A Court of Queen's Bench judge dismissed a complaint Friday that Katz violated a section of a provincial conflict of interest law when he hosted a taxpayer-funded Christmas party at his own restaurant.
"Mr. Katz has exhibited at best bad political and ethical behaviour," Justice Brenda Keyser said.
"I'm not convinced that the section (16) intended to capture the situation at bar".
Katz's lawyer was pleased with the ruling, and criticized the media for its coverage of the case.
"This case was a hill of beans brought by a person who had less than clean hands ... and, with all due respect, (by) you folks who built this issue into something it was never," Robert Tapper said outside court.
Katz came under fire for hosting a $3,000 Christmas party in December 2010 for city councillors and staff at an Asian restaurant he owned. The owner of another restaurant, Joe Chan, asked the court to declare that Katz had broken the law.
The law calls for the automatic removal of mayors or councillors who knowingly break it. For inadvertent violations, mayors and councillors may simply be ordered to repay any money received.
Keyser sided with Tapper, who said Section 16 of the law was never meant to cover a Christmas party.
"It can be, you know, going to the Department of Motor Vehicles and saying 'use my brother's dealership and I'm getting a kickback,'" Tapper said outside court. "That's what it's designed to (cover) — use your civic influence to make money for yourself."
The law's broad wording forbids council members from communicating with other councillors or staff "for the purpose of influencing the municipality to enter into any contract or other transaction, or to confer any benefit, in which the councillor or any of his dependants has a direct or indirect pecuniary interest.''
While Katz emerged victorious, Chan was chastised by Keyser for talking to the media about a confidential settlement offer months ago, and for suggesting to the media that Tapper may have leaked details of the offer.
Keyser called Chan's actions "egregious" and ordered him to pay Katz $10,000 in legal costs.
Chan said he may appeal.
"I don't know what I'm going to do yet, but I can tell you, I'm not happy and (neither) are a lot of Winnipeg people," Chan said.
"I'm sure a lot of Joe Chans are going to come out."
Katz is not the first mayor to face legal trouble over a conflict-of-interest accusation.
Last October, an Ontario Superior Court justice ordered Toronto Mayor Rob Ford out of office for taking part in a council vote on whether he should repay $3,150 raised for his private football foundation. Ford appealed and the ruling was overturned.
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