VOL. 133 | NO. 62 | Tuesday, March 27, 2018
City Working to Settle EPE/Grizzlies Dispute as Litigation Mounts
By Patrick Lantrip
As the litigation piles up in a dispute between two of the most recognizable brands in Memphis, city officials say they are still hopeful a deal can be worked out between Elvis Presley Enterprises and the Memphis Grizzlies.
The dispute comes from EPE’s plans to expand the Graceland campus. Those plans may or may not violate an operational noncompete agreement the Grizzlies have with the city for FedExForum that, if breached, could cost the city $90 million.
“We are trying hard to be an honest broker between the two,” city attorney and chief legal officer Bruce McMullen said. “We are balancing a prior contract with the Grizzlies that has a use and operation agreement that prohibits the city from financing competition against the Grizzlies.”
Elvis Presley Enterprises’ latest plan calls for an 80,000-square-foot exhibit and convention venue. The project is on hold while the EDGE board sorts through bond financing implications.
Since plans for a $50 million, 5,000- to 6,000-seat concert venue on the Graceland campus first surfaced in August, city officials, EPE, the Grizzlies and the Economic Development Growth Engine for Memphis and Shelby County have been embroiled in a legal tango over whether this project, or any of its subsequent redrafts, is in direct competition with FedExForum.
“You could get 10 lawyers in a room and five could say it does and five could say it doesn’t, but at the end of the day, my job is to protect the city of Memphis, so I have to make sure that there is agreement by all parties about what is going to be built and confirmation from the Grizzlies that does not violate the use and operation agreement,” McMullen said.
While the Grizzlies’ noncompete contract is very detailed, a primary provision is that the city of Memphis will not provide financial incentives to any project with an indoor performance venue of 5,000 or more seats, so such a venue would not compete with FedExForum for concerts and other shows.
McMullen said one thing that jumps out is that if the Grizzlies were to relocate to another city before the end of their contract at FedExForum, they would have to pay the city somewhere in the neighborhood of $90 million. If the city breaches the contract, it releases the Grizzlies from any financial obligation related to relocation. Memphis could end up with an 18,000-seat arena with no primary tenant.
“The Memphis Grizzlies in their use agreement for the FedExForum have a noncompete and nonparticipation agreement, which I believe is not violated by this proposal and your counsel has taken the same position,” EPE attorney James McLaren told the EDGE board in September. “However the Grizzlies raised an objection and in order to be good corporate citizens of Memphis my client has agreed to alter the proposal.”
In February, EPE submitted an amended plan to EDGE, this time in the form of a $22 million project that calls for 80,000 square feet of exhibit and convention space with restaurant and entertainment venues. The 5,000- to 6,000-seat arena was not part of the proposal.
“We have been very conscious in structuring this project in some of the discussions we have had with the council to make sure it is an exhibit space,” McLaren told the EDGE board at that time. “The resolution that you have before you specifically limits the two 20,000-square-foot portions of the facility to have no more than 1,700 seats in them at any given time.”
Marty Regan, an attorney who spoke on behalf of the city administration, asked the EDGE board to delay the vote to give the city more time to review the project’s specs.
“The reason that we want to get a vote as quickly as possible is so that the construction plans can begin ... so that it can be open when the busy season starts next March and early April,” McLaren pleaded. “That’s really the timing here.”
The vote was delayed. On Wednesday, March 21, EDGE delayed for a second month its vote on the latest iteration of EPE’s expansion plans to study the implications of approving bond financing for the Whitehaven project.
At the March 21 meeting, EDGE board member Tom Dyer said he wanted to delay the vote because he was told EDGE would be sued by either EPE or the Grizzlies depending on the outcome of the vote, an allegation that the Grizzles later disputed.
Elvis Presley Enterprises' lawsuit against EDGE board (PDF)
Two days later, EPE filed a Chancery Court lawsuit against EDGE claiming the board acted “arbitrarily and capriciously” and ”contrary to its policies” in halting the approval process.
“As a result, EPE is being wrongfully denied its right and privilege to implement the next phase of The Graceland Project,” the lawsuit reads in part. “Indeed because EDGE is being arbitrary and capricious by refusing to consider and vote on EPE’s requests and applications, EPE cannot proceed on to the City Council and County Commission phase of the approval process.”
In the lawsuit, EPE is asking the court to grant temporary and permanent injunctions enjoining EDGE from refusing to vote on its Graceland plans.
Multiple attempts last week and again Monday, March 26, to reach EPE, McLaren and fellow Adams and Reese attorney Clarence Wilbon, who’s name was listed on the EDGE lawsuit, were not returned.
While the city of Memphis and Memphis Basketball LLC, the Grizzlies’ parent company, were mentioned frequently, they were not named in the EDGE suit.
“Surprisingly, instead of adhering to its obligations and exercising its independent discretion, EDGE has succumbed to the will of the City and Memphis Basketball and purposefully is keeping EPE from receiving certain tax incentives that it is qualified to receive under its existing relationship with EDGE, the City and the County,” the suit claims.
This isn’t the first legal proceeding to stem from this issue.
On Nov. 15, EPE filed a lawsuit against the city, the county and Memphis Basketball over the Grizzlies warning city and county leaders that the 5,000- to 6,000-seat concert venue and its financial incentives violated the noncompete contract for the Grizzlies to operate FedExForum.
Though that case was recently dismissed in Chancery Court, the city felt obligated to bring additional information to the court’s attention.
“Court dismissed the case for lack of standing and indicated in the order that EPE should go back to EDGE and go through the appeals process at EDGE,” McMullen said. “Well, EDGE doesn’t have an appeals process, and that’s something that I don’t think the court was fully aware of.”
McMullen said ultimately it’s not in the city’s best interest to stifle future plans of the Grizzlies or EPE, but the city still has contractual obligations to which it must adhere.
“We are very supportive of EPE building an arena,” he said. “But we just can’t let them build it with taxpayer money. That is what the whole issue is about. EPE is welcome to use their own money to build the arena. What we are dealing with is whether or not they can use taxpayer money.”
Another factor might be complicating matters. EDGE is not obligated to provide incentives to an applicant that is involved, or whose principals may be involved, in any significant litigation that may hamper the development process.
The Daily News has learned that two lawsuits are pending against Joel Weinshanker, the principal owner of EPE.
In EPE’s most recent application, when EDGE asked if any materially significant litigation or administrative action was pending or threatened against EPE, the underwriter, or any person serving as an officer or director of EPE or any person or entity owning a 5 percent or greater interest, EPE answered “no.”
Lawsuit involving Pyramid Tennessee Management, Elvis Presley Enterprises and Guest House at Graceland (PDF)
Of the two pending lawsuits related to Weinshanker, one directly involves EPE and one involves another one of Weinshanker’s business ventures.
One lawsuit brought by Pyramid Tennessee Management LLC, a third-party hotel management company hired to manage the $92 million Guest House at Graceland, alleges EPE breached its seven-year contract with Pyramid.
According to the lawsuit, the project’s initial lenders required EPE to hire a third-party company with hotel experience to run the Guest House.
After the project was refinanced, Pyramid alleges Weinshanker intentionally decided to breach the contract by getting rid of Pyramid, citing in the lawsuit a meeting between Weinshanker and two Pyramid executives.
“Mr. Weinshanker (who refused even to shake hands) stated that he intended to break the Agreement, switch managers, and he further explained his motive for doing so, specifically relating to his refinancing of the hotel. He stated that he would use litigation to achieve his ends, and then he tried to bully Pyramid out of the Hotel by stating that he would pay management fees through June 2018 (well short of the contractual period that runs until December 2023). Pyramid declined and pointed out the seven-year Agreement.”
According to the documents, the relationship between Weinshanker and Pyramid only soured from there before falling into litigation in January.
The second pending lawsuit stems from bankruptcy proceedings in Delaware involving a company not related to EPE that Weinshanker was in charge of known as Draw Another Circle LLC, a holding company for Hastings Entertainment Inc.
In the suit, liquidating trustee Curtis Smith seeks to collect a debt he alleges Weinshanker and several other business partners owe.
“Weinshanker, after engineering a leveraged buyout of Hastings in July 2014, carried out a strategy of using Hastings as his personal piggybank by causing it to pour millions of dollars into investments that not only conferred no benefit on Hastings, but hastened its demise,” the court documents read in part.
“Weinshanker used Draw Another Circle LLC as a holding company for Hastings,” the trustee alleges in the court documents. “He then used other special-purpose acquisition vehicles to purchase additional businesses using Hastings’ money, including MovieStop LLC and Sports Images Inc.”
In total, the trustee said he believes Weinshanker caused at least $25 million of Hastings’ assets to be “squandered during his reign with nothing to show but the liquidation of a $400 million business with 50 years of history and over 3,500 employees.”
It is not clear whether these ongoing lawsuits fall under the legal definition of “significant litigation” per the terms of EDGE’s application or what effect they will have on EPE’s case moving forward.
Calls to EPE for comments on the Hastings and Pyramid lawsuits, in addition to the EDGE suit, were not returned. A call to Pyramid Tennessee Management also was not returned before press time.
Meanwhile, McMullen says the city wants EPE to continue growing and offering jobs and opportunities for the people of Whitehaven, and for the Grizzlies to continue to be successful in Memphis. He hopes he can continue to engage both parties to work though their issues without any further litigation.