In re Great American Pyramid Joint Venture
| Decision Date | 19 August 1992 |
| Docket Number | Bankruptcy No. 91-27955-D (rs) to 91-27960-D (rs). |
| Parties | In re the GREAT AMERICAN PYRAMID JOINT VENTURE, Island Management Authority, Inc., H.R.C. (Memphis), Inc. aka Hard Rock Cafe International (Memphis), Inc., Pyramid Sponsorship Joint Venture, Pyramid Operating Authority, Inc. aka Pyramid Arena Design Authority, Inc., and Pyramid Management Authority, Inc., Debtors. (Jointly Administered Estates). |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Tennessee |
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Harris P. Quinn, Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, Memphis, Tenn., for City of Memphis, Tenn. and County of Shelby, Tenn.
William C. Gosnell, Memphis, Tenn., for debtors.
Bruce S. Kramer, Borod & Kramer, Memphis, Tenn., for Sidney L. Shlenker.
J. Robert Walker, William Young, Asst. Attys. Gen., State of Tenn., Nashville, Tenn., for Memphis State University.
William Jeter, Memphis, Tenn., for John Tigrett.
John Ryder, Memphis, Tenn.
Julie Chinn, Memphis, Tenn., Asst. U.S. Trustee.
Louis Lucas, Germantown, Tenn.
Monice Hagler, Memphis, Tenn., City Atty.
Mr. Brian Kuhn, Memphis, Tenn., for County.
David Blaylock, Memphis, Tenn.
Richard T. Doughtie III, Memphis, Tenn.
The instant proceedings1 arise out of this Court's earlier Sua Sponte Order and Notice, pursuant to 11 U.S.C. §§ 1112(b) and 105(a), for the above-named debtors to appear and show cause why the above-entitled chapter 11 cases should not be dismissed or converted to the liquidating provisions of chapter 7 of the Bankruptcy Code.2
After careful consideration of the entire case record as a whole and statements of counsel and other parties in interest, the Court renders the following findings of fact and conclusions of law in accordance with F.R.B.P. 7052.
The relevant background facts for purposes of the instant section 1112(b) proceedings may be stated as follows: Prior proceedings within these cases indicate that the Memphis Pyramid concept arose following an investigation by prominent Memphis citizens through a Sports Authority Commission ("SAC") into the need for a downtown sports arena. Mr. John Tigrett ("Mr. Tigrett"), who was a member of SAC, took the concept of a pyramid-shaped facility on the South bluff in downtown Memphis to the City of Memphis and Shelby County Mayors. The proposal was submitted to the Mayors of both the City and County in September, 1986. This proposal included an arena enclosed in a pyramid structure with an observation deck at the top. The concept was later amended to include museum and restaurant facilities within the pyramid structure as well.
Mr. Tigrett led a group of businessmen who agreed to supply the $300,000.00 needed to obtain a bonded, fixed-price quote from the construction contracting firm, on a fixed-cost, design-build contract for a pyramid-shaped multi-purpose arena which included the arena and leased space within the arena building (the "Pyramid").
By November, 1987, based on local community support, a Public Building Authority ("PBA") was formed to investigate the feasibility of constructing such a facility in the downtown area and ultimately to proceed with development of such facility. The PBA issued a report to the Memphis City Council and Shelby County Commission dated February 1, 1988. As authorized by these respective local legislative bodies, the Pyramid project ("Pyramid") was to be developed by the PBA as owner and leased back to the City and County for operation. Construction was to proceed under a negotiated design-build contract with the contractor which would be responsible for the detailed design as well as the construction of the Pyramid. With funds from the City, County, and State of Tennessee, PBA built the Pyramid under a fixed-cost, design-build contract.
The PBA, through a lease agreement ("Hard Rock Lease"), committed to leasing certain portions of the Pyramid (the "leased premises") to Hard Rock Cafe International (Memphis), Inc. ("Hard Rock Memphis") for the development of the observation deck, museum, and restaurant portions of the Pyramid.
Hard Rock Memphis was a wholly-owned subsidiary of Hard Rock Cafe International (Del.), Inc. ("Hard Rock International"). Hard Rock International was subsequently purchased by an English company. Thereafter, in early September, 1988, Hard Rock International disclaimed any intent to be involved with Hard Rock Memphis and the Lease Agreement. This left Hard Rock Memphis without the support of the parent company. Without the parent company supplying the franchise to operate a Hard Rock Cafe in the Pyramid, Hard Rock Memphis had to, and did, purchase a Hard Rock Cafe franchise (the "Franchise Agreement") in order to perform its lease obligations which included the construction and operation of a Hard Rock Cafe.
Hard Rock Memphis assigned the Lease Agreement to Pyramid Operating Authority, Inc. ("POA"). POA, wholly owned by Mr. Sidney Shlenker ("Mr. Shlenker"), subleased a portion of the leased premises back to Hard Rock Memphis so that Hard Rock Memphis could operate the Hard Rock Cafe.
Under a Finance and Use Agreement, dated August 26, 1988, between the State of Tennessee and the City and County, the State agreed to contribute $7,000,000.00 toward the construction of the Pyramid in return for which Memphis State University ("MSU") would receive certain rights related to the facility. These rights included priority use by the MSU basketball team, exclusive control over 11 skyboxes during any event held in the arena ("MSU boxes"), use of ten other skyboxes during MSU athletic events ("non-MSU boxes"), control of non-food concessions during University events and other privileges. Under the agreement, MSU was to furnish and equip the MSU boxes, leaving the remaining boxes to be finished by the City and County.
The contractor was given notice to proceed with construction in September, 1988. Later that year, the City and County requested proposals from various companies regarding management of the arena portion of the Pyramid. PMA was selected from among several proposals received from this solicitation and negotiations were commenced to reach an agreement.3
These negotiations resulted in a management agreement (the "Management Agreement") dated April 14, 1989, wherein the City and County contracted with PMA to manage, operate, promote and market the Pyramid on their behalf. The Management Agreement became effective immediately upon execution and was to expire five years after opening of the Pyramid. The Management Agreement requires PMA to manage and operate what commonly has been referred to as the arena portion of the Pyramid. PMA was to manage and operate the arena as a first class facility with integrity and in good faith.
During this period, Mr. Shlenker acquired the stock of POA from Mr. Tigrett. Since PMA had not yet been formed, POA entered into a Memorandum of Understanding with the City and County for the management contract for the arena. Under the Memorandum of Understanding, POA had the right to transfer its rights thereunder to another corporation controlled by Mr. Shlenker. POA designated PMA to enter into the Management Agreement. On April 14, 1989, a Management Agreement was executed by PMA, the City and County. PMA, at this time, was owned by Messrs. Shlenker and Tigrett.
As manager of the arena, PMA had certain specific duties under the Management Agreement. In their April 16, 1991 letter, the City and County declared PMA in default regarding certain provisions of the Agreement. The basic arrangement under the Agreement was that PMA would pay the City and County an annual fee in return for giving PMA expansive independent business control over the operation of the Pyramid including payment of operating expenses and retention of operating revenues. PMA also was responsible for managing the interests of the City and County in all skyboxes available for lease by the City and County under the terms of the Finance and Use Agreement. PMA was to assume responsibility for providing certain equipment and furnishings in the Pyramid which would otherwise have been the responsibility of the City and County including athletic flooring, goals, score tables, team benches, scoreboards, video display boards, telephone system equipment and wiring, in addition to locker room, concession, first-aid, janitorial, maintenance, and other equipment. The management authority given PMA under this agreement was subject to the terms and conditions of the Finance and Use Agreement between the City and County and the State.
A major element of the Management Agreement was the establishment by PMA of a reserve fund in cash, letter of credit or equivalent in the amount of $3,000,000.00 to be held in escrow by a mutually acceptable escrow agent for the benefit of the City and County. The purpose of the fund was to provide the City and County with security in the event PMA failed to pay fees to the City and County otherwise owing under the Management Agreement. In a separate escrow agreement ("Escrow Agreement") executed on July 14, 1989, among PMA, the City, County, and Union Planters National Bank ("Union Planters"), the parties agreed that Union Planters would act as escrow agent and that the reserve fund could be funded, at PMA's option, in several ways. In the event marketable securities were placed in escrow, the securities were required to have a value of at least 110% of the required reserve fund amount of $3,000,000.00. It was agreed by those parties that the initial escrow deposit would be in the form of certain stock certificates having a value at that time of $3,981,267.00. Under the escrow agreement, Union Planters was to monitor the value of stock weekly and notify the City, County, and PMA should the value of...
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