Lawsuit Accuses Cuban Of Diverting Profits

((HT: Dallas Morning News))

Dallas Mavericks owner Mark Cuban ((Picture, thanks DallasNews.com file)) is accused of wrongfully diverting millions of dollars from the NBA franchise’s home arena to help make up for cash shortfalls incurred by the team, according to a lawsuit filed by a company controlled by the team’s former owner.

The lawsuit claims Cuban covered the Mavericks’ financial shortfalls by obtaining more than $29 million in unauthorized loans through a limited partnership designed to distribute profits from the arena, the American Airlines Center. It accuses the Mavericks and three other companies controlled by Cuban of breach of contract, breach of fiduciary duty and unjust enrichment.

The company that filed the suit, Hillwood Center Partners, is controlled by former Mavericks owner Ross Perot Jr. and holds a small interest in the arena’s limited partnership, Radical Arena. A related Perot company sold the Mavericks to Cuban in 2000.

Cuban declined comment in an e-mail to The Associated Press. The lawsuit was filed Wednesday in state district court in Dallas, and a copy was obtained Monday by the AP.

Hillwood spokesman Eddie Reeves said the company tried unsuccessfully to resolve its issue with Cuban before filing the lawsuit.

“At this point, we feel this is the only option we are left,” he said.

The suit claims Cuban, acting as Radical Arena’s general partner, caused the partnership to make multiple loans to the Mavericks instead of distributing the funds within the corporation. The first loan was made in September 2006 and provided the Mavericks with $20 million at an interest rate of 5.4 percent, according to the lawsuit.

The transaction allowed the Mavericks to enjoy terms “substantially more favorable” than those the team would have obtained from an independent or unrelated lender, according to the suit. By not guaranteeing repayment of the note, Cuban avoided personal liability and obtained a substantial benefit for himself, the lawsuit alleges.

Cuban has twice extended the maturity dates of the loan and borrowed an additional $8.1 million, it said. At the same time, the loan’s interest rate was reduced to 3.5 percent, according to the suit.

Radical Arena owns approximately 33.5 percent of Center Operating Co., which operates the American Airlines Center under a long-term lease with the city of Dallas, according to the lawsuit. Center Operating Co. collects rent from the facility’s two main occupants, the Mavericks and the NHL Dallas Stars.

Hillwood’s lawsuit also claims that Cuban has borrowed another $15 million for the Mavericks from other arena-related entities.

The Dallas law firm that filed the lawsuit on behalf of Hillwood is the same one that has represented former Mavericks coach Don Nelson in his ongoing battle with Cuban to obtain more than $7 million in deferred compensation. Representatives of the firm, Figari & Davenport, declined comment.

On Friday, a federal judge dismissed an insider trading lawsuit filed by the Securities and Exchange Commission against Cuban because the agency didn’t allege that he had agreed not to trade based on confidential information he received about an Internet search engine company, Mamma.com Inc.