Ottawa Senators owner Eugene Melnyk sues partners in 'failed' arena venture

Ottawa Senators owner Eugene Melnykis suing his partners in the "failed" LeBretonFlats redevelopment project, a twist that almost certainly spells the end of a plan to move the hockey team downtown.

Capital Sports Management Inc. (CSMI),which is wholly owned byMelnyk,is suing for $700 million.

CSMI'sstatement of claim names Trinity Development Group Inc., its founder and executive chairJohn Ruddy, as well as project manager Graham Bird and his company, Graham Bird Associates.

According to the claim,which hasn't been tested in court, "the joint venturefailed because of an egregious conflict of interest on the part of Trinity and its principal, John Ruddy."

CSMI claims the conflict arose when Trinity began developing an adjacent property at 900 Albert St. "in direct competition" with the LeBretonproject.

Trinity has plans to build what would beOttawa's tallest highrise at the Albert Street site, a 65-storey residential tower.

Melnykleft vulnerable to 'Trinity's machinations'

According to the claim, the National Capital Commission approached CSMIin 2014 to suggest it submit a proposal for LeBretonFlats, with a newarena for the Ottawa Senators as an "ideal anchor use" for the federally owned land just west of Ottawa's downtown core.

Melnyk's company was then approached by several developers including Trinity, the claim states.

Representatives from CSMI met Ruddyfor the first time on Oct. 30, 2014, to discuss a response to the NCC'srequest for qualifications, but at that point Ruddy "downplayed" the idea that 900 Albert St. might compete with a future LeBreton Flats development.

The twopartners would go on to bid on the high-profile project toredevelop the 21-hectare area.

They promised a new arena for the Ottawa Senators, as well as a mix of high-rise housing, retail, commercial and hotels.

"CSMI'slack of expertise is what necessitated its partnership with an experienced developer like Ruddy and Trinity in the first place," states the claim.

"It was this disparity in expertise, and the trust CSMIplaced in its joint venture partner, that made CSMIvulnerable to Ruddy and Trinity's machinations."

Altered high-rise plans

Those "machinations" referred to changes Ruddy would later make to plans for the towers his company intendsto build at 900 Albert St., near the Bayviewlight rail station.

CSMIclaims Trinity initially intended to build modest rental apartmentsaimed at Carleton University students, but instead convinced the cityto allow extra height so the development would one day tower over nearbyLeBretonFlats.

According to the statement of claim,it wasn't until three years into the partnership thatMelnyk's company realized Ruddy and Trinity had put 900 Albert St. "in direct competitionwith the LeBretonproject" and "destroy the viability of the LeBretonproject outright."

CSMI commissioned an independent study byPricewaterhouseCoopers LLP.That report concluded "the Ottawa market could support either one project or the other, but not both."

The statement of claim said the towers would create a"vacuum effect" that would "suck" unit sales from LeBreton.

"The plan for this has always been for [RendezVous LeBreton Group]to finance the stadium and the development through the proceeds and the profits of the residential and commercial and mixed-used components of that development," said Nicolas Ruszkowski, the Senators Chief Operating Officer, on CBC's All in a Day.

"That's what makes the matter of oversupply so critical to the success of this particular venture."

Melnyk'disappointed': lawyer

"Ruddy and Trinity should have identified the conflict to CSMIand either withdrawn from the joint venture or harmonized the two developments. Instead, Ruddy and Trinity misused confidential inside information about the LeBretonproject and abused the trust CSMIhad placed in them," according to the statement of claim.

Had Melnyk'spartners not "misused their position,"CSMIwould have profited from the LeBretonredevelopment and "fans would have enjoyed a new arena in the heart of the downtown."

"They're disappointed with where things have ended up. They've championed the concept of the downtown arena," Melnyk's lawyer, Robert Brush, told CBCNews Friday.

"The process is in flux, but [Melnyk]remains committed to the hope and he's going to explore options to make that happen. We're going to have to see how that develops."

NCCput partners on notice

In a statement, John Ruddy and the Trinity Development Group said it strongly denies the claims in the lawsuit and plans to vigorously defend itself.

"I will always find ways to build Ottawa up and continue to make a contribution to our great City," Ruddy said in the statement.

CBChas reached out for comment fromGraham Bird, and the National Capital Commission but has not yet received responses.

Cyril Leeder, who worked for the Senators when the project began, has declined to comment.

A spokesperson for Mayor Jim Watson, who is on a three day break, said the mayor will not be commenting as the matter is before the courts.

News of the lawsuit comes oneday after the National Capital Commission told the RendezVous LeBretonpartnersto get their acttogether, or it would look for other options to develop the site.

At its meeting Thursday, the National Capital Commissiondid not reveal the root of the dispute between the partners.