by Ted S. McGregor Jr.
If the saga of River Park Square and its troubled parking garage were a TV series, Betsy Cowles would be the star. But as the story winds down to its courtroom conclusion, it's still unclear whether she's the hero or the villain.
Some see her sympathetically. She set aside a law practice to move home and take control of the family business after her father's untimely death in 1992, bringing much-needed energy and vision to downtown Spokane. She overcame some of the perceptions about her family and braved the perils of Spokane politics, spending millions more than any other developer would to save a key piece of downtown real estate from becoming another surface-level parking lot. And she accomplished all that as a woman here in good-ol'-boy Spokane.
Others, however, see her as the problem. She betrayed Spokane's trust by ramming an unfair deal through -- a deal designed to bolster her family's property values more than anything else. And now that it's plain for all to see how unfair that deal really was, she refuses to pitch in on a settlement to end it all and allow everyone to move on.
The truth may be somewhere in between. But finally Cowles got her turn in the spotlight -- three days of testimony taken April 23-25 in the federal lawsuit surrounding the failure of the garage, in which her companies are named as co-defendants. Over that span, she admitted to seeing Spokesman-Review stories prior to publication (see "The 'No Surprises' Rule," page 11), she claimed the city did know about a document that appears to have contradicted the key Walker Report and she argued that the failure to create an adequate parking validation program was not River Park Square's fault.
While her answers aren't going to reverse the course of the litigation, they did draw more notice than any other witness's: a half-dozen local media outlets requested the transcripts. In many ways, the story of River Park Square, now in its ninth season, is the story of Betsy Cowles.
In the face of all the scrutiny, she says she remains committed to the project, to the city's future and to seeing the litigation through.
"I have always been grounded in high standards of ethics and honesty, and I firmly believe River Park Square was the right thing for us to do," Cowles told The Inlander in an interview after her deposition had been taken. "And the renaissance that has occurred in the downtown has been tremendous. I know that we did things the right way and in an honest and ethical manner, and I'm willing to defend that for as long as I need to. And in the meantime, downtown is a great place, and that feels good."
Few can relate to the world she and her brother Stacey, publisher of the Spokesman-Review, inhabit; they are members of the American elite -- bona fide fourth-generation old money. Her great-grandfather, W.H. Cowles, came to Spokane from Chicago before the turn of the last century and quickly cobbled together a newspaper dynasty. Over the decades to follow, his children and grandchildren expanded on that empire, remaking Spokane and the Inland Northwest as they went. As a result, they put a lot of goodwill in the bank -- but they stepped on toes, too, creating grudges that persist to this day.
As an undergrad at Dartmouth, and later as a ski racing coach, Betsy Cowles probably never expected she'd become the family's leading figure in Spokane. She went to law school at George Washington and started a practice in Seattle (at the same firm, Davis Wright Tremaine, that represents her today). Shortly after returning to Spokane to work in the family business, including KHQ-TV, her father, Bill Cowles, died of a sudden heart attack. Betsy and Stacey were thrust into leadership positions sooner than expected.
Meanwhile, the family's downtown property had been allowed to slip into disrepair, as competing shopping centers grew and downtown struggled. Something had to be done to save their investment and continue the family's tradition of promoting what they viewed as progress for Spokane. Grand plans emerged in early 1995, ultimately settling on teaming up with the city to make them all come true. Those dreams became reality, as River Park Square has, in many ways, "saved" downtown. But there has been a parallel nightmare, too, which is how Cowles found herself spending three days with about a dozen lawyers last month, answering enough questions to fill 11 videotapes.
Like the other defendants, River Park Square and other companies controlled by the Cowles family stand accused of participating in an illegal bond issue -- illegal because it allegedly failed to disclose the true level of risk involved. Some of the other defendants include the City of Spokane, Prudential Securities (underwriter of the bond issue), and Walker Parking Consultants (which estimated how much money the garage would generate). While River Park Square officials and the city have fought over things like whether the city should use its parking meter money to pay the garage's debts, in the federal case they are on the same side.
The Cowles family is among America's wealthiest, but if deep pockets are the issue, they may have met their match. The garage bonds were purchased by investment funds like Vanguard and Nuveen, both counting their assets in the hundreds of millions of dollars. Bondholder lawsuits like this one have two edges -- one to recoup the lost investment and another to send a message to bond underwriters about the kinds of behavior they will tolerate. Leading their case is Gary Ceriani, a Denver attorney whose alpha-dog style is not all hype. Since legal fees are often paid out of the bonds in question, money is almost not even an issue, and his clients will pursue these cases vigorously.
That doesn't mean he has a slam-dunk on his hands. After all, his clients were warned about the risks in sections of the Official Statement. Some deals just go bad, the defendants might argue in a case like this: You warned us, he might reply, but you should have warned us more strongly.
Ceriani questioned Cowles for the first two days of the deposition, and most of the time he seemed to be attempting to bolster existing elements of his case. Cowles proved to be an elusive target. Since many of her discussions over the years of the project included her lawyer, Duane Swinton, a lot of them were deemed privileged and therefore off-limits to questioning. And Cowles had a hard time recalling many details from that span. Even more details were obscured because she seemed to delegate a lot of responsibility to Swinton and Mall Manager Bob Robideaux. Still, Ceriani found some veins worth mining.
Ceriani spent a lot of time exploring the issue of validation, which has emerged in the past few months as perhaps the key element of the case. At issue is why the bonds were sold in September 1998, when no validation program existed. Under a validation program, parking is subsidized to lure in shoppers; typically, retailers pool money to cover that subsidy. The RPS garage was supposed to have such a program, but none emerged by the time the bonds were sold. Such a validation fund was expected to cover a large portion of the garage's bills.
But when Ceriani asked Cowles about the need to solve the validation problem, she didn't seem to exhibit any sense of urgency, mimicking what Robideaux said in an earlier deposition that it wasn't really their problem to solve.
Ceriani: The only point I'm addressing here is did you recognize that in 1996 it was important to solidify the terms of the validation program so that, whatever those terms were, they could be incorporated by Walker into the revenue projections?
Cowles: No... I don't see that the two are related.
After a long exchange, Ceriani got Cowles to admit that at the time of the sale of the bonds, she was unaware of any budget (outside of River Park Square) that was dedicated to covering validation costs. When asked if the bond sale should have been delayed as a result, Cowles answered "No."
Later, another exchange showed how far away the key players were from solving the validation problem, which was identified by the Coopers & amp; Lybrand Report of January 1997 as a major concern. In fact, they hadn't even figured out the size of the problem. He quoted a representative of Coopers & amp; Lybrand who testified that a lack of validation would create a hole in the garage's budget.
Ceriani: Okay. And at the time the bonds were issued, had you made any attempt to identify the size of the potential hole?
Cowles: By 1998?
GC: September of 1998, yes.
GC: And what was the size of the potential hole at the time the bonds were issued?
BC: Again it depends on what kind of a validation program one was using.
GC: So you really didn't know what the size of the potential hole was because you didn't know what the conditions to calculating the hole were?
BC: Could have been zero.
GC: Could have been $2 million?
BC: Could have been $2 million.
GC: Didn't know?
BC: And anywhere in between.
At trial, it may be hard for Ceriani to pin down exactly who was responsible for making sure the validation program was in place and big enough to cover the garage's needs. At the time the deal was struck, comments made by members of the development team suggested it was everybody's responsibility. Today, testimony in depositions seems to suggest it was nobody's.
Les Weatherhead, one of the attorneys working the case for River Park Square, points out, however, that the Official Statement disclosed that the validation issue was unsettled, so it was no secret to potential investors. And he says the rate structure of the garage, a factor just as important as validation, was changed by the city-run Parking Development Authority after the bonds were sold.
In what might be a welcome line of questioning to the city's position, Ceriani seemed to be attempting to paint the Cowles' companies as controlling the flow of information too tightly. The city, once the developer's partner in the deal, has filed counterclaims against River Park Square alleging misrepresentation and breach of fiduciary duty. If Ceriani is successful in arguing that the developers withheld information from its partners, it could help the city when a jury sorts it all out.
Ceriani starts with the Zimmer appraisal, arguing that it, not the two city-funded appraisals, was the source document for the garage purchase (see "The Zimmer Appraisal," page 9). Not only is it unclear whether River Park Square shared the document with the city (they say they did; city officials say they didn't), it was not included as part of the Official Statement that was used to sell the bonds.
And Ceriani alluded briefly to testimony Cowles gave at the pivotal Oct. 17, 1996, city council meeting, when she said, "Remember... also that Nordstrom and AMC will be bound by 20-year leases. They cannot turn the lights off for 20 years." Ceriani believes this contradicts the contents of the Nordstrom lease, making the statement false.
Ceriani also spent time on the genesis of the Spokane Downtown Foundation, which Cowles testified was created by her companies' law firm, Witherspoon Kelley (which, incidentally, was not present at the deposition). The board members of SDF, Cowles said, were handpicked by her, Robideaux and Swinton. Expect Ceriani to argue that the SDF was not the independent third party it has often been made out to be.
One potentially explosive nugget seemed to emerge when Cowles claimed that the development team was discounting the projections from the Walker Report: "[T]he city had discounted Walker in one way and others had discounted... had looked at Walker and discounted Walker in one fashion or another."
Weatherhead says the city's former director of finance, Pete Fortin, testified to just that in his own deposition taken just weeks before Cowles'.
It appears that Ceriani will therefore be able to ask a jury why the development team would discount Walker internally, but when it was time to write the Official Statement for potential bond buyers, they would let the projections stand. Walker's numbers were also presented to the citizens of Spokane by elected officials and city staff as sound and reliable.
Weatherhead says Fortin was merely trying to get an idea of what might happen if the cinema revenue wasn't as high as Walker projected. The discount was apparently referenced in the Coopers & amp; Lybrand Report, but not included when that report was summarized in the Official Statement.
"Do securities laws require you to warn an investor of every calculation you ever ran as a what if?" asks Weatherhead. "That's probably what the plaintiffs will argue; I'd say that's unrealistic."
When Cowles was finally asked if she could see anything now that she would like to have done differently, she only mentioned the city reneging on its pledge of the parking meter money.
"As you know," Cowles testified, "we are very upset with what the City did and I think the bondholders could legitimately be as upset about what the City -- that they have not honored the parking meter pledge and be legitimately upset... with the City action as we are."
On the third day, Cowles was questioned by Laurel Siddoway, the city's special counsel. In a change of pace, Siddoway spent most of the day combing through Cowles' handwritten notes that were turned over during the discovery process. It was slow going, as Siddoway asked Cowles to make sense out of notes written years ago in shorthand. While the contents were often tantalizing, how useful they'll be in court remains to be seen.
In one notation -- "PR/or - strategy, we'll invest elsewhere -- we'll walk away" -- it appears that the Cowles' statement that they might walk away from the project could have been a public relations strategy rather than a legitimate threat. But another explanation might be that Cowles was merely writing down what someone else at the meeting was saying.
Surprisingly, in Cowles' notes, Roberta Greene seems to emerge as the project's biggest obstacle on the council, with notations like "Roberta is the problem -- doesn't listen to staff" and "Roberta and Jeff = 22 million is their upper limit." (The garage was ultimately bought for $26 million.) Greene has been viewed by critics of the deal as an enabler, but Cowles didn't seem to share that view in 1996. (Greene was the council member who called for the Coopers & amp; Lybrand study -- a development met with "extreme frustration" by the development team, Cowles said.)
But with all three days of Cowles testimony captured on videotape -- along with her many appearances before the city council -- you can expect excerpts to be replayed at trial. After all, what TV series ends without a look back at video highlights of all the best moments?
To review all stories published in The Inlander on the River Park Square controversy, click http://www.inlander.com/parking/parking.php " & here.
Publication date: 05/22/03