Nate Rau

nrau@tennessean.com

A longstanding dispute between owners of the Nashville Predators spilled into state court Thursday when co-owner David Freeman filed a $250 million lawsuit against the hockey franchise and Chairman Tom Cigarran for not informing him about financial statements and failing to honor loan guaranty fees he says are owed to him.

Freeman’s lawsuit takes particular aim at Cigarran, who is accused of dishonest business practices.

Cigarran is contractually barred from discussing the dispute with Freeman because of NHL confidentiality rules, but the team released a statement on Thursday after the lawsuit was filed.

The statement, released through the team's spokesman, Gerry Helper, said: "The Nashville Predators were disappointed to learn of David Freeman's meritless and inappropriate court filing in Davidson County Chancery Court. The club will use all appropriate means to vigorously defend its position. The club believes this issue should be resolved by the NHL as mandated by the NHL Constitution, to which all owners, including Freeman, are bound.

"The franchise is healthier than ever and this frivolous suit has no impact or bearing on our organizational operations.

"The organization does not plan to comment further on this matter at this time."

The lawsuit calls into question the stability of the Predators ownership group. On the ice, the team has been a consistent playoff contender, while its finances have improved on the business side in the past six years.

Factoring in his lost ownership stake, guaranty fees and other damages, Freeman is seeking $250 million.

According to the lawsuit, Cigarran concealed financial details about the team that he was supposed to share with Freeman. Because he didn’t have the necessary financial statements, Freeman did not answer subsequent capital calls, which are a request for money from investors, according to the lawsuit. The Predators owners have an internal agreement to pay cash when needed to cover operations and other financial obligations.

After Freeman did not contribute to the capital calls, his shares in the team were diluted and the other owners' shares were increased, according to the lawsuit. Freeman is suing to have his original ownership stake in the Predators restored. Freeman's stake in the team was at 48 percent before his shares began being diluted in 2010, according to the lawsuit.

He’s also suing over guaranty fees that he says are owed to him after he backed a loan from the ownership group’s original lender, CIT. Freeman says in the lawsuit that the partners agreed to create guaranty fees that would be owed to the owners who backed the CIT loan. The bank demanded replacement guarantees after then-Predators co-owner William “Boots” Del Biaggio was investigated for fraud and filed for bankruptcy.

Only Freeman and co-owner Herb Fritch provided the CIT loan guarantees, which is another point of contention in the lawsuit. The team might have faced bankruptcy had the loan not been guaranteed, according to the lawsuit.

Freeman also alleged in the lawsuit that Cigarran is the reason that former Predators CEO Jeff Cogen left the franchise last year. Freeman is represented in the lawsuit by Ed Yarbrough, the former U.S. attorney for the Middle District of Tennessee, and former federal prosecutor Alex Little.

Predators turn to Sean Henry to continue success

The lawsuit pits Freeman, who was crucial in keeping the Predators from leaving town in 2007, against Cigarran, who has overseen the stabilization of the hockey team’s business operations.

Freeman is a mergers and acquisitions attorney and entrepreneur by trade. He made his fortune selling a medical waste disposal company before buying the Predators. Cigarran earned his wealth by starting and running successful health care companies Healthways and AmSurg. They are among the city's most prominent businessmen.

The Predators' ownership structure is somewhat unique in pro sports because Cigarran does not own the largest share in the team even though he has the powerful role of chairman. Fritch, another health care executive, now owns the largest stake, and according to multiple sources, there were recent discussions within the ownership group about Fritch becoming chairman. Those talks are now on hold.

A central question is whether Chancery Court in Nashville is the appropriate venue for the lawsuit, because all NHL owners sign agreements with the league that their disputes will be considered by Commissioner Gary Bettman.

Freeman initially took his complaints about Cigarran to Bettman’s office. A petition filed along with the lawsuit states that Freeman thinks Bettman is biased because the commissioner is responsible for maintaining the health of the Predators and all teams, and therefore is predisposed to quash a dispute.

“I am not prepared to comment on or confirm substance or nature of pending litigation, but what I will say definitively is that we have no concern whatsoever that this action will adversely affect the operations or stability of the (Predators)," NHL Deputy Commissioner Bill Daly told The Tennessean.

Freeman led local ownership group in 2007

In 2007, original Predators owner Craig Leipold said the team was losing too much money and he needed to sell. A Canadian billionaire was poised to buy and presumably move the Predators out of Nashville.

The community rallied and Freeman, who invested $36 million, according to the suit, led the mostly local investors who stepped in to buy the Predators. He subsequently led the negotiations with then-Mayor Karl Dean to strike an incentive deal at Bridgestone Arena.

The crux of that deal has Metro rebating a portion of the sales tax revenue generated at Bridgestone Arena. The deal with the city was changed in 2012 to reduce the guaranteed tax incentives for the Predators in exchange for more financial help with building improvements at the arena.

Partner’s fraud scheme created turmoil

The lawsuit exposes just how close the team came to bankruptcy in 2008 after the local owners bought the team.

That year, Del Biaggio was investigated for fraud because of a scheme he concocted to gain an ownership share in the Predators. When the investigation came to light — Del Biaggio was later convicted — the team’s primary lender at the time, CIT, required the other Predators owners to guarantee the portion of the loan that he had backed.

The owners also had to provide additional statements of net worth to Metro after Del Biaggio's problems arose. Under the lease with the city at Bridgestone Arena, the Predators owners provide the statements to show they can financially cover their contractual obligations to Metro.

Freeman's guaranty to CIT was $40 million and Fritch's was $13 million, according to the lawsuit.

Predators' Jeff Cogen to Rays; Sean Henry new CEO

According to the lawsuit, while the owners were working to handle the situation with Del Biaggio and CIT, Cigarran emailed his partners to say he would not provide a guaranty to the bank.

“Two observations, I for one will NOT take on any part of Boots’ guarantee,” Cigarran said in a 2008 email that is quoted in Freeman’s complaint. “Second we need to calculate our damages which will increase our claims against Boots/Forecheck.”

Another Predators owner, who is not identified in the lawsuit, emailed Freeman on Jan. 14, 2009, that he was "prepared to accept the consequences" of Predators bankruptcy if Freeman and Fritch declined to provide their guarantees.

If Del Biaggio’s shares of the CIT loan had not been guaranteed by the other owners, the Predators probably would have faced bankruptcy, according to the lawsuit.

Predators co-owner DeWitt Thompson also emailed Fritch on March 27, 2009, after the CIT loan issue was resolved to say, "Thanks again to you and David for keeping the team alive to this point."

But after the situation went away, the guaranty fees were not honored, according to the suit. In a Sept. 30, 2010, email quoted in the lawsuit, Fritch told Freeman that Cigarran's position was "that the fees were never approved by the executive committee and therefore not an obligation of the team." According to the lawsuit, the guaranty fees were approved by the team's board of directors in 2009.

According to the lawsuit, the Predators owners paid $15 million to a bankruptcy trustee in 2010 to buy out Del Biaggio’s stake in the team.

A new chairman

Freeman resigned as chairman in 2009 after the revelation of a federal tax lien against his home. Freeman admitted to The Tennessean at the time that he was having a cash flow problem.

Freeman was replaced by Cigarran as chairman. At the time, the franchise’s relationship with Metro had deteriorated and the business operation was in trouble after the team was near bankruptcy.

Since Cigarran took over, his most crucial decision was hiring Cogen as CEO and Sean Henry as COO in 2010. Cogen left last year, citing his desire to get back into professional baseball and taking a job with the Tampa Bay Rays. Henry was then promoted to CEO.

The business community has praised the job Cogen and Henry did in improving attendance, driving more non-hockey events to Bridgestone Arena and striking better corporate partnership deals.

But in the lawsuit, Freeman said Cigarran is to blame for Cogen’s departure. He said Cigarran was overbearing, even going so far as to snoop on Cogen’s emails.

The NHL on Wednesday unanimously approved expansion to Las Vegas, with the league planning to add its 31st team for the 2017-18 season.

The expansion fee for Las Vegas is $500 million, significantly more than the $80 million the Predators paid upon entering the NHL nearly two decades ago. That fee doesn’t count as hockey-related revenue, meaning that team owners do not have to split those profits with players.

According to The Globe and Mail, it is estimated that all 30 NHL teams each receive about $25 million in shared revenue, “not including the supplementary funds dispersed to the NHL’s needier teams.”

In November, Forbes listed the Predators’ value at $255 million, ranking 26th. Their 2014-15 revenue was $110 million, with an operating income of $2 million.

Tennessean reporter Adam Vingan contributed to this story. Reach Nate Rau at 615-259-8094 and on Twitter @tnnaterau.