The City of Burlington responded yesterday to a lawsuit filed by Citibank over Burlington Telecom, calling the financier "disingenuous" and even going so far as to blame it for some of Burlington Telecom's troubles. Citibank filed the action in Federal District Court Monday saying the situation was "irreparable."
Burlington's response was swift and sharp. The city stated that Citibank knows very well, through agreements it signed, that it cannot simply repossess the BT equipment. The city also charges that Citibank had agreed to continue financial assistance through the process of BT's buildout. Citibank never came through with that support and the city maintains that without it BT's buildout was stunted and its business model suffered.
Citibank claims that it has not being paid on the lease of the equipment, that the city is refusing to return the vehicles and equipment as compensation, and is still owed $33.5 million with no resolution in sight. Burlington has not made a payment since November 2009. Citibank claims that Burlington is already $3.5 million behind in payments.
It further states that the city should be required to make back payments, make payments of $235,631.44 per month for continued rent of the equipment, return the equipment, or short of that, have the court invoke "replevin," in which the court could order BT to return the equipment or cease using it - effectively shutting BT down - before the legal case is actually resolved. Citibank is also asking for a punitive award. Its filing, in part, can be found below.
The city's filing answers Citibank’s claims, contains several defenses, and makes 12 counterclaims against Citibank for damages. At issue in the proceeding is Burlington’s Lease-Purchase agreement with Citibank for Burlington Telecom equipment.
‘Burlington Telecom provides critical communications infrastructure and economic development opportunities to residents, businesses, and City departments in Burlington,’ said Mayor Bob Kiss. ‘While addressing Citibank’s legal claims, we continue to work on finding solutions for BT that will preserve and enhance its services and set a more financially sustainable course for the future. We must always keep in mind BT’s tremendous value to Burlington.’
The memo from Burlington’s lawyers to the City Council and Mayor Kiss regarding the filing is pasted below and is also attached.
A copy of the city's "Answer" can be found at: www.burlingtontelecom.net/CityofBurlingtonAnswerAffirmativeDefensesandCo....
MEMO
TO: Burlington City Council
Mayor Bob Kiss
FROM: Kenneth A. Schatz, Esq., City Attorney
Michael L. Burak, Esq.
RE: CitiBank v. City of Burlington and McNeil, Leddy & Sheahan
DATE: December 22, 2011
City of Burlington's Answer, Affirmative Defenses and Counterclaims
The City of Burlington filed its response today in Federal District Court to the Citibank
Complaint related to Burlington Telecom. Burlington strongly disputes Citibank's case and the
factual assertions it is based on. The filing answers Citibank's claims, contains several
affirmative defenses, and makes twelve counterclaims against Citibank for damages. At issue in
the proceeding is Burlington's Lease-Purchase agreement for Burlington Telecom equipment.
Burlington's Answer, Affirmative Defenses and Counterclaims are founded on several
facts and principles, among others:
(1) Citibank misconstrues and misstates the nature of its lease-purchase agreement
with Burlington. This agreement was an equipment lease, subject to annual
appropriation. When Burlington failed to appropriate payments for the lease by June
30, 2010, for fiscal year 2011, the agreement terminated under its own terms.
Citibank has acknowledged its termination, yet sidesteps this crucial fact in its
complaint. While Citibank would like to convert the lease agreement to a debt of
Burlington or bend the facts to make it seem as though Burlington defaulted on the
agreement, this is not the case. Citibank's failure to properly understand or describe
the basic nature of the lease agreement is a fundamental flaw in its case against
Burlington.
The programs and services of the City of Burlington are accessible to people with disabilities.
For disability access information for the City Attorney's Office, please call 865-7121 (TTY information ‘ 865-7142).
(2) Citibank failed to negotiate in good faith with Burlington and summarily
rebuffed Burlington's attempts to resolve this dispute. In order to fulfill its
obligations under the Lease Purchase Agreement, Burlington petitioned the Public
Service Board ("PSB") in January of 2010 for permission to utilize Burlington's
pooled cash funds to make the February 2010 lease payment. This request was
rejected by the PSB. Burlington notified Citibank of this development immediately
and, failing other options, the lease was terminated as of June 30, 2010. Our
understanding through Dorman & Fawcett is that Burlington made numerous attempts
in 2010 and early 2011,to engage Citibank on a plan to restructure the Lease Purchase
Agreement. This included minimum monthly payments from BT operations coupled
with a cash flow sharing arrangement and credible growth plan.
Burlington's proposals were summarily rejected and the rulings of the PSB ignored.
Citibank insisted on full payment of the lease amount despite the legal constraints
placed on Burlington with respect to the use of non-BT revenue. Burlington then
offered to work with Citibank on a plan to inventory and return the equipment
covered by the lease ‘ equipment in the possession of BT or in the form of
replacement equipment. Alternatively, we understand that Burlington advised
Citibank that a cash payment in lieu of a return was possible. Despite attempting to
work cooperatively with Citibank on an orderly and responsible plan to return
equipment, in effect Burlington received no response.
It is disingenuous of Citibank to claim it has been damaged by Burlington's actions
under these circumstances.
(3) Burlington has been damaged by Citibank. Burlington makes twelve
counterclaims against Citibank in its answer. Among other things, these relate to
Citibank's unfulfilled promise to do a refinancing of the BT equipment which
induced Burlington to enter into the lease purchase agreement and Citibank's clear
failure to negotiate in good faith to resolve the dispute. Citibank falsely induced
Burlington into the lease purchase agreement and took other actions and inactions that
significantly reduced BT's value.
A copy of the Answer, Affirmative Defenses and Counterclaims is attached. We've also
attached a copy of the Motion to Dismiss with supporting Memorandum filed by McNeil, Leddy,
and Sheahan this afternoon.
Enclosures
lb/c: KAS 2011/City Council re CitiBank v. City and McNeil, Leddy & Sheahan (BT)
CITIBANK FILING
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City_of_Burlingtons_Answer_to_Citibank.pdf129.12 KB