Judge orders City Hall to pay $60 million in garage-privatization case
BY CHRIS FUSCO AND DAN MIHALOPOULOS Staff Reporters September 13, 2013 3:22PM
City Hall must pay nearly $60 million to the private company running four city-owned parking garages because former Mayor Daley's administration allowed this competing garage to open at the Aqua building, a judge has ruled. | Rich Hein~Sun-Times
Updated: October 15, 2013 7:29AM
A Cook County judge has rejected an attempt by Mayor Rahm Emanuel’s administration to overturn a nearly $60 million arbitration award City Hall owes the private company that operates four city-owned parking garages.
But even though it now stands to be paid tens of millions of dollars by Chicago taxpayers, garage operator Chicago Loop Parking LLC appears poised to walk away from the privatization deal.
The company — a consortium of investors put together by Wall Street financial services giant Morgan Stanley — recently reported financial difficulties regarding the 2006 agreement in which it paid the city $563 million to operate the garages for 99 years. It’s now in talks to turn over the deal to a lender, a source said.
That move that isn’t expected to affect garage operations, sources said. It’s unclear what it impact it will have on the company’s investors.
Regardless, the company scored a financial victory in court Friday, with Judge Sophia Hall upholding its $57.8 million arbitration award and awarding it an additional $1.2 million in interest payments.
A panel of independent arbitrators found earlier this year that former Mayor Richard M. Daley’s administration violated the city’s 99-year, $563 million deal with Chicago Loop Parking when it allowed a competing public garage to open in the new Aqua building, about a block away from the nearest privately run garage.
Chicago Loop Parking originally wanted $200 million to reimburse it for present and future losses from the Aqua garage. That’s because its deal with City Hall prevented the city from allowing new, competing parking facilities to operate near the Millennium Park, Grant Park North, Grant Park South and East Monroe Street garages the company has been running.
The company won the $57.8 million arbitration decision — far less than it wanted — in January.
City Hall then sued the company in May, claiming the arbitration decision should be reversed because Emanuel’s administration had worked out a deal to pay Aqua developer Magellan Development Corp. more than $22 million to stop allowing public parking in the Aqua garage. City Hall reasoned that by eliminating future competition, Chicago Loop Parking no longer would be entitled to the windfall that arbitrators awarded it, thereby saving taxpayers more than $30 million.
But Judge Hall, after rejecting the city’s argument in court, issued a written ruling stating that the city “admitted that it had breached” the 2006 privatization deal when the Daley administration allowed the new Aqua building to offer public parking in 2009. Hall said the city also conceded that it agreed to the arbitration process and the award — which cannot be vacated or modified.
Additionally, Hall said the agreement with the Aqua developers came after the arbitration ruling and could not be taken into account by her. That agreement is now void because it was contingent on the city winning in court.
The Bartlit Beck law firm represented the city for free in the garage case, which was filed in late May. After Friday’s court hearing, city Corporation Counsel Stephen Patton did not rule out an appeal.
“The crux of the court’s decision is that the applicable statutes and case law do not allow for the modification of a judgment based on an arbitration award under these circumstances,” Patton’s spokesman, Roderick Drew, explained later. “We believe the law states otherwise.”
Despite the ruling, the garage operator is in talks to turn over its deal to French banking giant Societe Generale, which loaned it more than $400 million to finance the 2006 deal — a development first reported Thursday by Chicago Real Estate Daily.
The parking company took in more than $30 million from motorists who used the downtown garages last year. But it has lost tens of millions of dollars in recent years due to a complicated deal with its lender known as an “interest rate swap,” according to annual financial reports filed with the city.
In its latest report to the city in July, the garage company said it had defaulted on making a payment in March.
William Daley Jr., the former mayor’s nephew, was working for Morgan Stanley when the company became involved with the garages. He played no role in the privatization deal, the company has said.