Wednesday, August 19, 2020
Golden State Warriors Must Pay for Arena Renovations—C.A.
By Sandra Hong, Staff Writer
The Golden State Warriors NBA basketball team remains on the hook for paying down the remaining $55 million in debt on Oracle Arena renovations as a result of a Court of Appeal decision filed yesterday that affirmed a trial court judgment upholding an arbitration award the team has been fighting for two years.
Key to the First District’s decision was the meaning behind the word “terminates” in a license agreement executed in 1996 between the Warriors and the Oakland-Alameda County Coliseum Authority, the agency that runs Oracle Arena. It provides that the Warriors would continue paying down the debt until 2027 if it terminated the agreement.
Determining what the parties intended is a question of fact, not law, Presiding Justice Barbara J.R. Jones of Div. Five wrote, placing the arbitrator’s decision outside the ambit of judicial review. She proceeded, however, to say that there would be an affirmance even if the determination did entail legal interpretation, declaring:
“We conclude the parties understood ‘terminates’ in section 6.4 of the License Agreement to include a termination by nonrenewal.”
The dispute between the Warriors and the authority centers around a license agreement that obligates the team to pay down bond debt that financed renovations to the arena in the late 1990s. The Warriors, which is leaving Oakland for Chase Center, a new facility in San Francisco, let the agreement expire.
That, it argued, was not the same as terminating it.
A three-day arbitration in 2018 resulted in a finding for the authority. The arbitrator, Rebecca Westerfield, relied on evidence of a memorandum of understanding (“MOU”) that the parties acknowledged in 1996 outlining the terms to be included in the final license agreement.
Memorandum of Understanding
Section 5.1(b) of the MOU proposed a 20-year term between 1997 and 2017, with options to renew every five years. If the Warriors did not exercise one of the first two options to renew, it would have to continue making annual debt payments until 2027, subject to an offset of any profits generated by other uses of the arena.
Section 7.2 provided that the “definitive agreements shall supersede and replace the MOU.”
Westerfield found that MOU was “a clear and objective manifestation of the parties’ intent during the creation of the License Agreement,” and that it established the use of the word “terminates” to “encompass the decision of the Warriors not to renew its option upon expiration of the Initial Term of the License Agreement.”
Trial Judge’s Ruling
The Warriors petitioned to vacate the arbitration award, while the authority petitioned to confirm it. San Francisco Superior Court Judge Ethan P. Schulman granted the authority’s petition, determining that Westerfield “correctly relied on extrinsic evidence and the Warriors’ conduct to conclude that they are required to service the renovation project debt.”
Schulman rejected the Warriors’ argument that allowing the agreement to “expire” was distinct from terminating it, finding that the team tried to “draw too fine a distinction” between the terms.
Jones’ opinion highlighted several other pieces of extrinsic evidence supporting Westerfield’s findings against the Warriors including a “consent and agreement” signed in 1996 by the Warriors’ owner at the time, Chris Cohan, assuring the bank backing the bond financing that the team would not abandon its debt obligation.
When Cohan sold the franchise in 2010, he provided a disclosure letter to the buyer that stated “any owner relocating the Team between the expiration of the current lease term in 2017 and the expiration of the period covered by the options in 2027 would require the Team annually to pay any debt service remaining on the bonds used to fund the renovations the Arena could not cover.”
The Warriors argued that relying on extrinsic evidence to interpret the license agreement violated the agreement’s integration clause. It also contended that any ambiguity in the agreement should be construed against the authority because it was the party to introduce ambiguity into the contract.
Jones rejected both arguments, concluding that drawing upon extrinsic evidence was unavoidable and allowed in order to “ascertain what the parties meant by the phrase ‘terminates this Agreement for any reason.’” Jones added that the rule allowing contract ambiguity to be construed against the party to introduce the ambiguity only applied when extrinsic evidence was lacking or insufficient.
In this case, resolving the word in question was based on “undisputed extrinsic evidence,” Jones said.
The case is Oakland-Alameda County Coliseum v. Golden State Warriors, 2020 S.O.S. 3967.
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