Judge wants hearing to evaluate settlements

A federal judge has approved some building blocks of the complicated settlements between the city and several of its legal opponents in the River Park Square garage fight.

U.S. District Judge Edward Shea signed several orders Tuesday that will keep different groups from suing each other to shift their settlement costs. But he agreed they need further hearings on other points in the settlements, such as what is the deal between the city and the Cowles development companies worth?

City officials can argue it’s worth $2 million, the amount they would be able to keep from parking meter money that has been held in escrow for years. The rest of the parking meter money – about $6.3 million – would be put into an account that would pay off a federally guaranteed loan and keep the U.S. Department of Housing and Urban Development from docking money that would normally go to help the poor.

But the city’s legal adversaries, bond underwriters Prudential Securities Inc. and the city’s former legal counsel Perkins Coie, say the settlement is worth the full $8.3 million.

They also question whether the city is being reasonable in settling with the mall’s former manager, RWR Management Co., for $1 million – if it can shake that amount out of the firm’s insurance carrier. If not, the city could wind up with nothing from RWR.

“It’s like a shell game,” contended Ralph Cromwell, an attorney for Perkins, adding he would like to call some witnesses and take testimony on “where is all this money going.”

The total amount the city gets from settlements is important to the groups that go to trial in April. If they lose, and the jury says the city is entitled to damages worth a certain amount, the value of the settlements could be subtracted from that judgment. The bigger the value of the settlement, the less the defendants could have to pay.

The city might also be receiving other benefits from the settlements, such as an improved bond rating from agencies that punished it for the garage financing fiasco.

“How are you going to quantify that?” Shea wondered. “How do you convert that to a monetary gain?”

Shea said he wanted the attorneys to figure out a time in January or early February where they could have a hearing and evaluate the various settlements before trial starts in April.

The details of the settlements are complicated, but so is the case, Shea said at one point in Tuesday’s hearing: “There is almost no question that is not related to some other aspect of this case.”

In part, that’s because the River Park Square mall renovation was set up with a series of complicated and interlocking agreements among the city, the development arms of Cowles Publishing Co. that own and operate the mall, and other groups involved in the financing.

Cowles Publishing also owns The Spokesman-Review and several other news media outlets.

To help pay for the project, a nonprofit foundation sold bonds and bought the mall’s expanded garage for $26.5 million from the Cowles development companies. The purchase price was much higher than the market value of the garage, but was negotiated based on an estimate of the structure’s value as an investment.

The city assigned a public agency to oversee the garage’s operation, and when the bonds were paid off in 2018, the city was to receive the garage for free. In return, the city promised to loan money from its parking meter funds for any shortage in operations, maintenance or rent expenses.

The city also obtained a $22.65 million loan guaranteed by HUD, which it re-loaned to the mall developer. Garage revenues were supposed to pay off the bonds and cover rent on the ground where the garage sits. A portion of the ground rent was supposed to help pay off the federally guaranteed loan. Consultants said there would be more than enough money from the garage to do both but there wasn’t.

As the financing fell apart and the former partners began suing each other, investors sued for fraud. Their federal lawsuit was headed to trial last spring when the city agreed to buy back their bonds and shift the legal battle to a fight with its former partners and consultants.

This fall, it reached tentative settlements with the foundation, the foundation’s legal counsel, RWR Management and the Cowles development companies. But Shea must still sign off on each one of those proposals.

While those settlements were coming together, the case got even more complicated. RWR Management, which was suing the Cowles development companies for money it says it was owed but never paid, won a $6.5 million jury verdict in Spokane County Superior Court.

The developer appealed, but filed for Chapter 11 bankruptcy protection for one affiliate, CPC Development which owns the former J.C. Penney Building. During settlement discussions, Cowles officials also told city officials that their affiliates connected with the mall’s ownership and operation could also file for bankruptcy.

Some City Council members who approved the settlement proposal with the development companies said they felt they had no choice because of talk about bankruptcy. Councilman Al French said he felt he had “a gun to my head.”

Shortly after the council approved the settlement with the development companies, a federal bankruptcy judge dismissed the CPC bankruptcy case. The development company has appealed the verdict for RWR, and will ask the bankruptcy judge to reconsider that dismissal.