The Spokane City Council approved a truce Wednesday to end the long-running legal war over the River Park Square garage by accepting a $4.25 million settlement from its former bond counsel.
A few legal skirmishes remain, but several of the council members who voted 6-to-1 talked about getting the legal and political battles over the financially strapped parking structure behind them, and the city as a whole.
Some were pleased that the city avoids the possibility of losing the case and receives a guaranteed payment from former bond counsel Roy Koegen and his former firm, Perkins Coie.
“I think this is a good day for the city of Spokane,” said Council President Dennis Hession, who participated in the meeting and cast his vote by telephone during a trip to Washington, D.C. “It is an important thing to get behind us.”
Some were resigned to a deal that was less than they wanted but the best the city could do.
“We must accept the burden of a bad decision that was made before us, pay the price, and move on,” Councilwoman Mary Verner said.
Some were unhappy with the long-term costs of the project but thought the city was likely to lose the case.
“I never really believed the bond attorney was the problem,” said Councilman Bob Apple. “I don’t believe we can succeed.”
Councilwoman Cherie Rodgers, the lone dissenting vote, agreed that Koegen was not the problem with the development project that linked the city and one of its largest employers, Cowles Publishing Co., in a public-private partnership
“It’s a sad day for the city,” said Rodgers. “In the city of Spokane, you can steal millions of dollars and taxpayers bail you out.”
Added to other settlements negotiated over the last year, the city has received about $11.2 million from its former co-defendants in a case that started out with allegations of securities fraud and ended with a claim of negligence and legal malpractice. The city borrowed $32.6 million last year to buy up the bonds at the center of the securities fraud case, and it will sell its own bonds to finance the difference between what it borrowed and what it collected from the others involved in the case.
A nine-member jury began hearing the legal malpractice case Friday. After attorneys for the city and Perkins Coie told U.S. District Judge Edward Shea on Tuesday a tentative settlement was reached, the jury was given an unexplained recess; they are expected to be sent home for good this morning and the lawsuit dismissed.
Koegen called the settlement “a business solution to a long and complicated problem. Now the parties can go forward.”
At the heart of the legal battle is the River Park Square garage, which was part of the renovation of the downtown mall proposed in the mid-1990s. The mall’s owners, real estate management and development companies affiliated with Cowles Publishing Co., said the renovation costs were so high that they needed financing help from the city.
Cowles Publishing also owns The Spokesman-Review.
Part of that financing evolved into an agreement to study the garage’s “investment value” – which opponents said inflated its price – and use that when the city and the developer negotiated the sale price of $26.5 million. A nonprofit foundation later sold bonds to cover that purchase, and the city set up a public development authority to oversee garage operations until the bonds were paid off. The foundation would then give the garage to the city.
When the garage opened in late 1999, parking revenues were far below projections and in some months barely covered payments to bondholders. When the city refused to comply with an ordinance to loan money for other expenses in early 2000, lawsuits began to multiply. Eventually, bondholders sued almost everyone connected with the project for fraud in federal court.
They didn’t sue Koegen and Perkins Coie, but the city did, bringing its former bond counsel and his firm into the case with charges of negligence and malpractice.
The case has been complicated and so have some of the settlements, city attorney Mike Connelly told the council. The settlement with the developer involved a release of parking meter money being held in escrow from some of the other lawsuits, with some of it going toward the federal case settlement and the rest going into a reserve fund to shore up a federally backed loan that also provided funding for the mall renovation. The city also got solid guarantees on repaying that loan from the mall’s parent company instead of the old collateral from the mall companies, which have considered bankruptcy. Cowles Publishing, in turn, got the garage.
But this final settlement was simple and straightforward, Connelly said in recommending the city take the money. While the city might have received as much as $20 million if the jury was convinced it was right, it might have gotten nothing if the jury sided with Koegen and Perkins Coie, he said.
Rodgers, the senior member of the council and its most vocal critic of the way the River Park Square deals were put together, said the city’s legal problems and costs could have been avoided if it had simply listened to the warnings of people it hired to review the deal.
Before voting against the settlement, she read a litany of allegations of fraud and collusion from the bondholders’ lawsuit, although she left out their complaints about the council’s denial of the loan, a decision she supported and continues to defend.
“It just was one mistake after another,” Rodgers said. “Everybody was involved in securities fraud and this is how it turns out after all these years.”
But attorneys for Koegen told the jury there never was any fraud. The city went into the project with its eyes open, made choices and eventually got what it wanted – a renovated downtown, with more jobs and a secure tax base – then balked at fulfilling its end of a business deal.
Hession said the City Council needs to spend its time on future decisions, not the past.
“We did not create this problem, but we’re charged with the responsibility of its resolution,” he said.