05/25/2012 2:20PM

NYRA: Fee dispute with Getnick and Getnick flares anew


A legal dispute between the embattled New York Racing Association and its former integrity counsel is posing yet another challenge for NYRA just days after the association agreed to a plan allowing the state to take control of its board.

The dispute stretches back to March 2011, when NYRA fired Getnick and Getnick, the association’s integrity counsel, after the two companies had been arguing for more than a year over the fees NYRA was paying to the firm under a contract that had been criticized by the state’s top auditor. Getnick and Getnick was fired with 18 months left on a five-year retainer with NYRA as outside counsel on the association’s efforts to comply with a requirement of a franchise agreement it reached with the state in 2008 that it operate with the “highest degree of integrity.”

Since then, Getnick and Getnick has sought to recover fees from NYRA that the company says it is owed under the five-year agreement, but negotiations between the two parties reached an impasse late last year. In late April of this year, NYRA filed a motion with the federal bankruptcy court that presided over its 2008 bankruptcy reorganization, asking the court to “clarify” that NYRA had the right to fire the company unilaterally, as a way to head off litigation over the matter.

In court filings on Thursday, Getnick and Getnick’s legal counsel argued that the requirements of the franchise agreement NYRA had reached with the state prohibited NYRA from making a unilateral decision to fire the company. The company asked the court to reject NYRA’s argument and reiterated that Getnick and Getnick is still owed the money under the five-year agreement.

NYRA’s legal counsel, Brian Rosen, did not immediately return a phone call on Friday.

In the filings, Getnick and Getnick said that NYRA’s motion for the clarification “must be viewed in light of recent and still unfolding events.” The filing outlined the numerous instances in the past six months in which NYRA has come under fire, including the decision on Wednesday by the state to adopt a plan to dissolve NYRA’s board and grant the majority of appointees to Gov. Andrew Cuomo and the state’s legislature.

Further, the filing makes reference to a report that Getnick and Getnick said it delivered to NYRA’s board on June 13, 2011, three months after the firm had been fired, which contained “a detailed account of two integrity investigations” performed by the company, “both of which had been abruptly cut off” when NYRA fired the company. The filing does not provide any detail into what those integrity investigations entailed.

The filings by Getnick and Getnick were first reported by the New York Times, which called the document Getnick and Getnick delivered to the board a “corruption report.”

Getnick and Getnick also said in the filings that it had sought to turn the report over to state regulators who are probing a matter in which NYRA applied the wrong takeout rate to most of its superexotic bets over a 15-month period in 2010 and 2011. However, NYRA, asserting attorney-client privilege, has blocked Getnick and Getnick from disseminating the report, the filing said.

At the time that NYRA and Getnick and Getnick became embroiled in the dispute over the company’s fees, the association’s contract with the company had been targeted by the state comptroller, Thomas DiNapoli, in a 2010 audit. The audit questioned the amounts that NYRA paid to the firm and said that NYRA should explore ways to trim the expense of maintaining Getnick and Getnick’s services.

The audit said that NYRA paid Getnick and Getnick a minimum of $125,000 a month and that NYRA had paid the company $2.2 million over a 17-month period. However, the audit noted that applying the company’s billable hourly rate would have reduced the $2.2 million amount by $451,691, and it also criticized an arrangement in which Getnick and Getnick was paid for hours it did not work under the promise that the company would provide the services at a later date.

“We respect the necessary independence of the firm and the need to have the payment for its work guaranteed,” the audit said. “We recommend NYRA and the firm revisit the payment terms of the contract to ensure that the billing arrangement is appropriate for maintaining the objectives of the Integrity Counsel as well as the financial stability of NYRA.”

In January of this year, DiNapoli released another audit of NYRA that remained critical of the association’s financial performance but noted that the association had “awarded a new, more cost-effective contract to a different integrity counsel.”

After NYRA fired Getnick and Getnick, it hired Jonathan Sack, a partner in a New York law firm, to be its integrity counsel.