Ottawa Senators owner Eugene Melnyk sues partners in 'failed' arena venture

Ottawa Senators owner Eugene Melnyk is suing his partners in the "failed" LeBreton Flats redevelopment project, a twist that almost certainly spells the end of a plan to move the hockey team downtown.

Capital Sports Management Inc. (CSMI), which is wholly owned by Melnyk, is suing for $700 million.

CSMI's statement of claim names Trinity Development Group Inc., its founder and executive chair John Ruddy, as well as project manager Graham Bird and his company, Graham Bird Associates.

According to the claim, which hasn't been tested in court, "the joint venture failed because of an egregious conflict of interest on the part of Trinity and its principal, John Ruddy."

CSMI claims the conflict arose when Trinity began developing an adjacent property at 900 Albert St. "in direct competition" with the LeBreton project.

Trinity has plans to build what would be Ottawa's tallest highrise at the Albert Street site, a 65-storey residential tower.

Melnyk left vulnerable to 'Trinity's machinations'

According to the claim, the National Capital Commission approached CSMI in 2014 to suggest it submit a proposal for LeBreton Flats, with a new arena for the Ottawa Senators as an "ideal anchor use" for the federally owned land just west of Ottawa's downtown core.

Melnyk's company was then approached by several developers including Trinity, the claim states.

Representatives from CSMI met Ruddy for the first time on Oct. 30, 2014, to discuss a response to the NCC's request for qualifications, but at that point Ruddy "downplayed" the idea that 900 Albert St. might compete with a future LeBreton Flats development.

The two partners would go on to bid on the high-profile project to redevelop the 21-hectare area.

They promised a new arena for the Ottawa Senators, as well as a mix of high-rise housing, retail, commercial and hotels.

"CSMI's lack of expertise is what necessitated its partnership with an experienced developer like Ruddy and Trinity in the first place," states the claim.

"It was this disparity in expertise, and the trust CSMI placed in its joint venture partner, that made CSMI vulnerable to Ruddy and Trinity's machinations."

Altered high-rise plans

Those "machinations" referred to changes Ruddy would later make to plans for the towers his company intends to build at 900 Albert St., near the Bayview light rail station.

CSMI claims Trinity initially intended to build modest rental apartments aimed at Carleton University students, but instead convinced the city to allow extra height so the development would one day tower over nearby LeBreton Flats.

According to the statement of claim, it wasn't until three years into the partnership that Melnyk's company realized Ruddy and Trinity had put 900 Albert St. "in direct competition with the LeBreton project" and "destroy the viability of the LeBreton project outright."

CSMI commissioned an independent study by PricewaterhouseCoopers LLP. That report concluded "the Ottawa market could support either one project or the other, but not both."

The statement of claim said the towers would create a "vacuum effect" that would "suck" unit sales from LeBreton.

"The plan for this has always been for [RendezVous LeBreton Group] to finance the stadium and the development through the proceeds and the profits of the residential and commercial and mixed-used components of that development," said Nicolas Ruszkowski, the Senators Chief Operating Officer, on CBC's All in a Day.

"That's what makes the matter of oversupply so critical to the success of this particular venture."

Melnyk 'disappointed': lawyer

"Ruddy and Trinity should have identified the conflict to CSMI and either withdrawn from the joint venture or harmonized the two developments. Instead, Ruddy and Trinity misused confidential inside information about the LeBreton project and abused the trust CSMI had placed in them," according to the statement of claim.

Had Melnyk's partners not "misused their position," CSMI would have profited from the LeBreton redevelopment and "fans would have enjoyed a new arena in the heart of the downtown."

"They're disappointed with where things have ended up. They've championed the concept of the downtown arena," Melnyk's lawyer, Robert Brush, told CBC News Friday.

"The process is in flux, but [Melnyk] remains committed to the hope and he's going to explore options to make that happen. We're going to have to see how that develops."

NCC put partners on notice

In a statement, John Ruddy and the Trinity Development Group said it strongly denies the claims in the lawsuit and plans to vigorously defend itself.

"I will always find ways to build Ottawa up and continue to make a contribution to our great City," Ruddy said in the statement.

CBC has reached out for comment from Graham Bird, and the National Capital Commission but has not yet received responses.

Cyril Leeder, who worked for the Senators when the project began, has declined to comment.

A spokesperson for Mayor Jim Watson, who is on a three day break, said the mayor will not be commenting as the matter is before the courts. 

News of the lawsuit comes one day after the National Capital Commission told the RendezVous LeBreton partners to get their act together, or it would look for other options to develop the site.

At its meeting Thursday, the National Capital Commission did not reveal the root of the dispute between the partners.