March 3, 2005 in City

City, RPS end legal fight

By The Spokesman-Review
 

Settlement

HUD grants

The city on Wednesday transferred more than $6 million to a special account to shore up a troubled loan that was siphoning U.S. Department of Housing and Urban Development block grant money away from poor neighborhoods.

The city of Spokane and the River Park Square development companies have a signed peace treaty in their long-running legal war over the mall’s garage.

The former partners, which have spent nearly the last five years as legal adversaries, agreed Wednesday to the final details of an out-of-court settlement approved in December by the Spokane City Council.

The city turned over ownership of the financially strapped garage to the development companies’ corporate parent, Cowles Publishing Co. The city bought the garage last year from angry investors for some $32 million.

River Park Square gave up claims to more than $8 million in parking meter money that had been collecting in special bank accounts. That allowed the city to transfer more than $6 million of that sum Wednesday into a special account to shore up a troubled loan that was siphoning federal block grant money away from poor neighborhoods.

Protecting the grants from the U.S. Department of Housing and Urban Development was a key factor in reaching the settlement, city officials and Betsy Cowles, the president of the development companies, said.

The remaining $2 million in parking meter money will be added to the settlement funds already collected from other defendants in a federal fraud case over bonds sold to purchase the garage.

“It’s good to have this settlement behind us,” Mayor Jim West said. “The goal all along has been to end this legal morass.”

The city still faces a federal trial in April unless it reaches agreements with two remaining defendants, the law firm that served as its bond counsel and Prudential Securities, which underwrote the bonds. West said the city hopes to reach settlements worth $6 million apiece from those defendants.

The city and the development companies agreed to drop lawsuits in state and federal courts. Since 2000, they’ve sued and countersued each other; filed claims, cross-claims and appeals; and drawn nearly everyone connected with the $110 million mall renovation project into a litigation tar pit. At one point, nearly a dozen separate lawsuits connected to the garage or the mall were somewhere in the state, federal or appeals courts.

The cases that haven’t been decided will be dismissed, the two sides agreed, although it may take a few weeks to work out a few details.

West estimated that nearly $20 million had been spent in legal fees by the city, the development companies, the consultants, investment firms or legal advisers. As the litigation continued to spiral, even the lawyers had to hire lawyers.

Steve Rector, chief financial officer for the development companies, said the agreement was a result of both sides working to reach a “fair, good-faith resolution.”

“Everything is complete and we can officially move forward as a community,” Rector said.

The City Council approved the basic framework of the settlement late last year. But as with most things connected to the legal morass that drew in everyone connected to the mall’s $110 million renovation, settling the details took a little extra time.

The city wanted the strongest guarantee possible that the $22.65 million loan, which is backed by HUD, would be repaid and HUD wouldn’t continue to dock its block grants to the city to make loan payments. It got a letter of credit backed by Cowles Publishing Co., rather than the affiliated mall development companies which were mentioned as possible candidates for bankruptcy last fall.

Cowles Publishing also owns The Spokesman-Review, KHQ-TV and other media operations.

Development company officials said despite the legal battles, the mall had accomplished its goals of revitalizing downtown; adding jobs, stores and entertainment facilities; and providing extra tax revenue to the city.

“The developer is proud of River Park Square and its impacts,” Rector said.

Asked if the five years of legal wrangling was worth it, attorney Les Weatherhead said the development companies never wanted to resort to the courts.

“If the current leadership had been in place in 2000, we never would have had to,” Weatherhead said.

While West said he took that as a compliment, it may also be true that the current city leadership would not have agreed to participate in the project in the first place, back in 1996. Nearly a decade later, it’s hard to speculate, he added.

The city learned an expensive lesson: to be cautious in any partnership with a private entity, West said.

“In the enthusiasm and desperation to accomplish a goal, sometimes you overlook things that can hurt you later,” he said.


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