Citibank filed a long-anticipated lawsuit in federal court Friday, seeking tens of millions of dollars in damages and the repossession of Burlington Telecom’s equipment.
The lawsuit was filed as a result of the city of Burlington failing to make payments on a $33.5 million lease-financing agreement.
Talks between Citibank and the city broke down in late 2010. The final payments made to Citi by Burlington were in May 2010, when Citi had money released from an escrow account.
“Unfortunately, the city has not made direct payments on this financing since November 2009,” said Mark Rodgers, director of public affairs for Citi. “We have tried to allow additional time to arrive at a mutually satisfactory solution by granting extensions in the past. At this point, however, we have had to proceed with litigation due to the city’s failure to honor their contractual obligations, including the return of equipment we financed.”
Citibank wants Burlington to deinstall the BT network and hand over the equipment and vehicles to Citibank; and pay $33.5 million owed under the lease as well as punitive damages for breach of contract. Citibank is also seeking an additional $3.5 million in fees accrued through August 17 ($235,000 per month) for Burlington’s use of the BT network. Citibank wants all customer payments to BT to be placed in an escrow account or trust with the court.
Download Citi Complaint with Exhibits
In a statement issued by Joe Reinert, assistant to Mayor Bob Kiss, the city said it was reviewing the complaint and “will vigorously defend the city’s interests in court. CitiCapital’s filing has no impact on Burlington Telecom’s provision of services to its business and residential customers.”
Also named as a defendant in the lawsuit is McNeil, Leddy and Sheehan, the Burlington law firm that represents Burlington Telecom and negotiated the lease agreement with CitiCapital.
In its lawsuit, Citibank notes that a letter written by attorney Joe McNeil on behalf of Burlington “expressly warranted to Citibank that at least 40 percent of Burlington’s revenues were derived from sources other than taxpayers’ funds and would be available to fund payments to Citibank, and further, that Burlington had the financial resources and ability to make all payments to Citibank for the full term of the agreement.”
In its lawsuit, Citibank points to McNeil’s letter as making a false and fraudulent claim and rendering the entire agreement null and void.
Citibank contrasts McNeil’s assertion with what happened in mid-2010 when the city council and administration of Mayor Bob Kiss decided not to appropriate any money toward the lease payments in the FY 2011 budget.
The reason?
“Burlington claimed, for the first time, that all of Burlington’s funds, regardless of their source, were deemed to be ‘taxpayer revenues,'” the lawsuit alleges. “Burlington further indicated to Citibank that the only funds legally available for payments under the agreement were BT revenues, which Burlington contended were insufficient. Burlington’s contention is particularly curious, because Burlington itself has been one of BT’s most significant customers.”
Citibank argues that the city of Burlington had the “ability and the obligation” under the lease-finance deal to “charge itself sufficient rates to make the payments required under the agreement, but it failed to do so.”
On that point, Citibank says the city’s “responsible financial officer” failed to do things “lawfully within his power to obtain rental payment funds.”
Citibank notes that Burlington’s intransigence has been nearly a year in the offing.
On October 21, 2010, Citibank issued a letter to the city that “demanded de-installation and the return” of BT’s equipment secured by the lease. If it continued to use the equipment, Citibank noted in its letter, BT would have to pay a rental fee. To this date, the city has neither returned the equipment nor paid a rental fee.
Recently, city officials and the McNeil, Leddy and Sheehan law firm have dodged state and federal criminal prosecution connected to BT’s overspending and violations of its state certificate of public good. As well, a state court judge refused to find BT and city officials in contempt of a court order barring the city from spending taxpayer dollars on sorting out the BT financial mess.
This article appears in Aug 31 – Sep 6, 2011.
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Jimmy,You are wasting your pixels arguing with W2R and their ilk.I agree how stupid are these comments? the problem is obvious for those of us who live in the real world. The only asset BT can claim is a customer base. Which by my reckoning is worth about zero now, you can buy the list from the city tax roll for free. According to the consultants hired they lost an additional 25% or 1000 of those customers. Bonding the hot mess will just produce a bond that will be defaulted on.. even that statement by W2R is inane there just isn’t the capital generated by BT to make it a going concern. The fact is BT is Tit’s up. The Failure of our prosecutors to prosecute the bad actors Mc Neil and co, Jonathan Leopold Kiss Burns Thiabult et al will come back and bite us all.The fact is this thing is a derriere eclair no one wants to eat it. We are operating BT with “stolen equipment. Time to pass all of the cost of its operation to Citi and turn over the key’s and force them to shoulder the cost of keeping the thing afloat under the PSB’s orders until all consumers are transitioned. My advice consumers cease all payments to BT immediately.Jimmy why are you afraid of bankruptcy? Muni Bond markets have very short memories. It is time to use bankruptcy to force some much needed change in town.
“BT obviously has a customer base and an infrastructure that is worth more than simply the sum of its parts.”BT does not own an infrastructure. Citi owns everything, and they are currently moving to repossess it. Neither side disputes this.”Counsel for Burlington admitted that Burlington has defaulted under the Agreement and is required to return the Equipment. Nonetheless, Burlington has refused to return the Equipment.” – p. 18 of the complaint.Believe me, I hoped that some turn of events would result in a competent third party taking BT over and somehow making their debts to Citi and the taxpayers whole, but after reading the complaint, I honestly don’t see how that can happen.
Yes, tech companies have intellectual property, but that’s not all. They also have an income stream or at least market position. BT obviously has a customer base and an infrastructure that is worth more than simply the sum of its parts. Liquidating BT’s goods at a fire sale to CitiFinancial’s satisfaction won’t make enough to cover the debts. Underlying a lawsuit like this by a bank is probably the suggestion that the parties negotiate the enterprises’s total worth.
If you’re saying that you think W2R’s post reflected his/her honest thoughts on the matter, then you just insulted him/her far worse than I did.”Clearly Jimmy has the foresight to make a definitive call.”If you’d like to describe the chain of events that could lead to BT’s survival at this point, I’m all ears. A tiny local telecom outfit that’s seven figures in debt and is having all of their equipment repossessed doesn’t really make a super attractive takeover target.Since you’ve appointed yourself my official archivist, you can feel free to post a link proving otherwise, but I’m pretty sure I never said the the criminal investigation would definitely bear fruit. I’m sure I said I hoped it would, because I did.
Clearly Jimmy has the foresight to make a definitive call. And apparently the authority to decide when a matter is settled or not. This authority also seems to include demeaning others in a meager attempt to make himself appear more powerful.Hey Jimmy, you realize most readers check out after belittling sentences like your first one above, right? You don’t happen to own a Corvette too, do you? Just askin’…. BTW, how’d that criminal investigation you prognosticated on turn out?
W2R, given that you’re able to spell and put together a sentence, I’m just going to assume you’re playing dumb.”a business is worth more than just its property and its employees”The companies you name have intellectual property. BT has nothing like that. Their only value is in the connection they make between upstream data providers and homes. They do that through equipment and cables that are in the process of being repossessed. There is nothing else to sell, and there is nothing to bond against – which is a moot point, as bonding is expressly forbidden by every level of regulations governing BT.It’s over, and I can’t fathom why anyone would continue to pretend otherwise. The only focus now should be avoiding bankruptcy.
Well, a business is worth more than just its property and its employees, especially the tech ones with their inflated valuations (insert stock price of Google, Apple and Facebook).But yeah, Burlington residents should offer to bond the thing, like the airport and the electric department, and ask the legislature if it’s ok to market fiber services to outlying towns in the metropolitan area. Otherwise, the city’s 17 million is potentially gone. Unfortunately, political expediency (non-leadership) is against it.
“Indeed, “sell” is a loose term.”For BT, it’s an irrelevant term. BT has nothing to sell but their building and vans, and even those may be considered Citi property. That’s the point. They don’t even claim to own the equipment that their business runs on at this point, which includes the cable in the ground.
ummm ah what about Oh Oh Obama?
I thought the city was paying Dorman and Fawcett the big bucks to manage BT and negotiate with CitiFinancial? What happened? Somebody call Terry Dorman.