City wins RPS ruling on damages

The city of Spokane received a victory Friday in the long-running legal battle over the River Park Square garage. A federal judge ruled the city can ask a jury to consider some $40 million in damages for any judgment it might get in an upcoming trial.

But first the city will have to win its malpractice claim against Perkins Coie, the law firm of its former bond counsel.

U.S. District Court Judge Edward Shea said Friday that the money the city has received in settlements from the other defendants in the case doesn’t have to be subtracted from any total the jury considers. Because of complicated formulas in the case, that could have meant the jury would have started at $14 million when it tries to figure out who is owed what.

After listening to the attorneys argue on Wednesday and reading their memos, Shea said Friday he agreed with the city lawyers. If they can prove legal malpractice against Perkins, they can present their damages “without limitation.”

The mall’s financially strapped garage prompted the lawsuit. It originally pitted investors who bought garage bonds against the city, the mall’s developer, and all of the project’s consultants and advisers with allegations of fraud, negligence and misrepresentation. Scheduled for trial later this month, the case has been whittled down through settlements to the city’s claim of malpractice against Perkins Coie.

At the hearing, Laurel Siddoway, the city’s special counsel for River Park Square cases, argued that the starting point for damages should be the $32 million the city paid last year to buy back troubled garage bonds, plus some $8 million the city had to place in escrow for years because of litigation over an ordinance involving its parking meter money.

The city’s former bond counsel, Roy Koegen, advised the City Council to pass the ordinance in 1997 as a way of supporting the garage bonds.

“Perkins was our lawyer,” Siddoway said. “They were responsible to us for a variety of things.”

Ralph Cromwell, attorney for Perkins, countered that the city had already received some of that money back in settlements from the other defendants. Shea ruled last month that the city had been “made whole” by those settlements for the bonds it bought back from the investors who originally filed the suit.

The value Shea put on those settled claims, $18.3 million, should be subtracted from the $32 million the city paid out in bonds, Cromwell said. The $14 million could be considered what the city paid “to retire the ordinance” and that’s where the jury should start.

But Siddoway said that $18.3 million is really “a fiction.” It includes Shea’s estimate of the value of bonds the city never really received because they were retired to stop the need to make payments of principal and interest.

“We are entitled to be made whole,” she said.

At the hearing, Shea seemed to be leaning toward the city, saying it might logically be able to tell the jury how it paid out a total of $40 million “and here’s why we paid it.”

But the city will still have to convince the jury of its claims. If the jury determines there was no malpractice, the city could collect nothing. The jury could also divide the responsibility between the city and the law firm, which would mean the firm would only pay a proportionate share of any damages established at the trial.