Former Arena management group sues city of Corbin

Read the complete text of the lawsuit by clicking here.

The Pennsylvania firm that managed the City of Corbin’s 5,000-seat arena for the first two years of its existence has filed a federal lawsuit against the city seeking over $127,000, plus punitive damages.

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.

The rocky and acrimonious relationship between the two sides officially ended at the beginning of 2011 when the city hired its own manager for the Southeast Kentucky Agriculture and Exposition Center. The $30 million facility is owned by the city of Corbin and was managed by SMG from the day it opened in March 2009 until the end of 2010.

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

"We met one time for mediation. It was pretty cut and dried that there was going to be no agreement. It was just a standoff," Corbin Mayor Willard McBurney said Tuesday. "They are saying we owe them a certain amount … in salaries or whatever. We are claiming they owe us some money. It’s as simple as that."

In SMG’s lawsuit, the company is asking for $127,641.66 which it says the company is owed because of invoices it paid and for other expenses it incurred while managing the Arena.

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.

"The city put all of its trust in SMG. We had never managed anything like this before in our history," McBurney said. "We hired them to represent the city on this. We put our faith in them and it just didn’t work out."

SMG’s attorneys accuse the city, in the lawsuit, 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.

The city plans to file a response to the lawsuit sometime this month. McBurney said a counterclaim will be made, but he said attorneys would determine the exact amount of compensation that will be sought in the counterclaim.

Corbin will be represented in the case by the Lexington law firm of Frost, Brown and Todd.

McBurney added that auditors for the city found some "discrepancies" regarding financial management of The Arena under SMG’s watch. Last year, before negotiations between the city and SMG broke down, he said the two sides were arguing over roughly $70,000.