City, former Arena management firm await important ruling in legal dispute

The legal battle between the City of Corbin and the Philadelphia-based firm that used to manage the city’s 5,000-seat arena is stalled in federal court as a judge mulls whether the case was even filed in the right place from the beginning.

The complaint was filed Aug. 29 in U.S. District Court in London by SMG Entertainment and Event Venue Management just days before Corbin city leaders were set to authorize their own lawsuit against the company for money it says the company owes. SMG claims the City of Corbin owes, roughly, $128,000 in expenses related to the Arena that SMG was forced to pay just before it was ousted from the facility in 2011.

City leaders have claimed SMG actually owes money to Corbin.

The lawsuit was filed in the wake of attempted mediation between the two sides earlier this year that ended, apparently, with no agreement.

Now, U.S. District Judge Gregory Van Tatenhove is mulling over a motion by the city of Corbin to dismiss the case altogether, saying it should have been filed locally in Whitley County Circuit Court.

The case has been languishing in Van Tatenhove’s hands since October waiting for a ruling over the issue.

In a 10-page motion, filed September 21, Louisville attorney Mark A. Flores, one of two lawyers representing the city of Corbin in the case, noted that an operating agreement between SMG and Corbin specifically states that any legal disputes between the two must start in Whitley Circuit Court.

"This clear and unambiguous forum selection clause, mutually agreed upon by the parties to the Management Agreement, requires that any proceeding related to this Agreement be filed in Whitley Circuit Court, Williamsburg, Kentucky," Flores writes. "SMG’s lawsuit is ‘related to this Agreement.’ Inexplicably, SMG filed suit in the United States District Court … in direct contravention of the controlling agreement."

Lexington attorney C. Thomas Ezzell, representing SMG, filed a response arguing against dismissal of the case. He says language in the agreement did not clearly make it mandatory that Whitley Circuit Court was the only venue to settle disagreements. Also, he claims that if the case was moved to Whitley Circuit Court it would be unfair to SMG because local courts would be bias against the company due to early media coverage of the dispute which would "contribute to juror bias and partiality in Corbin."

"Perhaps more troubling is the fact that most if not all potential jurors in the Whitley County Circuit Court will essentially be responsible for any judgment obtained against Corbin as the taxpayers in that city."

City leaders approved a one-year renewable operating contract with SMG in May 2008, allowing SMG to provide construction advice for the facility prior to its completion. The contract required six months notice if either side planned on terminating the contract.

Corbin’s five-member Board of Commissioners voted in 2010 to terminate the agreement with SMG following bitter disputes over perceived cost overruns and the efficacy of the company’s management practices.

Prior to construction of The Arena, the city had a feasibility study conducted by Economics Research Associates (ERA) to determine the economic viability of the project. The study determined The Arena could expect an operating deficit of $295,000 to $336,000 per year for the first five years of its existence.

SMG noted the study in the lawsuit, saying "the Arena performed at least as well as it was projected to perform in its first years of operation."

The city’s agreement with SMG was generous in that it provided bonuses to the company even if The Arena lost hundreds of thousands of dollars under the company’s management.

SMG’s attorneys accused the city, in the original complaint, of not adhering to the agreement between the two sides and for engaging in behavior that was "to SMG’s detriment and in direct conflict with SMG’s exclusive right and responsibilities to manage the Arena."

The company also accuses city officials of interfering "with the details of Arena expenditures in attempts to cut or control costs," "interfering with the contractual relationships between SMG and certain of its employees, and by surreptitiously collecting information about SMG’s operation of the Arena."

McBurney denies all the accusations.

The lawsuit claims an escrow account, created by SMG, currently holds about $72,995.96 in funds that should be released to the company, but that the city is withholding.