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.
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.
"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.