UPDATED 1 P.M.: JAM CLAIMS REACT PRESENTS IS BEHIND ONTARIO MANAGEMENT, AND SFX ENTERTAINMENT IS BEHIND THEM BOTH (SEE BELOW***)

UPDATED 3 P.M.: CONGRESS THEATER RESPONDS; ONTARIO/REACT/SFX NOW OUT OF THE PICTURE BUT OTHER PARTNERS ARE INTERESTED (SEE BELOW ###)

A Chicago development firm that was set to lease the troubled Congress Theater from controversial venue owner Erineo “Eddie” Carranza is being thwarted by a behind-the-scenes deal Carranza made with local concert promoters Jam Productions back in 2007, according to a lawsuit the developers filed Thursday in Cook County Circuit Court.

Ontario Management Group, LLC, a firm that has had earlier involvement with nightspots such as White Star and Sound-bar, filed the complaint seeking declaratory judgment and relief in its attempt to rent the Congress from Carranza, who has lost his liquor license for the venue, suffered the defection of his biggest concert promotion partners, and is fighting the city on numerous building code violations.

Ontario’s lawsuit charts the complicated history of the competing deals.

According to the complaint, Ontario, whose primary partner is David Lynn, signed a letter of intent on May 24 to lease the venue from Carranza for $50,000 a month for five years. It is unclear from the lawsuit when the lease was to start, other than “on the first day of the month following certain contingencies.”

On August 1, however, Ontario learned that Carranza had signed a “memorandum of understanding” with Jam Productions on July 31, 2007. That agreement gives Jam the right of first refusal over any deal by Carranza to sell the building or enter into any joint venture or partnership without Jam’s “express written consent.”

The Ontario lawsuit is contending the agreement is not valid because it never was filed with the court.

UPDATED 1 p.m. *** According to a statement from Jam Productions, “The lawsuit is an unfortunate situation. Jam has a contract giving it a right of first refusal and a right of approval over sale and lease transactions involving the Congress Theater. We do not know much about the Congress Theater’s negotiations with React or SFX, except that the letter attached to the complaint contains numerous conditions, many of which appear not to have been met. Regardless, Jam has a preexisting right of first refusal and right of approval which we expect all of the parties to honor.”

React Presents was the major electronic dance music promoter that had been hosting shows at the Congress until its recent troubles with the city. SFX Entertainment is the giant national conglomerate that has been buying up smaller EDM promoters across the country, and sources say it has actively been eying the Chicago market.

As this blog reported in March 2012, Jam Productions co-founder Arnie Granat loaned Carranza a considerable sum—Carranza’s attorney put the figure at approximately $200,000—to prevent him from selling the aging theater to Jam’s archrivals Live Nation. Carranza said in that interview that he “still owes Arnie more than $100,000.”

Granat’s partner and Jam co-founder Jerry Mickelson confirmed the loan in that 2012 report. But he said it was to “help Carranza fix the building,” and that it had nothing to do with Live Nation.

Well-documented, however, is the fact that Jam often has moved aggressively to block its rivals from obtaining a venue in the competitive “sweet spot” of mid-sized theaters. It purchased the Vic, Riviera, and Uptown theaters in large part to prevent Live Nation from buying them, and sources say it has an agreement similar to the one with the Congress providing veto power over its rivals promoting shows at the Aragon Ballroom, the venue closest in size to the Congress. Jam frequently rents the Aragon, but it does not own that building.

The Congress has worked with Jam’s competitors C3 Presents (the promoters behind Lollapalooza) and House of Blues (which is owned by Live Nation), but not for several years, and those relationships were short-lived. Live Nation, which dominates local arena shows while Jam rules in the theaters, continues to search for a mid-sized venue to better compete with Jam on that level. Meanwhile, other national promoters such as AEG and SFX Entertainment always are eager to gain a bigger foothold in the lucrative Chicago concert market.

Jam seems to have had no gripe with Carranza while the Congress was partnering with smaller local promoters React Presents and Riot Fest to present hip-hop, electronic dance music, and underground punk shows, genres that Jam usually shuns. But with those promoters opening a new venue, the Concord Music Hall at the site of the former V-Live, and Carranza repeatedly promising a big new operator moving into the Congress soon, Jam could be seeking to block more serious competition from using the Logan Square landmark.

The result could be that the Congress, which is in desperate need of millions of dollars in repairs, sits empty and unused, much like the Uptown, which Jam has pledged to restore, though so far investment dollars from the public or private sectors have not materialized.

Neither Mickelson, Jam’s chief spokesman, nor Ontario’s attorneys, David Shapiro and Marc O’Brien, could be reached for comment.

UPDATED 3 P.M. ### Joseph Houlihan of Paine/Wetzel Associates, current project manager for Carranza’s redevelopment of the Congress and Portage theaters, issued the following statement via email:

Congress Theater was engaged with SFX Entertainment and React Presents (a/k/a Ontario Management Group) under a binding LOI [Letter of Intent] for three months. Neither SFX or React were able to perform on their obligations during the 90 day period granted in the LOI and the document has since expired. Any additional allegations represent a frivolous attempt by SFX and React to extend a deal which they were either unable or unwilling to bring to a close. Congress Theater has begun exploring other partnership options which will hopefully allow for higher end, more diverse programming, fewer events in the problematic Electronic Dance Music genre, and allow for the full restoration and renovation of the property.

In a subsequent phone interview, Houlihan said Lynn was not involved in the deal with Ontario/React/SFX; that the agreement between the Congress and those entities was actually set to lapse today, and that the frustrated promoters filed their court action the day before that agreement expired. “We are now talking to other parties who have expressed interest in the Congress about increasing the diversity of programming at the Congress, pouring millions [of dollars] into the building, being a partner that will really help us up the game, and making the Congress, which as you know is a dilapidated building, into a world-class venue like the Chicago Theater.”

Houlihan said he could not name those partners now but expects to make an announcement soon. Asked why the deal between Carranza and Jam would not thwart a deal between Carranza and any other promoter, as it apparently has with Ontario/React/SFX, Houlihan declined further comment.

Earlier reports about Carranza and the Congress Theater:

July 25: Replacing the Congress Theater

July 3: Congress Theater loses Marilyn Manson

May 24: Congress Theater liquor license revoked

May 1: Is the Congress Theater safe or not?

April 30: Congress Theater defends itself before the Liquor Commission (By Leah Pickett and Jim DeRogatis)

April 23: Congress Theater allowed to remain open, next inspection scheduled (Alison Cuddy reporting)

April 17: City wants the Congress shut down immediately

March 27: Chicago police official: Congress Theater ‘untruthful’ on night of underage drinking (Leah Pickett reporting)

March 6: Congress Theater hearing rescheduled (Robin Amer reporting)

Feb. 22: Congress Theater restoration underway, but it’s got a long way to go

Jan. 16: Congress Theater liquor hearings begin with undercover cop’s testimony

Nov. 29, 2012: Congress Theater defaults on $4 million loan

Nov. 2, 2012: Congress Theater’s new security chief: An ex-cop with a troubled past

Oct. 31, 2012: Congress Theater police calls rank with Soldier Field, United Center

Sept. 16, 2012: Congress Theater splits with development partner

July 26, 2012: Congress Theater partners up… and looks to expand

April 18, 2012: Chicago officials scrutinize public safety, other neighborhood concerns at Congress Theater (Robin Amer reporting)

April 14, 2012: More trouble at the Congress Theater

March 28, 2012: Critical of Congress security, headliner brings his own

March 25, 2012: Congress Theater responds to complaints

March 22, 2012: City to Congress Theater: Clean up your act!