Prospect Heights victorious in 2005 lawsuit over failed arena

The former developer of the failed Prospect Heights arena project came to court "with seriously unclean hands," and therefore won't recover any of the more than $20 million it sought in a lawsuit against the city, a judge ruled last week.

The court following a three-week trial found Prospect Development LLC principal John G. Wilson, who in 2005 sued the city for breach of contract, had an undisclosed financial relationship with former city attorney Donald Kreger, paying him $151,000 in "friendship loans."

Cook County Circuit Court Judge Lee Preston ruled neither man ever disclosed the extent of their relationship to the city, denying Prospect Heights of disinterested, unbiased counsel in its efforts to build an arena near Chicago Executive Airport.

"Mr. Wilson's failure to disclose his financial and business relationship with Mr. Kreger, was at the very least bad faith amounting to unclean hands," Preston wrote in his order. The doctrine of unclean hands applies if the plaintiff is guilty of misconduct, fraud or bad faith with respect to the litigation's issue.

The court could not ignore Wilson's clear misconduct and assist Prospect Development in benefiting from the nondisclosure, Preston stated.

But the judge also ruled against Prospect Heights in its $10 million countersuit against Wilson, saying all parties involved wanted the arena project to be successful and that the developer met all its obligations. The project was also doomed because the city failed to sell bonds for financing.

Current Prospect Heights attorney Michael Zimmermann - the city severed all ties to Kreger shortly after the suit was filed despite nearly 30 years of service - said the council will have to decide in the next month whether to appeal the countersuit.

"We had hoped the judge would award the city some money, but we're pleased that the outcome protects taxpayers," Zimmermann said.

The lead attorney representing the city, Jack Carriglio of Chicago firm Meckler Bulger Tilson Marick & Pearson, only said he was pleased and wouldn't comment on the likelihood of an appeal. Wilson's attorney couldn't be reached for comment.

In the original lawsuit, Wilson said he felt pressured to give Kreger a personal loan of more than $100,000 or else be taken off the project. Wilson also charged that the city pushed him into using certain financiers and refused to move ahead on financing.

City officials took Wilson off the project in late 2004, saying his company didn't comply with the redevelopment agreement.

At the trial, much of the testimony centered on the relationship between Wilson and Kreger. From 1996 to 2001, Wilson loaned Kreger $151,000 (all but $18,000 remains unpaid). There was no promissory note or anything in writing indicating the payments were loans. Kreger testified he was merely obligated to pay Wilson back "when he was able."

Kreger's wife and son were employed at one of Wilson's companies, and Kreger had an interest in Ice Ventures, a company Wilson controlled and which had a role in creating the arena's proposal.

However, Kreger only disclosed to city officials that they were friends because their sons played hockey together.

Former Mayor Edward Rotchford and former Alderman Darlene Ahlstedt both testified the city wouldn't have approved the project or done business with Prospect Development had they known about the friendship loans.

Judge Preston came down hard on Kreger, saying it's undisputed that Kreger did not fully disclose the relationship. But Kreger wasn't named in the city's countersuit, and Wilson can't be held liable for Kreger's actions, Preston said.

After a second failed attempt by another developer to build an arena, the city regained ownership of the 30-acre plot, sold half to the airport and built a public works garage on some of the land. It intends to sell two remaining, undeveloped parcels.