A Closer Look at Baltimore Suit Against Stronach Group

The City of Baltimore filed suit March 19 against The Stronach Group—significantly ratcheting up the already complicated situation regarding Pimlico Race Course, the Preakness Stakes (G1), and the future of Maryland racing.

The suit, filed by Mayor Catherine Pugh on behalf of the city, seeks to prevent the company from moving the Preakness to Laurel Park and seeks to take ownership of Pimlico via condemnation. Under the fifth amendment to the United States Constitution, governments may seize private property "for public use" as long as they pay "just compensation."

In a statement, The Stronach Group called the Mayor's actions "premature and unfounded."

Maryland law directs that the Preakness may only be transferred to another in-state track "as a result of disaster or emergency." It further stipulates that if the Preakness is transferred out-of-state, the state racing commission "may revoke any racing days awarded" to the Maryland Jockey Club and award them to a different company.

State law further empowers the state to "acquire by purchase or condemnation" both real property—Pimlico—and other "tangible and intangible" private property, including the Woodlawn Vase and the name, copyrights and service marks, and other intellectual property associated with the Preakness. Some lawyers, however, question whether this type of taking would be permissible.

Baltimore City has a bill pending in the state legislature that would create a study group to determine how to fund a new Pimlico, which the Maryland Stadium Authority suggested in December would cost more than $400 million. 

Analysis from Frank Vespe, The Racing Biz

The lawsuit filed by the City of Baltimore Tuesday against The Stronach Group—and others—is an odd enough beast that one industry insider privately referred to it as "laughable."

The Stronach Group itself didn't go quite so far but did label the suit "premature and unfounded."

Were the City to win on every cause of action it names in the suit—a decidedly uncertain prospect—it would leave in its wake a Maryland Thoroughbred industry profoundly altered.

A clean sweep for the city would mean that it would own and operate Pimlico Race Course and the Preakness Stakes (G1). The proposed Laurel Park "super track" and Bowie training facility projects might never get off the ground. And the future of the industry in Maryland would be very much in question.

The suit alleges that the Stronach Group has for several years "systematically under-invested in Pimlico" and instead put its money into improvements at Laurel Park.

State law allows the transfer of the Preakness to another in-state track "only as a result of a disaster or emergency."

The lawsuit suggests that, through that disinvestment, the Stronach Group "could indeed manufacture an 'emergency or disaster' to justify transfer of the Preakness to Laurel, as undermaintained infrastructure begins to fail and crowds attending Pimlico races and the horses racing there are endangered."

It's a fairly breathtaking accusation—that the Stronach Group is purposely endangering patrons, horsemen, and its own employees to "manufacture" a crisis. And the suit goes from there to request that the court take three main actions:

•    Condemn Pimlico and enable the city "to acquire the Fee Simple interest in and to the property." In other words, the city requests that the court allow it to take control of the Pimlico property by eminent domain.

•    Condemn the Preakness Stakes and allow the city to acquire "full ownership" of it. That would entail the court's allowing the city to use eminent domain to acquire personal property—such as the Woodlawn Vase—as well as intellectual and other property, like copyrights, service marks, etc.

•    Prohibit the state-chartered Maryland Economic Development Corporation (MEDCO) from issuing bonds that would be used to back the Laurel "super track" and Bowie facility as "contrary to MEDCO's legislative purpose."

Were the court to grant all three, it would first of all put the city of Baltimore in the horse racing business.

"These properties [Pimlico, the Preakness, and the related items] will be used to continue their historic role in the cultural traditions of Baltimore City ... to foster employment economic development and economic development in Baltimore," the lawsuit says.

How that would work exactly—presumably the city would contract with a racetrack operator to run it—or whether the court system would permit it is unclear. What is clear is that splitting the Preakness—the Maryland Jockey Club's big-ticket money-maker—from the rest of the year would likely put pressure on Laurel's operator and could lead to reductions in days at that track.

What's more, were the city to acquire Pimlico, it would then find itself the owner of a crumbling facility in desperate need of a massive infusion of cash. Where would that come from?

The city's further request that the court prohibit MEDCO from issuing bonds to support the Laurel and Bowie projects is a curious one. It, in essence, calls on the court to prevent the state-chartered corporation from taking actions that it would take pursuant to a law that has not yet passed.

The bonds in question would be backed by Racetrack Facilities Renewal Account moneys, as well as Stronach Group funding. They would be paid back as under the current RFRA program, with The Stronach Group and RFRA splitting the bill. Under the proposed legislation, the bonds would be available to be used only on Laurel and Bowie.

That, the city claims, would amount to The Stronach Group deciding "to systematically disinvest from Pimlico Race Course and to augment investment in Laurel and Bowie."

The MEDCO bill is integral, of course, to Stronach Group plans to transform Laurel and Bowie. Were it to fail, it would inevitably slow down—and perhaps kill altogether—those plans.

Meanwhile, Maryland Gov. Larry Hogan (Republican) weighed in with what seems to be a pretty clear message to the state Legislature, which is considering both the MEDCO legislation and a city-backed bill to create a workgroup to study how to fund a new Pimlico.

"The overwhelming number of people in Maryland don't really care where [the Preakness] is," he told WBAL Radio. "They would just like to keep it in Maryland."

Story and analysis from The Racing Biz