Hornets owner, former executive, in dispute over failed investment

NEW ORLEANS (AP) — A judge has ordered former New Orleans Hornets executive and current state Senate candidate Jack Capella to respond to an inquiry relating to consulting fees he was paid by a now-defunct company that received millions of dollars in financing from Hornets owner George Shinn.

U.S. Bankruptcy Judge Jerry A. Brown ordered Capella to answer questions and produce documents related to more than $120,000 in consulting fees he was paid by Watson Energy.

Shinn invested about $7.9 million in effort to help the broke oil and gas exploration company while Capella worked for Shinn, according to court documents.

Shinn has declined to publicly discuss details of the case other than to note that during "the years Mr. Capella worked for me, I considered him my closest, trusted adviser and attorney."

Capella said Shinn "is a successful businessman who was fully aware of all aspects of his investments."

"At no time during my tenure with Mr. Shinn did I have any conflict of interest," Capella said.

Two years ago, court records show, Shinn paid more than $3 million to buy the claim of Mirant Americas Energy Capital, the largest secured creditor of Watson Energy of Covington. At the time, Watson Energy was in bankruptcy and looking for money for a drilling project in St. Mary Parish. Shinn later bought the claim of a second secured creditor, Union Planters Bank, for about $2 million.

Watson Energy is owned by former car dealer Richard Watson, the son of "Wild Bill" Watson, whose Ford TV commercials were well known. Richard Watson also once was a member of the state Mineral Board when Edwin Edwards was governor.

At the time of the investments, Capella was secretary-treasurer of Shinn Enterprises, the company through which Shinn made his oil investments, state records show. Capella also was working as Shinn's attorney, according to Shinn.

But while Shinn was one of Capella's clients, Capella also was representing Watson Energy in two federal cases related to the drilling company's bankruptcy.

Shinn's investment in Watson Energy appeared to pay off at first, with company later making payments of $2 million to Shinn in addition to $120,000 to Capella Consulting.

After December 2003, however, business slowed and the payments to Shinn and Capella ended.

Shinn invested another $2.9 million between December 2003 and November 2004 in an effort to revitalize the drilling project, but received no further returns, records show.

Shinn is now trying to recoup $10.6 million in claims backed by the company's assets as well as another $17 million in unsecured claims, court records show. The $27.6 million is what Shinn says is the value of the claims that he bought for $7.9 million.

Watson Energy's attorney, Douglas Draper, did not return repeated calls and e-mail messages seeking comment from the (New Orleans) Times-Picayune.

Capella faced similar scrutiny of conflicting client interests in early 2003, after he was hired as general counsel to the Hornets while continuing to represent the Louisiana Superdome Commission as he had done since the early 1990s.

The Hornets are the primary tenant of the state-owned New Orleans Arena, which the commission oversees.

Both Capella and the commission members serving at the time said they saw no conflict because Capella would not be representing the Hornets on any issues involving the commission or other state agencies.

Capella added that the commission's contract was with the Capella Law Firm, not with him personally, and that he had sold his interest in the firm to his two partners.

Brown seems to want proof of that. The judge has ordered Capella to turn over documents related to his former and current financial interest the firm, as well as his divestiture while working for the Hornets.

He also has been ordered to produce records documenting all legal services he provided to Shinn, the Hornets and any other Shinn-owned entity, as well as proof that he paid state and federal taxes on any fees paid to Capella Consulting.

All this is taking place as Capella, a Republican former interim Jefferson Parish district attorney, campaigns for a June 4 election in the state 6th District Senate race.

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