Sale of Magna tracks postponed

AP News
Posted: Jan 05, 2010 7:00 PM

A Delaware bankruptcy judge on Tuesday agreed to postpone Magna Entertainment Corp.'s sale of two horse racing tracks in Maryland and rejected a bid by the former track owners to lock up slot machine gambling rights at one site.

Magna attorney Brian Rosen told Judge Mary Walrath that an auction of the assets of the Maryland Jockey Club, including Laurel Park and Pimlico Race Course, was being postponed from Friday to Jan. 21.

The postponement came after attorneys for Maryland argued in a court filing Monday that Magna has not complied with an agreement promising that all bidders for the Maryland assets would be required to keep the Preakness race at Pimlico, the second horse race in the Triple Crown, in Maryland.

Attorneys for the state, which has asserted a right of first refusal in any sale of MJC assets, described the covenant to keep the Preakness in Maryland as "illusory."

Rosen said Tuesday that Magna is working to address Maryland's concerns and that all six bidders for the Maryland assets have agreed to keep the Preakness in Maryland. Magna has given the state information about the bids and hopes to obtain written assurances from the bidders that would give Maryland the comfort level it needs to drop its right of first refusal, Rosen said.

Rosen also told the judge that Magna is close to entering into a definitive agreement with one of the six bidders that will be used as a lead, or stalking horse, bid to judge competing offers.

Among the reported bidders for Pimlico and Laurel Park are the former owners of the two tracks, Joseph De Francis and his sister, Karen De Francis.

Baltimore developer David Cordish, who has received a license to establish a slot machine casino near Arundel Mills Mall, also has said he has submitted a bid for the two tracks.

The proposal to build a casino near the mall has come under criticism by area residents, and the Anne Arundel County Council has approved a measure to allow slots at Laurel Park. Magna's proposal to put slots at Laurel Park was rejected by the state earlier this year because the company failed to submit the required licensing fee.

On Tuesday, Walrath rejected arguments by attorneys for De Francis and other former owners of the Magna tracks that they have exclusive rights to slot machine gambling at Laurel Park under a 2002 agreement in which Magna gained its initial interests in Laurel Park and Pimlico.

Magna attorney Russell Silberglied argued that the so-called alternative gaming rights granted to a limited liability company that was set up as part of the 2002 agreement don't exist because Magna does not have a slots license.

Silberglied rejected arguments by attorneys for De Francis that the former owners have a vested property right that would prevent any buyer of Laurel Park from operating slot machines there.

"Our position is that one cannot immediately convey or assign property that does not exist," he said, adding that De Francis appeared to be trying to "scare people away from the auction."

Ira Kasdan, an attorney for De Francis, said the 2002 agreement resulted in an "easement" giving the LLC exclusive rights to non-race gambling at Laurel Park.

"We're the only ones who have the right to use that land," said Kasdan, who acknowledged that the easement was never recorded but was an "easement by implication."

Walrath ruled that attorneys for De Francis were interpreting the 2002 agreement so broadly that they could conceivably claim title to both Laurel Park and Pimlico as well as ownership in all of Magna's assets.

"Quite frankly, I cannot construe the agreement as broadly as the De Francis parties would like me to," the judge said, reiterating that Magna does not have any of the alternative gaming rights outlined in the agreement.

"I think it is clear that nothing in which the De Francis parties and the LLC may claim an interest are in fact being sold by the debtors at auction," said Walrath, ruling that Magna could void the agreement.