls in court.

But Harris made it clear at the April hearing that he wasn’t satisfied with Elkington’s and Performa’s cooperation in providing records.

“Several months ago, I said I was dedicated to full discovery,” Harris said. “This is one of the things that concerns me most. I have an obligation to protect not only the parties in the case, but the taxpayers of Memphis.”

Harris also appointed attorney John Ryder as the receiver of the district. The position gives Ryder day-to-day control of Beale Street’s finances.

“Mine is not an investigative role, but simply to collect the rents, to collect all of the income from the Beale Street historic district and then to pay the expenses of the … district out of that income,” Ryder said. “It seemed to run fairly smoothly before I got here and I hope that I am causing minimum disruption in the operation.”

Any disruption is mild compared to the discussion merchants are having about a move by Curtis Givens, founder of the old Club Premier on American Way, to set up shop in the old Pat O’Brien’s at 310 Beale.

The controversy is a reminder that the bottom line in the legal claims remains the crowds that fill the clubs and the street itself in the spring, summer and into the fall.

Cato Walker, the managing member of the yet unnamed club-to-be, told The Memphis News it would not be a hip-hop club ala the Premier. Walker said the club would be a place for a demographic the street is missing, 26- to 36-year-old urban professionals who want to dress up for an evening on the town.

There goes the neighborhood

Nevertheless, Elkington is vehemently opposed to Givens’ move into the club that went into bankruptcy reorganization and closed last year.

“If that guy takes over on Beale Street, we’re out of business,” Elkington said, citing the crowd and security problems the Premier had. “You might as well just forget it.”

At the core of the competing legal claims surrounding Beale Street is the money spent by tourists in the district, which is considered the state’s No. 1 tourist attraction. How much money and where the money goes is the central point in the lawsuits now pending in Shelby County Chancery Court. -- PHOTOS BY LANCE MURPHEY

Elkington has said repeatedly he no longer enjoys his role as developer and manager of the district and wants out. But in an interview with The Memphis News earlier this month, Elkington speculated aloud about selling Performa’s contract to one of the street’s merchants or a group of the merchants for $1.

“The merchants want to own Beale Street. That’s what they want to do,” he said. “What may happen very shortly, I think, is we sell it to them for a buck – say, ‘It’s your deal. … You take care of Performa and move it forward.’”

Wilkins said that wouldn’t change the legal claim he’s pursuing.

“We’ll take whatever action we have to take to protect the interest of the city of Memphis, regardless of who we find to be liable to the city for any of the damages that we think we may have suffered,” he said. “It may change the dynamics of who the defendants become, but in terms of the underlying claims that we are asserting – it’s not going to change that at all.”

Elkington said he’s not afraid of being named as a defendant.

“They’re not going to sue me personally,” he said. “Then our insurance company … would kick in. Then I could stay there forever. They would pay all our legal fees. They’re not going to do that. That’s all bulls--t.”

So far, the lawsuit has spawned two other suits that represent a legal offensive by Performa and the Beale Street Merchants Association, who are allies at least for now.

Performa’s lawsuit against the city over Performa’s lease of Handy Park was recently moved from Chancellor Arnold Goldin to Harris as part of the larger original case. The city moved to cancel Performa’s lease of the park – the first effort by the city to reclaim a piece of Beale Street real estate from Performa.

Performa and the merchants portray the city’s move for financial records in the larger case before Harris as a bid by Mayor Willie Herenton’s administration to bring in a new company to run and manage the district.

And they contend the proof is in a series of e-mails included in the 52-page lawsuit the Merchants Association filed April 15 against the city and several other parties, including The Cordish Cos. of Baltimore and Guggenheim Partners, a Chicago financial investment firm, as well as Parente Randolph, the Philadelphia accounting firm the city is using to perform the forensic audit for the entertainment district.

Most of the e-mails are between Onzie Horne, executive director of the merchants association, and Robert Lipscomb, director of the city division of Housing and Community Development.

Leaving aside allegations of conspiracy and ulterior motives, the e-mails are a window into last year’s attempt to get the city and Performa to come to terms on Elkington’s exit – an exit Elkington is still pondering.

In a July e-mail, Horne floated a general framework from the merchants to “unwind” the legal setup among the city, Performa and the BSDC that has governed Beale Street since Nov. 29, 1982.

Another goal was to “create a new management and leasing process that the community can enthusiastically support with short- and long-term plans for stabilizing (and) growing the Beale Street brand.”

Lipscomb responded two days later, telling Horne he was unfamiliar with what was happening in Chancery Court. But Lipscomb said the city would need to know how binding the existing agreements were and “would need to assure the following: cooperation of (Elkington) and BSDC for buyout and cost of buyout ... The BSDC would have to use the dollars for a project, as you could not pay the members of the (nonprofit) corporation.”

The merchants met with Herenton four days later and after the session, Horne worked on Lipscomb to “suspend all action by lawyers.”

“We don’t need to abandon any rights by any of the parties to the lawsuits or any rights of non-parties, i.e., the merchants,” he wrote Lipscomb. “But we do need to suspend the expenditures, energy and acrimony that comes from continued legal battling.”

Lipscomb responded on July 29 that “basically the mayor does not want to call off the attorneys – he wants us to proceed (as soon as possible) with a proposed resolution.”

Lots of back and forth

By August, the plan included a seven-member board to run Beale Street and possibly to hire a management firm. The board even had a name – NEWCO – with Herenton insisting that the mayor would appoint the seven members, and merchants would get three slots on the board. Lipscomb also requested of Horne some kind of estimate for how much an “Elkington settlement” would involve.

“… There hasn’t been one person testify that there is any money missing – not a nickel.”
– Performa CEO John Elkington 

Elkington told The Memphis News he had talked personally with Herenton about such a settlement as early as 1996. That’s when Elkington said Herenton put in writing that Elkington was owed $2 million. Elkington said at the time he was willing to settle for $800,000.

“I was willing to say, ‘OK, waive the remaining balance and let’s move on and let’s figure out how we pay it over 20 years.”

If Herenton called today and said the city wanted to take over, Elkington said he would still be willing to talk.

“I haven’t ever wanted anything,” Elkington said. “I just want to get my money back that I put in originally, plus some interest. I think I deserve that. And that’s basically it.”

As Horne was corresponding with Lipscomb in August, Rey Flemings, a former executive director of the Memphis Music Commission who now works for Justin Timberlake’s music label, Tennman Digital, e-mailed Lipscomb and Horne saying Tennman officials as well as executives from Cordish and Guggenheim Partners wanted to talk about running Beale Street.

Lipscomb responded the same day, Aug. 16, asking if Herenton needed to be at the meeting.

“I think it’s premature, but defer to your judgment,” Flemings e-mailed in reply. “I think we need a couple of meetings to develop a plan and then activate the mayor for support.”

Flemings also requested from Horne and Lipscomb details of who owned what properties in the district; terms of existing agreements; profit and loss statements; the rent rolls for existing tenants; and any other information the city might have.

The list of information was identical to one W. Chase Martin, development director for Cordish, had sought in a July 15 e-mail to Flemings as well as Barry Klarberg of Guggenheim.

Through August and into September, Horne pressed Lipscomb for a meeting with the three merchants nominees to NEWCO and to schedule a future meeting with Herenton.

“I’m very nervous that if we don’t get this done quickly before mediation (of the lawsuit) starts that we risk this whole thing falling apart,” Horne wrote in a Sept. 13, 2008, e-mail to Lipscomb, who didn’t respond immediately.

Lipsomb was focused on development agreement negotiations with Bass Pro Shops to use The Pyramid. He later e-mailed Horne to say he hoped Horne understood why he hadn’t responded.

By October, the mediation was off and the city’s court-driven effort to get more information manifested itself in workers who showed up at the clubs, measuring square footage as well as seeking documents.

It brought the latest attempt at a settlement to a screeching halt.

Horne declined comment on the e-mails, citing the Merchants Association lawsuit.

Endless game

Preston Lamm, owner of Rum Boogie Café and several other Beale Street businesses, said tax returns and other financial information were copied, although not directly.

“They weren’t supposed to make any copies,” Lamm said. “They looked at a tax return and copied it line for line into their computers, which is virtually the same thing as copying it. They circumvented the judge’s order, in our opinion.”

Elkington is more blunt.

“I don’t think there’s any question that Cordish got information about the tenants,” he told The Memphis News. “(The city is) trying to change the lease that we entered into. They’re trying to do it judicially instead of doing it the way normally leases are done – by negotiations.”

The Beale Street Merchants Association is a coalition of 25 businesses in the three-block entertainment district. They range from nightclubs and restaurants to souvenir shops and a tailor’s shop. -- PHOTO BY LANCE MURPHEY

Wilkins is equally blunt.

“There is no scheme to obtain information through litigation and use that information to hand it off to some potential third-party manager of the street,” he said. “I understand why they are doing what they’re doing. I really do. But let me just tell you I hope they are going to be able to defend having a reasonable basis for filing that allegation.”

Wilkins said he is prepared to seek legal sanctions against the Merchants Association for filing what he terms a “frivolous” claim. He also questioned why the merchants didn’t file the claim with Harris since they allege a violation of Harris’s protective order.

Lamm said the merchants may take the complaint to Harris as well, but want enforcement of an injunction that prevents the spread of the information.

“You can’t just wipe out everybody that’s been down here for 25 years simply because you decide you want to do that,” Lamm said. “We have recorded our leases. We have done everything legally that should be done with a lease.”

By filing the lawsuit in a different court, the filing including the e-mails remained a public record outside the scope of Harris’s protective order.

Neither Flemings nor Cordish executives could be reached for comment.

What is not contested is that those in the e-mails were involved in trying to work out a settlement in which Performa and the BSDC would be bought out and a new appointed board would oversee the district, possibly hiring another firm. Leave out the part about negotiating with another firm while the buyout terms were still gelling and you have a version of events everyone involved in Beale Street can agree on. The critical element is timing.

Lipscomb acknowledges the Herenton administration wants some change in how Beale Street works. The phrase he used concerning the club leases in a July 24 e-mail to Horne was “they are not good for the city.”

The shopsteading leases, in which some of the street’s most successful businesses pay a percentage of sales instead of rent, are of particular concern, Elkington said. The leases pay Performa less than 4 percent, according to him.

“Who came up with the shopsteading leases?” Elkington asked. “The city of Memphis – because they didn’t want to put anymore money in. … This has been the plan for years. I think they want to get rid of 152 (Beale), Pat O’Brien’s, Hard Rock (Café), B.B. King’s – the ones that pay no rent, basically.”

Beale Street is a part of the Herenton administration’s 10-year, $1 billion Triangle Noir project, which would span the area of south Downtown into South Memphis. But Lipscomb told The Memphis News Beale Street is not necessarily the key to Triangle Noir.

“Only peripherally,” he said. “It’s not really directly involved.”

Lipscomb described his role in Beale Street the same way.

“I’m peripherally involved in it because I’m a city employee,” he said. “It’s obviously going to come back to me at some point because it’s just the nature of the beast.”

When asked if new management for Beale Street was part of the long-range plan, Lipscomb told The Memphis News, “I’m not getting into that. I have no comment on that. That’s not my area.”

He also said discussions he had with Cordish involved adaptive reuse of The Pyramid.

Elkington is critical of Lipscomb but not his boss, Herenton.

“I’m not going to say negative things about the mayor. That’s not what it’s about,” he said.

“He has been frozen for the last few years because he doesn’t know whether he’s going to get indicted or not indicted,” Elkington said, referring to a federal grand jury probe of Herenton’s personal finances. It has included an examination of Herenton’s one-time ownership of an option to buy land on Union Avenue just north of Beale Street.

“The sad thing is there are no decisions,” Elkington said. “All we do is play games.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 105 193 8,028
MORTGAGES 120 239 9,024
FORECLOSURE NOTICES 2 7 1,135
BUILDING PERMITS 192 445 17,512
BANKRUPTCIES 27 69 5,228
BUSINESS LICENSES 25 60 3,442
UTILITY CONNECTIONS 20 50 2,318
MARRIAGE LICENSES 25 50 1,642