Court Oks Deal Between City, Developer Until Ruling On Garage Bondholders’ Trustee Objects To Decision; Disputed Funds To Be Placed In Escrow

The commissioner for the state Supreme Court on Wednesday approved a stay of a lower court’s judgment regarding the River Park Square garage, despite objections from the owners of the garage bonds.

Supreme Court Commissioner Geoff Crooks, a retired law professor who handles administrative details for the court, signed off via conference call on an escrow arrangement reached between the city of Spokane and the developer of the downtown mall.

Under the terms of the deal, the city does not immediately have to loan money to the agency that runs the garage, as ordered by Superior Court Judge Michael Donohue on May 24. Instead, the city and the developer will wait for the Supreme Court’s ruling, expected next year, before money would change hands, with the condition that the city place the disputed funds in an escrow account.

The city was sued by the developer after it refused to loan funds to support the struggling garage. The developer contends the city is obliged to loan money under a 1997 city ordinance, while the city argues that it cannot loan money without proof that it will be repaid.

The escrow arrangement, which the City Council approved with a 6-0 vote Monday, means that if the developer prevails in court, it won’t have to go back to court to receive its funds.

While both the city and the developer agreed to the deal, U.S. Bank, the trustee for the bondholders and a third party to the case, did not.

Trustee attorney Curt Hineline argued that there was nothing to protect the bondholders, who are counting on garage revenue to pay off their $31 million bond investment, should the developer choose to foreclose on the garage.

Currently, the city is in default on its ground rent payments to the developer, which could elect to foreclose on the garage at any time. The developer - an affiliate of Cowles Publishing, which also owns The Spokesman-Review - is continuing to run the garage in order to ensure the success of its mall project.

“The developer can simply say we’re terminating, close the garage up and reacquire the property,” Hineline said. “If the garage is closed up, the bondholders are the ones who lose in the big way.”

Hineline argued that the developer should keep the garage open and running while the case is being decided, or that the court require the city to post a bond to protect the bondholders.

While the developer’s attorney said he was sympathetic to the bondholders’ concerns, he was unwilling to surrender the developer’s right to foreclose.

Attorney Les Weatherhead said the developer has not threatened to foreclose on the Spokane Parking Public Development Authority, and has not set any deadlines for past-due rent payments. While the development company isn’t threatening foreclosure at this point, it can’t promise it never will, he said.

“It makes no sense for my client to agree to take on an open-ended obligation to carry the city’s responsibilities,” Weatherhead said.

Ultimately, Crooks agreed with the developer, noting that foreclosure was a remote possibility.

“It’s a potentially big problem, but it’s unlikely it’s going to pass,” he said. “Let’s not worry about that bridge unless we have to burn it.”

Crooks did amend the stay agreement so that the developer would have to give the bondholders 14 days’ notice if it were to foreclose. That way, the bondholders could go back to the court for a remedy.

“If something ugly happens, you know how to reach me,” he said.