Nagin in-law wants out of Metro partnership -- Times Picayune March 19, 2003

March 19, 2003 Wednesday

SECTION: NATIONAL; Pg. 1

LENGTH: 1002 words

HEADLINE: Nagin in-law wants out of Metro partnership;
Consulting firm had contract with RTA

BYLINE: By Frank Donze; Staff writer

BODY:
Cedric Smith's brief association with a consulting firm that has held a lucrative Regional Transit Authority contract for the past decade has produced nothing but headaches for him.

Smith, the brother-in-law of Mayor Ray Nagin, has been depicted as a shakedown artist in a lawsuit filed by his business partner. And Nagin's staff has portrayed him as a New Orleans' version of Billy Carter -- a reference to former President Carter's brother, who tried to cash in on the presidency by cutting deals for himself.

Weary of the political intrigue, Smith now says he just wants out.

Smith recently told his lawyers to take whatever steps are necessary to divest himself of his majority ownership in Metro New Orleans Transit Inc., which he acquired in August from investment banker Glenn Haydel, former Mayor Marc Morial's uncle.

Haydel has since asked a court to void the transaction, charging that Smith engaged in fraud by portraying Nagin as a supporter of the deal.

After learning about Smith's involvement last November, Nagin told RTA Chairman Jimmy Reiss to cancel the Metro contract immediately. Reiss has done so, prompting another suit by Haydel charging the RTA with breach of contract.

Timing questioned

After his involvement came to light, Smith apologized to Nagin for what he admitted was an error in judgment. But while Smith said he had no desire to retain his Metro ownership, he said he wanted to hold onto the controlling interest until he could go to court to repair the damage to his reputation from what he called Haydel's false claims.

Smith had a change of heart, however, after Haydel amended his suit, adding allegations against Nagin, Reiss and the RTA.

"I do not want my dispute with Haydel to become a vehicle for him to attack others," Smith wrote in a March 12 letter to his lawyers David Sherman and Julian Murray. "I have therefore, decided to return the stock to Haydel unconditionally."

While he expressed surprise at the turn of events, an attorney for Haydel said his client is ready to accommodate Smith.

"Mr. Haydel is obviously glad that he's not going to have to litigate this issue," Scott Yount said.

"The only thing we question is its timing, considering we have an outstanding subpoena for documents to the mayor and the city of New Orleans seeking information relative to issues involved in the suit," Yount said.

Sherman said no one should be surprised by Smith's decision.

"From day one it's been Cedric's intent to tender the stock," Sherman said. "The reason why he's doing so now is because it's apparent Mr. Haydel is using this litigation to further his interests with the city and the RTA."

Both sides said Tuesday they hope to complete the ownership transfer by April 1.

Political infighting

The machinations behind the Metro deal are extraordinary even by New Orleans' standards of political infighting.

While Haydel has said Smith approached him about the deal, Smith says it was the other way around. In fact, Smith alleges that Haydel and other Morial allies came looking for him and methodically seduced him into signing the agreement.

Haydel counters that he is the aggrieved party, having been victimized by Smith's fraudulent claim of having Nagin's full support for the business arrangement. In his suit, Haydel charged that Smith repeatedly suggested that the RTA contract "would be in jeopardy" if Smith were not made majority owner -- allegations that Smith vehemently denies.

Smith has said that he never mentioned Nagin's name during his months-long discussions with Haydel that culminated over the summer, when Haydel sold him a 70 percent interest in Metro for $700.

The sale price appears to be way out of line considering that Metro and its subcontractors have been paid nearly $7 million by the RTA since Haydel acquired the firm shortly after Morial took office in 1994.

But Yount, Haydel's lawyer, maintains that there is a logical explanation for the $700 transaction.

"When Glenn was approached by Cedric about the purchase, he (Haydel) was looking for a partner, someone to do some work for the benefit of the company," Yount said. "He also was told by Smith that he needed him (Smith) to keep the contract. Keeping the contract was Mr. Haydel's primary concern."

$300,000 salary

Under the contract he signed with Haydel on Aug. 29, Smith, who has never worked in the transit industry, was guaranteed an annual salary of $300,000 and a year-end bonus of 70 percent of Metro's profits. The deal also called for Haydel to receive a $300,000 salary and 30 percent of the company's net revenue.

Although he said he has not received any salary from Metro, Smith said he was paid a $25,000 consulting fee by Haydel before signing the deal. Smith said the fee was for work on an administrative reorganization proposal for the transit system.

Although he was prepared to present his $700 check at the time of the signing, Smith said, Haydel told him it was not necessary. Smith said he still has not paid Haydel any money.

Haydel has said he paid considerably more than $700 when he and two associates bought Metro in 1994 from Gerald Mouton, an ally of former Mayor Sidney Barthelemy, but he has declined to elaborate on the price.

In September 2001, the RTA board controlled by Morial appointees approved a five-year, $3.7 million extension of Metro's contract. The $746,000 annual agreement, about $300,000 larger than the previous contract, was set to expire Oct. 1, 2006, nearly five months after Nagin's mayoral term ends.

Metro, the lone bidder for the job, has provided a range of services to the RTA since Haydel took it over, including union contract negotiations, legal advice and oversight of capital improvements.

Haydel has said he won't walk away from the deal until the RTA pays him $900,000 in past-due fees and penalties.

LOAD-DATE: March 19, 2003