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Business Dispute 

Ducey and Smith tangle over their private-sector histories

As the Aug. 26 primary approaches, Republican gubernatorial candidate Doug Ducey is facing new questions about his ownership of Cold Stone Creamery.

Both attorney Christine Jones and former Mesa mayor Scott Smith, who are considered the closest competitors to front-runner Ducey, have been raising questions about a dispute that arose after Ducey's sale of the Cold Stone franchise parent to a Scottsdale-based company called Kahala.

And as pressure grew last week on Ducey to open the files on the post-sale arbitration between Cold Stone and Kahala, Ducey called an attorney who represented Kahala and offered him work with a future Ducey administration.

Attorney Leo Beus wrote to Ducey's attorney—as well as the campaigns of Smith and Jones—to say that he had been recently contacted to discuss the arbitration.

"This has put us in an uncomfortable position because we are not at liberty to discuss the pleadings, depositions or documents relating to that arbitration and have communicated that to the candidates," Beus wrote.

Beus added: "You should also know Doug left a voicemail for me yesterday inviting me to work with him in his administration when he becomes governor. This is the first contact I have ever had with Doug as Richard interfaced with him during the arbitration."

Team Ducey told Arizona Republic reporter Yvonne Wingett Sanchez, who obtained a copy of the voice mail, that Ducey's call to Beus was just a run-of-the-mill fundraising call.

The Cold Stone sale came up obliquely toward the end of a debate in Tucson last Wednesday, July 30, that featured Jones, Smith, Arizona Secretary of State Ken Bennett, former California congressman Frank Riggs, and disbarred attorney Andrew Thomas. Smith used a chance to ask another candidate a question to take a dig at Ducey.

"Well, unfortunately, my question is for the person who's not in the room tonight," Smith said, generating big laughs from the crowd at PCC West's Proscenium Theatre.

Smith accused Ducey of being "untruthful" in his answer about the Kahala sale in a previous debate and said he'd been hoping to ask Ducey a follow-up question, but Ducey had "skipped the last two forums, apparently not wishing to answer the follow up question that we have."

Smith instead asked Bennett: "How important is integrity in holding office?"

Bennett extoled the virtues of integrity—"it's the ultimate character trait that you need"—and then Smith, who had a brief rebuttal, said it was disappointing that Ducey "only wants one side of the story told and refuses to discuss the other side."

After the debate, Smith expanded on his criticism of Ducey.

"He's dodging the question," Smith said. "We said, 'Just release the report. Don't deny it happened.' ... What we have here with the Ducey campaign is a pattern. Ducey got sued by his franchisees. People can sue, but they accused him of misrepresenting them, of deceiving them. He sold his company. The people he sold it to accused him of deceiving them. I think he's been deceptive with the dark money, saying he had no connection with it. We all know that he and (Arizona political consultant) Sean Noble and the others have a connection. ... There's a pattern here and I think that's what Doug Ducey needs to answer for. Why do you feel a need to be deceptive?"

Team Ducey has been hitting back at Smith. An independent committee supporting Ducey, Conservative Leadership for Arizona, went after him with a TV ad criticizing his support of the Common Core learning standards and Ducey spokeswoman Melissa DeLaney sent out press releases criticizing Smith's business record as a homebuilder, pointing to projects that that had fallen into foreclosure, class-action lawsuits related to post-construction problems and tax liens.

"It's bizarre to be lectured on business performance by a mayor who has racked up nine tax liens (several of which are still outstanding), two multimillion-dollar foreclosures, two settled class-action lawsuits for poor construction and has been sued more than 25 times," said DeLaney. "It's a sad day when someone who claims to be a Republican would attack a concept as conservative as free enterprise. But, then again, Scott Smith's record shows he's anything but conservative."

Smith spokesman Drew Sexton acknowledged that Smith's homebuilding businesses did face hard times after the 2008 economic crisis.

But he said that Smith had paid off the loans he had guaranteed with his homebuilding business and he had resolved most of the tax liens, although he was disputing one lien and his stake in the company that owed another was just 15 percent.

"He does not feel he should be held responsible for a tax lien in which he was only a 15 percent owner," Sexton said.

Sexton added that 31 percent of Cold Stone franchises failed and franchise owners defaulted on "tens of millions of dollars of SBA federal taxpayer loans."

"That's a problem," Sexton said. "Mayor Smith has been honest, open and transparent with Arizonans about his business record. We have not gotten the same from Doug Ducey yet and that's really the big problem here."

More by Jim Nintzel

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