Hearing sought on bond buyback

RICHLAND – Spokane Mayor Jim West may be ordered to explain to lawyers why the city paid $32.6 million to buy out investors in the River Park Square garage.

Lawyers for some of the parties in the massive legal tangle over the garage say the city was only facing liability of about $20 million. They want a federal court hearing over the “reasonableness” of the city’s settlement before a trial starts in January.

An attorney for the city said a jury should decide whether what the city did was reasonable, and how much of the total the other participants in the lawsuit should pay.

U.S. District Court Judge Edward Shea said he might let the attorneys take sworn statements from West and some other potential witnesses. But he warned the lawyers about dragging out the back-and-forth process of gathering testimony and documents, known as discovery.

Even though the trial is five months away, part of that time is taken up by holidays, Shea said. There will be no more delays.

If the case can be settled, that should be figured out sooner, rather than later, to save everyone the cost of preparing for trial, he added.

“The sooner everybody comes to grips with it, the less likely we will have a one-minute-to-midnight settlement,” Shea said.

The city, the developer of the downtown mall, their legal and financial advisers and organizations set up to buy and oversee the garage were sued several years ago by investors who bought garage bonds.

Since the garage opened in the fall of 1999, it hasn’t made enough money to cover its costs, which include paying off the bonds, rent, operations and maintenance.

This spring, the city borrowed money and bought up those bonds for $32.6 million. That took the investors out of the case and allowed the city to go after its former partner and advisers to recover some or all of the money it paid out to investors.

That settlement was designed to either start a settlement among all parties or streamline the case and make it less complicated for trial. So far, a complete settlement has escaped the city, and Ray Clary, an attorney for the foundation that sold the bonds, said the case doesn’t seem to be getting any simpler.

“This case is morphing, or growing, post-settlement,” he said.

William Cronin, attorney for Prudential Securities, the bond underwriter, said West needs to explain under oath why the city paid that much, when under the law the most the original bondholders could collect was about $20 million. Under the law, the city might not be able to collect more than that $20 million liability.

“We want to find out why he made the decision he made,” Cronin said.

Laurel Siddoway, an attorney for the city, argued a deposition from West wasn’t appropriate.

West might say something as simple as he relied on his experts, Shea replied. The council approved a resolution to buy up the bonds on a 5-2 vote; he wondered whether the attorneys would question the dissenters under oath, too.

The mall is owned by affiliates of Cowles Publishing Co., which also owns The Spokesman-Review.

Lawyers also talked about taking depositions from legal experts who could say whether what the city did was reasonable. Ladd Leavens, attorney for the developer, said he was sure the city could spend several thousand dollars and produce a witness who would say it was reasonable for the city to buy out the bondholders for $32.6 million. And the other parties could spend a like amount and produce a witness to say it wasn’t.

It might be better to argue the whole concept in front of the judge, Leavens said.

“Nobody has a precedent for what we’re doing here?” Shea asked.

“I don’t think there’s a person on the planet that has gone through what the people in this room have gone through,” Leavens replied.

Shea ordered the lawyers to start producing documents that would outline what they thought the case was about, send them back and forth, and have them to him by the end of August.

“I want to see clearly what my trial’s going to look like, what issues the jury’s going to be asked to decide, and what people are going to testify,” he said.