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Rays minority owners sue Sternberg again, saying team withheld income records

The partners allege that Stuart Sternberg’s companies held back tax documents and contracts key to a financial review.
Tampa Bay Rays principal owner Stuart Sternberg, center, visited Rays spring training at Charlotte Sports Park in Port Charlotte on March 10. A lawsuit filed against him by minority partners in the franchise was renewed with a new filing this week.
Tampa Bay Rays principal owner Stuart Sternberg, center, visited Rays spring training at Charlotte Sports Park in Port Charlotte on March 10. A lawsuit filed against him by minority partners in the franchise was renewed with a new filing this week. [ IVY CEBALLO | Times ]
Published Mar. 11, 2022|Updated Mar. 11, 2022

For the second time in a year, a group of minority Tampa Bay Rays owners have sued companies held by principal owner Stuart Sternberg, alleging they withheld documents key to a review of the team’s finances.

Five limited partners who collectively own about 9.6 percent of the Rays claim the team has held back records related to Sternberg’s gradual consolidation of control over the franchise, as well as documents concerning “a half-billion dollars in taxable income” from 2017 to 2019, much of that through a broadcast deal with what is now Bally Sports Sun.

The partners say that deal led them to be charged with $3.85 million in taxable income, despite receiving no distribution payments or benefits. As they sought to review the team’s financial records, the partners say they were given documents that were “incomplete” and had “obviously altered dates, or ... no dates at all.”

Sternberg’s ownership company, according to the suit, gave the partners several reasons for declining to issue distribution payments. Among them: “Major League Baseball did not like teams to make distributions” and “it might reduce or eliminate revenue sharing from MLB to the team.” The Rays were also storing up financial reserves “for a new ballpark,” the suit states.

Two limited liability companies held by Sternberg are listed as defendants, as is a partnership managed by Rays general counsel and senior vice president of administration John Higgins.

Sternberg’s attorneys on Thursday filed a notice in Pinellas-Pasco Circuit Court saying they intend to make a formal response within 60 days of the new suit, which was filed Feb. 25.

Related: Tampa Bay Rays minority owners sue Sternberg, say he secretly negotiated Montreal deal

The suit follows a similar one filed last May, in which the same five limited partners ― Robert Kleinert, Gary Markel, the MacDougald Family Limited Partnership, Stephen M. Waters and a trust in Waters’ name — alleged that Sternberg was engaged in a “relentless scheme” to squeeze out partners by expanding his stake in the team, which had grown from 49 percent in 2004 to 85 percent in 2020.

Last week, a Pinellas-Pasco Circuit Court judge ruled that the minority owners can proceed in court with a part of their lawsuit seeking to expel Sternberg as a general partner. The partnership agreement that governs the team stipulates that a general partner may be expelled only through a majority vote by the other general partners -- but in this case, Sternberg is the only general partner, having bought up other general partnership shares over the years. The judge ruled that a trial may be necessary to expel him.

Related: Pinellas judge rules part of Rays ownership lawsuit can proceed in court

The other counts in the original lawsuit, dealing with fraud and breach of fiduciary duty, are to be settled via arbitration, the judge ruled.

In the new suit, the limited partners are seeking an array of legal and financial documents, including bank records, management compensation agreements and tax returns from Rays Baseball Club, LLC, Sternberg’s company that governs the team.

Without the documents, the limited partners state, they have only “a keyhole view of the activities and financial condition of the partnership, which raises more questions than it answers and exposes major issues with operations, protection of assets, and significant tax issues.”

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A Rays spokesperson said Sternberg and the team declined to comment.