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City settles with downtown group

Tue., Dec. 21, 2004

The Spokane City Council in a 5-2 vote on Monday approved one more settlement in the ongoing legal battle over the city’s involvement in the troubled River Park Square parking garage.

The Spokane Downtown Foundation has agreed to pay $800,000 from its liability insurance policy in exchange for the city dismissing claims against the foundation in a federal securities lawsuit scheduled for trial in January.

Council members Cherie Rodgers and Bob Apple, who have consistently opposed River Park Square settlement efforts, voted against the resolution.

Rodgers said she believes the foundation should be forced to face a potentially larger judgment by a jury at the trial.

However, City Attorney Mike Connelly told the council the foundation’s only asset was a liability insurance policy worth up to $1 million. He said the city will provide legal defense should foundation directors be sued in any future fallout over the garage deal

“This would put an end to the foundation’s involvement in this lawsuit,” Connelly said prior to the vote.

The foundation is a private nonprofit organization that was formed in the late 1990s to sell $31.5 million in tax-exempt municipal bonds to purchase the parking garage for $26 million from the owners of River Park Square.

The foundation in turn leased the facility to a public parking authority formed by the city. The foundation was to turn ownership of the garage to the city once the bonds were repaid. The developer retained the property beneath it. The garage, which opened in 1999, never met its revenue forecasts, and its bond financing fell into default. As a result, a securities fraud lawsuit was filed by bondholders against the city, the mall owner, the foundation and other parties involved in the transaction.

On Dec. 11 the council voted 5-2 in favor of a settlement with the corporate owners of River Park Square. The mall companies are affiliates of Cowles Publishing Co., which owns The Spokesman-Review and other media outlets. That settlement is viewed as a key component in resolving the legal disputes over the garage deal. It turns over the garage to the developer in exchange for a guarantee by the developer to repay a separate city-backed community development construction loan.

Progress toward settlements began last spring when the city bought out the bondholders and assumed their legal claims in federal court. The city has since obtained settlements from former defendants, including a parking consultant, attorney firms and now the foundation, money from which is reducing the city’s cost of buying out bondholders.

Two defendants remain in the case and are preparing to go to trial against the city. They are the bond underwriter and a law firm that had given the city advice on the garage bond sale.

In other business, the council voted to increase the contract for its outside legal counsel in the garage dispute from $500,000 to $874,000 for continuing legal costs.

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