Monday, July 16, 2018

Big Chiefs, Spy Boys, Flag Boys - How Poydras Street meets Wall Street in a High Stakes New Orleans Courtroom Face-off


Multidistrict Litigation (MDL) is a legal process on the federal level that originated in the early 60’s in response to an antitrust lawsuit against the electrical equipment industry.  

In that case, the number of individual lawsuits against the defendant grew so large, so rapidly, they overcame the federal court system.  1,912 separate civil petitions were filed in 36 different federal judicial districts.  To get a handle on that case and what would clearly be a growing phenomenon, the Department of Justice created the Judicial Panel on Multidistrict Litigation comprised of seven-member group of Federal Judges.

The way MDL’s work, roughly, is that as independent lawsuits amass against a company, and the company agrees to settle, they eventually become class action suits.  If those suits cross federal judicial jurisdictions they can become MDL suits and the MDL Judicial Panel then takes over and assigns the case to a specific federal judicial district, usually the area that has accrued the most suits against the company.  

The case is then assigned to a Federal Judge in that district who appoints one or more "Special Masters" to oversee the settlement such as the payouts to claimants through the claims facility, the accounting, hiring staff, updating the public, etc.  

The Judge also creates what is known as a Plaintiff Steering Committee (PSC) which is typically comprised of the attorneys who represent the most claims in the case.  The PSC’s primary legal responsibility is to serve the benefit of the class claimants as a whole and speak to the court on behalf of all the claimants in the case as well as the claimants’ individual attorneys.  These PSC members receive a fee referred to as a "common benefit fee" at the end of the settlement.  The amount of this fee is decided by the judge.  

The MDL process also requires the appointed Judge to create Qualified Settlement Funds (QSF) which are essentially financial trusts or bank accounts that hold settlement money until the claims in the settlement are thoroughly vetted and ample time has been allotted for claimants to file suit.  The amount deposited in to the QSFs by the court is determined by the judge as well.  Multiple QSFs are usually created for different aspects of  the case, pending the complexity of the settlement.

So take the BP oil spill…there are "BEL" claims - Business Economic Claims, Medical Claims,  Environmental Claims, etc.  The QSFs set aside by the court will address each area of litigation. 

An individual QSF is also created for the myriad attorneys who represent each individual claimant in the class….which I will refer to as the Attorneys Fee QSF, in this story.  This  also happens to be the fund that is tapped to pay the PSC attorneys’ "common benefit fees".

MDL as an industry

Since MDLs were created, a lion’s share of the largest cases have landed here in the Eastern District of Louisiana’s Federal Court on Poydras Street in New Orleans.  

Vioxx, Fema Trailers, Propulsid, Apple’s iPhone, Xarelto, Taxotere, Bone Screws and of course the two largest class action settlements in the history of the country:  Tobacco and the BP oil spill. 

The sheer amount of money involved…approximately $206 billion in tobacco, $20 billion to date in the BP settlement…has turned the MDL process into an industry unto itself.

Fortuitously for them, many of the same group of lawyers keep getting assigned to these MDL cases, nationwide as well as here in New Orleans.

In a paper published in the Cornell Law Review last year, Elizabeth Chamblee Burch, Charles H. Kirbo Chair of Law, University of Georgia Law School and Margaret S. Williams, a visiting scholar at the Federal Judicial Center, examined this elite network of attorneys who specialize in MDL cases and how their social networks allow them to monopolize this branch of litigation.:

Repeat Players in Multidistrict Litigation:  The Social Network

The paper outlines not only how a nationwide cabal of attorneys seemingly control the MDL arena but also details the multiple levels of attorney/client ethical conflicts that arise from this monopoly…citing many of the MDL cases that have landed in the Eastern District of Louisiana.

From the essay:

" Given the degree of specialization and success required to fund firms’ capital contributions in multidistrict litigation, this segment of the plaintiffs’ bar is relatively small; reciprocal relationships form, and an attorney’s reputation matters immensely. Playing the long game may not only allow repeat players to play for rules and reap the advantages those rules provide, but also empower those attorneys to influence and control group dynamics in ways that could impinge on client representation.



Accordingly, whether the positive gains outweigh the potential negatives remains to be seen. Because repeat players have so much control with so few external safeguards and so little incentive to draw attention to deals that may not favor litigants over lawyers, there is a pressing need to examine both who repeat players are and the deals they design."

Burch and Williams found that repeat plaintiff attorneys in the MDL arena constituted 62.8% of MDL leadership roles such as serving on a plaintiff steering committee.  A mere 50 attorneys of 1,221 accounted for 30% of all MDL plaintiff leadership roles.

When looking at the amount of MDL leadership positions held by members of specific law firms involved in MDL cases, 16% of the firms held 54% of all leadership roles.

The paper lists the top fifty firms and individual attorneys in the MDL arena in the appendix.

The Flag Boys

One of the firms which didn’t make the list but is deeply entrenched in MDL cases in the Eastern District of Louisiana is Herman, Herman and Katz. 

Steve Herman was named the lead counsel for the plaintiff steering committee for the
 BP oil spill settlement by Judge Carl Barbier, the second largest MDL settlement in U.S. history. 

(Much of that settlement process was documented here on AZ
.)
 

Recently motions filed to the court asking to reveal the common benefit fees awarded to the BP Oil Spill settlement PSC have been denied by Judge Barbier but rumor has it the lead council on the committee received upwards of $80 million in common benefit fees…potentially a record amount.

Steve’s father, Russ Herman, was named to the PSC for the Chinese Drywall case filed in March of 2009 along with one of the lawyers who did make Burch and Williams list: Arnold Levine....senior partner in the Philadelphia-based law firm, Levin, Sedran & Berman. 

Levine was number eight on Burch and Williams’ repeat player list in MDL cases and his firm came in fourth. 

Interesting note….Levine had no cases in the Chinese Drywall litigation but was still named as lead counsel along with Russ Herman.

MDL as a Bank

In August of 2013 Levine (Lead Counsel) and Herman (Liaison Counsel) filed a motion to the Federal Judge overseeing the case, Eldon E. Fallon, to create multiple QSF’s with a relatively small, unknown, bank.

Esquire Bank, based in Jericho, New York had only one brick and mortar building located in Brooklyn at the time they were recommended by Herman and Levine.  It just so happened that Herman was on the Board of Directors at Esquire Bank and held stock in the company, Esquire Financial Holdings, Inc., which he disclosed to Judge Fallon at the time of recommendation.

Included in the QSFs the bank would entrust, were individual "attorney fee funds" that were eventually consolidated into a single fund totaling about 200 million dollars.
 
Esquire is a unique bank in that it is actually vying for class action and MDL settlement QSFs as stated on both their website and in their SEC filings. 

Esquire’s marketing material describes QSF funding as a "newfound liquidity you’ll love" going on to advertise their unique market loaning money to attorneys involved in MDL and class action cases.  In fact, Esquire lends money to the attorneys in the same cases where the bank is holding the court appointed QSFs of the case, itself. 

The literature for the company boasts it’s relationships with the MDL/class action community, repeatedly, mentioning their Board of Directors members’ connections and influence therein:

"We have established our niche in the litigation market through the strategic development of a business model that understands our market’s unique needs and provides access to our target customers.  We have designed unique, value added products and services for our current and potential customers and created a distribution network with direct access to the market through the experience and networks of our Board, Advisory Board, attorney stockholders and certain members of management. A number of our directors, Advisory Board members and investors are well-known, influential market figures and active members of some the leading litigation law firms in the nation and national and state bar associations as well as other industry leading companies such as plaintiff financing and structured settlement services.  In addition, we have established informal affiliations or relationships with key industry organizations such as New York State Trial Lawyers Association, Consumer Attorneys of California, Florida Justice Association, and a number of other state trial attorney associations.  Through our current law firm clients and other relationships, we believe we have access to thousands of trial attorneys."

Keep in mind the "market" they are referring to is largely the federal judicial system, which brings in to question where the influence of Esquire Board members lie.  Does this mean the influence between the trial attorneys and the judges who are ultimately responsible for establishing the QSF’s and the bank(s) in which they are deposited? 

In this case, Chinese Drywall, the QSFs were deposited in Esquire after a motion was made by one of its own Board Members….Russ Herman.

The Implications of the court as a speculative market

I asked Elizabeth Burch, who is familiar with the current Chinese Drywall/Esquire Bank issues what her opinion of the matter was. 

"What worries me  is that the mass-tort lawyers who are also involved with the financiers loaning money to plaintiffs may be able to profit from their privileged position. There is dual control: attorneys who are on the board of directors are also in key leadership positions in the litigation.  They can prolong the lawsuit or settle quickly, when it behooves the investment firm’s bottom line.

Having banks so closely linked with plaintiffs’ lawyers makes for a tangled web of conflicts. When lawyers serve as behind-the-scenes investors for financiers, they not only seem to be skirting most states’ ban on lending money to their clients, but they may also be profiting from decisions that they help engineer. 

For instance, if a lead mass tort lawyer is in charge of administering plaintiffs’ claims, but also happens to sit on a bank or financier’s board directors, she would have an incentive to delay that process and encourage plaintiffs to accept post-settlement loans. The longer claims administration takes, the more interest the financier can collect.

If that lawyer/director is also an investor in a publicly traded company that owns the bank, like Esquire Financial is Esquire Bank’s parent company, then the conflict deepens. The attorney may not only profits from the delay she helps create, but could then eventually collects a second time when collecting attorneys’ fees.  Investor attorneys may likewise be profiting from lending to other mass-tort lawyers who use the money to invest in the same proceedings.  This time, delaying attorneys’ fees could line investor-attorneys’ pockets at others attorneys’ expense."

Spy Boy calls "Jock-a-mo"

Last May, one of the individual attorneys representing claimants in the Chinese Drywall settlement filed a motion in Judge Fallon’s court asking him to remove the remaining 200 million in the attorneys’ fee QSF from Esquire Bank back in to the court registry.  The motion filed by Mobile, Alabama attorney, Tucker Yance, suggests Herman is deeply conflicted, legally and financially, in his role as Liaison Counsel on the settlement vis-a-vis his financial interests in Esquire.

Estimating the value of Herman’s Esquire stock options to be approximately 1.4 million dollars since its price has risen from 71% after the company’s  initial June 2017 IPO, Yance's motion lays out the exact "conflict issues" Elizabeth Burch belabored above.

Yance’s motion suggests that Herman may be slow rolling the litigation procedure in order to retain the 200 million on Esquire’s ledger as a fluid asset.

Yance states that most of the individual attorneys, "if not an overwhelming most", have settled their claims for clients in the nine years since the litigation began.  He argues there is no good reason for the attorney’s fees to have sat in the Esquire fund for 4 years and for the court not to have ordered the payout. 

Furthermore, Yance stated that some attorneys within the class have been forced to take loans out at prime interest rate plus two points, around 7 %, with Esquire Bank, itself, in order to ease their financial hardship waiting for their payout. He suggests this creates an absurd scenario where the attorneys are being forced to borrow money at a 7% interest rate against their own money being held in trust and used as collateral by the bank holding the QSF from which they would eventually be paid.

In fact, this circuitous loan process is actually touted as a  part of the business plan for Esquire and it’s subsidiary, lawcash.net, as outlined in its prospectus and SEC filings.   

Yance’s motion also suggests the 200 million in the Attorney’s Fee QSF was listed as an asset in Esquire’s ledger before they went public last summer….money which shouldn’t have been listed as collateral for originating loans. 

At the time they went public, a year after the Chinese Drywall QSFs were deposited, the bank reported it had only $290 million in deposits.  At the end of the financial year the bank reported deposits of $383 million.  Yance contests if the $200 million was included in that deposit number at the time it went public that would have constituted 51% of their total deposits and  that would have been a significant factor in promoting  their public offering.

The issue being…were they listing the 200 million as a fluid asset for originating loans when they were taking the company public?  The money was not fluid, it was supposed to be isolated….not used as collateral for loans.  

No interest in interest?

One of the main reasons this "market" is so attractive to Esquire is that there seems to be no court-regulated guidelines as to the interest rate the bank must provide to service the QSF’s. 

In this case, the PSC attorneys did not seek out the highest interest they could get for holding the Attorneys Fee QSF nor did the Judge require the bank to provide a specific interest rate. Yance notes that Esquire paid the Attorneys Fee QSF a mere .02% interest rate accruing only $87,711.98 in the four years they have have held the $200 million. 

Treasury Bill interest rates over a five year period are approximately 1.5% or 75 times higher than the rate Esquire was providing the court. 

To boot, Yance states Esquire provided other QSFs in this litigation, Chinese Drywall, a .5% interest rate which is 25 times higher than what was provided to the Attorney Fee QSF.   
According to the motion, it appears the Attorney Fee QSF was specifically targeted for a lower interest rate burden to the bank.  In fact, this ability to provide MDL court deposits with ridiculously low interest returns is actually touted in Esquire’s marketing literature.   

An argument can be made that Esquire or the court, itself, could not invest the money in "risky" financial instruments and this is why the interest rate was so low, .02%.  But there are other options for shorter term T-Bills (pretty much the safest financial investment available) that would have provided much higher interest returns and certainly other legitimate banks could have competed to provide the court with a higher rate without penalty of early withdrawal.

Basically, when the court chose Esquire, the 200 million was locked in to the .02% interest rate and that was that.   There was no effort by the court or the PSC to obtain a better interest rate for the Attorney Fee QSF.

The Face-off  


Yance’s motion was first addressed by the court in the monthly update/hearing on Tuesday, June 12th.  Yance made an oral argument that there was no reason not to rule on the matter, immediately, because Herman was given ample time to respond.  Judge Fallon subsequently ordered the 200 million to be moved out of Esquire and back in to the court’s hands, Sua Sponte, at Yance’s request.

Herman, in oral argument, responded to the motion stating that he was gathering the information requested by Yance and other attorneys but had not had enough time to fill the request.  He accused Yance of making personal attacks in the motion and stating false assumptions:

From the hearing transcript:

Herman:  There are a number of misstatements in Mr. Yance’s motion.  There are personal attacks in Mr. Yance’s motion.  There is ongoing requests for documents -- by folks who have joined with Mr. Yance -- from BrownGreer, and BrownGreer has responded with the assistance of Esquire Bank.

Judge Fallon:  He says you could have responded within a month.  You haven’t responded in a month.


Herman:  Well, Your Honor, we have received, over the course of this month, repeated requests for information from me, from Esquire Bank, and BrownGreer.  We could hardly do that until the information stream was passed. I also don’t think, under the usual practice of this Court, when a counsel before this Court with 52 years of experience is attacked personally that the matter can be responded to without some thought. I am not accusing Mr. Yance of anything other than, if he had these remarks, to release them publicly to a large number of firms without attempting to seal the record…that’s just not proper.  Perhaps these folks do not understand that we have ongoing litigation against Taishan and that given the fact that the documents were also distributed on the record, accessible to the defense, it does not give us sufficient time. Now, all I’m asking for is a briefing schedule and a hearing date, with the Court’s permission.  

Judge Fallon ordered the $200 million to be moved from Esquire into the Registry of the Court and a hearing date was set for July 12th.

In a response to Reuters reporter Allison Frankel shortly after the hearing, Herman stated Esquire never lent money out of the $200 million. He claimed the .02% interest rate was a standard rate for Esquire’s depositors whose "primary consideration is security".


Herman also claimed any money he has received in compensation from Esquire, $30,000 by his own account, was donated to charity.  He denied having $1.4 million in stock, claiming his current stock in Esquire was only $500,000 and pointed out that he, himself, has a vested interest in resolving the Drywall MDL as he stands to make a financial windfall in common benefit fees….an estimated $28 million.

Mr. Herman's Perspective

I had the opportunity to speak with Russ Herman shortly after he filed a response to the Yance motion.  In that conversation,  he broke down specific issues in the motion and answered them individually.

On the matter of the attorney QSF fund being used as collateral to fund loans distributed by Esquire bank, Herman stated unequivocally (highlighted and capitalized in his official response) NO QSF FUNDS HAVE BEEN USED FOR COLLATERAL FOR LOANS. 

When I questioned him in the interview, he replied, "That’s a lie…that’s a lie. It wasn’t used for collateral for any loan for any reason."

Herman referred to "On balance sheet deposits" and "Off balance sheet deposits.".  He stated "There’s a difference between on balance sheet deposits and off balance sheet deposits.  The attorney fee fund was never used as collateral for any loans, for any purpose."


As to whether or not the QSF was listed as an asset to take the bank public, he replied, "I don’t know."  He said he had not seen the 10k and could not state whether it was used or not.    

In respect to Yance’s questioning of Esquire Bank’s integrity and the fact that they are such a small bank, Herman suggested that many of the larger banks Yance referred to in his motion were either conflicted in the Chinese Drywall Case such as J.P. Morgan, or didn’t have as high a CET1 Ratio (Common Equity Tier 1 Capital ratio..a financial instrument used to measure a bank’s stress) as Esquire.

Regarding the interest rate matter, I asked Herman if he had sought out a bank with a higher interest rate for the QSFs before he recommended Esquire to the court and he replied that  he did not.  I asked him if Judge Fallon had asked him to seek out a higher interest rate and he responded, "I can’t speak for the judge, All I can tell you is I know that Brown Greer and the CPA appointed by the court reviewed everything on these accounts every month, from inception."

I also asked him if he knew what the interest rate was in the Court Registry….what the fund could have drawn had it just been left in the court's possession as opposed to moving it in to Esquire where it drew .02%.  He said he didn’t know what the interest rate in the registry was and added, "No one knows." 


Herman stated in his memo and to me that he did disclose that he held stock in Esquire before he recommended them to the court.  He took issue with the fact that he doesn’t actually own the alleged amount of stock in Esquire that Yance claimed…approximately 1.4 million dollars.  He pointed out the he held only 0.8% of stock in the bank...but in  stock options, not actual stock.  He noted that he would have to pay $186,150 to exercise those options.  He also pointed out that after you add up the tax burden and the cost of obtaining "vested but unexercised" shares of stock in the company you come up with a much lower computation than Yance claims.

I asked Herman when he obtained the stock options in the company, he said he wasn’t sure, "I can’t tell you but I’m not embarrassed by it.  If I had more money, now, I’d invest in it."

I also asked him if any of his relatives or anyone else in his law firm held stock in Esquire bank.  He replied his former wife, his son, Steve (partner in the firm), and brother, Maury, all held stock in the company but their holdings don’t amount to very much.


He also stated that (to his recollection) there were three Plaintiff Steering Committees members who also held stock in Esquire at the time of disclosure to the court. Currently, he doesn’t know which PSC members own or don’t own stock in the company since disclosure to the court.

In hie response to the court, Herman disclosed that he had borrowed money from Esquire, himself.  I asked him if he would be willing to disclose the amount of the loan, he replied no and that if a court ordered him to do so, he would appeal it.  He said his interest rate for the loan he took may be a little bit above the standard interest rate for average loans provided by Esquire but he did not receive a lower than average interest rate from the bank.

I asked him if his own common benefit fee, or projected amount, was used as collateral by the bank to grant his loan and he replied, "I don’t have a common benefit fee.  I won’t have a common benefit fee until first of all…the court rules.  Secondly, the opponents oppose it.  Thirdly, on appeal…final judgement…and at that time I will have a common benefit fee.  No one has a common benefit fee right now and that’s a basic misconstruction of an MDL."

One point Yance made was that the lawyers in this Chinese Drywall MDL case are being forced to borrow money from banks, including Esquire, itself, because the litigation has been drawn out or "slow-rolled" to the benefit of the bank.

As to the accusation that he was "slow-rolling" the outcome of the settlement to benefit Esquire,  
Herman replied, "What he has said is erroneous. It’s a complete misunderstanding of how an MDL works and the power of a federal judge. The judge directed that  Mr. Yance’s eleven clients would be paid first and until his clients and all the other three or four-thousand clients were paid first,100% of their loss…there would be no discussion…he wouldn’t issue any orders about fee.  So it took three years, four years, I don’t know what it took to pay it out….to Mr. Yance’s clients.  So there is no fee delay.  The questions of payments…when they’re made, how they’re made and dispersals, rest with the presiding judge.  They don’t rest with us (plaintiff counsel).  I can’t direct anything, I can only follow directions." 


He went on to say he doesn’t see a potential conflict in his plaintiff role on the MDL and his interest and involvement with Esquire bank, "I think it’s a sleight of hand by those who see a conflict that doesn’t exist and, indeed, don’t understand the process of an MDL or the power of an Article 3 judge."

Russ also noted,  "I sit on an ethics committee in federal court, I lecture routinely in a number of states and bar associations on ethics, I have two partners who teach complex litigation on MDLs…I don’t see anything there.  As a matter of fact, it never arose until objectors were upset with the division Judge Fallon might make between contract fees on the one hand, that’s lawyer’s individual clients with paid claims, and common benefit on the other."

He then added a colorful, local analogy, "I don’t know what to tell you except I’ve been at this a long time, I’ve never been accused of any sort of ethical problem.  Neither has Arnold Levine. Ya know?  I’m from New Orleans, if I want to listen to a philosopher….it’s Bo Dollis…Big Chief Bo Dollis….who says ‘If you don’t like what the Big Chief say, 'Iko iko ane'…’  So if they don’t like what Judge Fallon says, they can go 'iko iko ane', whatever the heck that means!"

That sentiment pretty much sums up Herman’s response and opinion:  there is no conflict if the judge and the court appointed CPA/financial contractors don’t acknowledge a conflict.  In other words, It’s ultimately up to the judge to discern whether on not there is a conflict.

Bank Sweeps and Fees


In Yance’s response to Herman’s response…submitted to the court on July 3rd,…he brought up new issues regarding Esquire that had come to light, in part, from Herman’s own court filing. 

Yance questioned the  nature of the "sweep arrangements" being utilized by Esquire to safely invest and insure the Lawyer’s Fee QSF.


As Yance points out in the petition, sweep arrangements are a common practice among banking institutions to make sure deposits exceeding $250,000 (the limit any single deposit is insured by the FDIC) will be federally insured. 

Instead of having to break up a single, large deposit (exceeding $250,000), two forms of sweep arrangements can be used:  Insured Cash Sweep Service (ICS) ; or Certificate of Deposit Account Registry Service (CDAR).  The bank utilizing ICS/CDAR services has the option of accepting dollar for dollar deposits from banks participating in the sweep process and utilizing that money in its own balance sheet as collateral to initiate loans to customers. Or, the bank can put the money in an "off-balance sheet" category and ACCEPT FEES (emphasis mine) from the participating banks with the interest rates for both options being set by the host bank, accepting the deposits.

Yance contests that in an affidavit included as an exhibit in Herman’s response, Executive Vice President and Chief Financial Officer of Esquire Bank, Eric Bader, stated that "It is not Esquire Bank’s business model to leverage off-balance sheet QSF funds into on-balance sheet deposit(s), thereby utilizing these funds to generate and fund asset growth (i.e., loans and investment securities)". 


Based on that statement, Yance says it’s "clear" that Esquire utilized the off-balance sheet  approach for the Chinese Drywall Lawyer’s Fee QSF.  He then points out that Esquire’s IPO prospectus from March 31, 2017 stated it’s off-balance total at $198.6 million….almost the exact amount of the Lawyers Fee QSF in contention in the Chinese Drywall settlement.  

But….that’s not so clear.  Neither Bader nor Herman confirmed that the QSF was put in to off-balance sheet investments.  Nor did Herman confirm this in my interview with him. Here is the audio byte of Mr. Herman’s response.




There was never confirmation that the Lawyers Fee QSF was put in to off balance sheet status, he simply stated there is a difference between off balance and on balance sheet status and that the money from the QSF was never used to collateralize loans from Esquire. 

It's also important to note he did not deny the QSF wasn’t listed as an asset in the IPO prospectus to take Esquire public.  So far as I can tell, no one from Esquire Bank has denied this.

Yance suggests that if the funds were classified as off balance sheet, Esquire reaped millions of dollars in fees from the participating sweep banks while only paying out  $87,711.98 in interest to the Lawyer’s Fee QSF that was leveraged to accrue those millions.

Duping the Court?

The petition then suggests that in the bid to obtain the QSFs from the Chinese Drywall case, President of Esquire Bank, Andrew Sagliocca, may have purposely misled the court in his September, 2013 appearance in front of Judge Fallon.  He suggests Sagliocca purposely downplayed the fees Esquire would receive from holding the QSF’s and failed to disclose the millions of dollars the off balance sheet sweep arrangement would accrue for the bank. 

A second issue Yance brings up is the .02% interest rate.  He includes an email in his exhibits obtained from the Budget and Financial Administrator of the Court which states the court registry funds being held with Whitney Bank were earning an interest rate of .10% until 2015.  2016 interest earning through the court registry/Whitney account were .25% and 2017 was at .80%. 
A cumulative 40x higher interest rate over the life span of the loan….around 3.4 million dollars that would have been accrued in interest if the 200 million had simply been left where it was.  

Apparently someone does know the interest rate for the court registry…an it’s exponentially higher than the rate Esquire provided.

Won’t bow down

On July 10th, Yance filed a motion to remove both Russ Herman and Arnold Levine from the PSC completely and to unseal all documents related to the common benefit fees for the case.


Thursday, July 12th, Judge Fallon heard oral arguments from both sides of the dispute.  In a short-lived session, both sides pretty much restated their case as laid out in their petitions with Yance asking the judge to leave the QSF funds in the court registry as opposed to moving them back to Esquire. 

In a curt and agitated response, Fallon simply stated that he would take Yance’s plea in to consideration but he found it deeply disconcerting that the conflict over attorney’s fees had snowballed to this level, implying that the PSC and individual attorneys should have worked out their differences without having to turn to the court for resolution.

Waiting for an Iko Iko ane from the Big Chief


The decision the judge makes on what to do with the Lawyers Fee QSF in this MDL case is crucial.  This ruling could set a standard for MDL courts and how all QSFs are  handled in the future. 

In another MDL/Esquire Bank matter, the NFL Helmet case.....the potential conflict is even more egregious.  I’ll be looking in to that in the coming months.

In the meantime, I will post Judge Fallon’s decision when it is handed down.




For the non-Nawlins folks who may be struggling to understand the metaphor herein...here's some background on New Orleans Mardi Gras Indians.


http://www.mardigrasneworleans.com/mardigrasindians.html

Wednesday, September 27, 2017

Big Easy Street: continuer à rouler

It's been about six months since I posted a story about how the 1400 block of LaSalle Street had been ILLEGALLY appropriated by the Louisiana Stadium & Exposition District to be incorporated in to the footprint of Champions Square.

WWL-TV picked up the story and confirmed that there was no legal agreement for the street to be appropriated by the LSED and the City had received absolutely no compensation for it. (I confirmed that as well through a public records request)

There was a follow-up story where the chairman of the LSED, Kyle France, said he had contacted Mayor Landrieu and they were going to "work it out":

“I’ve been in contact with the governor and the mayor of New Orleans,” said Kyle France, chairman of the LSED. “I spoke to some of the key folks today, right before the LSED board meeting, so I am confident that something will be worked out here pretty soon.”

"Pretty soon"

SMG President, Doug Thornton, the company that manages Champions Square chimed in that the reason why no official agreement had been struck was because he was simply looking out for "Louisiana" taxpayers:
"Doug Thornton, who operates Champions Square for the LSED’s management company SMG, said LSED was cut out of the negotiations at that point. The LSED, otherwise known as the Superdome Commission, had refused to pay the city’s asking price of $3.3 million in 2011 because they didn’t agree with the valuation and because the state was developing the street for a public benefit. 
Thornton said he understood that the city needs to be compensated, but also said his team had to protect the state’s public money and couldn’t overpay for the lease 
“This is not a matter of anyone's fault,” Thornton said. “There's just been discussion about how to move forward and in the meantime, there's been a lot of commerce generated there and a lot of public good.”
Thornton:  "It's no one's fault."

No Finger Pointing

Ok.  No one is to blame for millions of dollars that Should have been pumped in to city coffers that Could have gone to....I don't know...maintain pumps?

In fact, if I'm not mistaken, former Executive Director of New Orleans Sewerage and Water Board, Cedric Grant, landed a nice little contract for Thornton and SMH while he served as the Chief Administrative Officer for Ascension Parish.

Grant emerged in Ascension Parish after he was "let go" from his previous job with the state as a Deputy Secretary of the Department of Transportation and Development by the Jindal Administration.

But shortly after the SMG contract, Grant magically hit the jackpot with the Landrieu administration. He was scooped up as a Deputy Mayor in 2010 then ascended to the Executive Director of the S&WB only after Mayor Landrieu somehow decided that over 60 applicants couldn't match Cedric's prowess.

The State Board of Ethics even filed a complaint that:  


"He couldn't take the position due to a two-year ban on public employees doing business with their former agency after leaving office."

State Ethics Board member Peppi Bruneau raised hell about it but Mayor Landrieu must have really had a hard on to get Cedric in that position.  He pressured State Legislators to "make an exception" for Grant in respect to the ethics complaint.  

Of course Landrieu got the "exception".

I'm sure all of this had nothing to do with the contract Grant bestowed to SMG.

You've heard of the Peter Principle?  Where corporate structures often award incompetence?  Where nepotism and power often lead to unqualified candidates moving up the corporate hierarchy to positions of critical management simply because...they failed forward?


The Buried Lead

Guess what?  There is still no contract between the LSED and the City for the use of the 1400 block of LaSalle.  I just confirmed that through a public records request this week.


  

I wanted to wait until the first Saints first home game to find out if they were actually going to resolve the issue before 10's of thousands of people poured across the property so I could get a clear picture of how Thornton thinks the 1400 block of LaSalle is "overvalued".  

I, myself, slogged across that public street with thousands of other people that day we got our ass kicked by the Patriots.

Clearly, this street is not "public".  Not even close.  Barriers on both ends with police checking bags....it ain't public.  It is now a permanent part of the Champions Square footprint.

Summary 

The same guy that was probably responsible for "backrooming" an incompetent Cedric Grant in to a position which ended up drowning parts of the city during the past flood was publicly informed that his entity, the LSED/SMH, owed the City of New Orleans millions of dollars, back in April.

The LSED and the City told WWL-TV that they were going to resolve the issue, stating:  "It's in the works."

Six months later...no legal agreement has been struck.

The City of New Orleans has lost millions that could have gone to...I don't know...cleaning out catch basins?



  

Wednesday, July 26, 2017

Still above the law

Despite this video of prominent attorney's DWI arrest, prosecutor throws out charges

The former Special Master on the Bayou Corne case cashes in on his hookup to Fayard Honeycutt.

Rembember, Easterly's wife was working for Texas Brine's defense attorneys while Easterly was serving as Special Master on the Bayou Corne sinkhole lawsuit. Calvin Fayard, Honeycutt's law partner, was the lead attorney for plaintiffs.


http://www.theamericanzombie.com/search?q=Easterly

The Good Ole Boy network in its bare, ugly reality....right here. 

Thursday, July 13, 2017

4 points for Senator John Kennedy on how to "fix" the crime problem in New Orleans

1.  Stop bleeding the money generated by the City of New Orleans out to the State of Louisiana coffers.

Just start with the Convention Center.

Then move on and ask the "state" to pay for the City streets they've hijacked.

Just close the tax base within the Parish instead of bleeding it out to all you fuckers off the Island.

Surely the former Treasurer of Louisiana knows the numbers?


Without New Orleans, Louisiana is just Mississippi without a coast


How much could be "re-allocated" to bolstering our municipal police force and first responders?

How many bullshit tourism taxes?  How many Oil and Gas taxes?  Fucking sales tax...could go back in to the City?

Can Kennedy lobby to allocate "Federal Money" to help the problem?   I mean that's his fucking job...is it not?

If the Senator isn't doing any of these things and yelling at us for not doing enough....

....where does the problem lie?

2.  Stop trying to fight the Affordable Health Care Act and start figuring out how to expand it.

When our former ideologue Governor was running the show, he systematically gutted our public health care system.  Including the only safety net we had to deal with people who need mental health care.

Do you think there may be a corollary between our crime rate and the lack of treatment for mental health patients in the City?

It's not all that vexing.

3.  Senator Kennedy is the problem.

Right after Brown V. Board of Education was decided, over 60 private schools popped up in this City alone.  The Senator, and his ilk, all fled like cockroaches....Palmettos (they have wings).....to the suburbs of Jefferson and St. Tammany Parishes.

Mind you, this exodus of business owners didn't divulge their highly lucrative assets within Orleans Parish....they simply learned to manage them from afar...Metairie, Kennah and Tammany.

...pay no Orleans taxes yet reap the financial windfall.

The Senator's very history explains why New Orleans faces the problems it currently faces.

4.  Finally,

http://www.nola.com/opinions/index.ssf/2017/07/new_orleans_crime.html
"Stop-and frisk is not racial profiling as some say.  "Reasonable suspicion" is a legal, objective standard taught every day in police academies.  Besides, The New Orleans Police Department is on of the most diverse police forces in the country, and I don't believe every NOPD cop is a racist.  The politicians should let the NOPD do it's job."
....says the State of Louisiana's quintessential politician....fucking Senator of the United States.....politician.    

Look...here's the final way United States Senator John Kennedy can help the crime problem in New Orleans:

If he can't come through on 1 through 3.....just shut the fuck up.

That's really the best way he could help us.






Tuesday, April 18, 2017

WWL-TV Story on LaSalle Street

David Hammer and WWL-TV ran a great story on the LaSalle street "appropriation" by the LSED.

City never compensated for street engulfed by Champions Square

Zelia (Benson) claims they haven't benefited by the street appropriation in respect to their profit sharing plan because the LSED hasn't yet covered the cost of the money the state invested in capital investment on improvements to the area. Admittedly (and I stated this in the blog post) I wasn't sure what the nature of the profit sharing plan was.

However, there are still funding mechanisms between the LSED and Zelia that need to be scrutinized namely an interesting "marketing fund" that involves a 50/50 profit sharing plan of some source of revenue I haven't yet figured out.

Still, it's a dubious argument to say Benson isn't benefiting from the appropriation of the street. They are getting 2.3 million annually in a base lease agreement. The street has been illegitimately (I would say illegally) included into the Champions Square footprint and when the LSED covers their capital investment on improvements the profit sharing plan will kick in and then Zelia's entire argument becomes completely moot.

How can Zelia argue they aren't benefitting from the street appropriation by the LSED? If the city removed the permanent structures, opened it back up to traffic, put parking meters in...would it affect the income the LSED is generating off their lease of the property? Of course it would.

Zella's argument is that they are not benefitting by the appropriation of the street because the profit sharing plan hasn't kicked in....yet. I call bullshit. Are they going to refuse the surplus income when it does kick in because they recognize they don't own the street?

Why are Benson Tower security guards trying to block WWL-TV from shooting video on the street if they don't have any...forgive me...dominion...over it?

Still...still...the street has been illegally taken over by the LSED at great cost to the City. Take Zelia out of the equation and it's NOT LEGAL. The City is getting screwed...period.

Hammer and team did a great job getting to the bottom of this..and please read the story with the video as well because it's apparently rooted in a verbal deal (stand-off) bartered between former CNO Deputy Mayor Andy Kopplin and the Jindal admin. regarding a land swap with Duncan Plaza. A deal that was apparently never documented.

The bottom line is the LSED should never have moved forward with any alterations to the street without the legal protocols being met. It was illegal. The City has been screwed out of millions of dollars because a backroom, verbal deal was being cut and the guys that were dealing are all gone from the public realm leaving this turd behind with nary a shred of paperwork.


The other bottom line is that I have a face for radio.

Tuesday, March 28, 2017

Benson's Big Easy Street

NOTE:  If you don't have time to read...jump to the video at the bottom of the post for a quick synopsis. 

Having interviewed Mayor Landrieu in late September of 2016 regarding his intent to sell and/or lease the New Orleans Public Belt railroad, I pressed him on why he seemed so determined to sell, or “privatize”, many of New Orleans' largest public assets.  His general response was that the City was in dire financial straits when he took office and desperate actions were needed to pull it out of the hole.  Landrieu also continually referenced the wisdom of “public/private partnerships” and how cities all around the country were utilizing them to great benefit.  

I decided to go back and look at some of the public/private ventures in which the City has engaged over its history (namely since the 1984 World’s Fair) and examine if these ventures were truly beneficial to New Orleans or if they turned out to simply be windfalls for the private investors who acquired public assets. Upcoming stories will examine some of these deals.  
In the interview, Mayor Landrieu also expressed that he doesn’t feel the City has gotten a lot out of existing agreements with major entities that benefit from their relationship with New Orleans, particularly the Port of New Orleans.  But he also mentioned one entity that surprised me, the Louisiana Superdome....so I looked into it.



The Roadmap to the Glory Days of New Orleans Slush

The Superdome is owned and operated by a public entity itself, the Louisiana Superdome Exposition District, owned by the State of Louisiana.  It oversees many state assets other than the Superdome including the Smoothie King Center, the New Orleans Saints Training Facility in Kenner, The Alario Center in Westwego, the TPC of Louisiana Golf Course in Avondale, and the Shrine on Airline Highway in Kenner where the Baby Cakes play baseball.  
The LSED has a storied history as a public entity.  Back in 2012 when I was reporting on Congressman Cedric Richmond and political operative Ike Spears corruption with two non-profits they ran in the early 2000’s, I came across a grant program that had been instituted by the LSED from 2000 to 2004.  The program was essentially a giant (approximately $2.9 million annually) slush fund that was set up for New Orleans metro area politicians to dole out cash to their own special interests…mostly non-profits that were run by politically connected people controlling strategic voting blocs.  
The LSED grant program was terminated in 2004 having rained about $14.8 million down on politicians’ special interests in its five year run. In 2005, the LSED put an end to the grant program stating they needed the money for renovations to the Dome and other pending expenses…much to the dismay of politicos around the metro area.  
Still, the master grant list is a virtual road map of the period exposing “con-profits”, politician’s special interests and how the “game” operated before former U.S. Attorney Jim Letten began his white collar/government corruption sweep of the City. 

When the Saints almost went marching out

New Orleanians who lived through Katrina have no shortage of traumatic stories and memories they carry with them to this day.  But one trauma-inducing event that many people have suppressed or even forgotten about was the threat by the owner of the New Orleans Saints, Tom Benson, to move the Saints out of the city in the wake of the storm under the prospect of greener pastures in San Antonio, Texas.  

Forgive me, but this was a real dick move in a period when the City was on its knees gasping for breath.  Benson had already made continual threats to move the franchise before Katrina and The Federal Flood provided the opportune disaster capitalist moment to leverage the threat of a Saints exodus to his advantage.  
The State managed to pacify him in the immediate wake of the storm with various concessions and eventually went on to orchestrate a deal in 2009 in which Benson would purchase the 26-story Dominion Tower skyscraper next to the Superdome and the State of Louisiana would occupy 320,000 of the 480,000 square feet in the building, leasing office space at above average rates for various state agencies.  The total purchase, through Benson’s company, Zelia LLC., was $42.1 million which included the tower, a 2000-space parking garage and 400,000 sq. foot, open-space promenade area which Benson renamed “Champions Square”.  As of August 2012, the company which leases space in the buliding for Zelia stated that the tower was over 97.6% leased.  

Easy Street...courtesy of Louisiana

The 2009 deal between Benson and the State/LSED consisted of two parts.  

The first was an extension of the Superdome lease by LSED through 2025 and an $85 million dollar disbursement to the LSED by the State of Louisiana for improvements to the Dome as well as scaled payments to the Saints pending the amount of money the team generated annually from 2011 to 2024.  


The second part of the deal involved the newly acquired Dominion Tower and properties purchased by Benson’s Zellia, LLC.  In addition to the State agencies leasing over 70% of the office space in the tower, a state organization called the Louisiana Office Facilities Corporation (essentially an extension of the LSED) agreed to lease the New Orleans Center property which included the Mall and area now known as Champions Square, as well as the aforementioned parking garage for $2.3 million annually.  The LSED agreed to take on the operations of  the parking garage, mall and Macy’s retail store, retaining all revenues up to the $2.3 million mark (to compensate for the rent to Zelia), then any additional revenues would be split with Zelia 50/50.  The agreement called for Zelia to be responsible for any initial renovations and repairs to the properties with the LSED maintaining daily operations and maintenance.  
Benson/Zelia agreed to a $10.5 million dollar investment in the property over a three-year period (from 2010) and the LSED committed to making $85 million in capital improvements over the following two years with a completion date of 2011.

Public/Private Partnerships: The Road to Prosperity for the Private 




After ratifying the agreement in an LSED Board of Commissioners meeting, Commissioner Robert Bruno stated the deal was (paraphrased from meeting minutes), “One of the most complicated, creative, bipartisan examples of a public/private partnership that could ever be imagined.”  
Ron Forman, then President of the LSED Board of Commissioners and CEO/President of the Audubon Institute said (paraphrased from meeting minutes), “Without Mr. Benson’s willingness to invest, it could not have happened.”

How would one not be willing to invest in a multi-million dollar contract that placed any business risk solely on the State of Louisiana?  The deal guaranteed a near full occupancy rate of Benson Tower on top of a guaranteed 2.3 million dollars a year lease for the Champions Square property and the parking garage in which Zelia doesn’t even have to manage (The management of the properties is contracted to the company SMG by the LSED).

All Benson had to do was purchase the properties and the state took on any and all business risk to guarantee Zelia a financial windfall.  


A Three-Way Street?
Great deal if you can get it but after filing a public records request with the City of New Orleans in respect to the Champions Square footprint it appears Benson didn’t even have to purchase/lease or own the total area which is currently incorporated into the venue.  

The entire 1400 block of LaSalle Street has been closed to the public


and incorporated in to the Champions Square footprint
An entire city street, the 1400 block of LaSalle which lies between Benson Tower and the Superdome, has been appropriated into the Champions Square venue….sans any contract with the City.

The street has been completely closed to automobile traffic with numerous permanent structures erected by the LSED including gateways  on both ends of the street.  During concerts and events in the Square these gateways are closed to the general public and used as a ticketing entrance for private events.

One of two permanent "Gateway" structures on each end


of the 1400 block of LaSalle Street 

Even the map at Champions Square show LaSalle Street as an


official part of its footprint



The problem being there is no contract with the City to utilize the street, temporarily or permanently…not even a cooperative endeavor agreement.  This is problematic not just for the revenue lost by the City, it’s also a violation of Article 7, Section 14 of the Louisiana State Constitution.  

I filed a public records request with the City to see what agreement we made with Zelia and/or the LSED that allowed them to incorporate the street into the Champions Square footprint and it turned up nothing….zilch. 


I also filed a public records request with the LSED to see if they had any contracts with the City for the use of the street and to see their contract with Zelia, LLC.  While the LSED contract  with Zelia mentions Champions Square, there is no mention of the use of LaSalle Street.  Therefore, there is no contract that would allow Zelia or the LSED to use it, much less build permanent structures and close it to the public.

After receiving the LSED/Zelia contract I asked their current administration (they were quick to point out they have an entirely new board since the 2009 agreement was established) a series of questions about the nature of the contract and the appropriation of the 1400 block of LaSalle.

In respect to what is known regarding the use of the street, the LSED provided me with a “good faith” letter they sent to the City in 2011 regarding their construction plans for LaSalle which stated they would be pursuing a long-term lease of the property.


The City Real Estate Administrator, Marha J. Griset, replied that they were agreeing to enter into a long-term lease under the following conditions: A deposit shall be made, the City Planning Commission will grant approval, and the City Council will endorse the lease (ordinance).  Also that the LSED must continue with the process towards the signing of the long-term lease.



That didn’t happen and the LSED moved forward with their construction on the street without an official lease, purchase or city ordinance.  Six years later the City has not been compensated for the street and no ordinance officially exists.  





Lost Boulevard

If the City of New Orleans is as cash-strapped as Mayor Landrieu suggested when I interviewed him, why have we left millions of dollars on the table in respect to 1400 LaSalle?
When I asked the LSED if the City has received any compensation for the use of the street from them or Zelia they replied:

"The City of New Orleans has received the economic benefit of (i) the improvements that were made to LaSalle Street, (ii) the ongoing maintenance, repair, etc. of LaSalle Street, and (iii) increased tax revenues derived from events that occur at Champions Square. " 

It’s kind of hard to understand how shutting a city street off to the public, taking it out of commerce (including parking meters and fines), installing permanent fixtures....all to generate income for a private venture...is an “improvement” or benefit to the City.  
If I fix the potholes on my own street, can I put up two gateways on each end and charge people to use it?

The loss of 1400 LaSalle to the City without any compensation or contract is bad enough but the fact that a state entity, the LSED, has financed millions of public tax dollars to “improve” the street solely for the benefit of Zelia, a private entity, is a double-whammy to taxpayers. 


You essentially have a public entity (LSED) paying rent for a public street (CNO) to a private entity (Zelia, LLC) who doesn’t actually own the street to begin with.  
As I stated above….great deal if you can get it.

Down This Road Before



There is also a corollary to this issue in the private purchase of the 500 block of Fulton Street.  Harrah’s Casino had made significant “improvements” to Fulton Street but the City required them to purchase the street in order to take it out of public commerce.  If Harrah’s is required to purchase Fulton why would the Mayor allow a billionaire, in Benson, to take over 1400 LaSalle (per the LSED) for free? 

Crunching the numbers

I asked an accountant friend of mine to look at the LSED/Zelia contract to see how much the LSED has paid Benson under the contract since 2011.  While these numbers are not official, my friend estimated that the LSED has paid Zelia  at least around $14 million since the inception of the lease with an estimated $33.5 million due over the remaining life of the lease through 2026.  That would put the total amount of the contract around $47.5 million over a fifteen year period. 

However, The LSED also has a separate marketing fund for which it is responsible but doesn’t seem to be subject to state audit or public disclosure through the Legislative Auditor.  Individuals seeking more information on the marketing fund are directed to the LSED.  The reason this is significant is that the marketing fund also makes rent payments that look to be either profit sharing or revenue sharing arrangements for the Champions Square events, I believe this is part of the 50/50 profit split mentioned above but I’m not sure.  

As an example, in fiscal year 2014, LSED paid $2.3 million for the lease, but the marketing fund also paid $1.9 million.  For fiscal year 2016 the amounts were $2.5 million paid by the LSED and $2.0 million paid by the marketing fund. However, elsewhere these lease payments by the marketing fund are shown as revenue for Champions Square.

Hence, the total amount paid to Zelia by the LSED to date may be significantly higher than $14 million.  

No one rides for free...unless you're a billionaire
The appropriation of the 1400 block of LaSalle has taken on a new relevance in 2017. 

In January the Mayor informed many of the non-profit festivals in New Orleans that the City would no long waive various permit costs, including street closures and parking meter rental loss, to these festivals.  It greatly affected many of the festivals that already had fixed budgets in place for 2017 and are now facing thousands of dollars in added expenses. 

The non-profit entities are now being hit with multiple permitting fees for the use of public streets while Tom Benson has been given an entire street by the City, with the State paying him for its use.  

 


I asked Mayor Landrieu’s Deputy Mayor of External Affairs, Ryan Berni, if the Mayor was aware of the issue…here’s his response:

“We have been working with the State for the last several years on a property swap that would include the street and the State’s portion of Duncan Plaza.  For a number of reasons, it hasn’t been settled due to the values of the property not matching up.  It is something we are still working on with LSED and the State.”

The only problem with that is that no one I spoke with at the LSED mentioned anything about that deal, so I’m not sure who is negotiating with the City on the matter.  Nor could I find any documentation of the deal. 

Land swap deal aside, we’ve gone seven years with no contract in place and millions of dollars left on the table.  In fact, millions of state tax dollars have been paid to a private entity who doesn’t  even own the public property in question.  

For New Orleans it appears public/private partnerships are how financial champions are made.  More to come on this.

If you don't have time read it all....just watch this short video for the basic skinny on the story...


1400 LaSalle from Jason Berry on Vimeo.


   
 Relevant Documents not linked above:

The actual Lease between the LSED and Zelia, Inc.

Monday, February 06, 2017

New Orleans Public Belt Railroad - City of New Orleans releases RFQ

The City of New Orleans has issued a Request for Quotation to lease the management of the New Orleans Public Belt Railroad in what is being referred to as a public/private endeavor.

Last Wednesday, February 1, 2017, a mandatory pre-bid conference was hosted at City Hall by Ryan Berni, Deputy Mayor of External Affairs for CNO and the mayoral appointee to the NOPB commission.  Also present were representatives from KPMG, the firm hired by the City (independently of the Commission) to conduct the evaluation which led to the RFQ.

The room was packed as this Powerpoint presentation was presented to the prospective lease applicants and discussed by Berni and the KPMG team members:

New Orleans Public Belt Railroad Pre-Bid Conference PPT. 

Anyone attending the meeting was required to list their name and contact information.  That list is here:

New Orleans Public Belt Railroad Pre-Bid Conference attendees 

There was a brief question and answer session following the Powerpoint presentation but Berni informed the group that any questions could be submitted to the City's website where they will be publicly answered in an effort to maintain transparency.

He also stated a "cone of silence" has been issued for the NOPB staff and Commission through the RFQ process.  I have personally tried to contact the KPMG members heading up the evaluation but I got no response via email. I am assuming they are subject to the City's cone of silence as well.

Many of the questions posed surrounded the complicated contracts and labor agreements the NOPB holds with Class 1 railroads, the NOPB union workers and the Port of New Orleans.

In specific, the labor agreement with the Union was brought up more than once. Berni stated that the City was focused on keeping as many local jobs as possible but that doesn't seem likely if a private company takes over the management of NOPB.  The labor agreement seemed to be a point of concern among the prospective buyers, it will almost certainly be on the chopping block if the lease goes through.

Another question which arose was the exact nature of the partnership between the City, the NOPB and the prospective partner.  Berni stated that the City is looking for a partner to lease the "operation and asset management transfer" of the NOPB.  This subsequently brought up the issue of the property tax exemption the NOPB now enjoys as a public entity and how that would affect the new management entity.  Berni replied that "different assets will be attributed differently" in respect to property tax exemption.

Probably the biggest question mark with the RFQ is the nature of the current agreement the NOPB has with the Port of New Orleans.  Right now, because the structure of the NOPB is designed to solely serve the Port (not necessarily generate a profit), the Port has a $1/year lease agreement with the railroad.  If a private entity takes over the NOPB, that agreement will most likely be renegotiated...if the Port even chooses to do business with the new entity.

There was no clear answer from the City on how the Port and other issues would play out but Berni stated later in the meeting the City was looking for the applicants to propose solutions to the management challenges in their quotes.  The unknowns of the Port contract along with the complicated trackage rights issues with Class 1 railroads are going to make any proposal by the private bidders somewhat of a challenge.

One other issue that struck me personally is that there are no safeguards for the existing Port vendors who utilize the NOPB.  Berni did state they expect the prospective bidders to be "focused on local customers as opposed to third party entities" but it's not clear how the City would enforce that intent, especially after the current administration exits the stage.

Page 12 of the Powerpoint presentation highlights some of the select transportation and storage warehouse companies who depend on the NOPB.



The multi-million dollar question is how a private entity taking over the NOPB will disrupt, undercut or even bankrupt these existing local businesses.  There is no non-compete clause or provision for the prospective manager of the railroad mentioned in the RFQ so the private partner could theoretically build their own warehouses and competing business to cannibalize some or all of the existing businesses in this slide.

In previous posts, I documented some of these business owners' objections to the privatization of the NOPB as well as this RFQ that was just issued by the City.

As of now, the City is planning on choosing a preferred bidder on June 23, 2017.

However, the acceptance of a bid does not guarantee the NOPB Board of Commissioners approving the private/public partnership.  They did vote to research the possibility of the lease but they haven't voted on approving a lease as of yet.  That factor wasn't brought up in this pre-bid conference but it will have to occur at some point....the Powerpoint schedule states board approval would take place in the Summer of 2017 after the preferred bidder is chosen by the City.

Coming up, I will take a closer look at the Port's relationship with the City and the viability of public/private partnerships the City of New Orleans has executed in the past.

As always, email me with any questions or use the comment section.