CAUSE NO. DC-12-8748 LAS COLINAS GROUP, LP, Plaintiff, V. THE CITY OF IRVING, Defendant.

193 RD JUDICIAL DISTRICT DALLAS COUNTY, TEXAS IN THE DISTRICT 'COURT

DEFENDANT'S ORIGINAL ANSWER AND PLEA TO THE JURISDICTION

Defendant The City of Irving (the "City") files this original answer to Plaintiff s Original Petition ("Petition") filed by Plaintiff Las Colinas Group, LP ("LCG") and states:

INTRODUCTION 1. This frivolous lawsuit is nothing more than an attempt by LCG to excuse its

inability to perform its own financial obligations in connection with the construction of the City of Irving Entertainment Center. From the time LCG's representatives first approached the City about developing the Entertainment Center more than five years ago, LCG assured the City that it had the capability to invest tens of millions of dollars in equity into the project. This assurance has repeatedly been proven to be false. Every time LCG was contractually required to prove that it had the financial capability to perfoim its obligations, it presented the City with various excuses and sought additional extensions of time to come up with the necessary funds. Now that the City has refused to grant LCG's request for another one-year extension of the Development Agreement an extension for which LCG proposed to pay nothing and provided no financial commitment

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 LCG has asserted the extraordinary (and legally baseless) claim that it is the City that has breached the contract by refusing to negotiate a new contract. 2. Thus, despite its consistent contractual failures and non-performance, and

notwithstanding the millions of dollars the City has already paid it, LCG now seeks to extract an additional $139 million from Irving taxpayers for a proposed development that LCG has shown it is fundamentally incapable of ever seeing through to fruition. The development contract between the City and LCG, however, has fully expired by its own terms, and LCG has no right or claim to obtain more money from the citizens of Irving. Accordingly, LCG should not receive any relief from the Court in this case and its claims should all be dismissed with prejudice. ANSWER 3. Subject to such admissions and stipulations as may be made at the time of

trial, the City denies generally and specially the material allegations contained in the Petition and demands strict proof thereof in accordance with the requirements of the laws of this State. 4. Answering further, the City would show that in December 2011, LCG

specifically requested that the City Council disregard the recommendations of City staff and the City's financial advisors and adopt a resolution determining the estimated net bond proceeds to be in the amount of $146,440,000. At the time, these financial advisors and staff warned that it was unlikely the City could obtain the necessary investment grade rating on bonds of that amount, and in fact the request for same might jeopardize the City's general obligation rating. LCG, however, told the City Council that there was no

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reason for the City to establish the estimated net bond proceeds at any lesser amount because LCG was unable to increase its contribution above $80 million under any circumstances, even though LCG was contractually obligated to fund the full difference between the City's bond proceeds and the estimated $250 million cost of the Entertainment Center. Consequently, the City Council honored LCG's request and adopted a resolution setting the estimated net bond proceeds at $146,440,000. 1 To the extent LCG now claims that the City should have acted differently with respect to the determination of the net bond proceeds amount, or complains that the proposed bonds did not obtain an investment grade rating, LCG's claims are barred by the doctrines of waiver, estoppel, consent, ratification, and/or unclean hands. 5. Subsequently, in February 2012, the parties expressly amended the

Development Agreement to provide that if LCG was not able to close on at least $80 million in funding by August 6, 2012, the Development Agreement would terminate without any further action by either party. After Standard & Poor's determined that bonds in the amount needed to generate net bond proceeds of $146 million would not be rated as investment grade which precluded the City from issuing such bonds under Texas law the City repeatedly asked LCG if it was prepared to perform its obligations under the Development Agreement by funding the additional amounts necessary to proceed with the project and still close its financing by the August 6, 2012, deadline.
The Petition erroneously suggests that the estimated net bond proceeds determined by the City Council was unexpectedly less than the $170 million requested by LCG. [Petition, 22-23, 25.1 In fact, there is no difference. The $170 million in proposed bonds included the refmancing of more than $23 million that the City had already paid in pre-development costs, leaving approximately $146 million in estimated net bond proceeds.

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LCG completely ignored and refused to answer that question. Instead, LCG made a series of different proposals to renegotiate and amend the Development Agreement, all of which included a request for a one-year extension of time for LCG to find financing, and insisted that it would only discuss these new proposals and not any plan for closing the financing under the existing Development Agreement in a timely manner. Thus, contrary to LCG's assertions, it was LCG, not the City, that refused to communicate and address in good faith the issues of its non-performance under the Development Agreement. Once again, therefore, to the extent LCG's claims are based on section 6.6 of the Development Agreement, those claims are barred by the doctrines of waiver, estoppel, consent, ratification, and/or unclean hands. 6. LCG's claims are barred by its own non-performance of its obligations

under the Development Agreement. 7. immunity. 8. 9. LCG's lacks standing to assert some or all of its non-contractual claims. The City's immunity has not been waived for, and LCG is not entitled to LCG's claims are barred, in whole or in part, by the City's governmental

recover, the damages claimed in the Petition for the alleged breach of the Development Agreement.

PLEA TO THE JURISDICTION LCG Lacks Standing

10. LCG asks the Court to order an accounting of "all HOT [i.e., Hotel

Occupancy Tax] Revenues (or funds which are in whole or in part the proceeds of HOT

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Revenues) which have been paid to outside lawyers." [Petition If 61.] LCG also requests that the Court enjoin the City from "using HOT Revenues (or funds which are in whole or in part the proceeds of HOT Revenues) to pay lawyers or anyone else in this litigation or any dispute with LCG." [Petition 62.] LCG, however, lacks the requisite standing to pursue the relief it seeks regarding the use of HOT Revenues, as it will not suffer any particularized injury from those expenditures that is different than any other member of the general public. South Texas Water Auth. v. Lomas, 223 S.W.3d 304, 307 (Tex. 2007). 11. Nor does LCG meet the exception to the normal standing requirements that

would allow a taxpayer to sue to enjoin an allegedly illegal expenditure of the HOT Revenues. In this regard, LCG has not alleged that it has paid ad valorem taxes to the City, and it is not complaining of the expenditure of such tax revenues in any event. See,

e.g., Teneyuca v. Bexar County Performing Arts Center Foundation, 2012 Tex. App. LEXIS 4444 (Tex. App. San Antonio 2012, no pet. h.). The Hotel Occupancy Taxes at issue are "visitor" taxes that do not confer standing on those who pay them to bring suit against the City. Id. 12. Contrary to LCG's allegations, the City may properly use HOT Revenues

to pay expenses associated with the development of the Entertainment Center, including attorneys' fees to defend this lawsuit by LCG. Regardless, LCG's claims regarding the expenditure of HOT Revenues must be dismissed in any event based on LCG's lack of standing.

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The City is Immune from LCG's Injunctive Claims

13. LCG's claims for prospective injunctive relief are also barred because the

City's governmental immunity precludes bringing such claims against the City. See, e.g., City of El Paso v. Heinrich, 284 S.w.3d 366 (Tex. 2009). 14. Accordingly, all of LCG's claims for injunctive relief must be dismissed

based on the City's governmental immunity.

SPECIAL EXCEPTIONS
15. LCG seeks to assert a claim for breach of the Development Agreement,

asserting that the City's immunity from suit and from liability has been waived for such a claim pursuant to TEX. LOC. GOV'T CODE 271.152 and 271.153. LCG's claims as damages: (a) the amounts it has allegedly invested in the project to date; (b) its anticipated developer's fee; and (c) hoped-for future lost profits. [Petition,

IT 57.] Section

271.153(a) provides, however, that a breach of contract claimant may only recover from a local governmental entity the balance due and owed under a written contract or authorized change order. The damages alleged by LCG, therefore, are not recoverable as a matter of law, and the City specially excepts to same. The City requests the Court sustain this special exception and order that LCG's allegations concerning damages be stricken, require LCG to replead within ten (10) days of the Court's order, and, if LCG fails or refuses to amend, that this action be dismissed with prejudice.

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SANCTIONS FOR FRIVOLOUS PLEADINGS

16. The Petition filed by LCG is groundless, frivolous, contains allegations or

other factual contentions for which there is no evidentiary support, and are brought in bad faith and for improper purposes, including to harass and defame the City and/or its City Manager. 17. The Development Agreement specifically envisioned that it would

terminate and the parties would have no further obligation to each other as of August 6, 2012, unless LCG was able to produce the private financing needed to construct the Entertainment Center. LCG does not even try to contend in this lawsuit that it was capable of meeting that requirement. Instead, it has sued the City because it would not enter into a new agreement with LCG while still under the threat of litigation. Neither the law nor the Development Agreement supports the imposition of any such obligations on the City. 18. Apparently recognizing that its case regarding the Entertainment Center

lacks any legal or factual merit, LCG devotes much of its Petition to casting irrelevant, spurious, and defamatory allegations against City Manager Tommy Gonzalez. 19. Like its other claims, LCG's allegations and insinuations regarding Mr.

Gonzalez are groundless. Indeed, contrary to LCG's assertions, the City's growth and achievements under Mr. Gonzalez' management during difficult economic times have been remarkable, including the following: Recipient of the Texas Award for Performance Excellence; Maintenance of AAA bond ratings;

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Gold Leadership Circle Award recipient from the Texas Comptroller Leadership Circle;

Named the Best Place to Work by the Dallas Business Journal in 2010;

Identified this year as one of the Top 50 places to live by Bloomberg Businessweek;

Recipient of the Award for Excellence in Government from the Government Finance Officers Association; and

Savings of tens of millions of taxpayer dollars through the adoption of Lean Six Sigma practices.

20.

LCG's allegations regarding Mr. Gonzalez are nothing more than a

smokescreen designed to distract the Court, the public, and the media from the fact that there is no substance to LCG's claims. Furtheimore, because LCG views Mr. Gonzalez as an impediment to its efforts to continue feeding at the Irving taxpayer trough, its Petition is largely crafted to publicly embarrass and harass Mr. Gonzalez, as well as undermine his position with his employer. The allegations regarding Mr. Gonzalez are therefore brought for improper purposes and are clearly sanctionable. 21. For the foregoing reasons, LCG's pleadings violate TEX. CIV. PRAC. &

REM. CODE 10.001, et seq., and TEX. R. Civ. P. 13. The City is therefore entitled to recover appropriate sanctions from LCG as permitted by law, including, but not limited to: (a) an order striking the immaterial and impertinent allegations against Mr. Gonzalez;

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and (b) awarding the City its reasonable expenses and attorneys' fees incurred in the defense of this action.

REQUESTED RELIEF
22. The City respectfully requests the following relief: a. b. That LCG take nothing by reason of its suit; That the Court sustain the City's special exceptions and order LCG to replead as described above; c. That the City recover its attorneys' fees incurred in defending this action, both under the terms of the Development Agreement and pursuant to TEX. CIV. PRAC. & REM. CODE 10.001, et. seq. and TEX. R. Civ. P. 13, together with its court costs; d. That LCG be appropriately sanctioned pursuant to TEX. CIV. PRAC. & REM. CODE 10.001, et seq., and TEX. R. Cw. P. 13; and e. That the City have all such other and further relief, both general and special, at law and in equity, to which it may show itself justly entitled.

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Respectfully submitted, FIGARI & DAVENPORT, LLP

By: Mark T. Davenport State Bar No. 05418000 Don Colleluori State Bar No. 04581950 Parker D. Young State Bar No. 22204050 3400 Bank of America Plaza 901 Main Street Dallas, Texas 75202 (214) 939-2000 Telephone (214) 939-2090 Fax ATTORNEYS FOR DEFENDANT THE CITY OF IRVING

CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing instrument was sent by certified mail, return receipt requested, on the 28th day of August, 2012 to: Mr. Lawrence Friedman Friedman & Feiger, L.L.P. 5301 Spring Valley Road Suite 200 Dallas, Texas 75254

D. Colleluori

DEFENDANT'S ORIGINAL ANSWER AND PLEA TO THE JURISDICTION

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