6:57 PM ET

  • Associated Press

TEMPE, Ariz. — The Arizona Coyotes appeared to have finally found an answer to their arena issues by working out a deal to build an entertainment district in Tempe.

A snag with the city of Phoenix now puts that in doubt, adding another layer to the franchise’s long-running bid to find a permanent home.

The Coyotes and the firm the franchise hired to develop a new arena project near Sky Harbor International Airport filed a $2.3 billion notice of claim against the city of Phoenix on Wednesday for alleged breach of contract.

The claim, a precursor to a lawsuit, that was filed along with Bluebird Development is seeking damages from Phoenix for a legal filing by the city March 27.

Phoenix asked in its legal filing to rescind Tempe’s recent zoning and land-use changes, along with prohibiting future residential considerations in an area the FAA says is incompatible with residential development.

The city and Sky Harbor said the plan for the Tempe Entertainment District, which would include a new home arena for the Coyotes, could not include previously approved multifamily housing due to noise issues under airport flight paths.

“Phoenix City Hall’s bad behavior seems intended to preserve its downtown sports venue monopoly and has nothing to do with safety or soundness of the airport,” Coyotes CEO and President Xavier Hernandez said in a statement. “While Phoenix bureaucrats have allowed developers to build a basketball arena, a ballpark, and apartments in flight paths, when Tempe attempts to do the same a manufactured crisis arrives.”

The $2.3 billion in damages sought equal the entitlement value of the Tempe Entertainment District.

An amendment to an intergovernmental agreement between the cities of Phoenix and Tempe, dating to 1994, would have allowed the residential development in the Tempe Entertainment District if Tempe lived up to its commitments.

The amendment was sent to Tempe on Feb. 7 and Tempe sent a letter on March 17 ending discussions.

Phoenix officials said they were willing to agree to a compromise allowing the Tempe Entertainment District and other known current projects were permitted in exchange for Tempe’s renewed commitment that no more residential projects be built in the high-noise area under Sky Harbor’s flight path.

“Phoenix will respond in due course, but the developer restates the same arguments that the airport, and more importantly, the FAA has already debunked,” the city said in a statement. “At the same time, we can understand and appreciate the developer’s frustration. But their frustration is misdirected. They should be frustrated with Tempe.”

The Coyotes have been negotiating with the city of Tempe to build on a tract of land just west of downtown in their bid to find a permanent home. The team is currently playing at Arizona State’s 5,000-seat Mullett Arena, by far the NHL’s smallest arena.

The proposed arena and entertainment district are set to go to a referendum in May, but now the Coyotes’ bid to find a permanent home has hit another road block.

The franchise shared America West Arena with the NBA’s Phoenix Suns after relocating from Winnipeg in 1996 before moving to Glendale’s Gila River Arena in 2003.

Former owner Jerry Moyes took the Coyotes into bankruptcy in 2009 and Canadian billionaire Jim Balsillie put in a bid to purchase the team with the intention of moving it to Hamilton, Ontario. The NHL, wanting to keep the team in Arizona, put in a counter bid and a Phoenix judge ruled the team could not be sold to Balsillie to circumvent the NHL’s relocation rules.

The NHL ran the Coyotes for four seasons and the financial constraints associated with that took a toll, leading in part to a seven-year playoff drought.

A new ownership group brought new hope in 2013, but turmoil surfaced again in 2015, when the city of Glendale backed out of a long-term, multi-million lease agreement. The Coyotes leased Gila River Arena on an annual basis until Glendale announced it was terminating the deal after the 2021-22 season.

The franchise found a temporary solution, working out a deal to share Arizona State’s Mullett Arena for three seasons. The Mullett, with a capacity of 5,000, is by far the smallest home arena in the NHL.

Now the Coyotes have another fight on their hands to find a permanent home.