Professional Documents
Culture Documents
CAUSE NO. 1
HILL WOOD INVESTMENT PROPERTIES, § IN THE DISTRICT COUR,
III, LTD., individually and on behalf of
DALLAS BASKETBALL LIMITED D/B/A §
DALLAS MAVERICKS,
Plaintiff,
192Mi
JUDICIAL DISTRICT
VS.
on behalf of Dallas Basketball Limited d/b/a Dallas Mavericks ("DBL"), files this
INTRODUCTION
pursuant to a franchise from the National Basketball Association (the "NBA"). Entities
controlled by and affiliated with Mark Cuban ("Cuban") acquired a majority ownership
interest in DBL in 2000. Since that time, Cuban has led the Dallas Mavericks to success
on the basketball court. However, this success has come at a great cost. DBL has made a
litany of questionable business, financial, and personnel decisions through the years that
have placed DBL in the position of not being able, through its own revenues, to pay its
DBL does not have the financial resources to repay) to meet ongoing financial
obligations, and putting its long-term viability in serious question. Despite the fact that
DBL's revenue has increased during Cuban's tenure, DBL has not been profitable. In the
fiscal year ended June 2009, DBL incurred a net loss of more than $50 million. Under
Cuban's stewardship, DBL's debt has steadily increased and now likely exceeds $200
million. DBL's internal financial projections show that downward spiral continuing at an
alarming pace through the four year period ending June 2013, with the projected interest
bearing debt balance reaching more than $281 million during that period.
party transactions it has entered into with other Cuban-related entities, for which DBL
has not received fair value, to the benefit of those Cuban-related entities and to the
detriment of DBL.
competitive affiliated transactions are the interests of Hillwood, one of the DBL minority
owners. Cuban's conduct has not only caused DBL to repeatedly violate the minority
owners' contractual and statutory rights to information, but has also caused the minority
owners in DBL to lose substantial investment value. Hillwood brings this suit to redress
these wrongs.
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PARTIES. JURISDICTION. AND VENUE
in Dallas, Texas. Hillwood is currently a limited partner of DBL and was a limited
partner of DBL at the time of the transactions that are the subject of this suit.
business in Dallas, Texas and may be served with process by serving its registered agent,
Capitol Corporate Services, Inc., at 800 Brazos, Suite 400, Austin, Texas 78701.
Dallas County, Texas and may be served with process by serving its registered agent,
Capitol Corporate Services, Inc., at 800 Brazos, Suite 400, Austin, Texas 78701.
8. The Court has jurisdiction over this dispute, the amount in question being
BACKGROUND FACTS
A. DB L.
10. Hillwood DBL, Ltd. ("Hillwood DBL") is the former majority interest
owner of DBL. In April 2000, Hillwood DBL sold its controlling interest in DBL to
entities owned and controlled by Cuban, d these Cuban-related entities remain the
collectively own an approximate 76% interest in DBL. RMM, a Cuban owned and
B. The Partnership
11. The relationship between RMM and the DBL limited partners (including
Partnership, effective July 1, 1996 (the "Partnership Agreement"). The primary business
purpose of DBL is to operate the Dallas Mavericks professional basketball team pursuant
12. While the Partnership Agreement gives Cuban (through the general partner,
RMM) broad discretion to run the day-to-day operations of DBL, his powers are not
conducting business only within the scope of the stated business purpose. Moreover,
Section 7.6 of the Partnership Agreement expressly requires that the terms of any
transaction, agreement, or contract involving DBL with any DBL partner or with any
person that is an affiliate of a DBL partner, including the amount of fees to be paid by
DBL to such partner, or partner affiliate, must be competitive with the terms of similar
13. Since the Cuban-related entities acquired control of DBL, DBL has
maintained one of the highest payrolls in the NBA, so high that DBL has been required to
pay nearly $75 million in net NBA luxury tax (with DBL projecting an additional $26
(and, essentially, subsidize the operating costs of) other NBA teams competing against
the Dallas Mavericks. By virtue of such spending, DBL has incurred substantial
operating losses while under the control of RMM. During the fiscal years 2001 through
2009, DBL generated a deficit (net cash used) in operating cash flow activities of over
$176 million. For the nine years that Cuban has conducted the business operations of
DBL, the total net losses were over $273 million, resulting in the DBL's partners' deficit
of approximately $289 million as of June 30, 2009, nearly a seven-fold increase in the
negative account during that nine-year period. DBL projects that its operating losses will
continue to accumulate for the next four fiscal years ending June 2013, totaling an
additional $92 million. DBL's financial statements show future cash commitments for
deferred compensation in excess of $300 million as of June 30, 2009. To provide the
liquidity necessary to operate and fund the substantial shortfalls between its revenues and
the costs of its operations, DBL maintains a bank line of credit (the "LOC"), in addition
to other loans by entities that are the owners of the company operating the American
Through the years, the borrowing capacity under these and former financing sources has
steadily increased at an alarming rate. As of December 31, 2009, DBL had outstanding
commitment that DBL's existing lenders will make additional loan proceeds available to
DBL to fund these projected continuing operating losses. During the fiscal years 2001
through 2009, DBL's total operating losses were approximately $254 million. DBL
additional borrowings, DBL will not be able to fund its projected operating losses or to
pay its obligations as they become due. Further, those projections indicate that DBL does
not have the financial ability to repay existing loans by their stated maturities. These
conditions render DBL insolvent on a book basis with an equity deficit of negative $289
million, and negative working capital of over $75 million, as of June 30, 2009.
manner in which DBL has been operated since April 2000, including the on-going
incurrence of operating costs and debt not capable of being funded or repaid by operating
revenues as the result of the business decisions made solely by RMM under the direction
Further, notwithstanding numerous requests, Cuban has refused to hold regular meetings
with the DBL limited partners for the purpose of providing information regarding DBL's
operations. Hillwood has only been able to perform a limited inspection of DBL's books
and records by making a demand to exercise its contractual and statutory rights to do so.
15. Based upon information and belief, RMM has caused DBL to deliver value
to affiliates of RMM and Cuban on terms that were not competitive with the terms of
an arms-length basis. In particular, based on information and belief, (a) DBL provided
cash payments and other value to MLW Aviation, LLC (in which Cuban directly or
indirectly has an ownership interest) for which that company did not deliver equivalent
arrangements, and other resources to HDNet, LLC (in which Cuban directly or indirectly
has an ownership interest) for which that company did not deliver equivalent value to
DBL. These related party transactions provided value to these RMM or Cuban-related
affiliates at the expense of DBL due to them not being made on competitive, arm's-length
terms. That absence of fair value has contributed to the current poor financial condition
of DBL.
E. Derivative Action.
16. Hillwood has demanded that RMM and Cuban provide to DBL binding
commitments to fund future DBL operating deficits and debt repayments to address the
financial consequences of their decisions that have so adversely affected the value and
continuing financial viability of DBL and the value Hillwood's investment in DBL. That
demand has been expressly rejected. Although Hillwood has not requested RMM to
initiate suit on behalf of DBL, any such effort would have been futile and is thus excused.
That is, Cuban (through entities that he owns and/or controls) is the majority owner of
DBL, and he makes all major business and operational decisions. Therefore, RMM
would not agree to initiate suit against itself, or any other Cuban-related entity, for
entering into the above-described transactions. Accordingly, Hillwood now brings this
derivative action on behalf of DBL, and in its own capacity as a limited partner, to
Hillwood is a party and under which it has fulfilled all of its obligations. As set forth
more fully above, RMM breached the Partnership Agreement by entering into the above-
described related party transactions. As a result of these breaches, Hillwood has suffered
20. RMM, acting individually and on behalf of DBL, has managed DBL's
finances and operations in such a reckless manner with indifference and disregard to
prudent practices, to the value of DBL and the investments of its owners and to the rights
of minority owners, that the value to and rights of Hillwood have been materially and
adversely impacted to the improper benefit of RMM and Cuban at the substantial expense
to Hillwood.
an amount in excess of the minimum jurisdictional limits of this Court, for which it now
sues.
23. A fiduciary relationship exists between RMM, on the one hand, and
Hillwood, on the other hand. The above-described course of conduct violates the
fiduciary duties that RMM owes to Hillwood and constitutes willful misconduct. By way
of example only, RMM breached its duty of care and good faith by operating the business
of DBL in a careless and reckless manner in disregard of sound and prudent financial
practices by (a) continually burdening DBL with operating and debt obligations far
beyond the financial capabilities of DBL to satisfy, (b) failing to keep Hillwood and the
other partners properly and regularly informed regarding the business of DBL, (c)
causing DBL to enter into transactions in violation of the terms of the Partnership
Agreement requiring competitive and arms-length transactions, and (d) causing harm to
Hillwood and the other limited partners as the result of the above acts. In addition, RMM
breached its duty of loyalty by placing the personal interests of its direct or indirect
owner, Cuban, above and to the detriment of the interests of DBL. As a result of these
irreconcilable conflict exists between the limited partners, on the one hand, and RMM
and Cuban, on the other hand, regarding the courses of action DBL might take to
of a receiver to take charge of the management and control of DBL in order to avoid
further damage to the parties at interest pursuant to TEX. Bus. ORGS. CODE § 11.404
accountant, at RMM's sole cost and expense, to investigate and make a report regarding
the matters described herein (including payroll, employee benefits, and other expenses
incurred by DBL for the benefit of other Cuban entities), and that the Court order RMM
and DBL to cooperate with this investigation and allow full access to all of the records in
accounting.
undersigned attorneys to represent it and agreed to pay their reasonable and necessary
fees. Hillwood seeks recovery of its reasonable and necessary attorney's fees, court
costs, and expenses through trial and all appeals under applicable law, including, but not
limited to, TEX. CIV. PRAC. & REM. CODE § 38.001, et seq., the express agreements
31. Hillwood seeks exemplary damages from RMM based on its willful,
MISCELLANEOUS
32. All conditions precedent to the filing of Hillwood's claims in this action
33. By filing these claims, Hillwood does not waive or release any rights,
claims, causes of action, or defenses, or make any election of remedies, but rather
expressly reserves all such rights, claims, causes of action, and defenses, whether or not
the same have been asserted or may hereafter be asserted in this or any other proceeding.
JURY DEMAND
34. Hillwood requests that all issues of fact be tried before a jury.
(f) That Hillwood have all such other and further relief, both
general and special, at law and in equity, to which it may
show itself justly entitled.
BY: .6416.4711.1W
T. Davenport
State Bar No. 05418000
Don Colleluori
State Bar No. 04581950
Ryan K. McComber
State Bar No. 24041428