by Ted S. McGregor Jr.
Here's a quick look at the various defendants in the pending litigation
surrounding the failing River Park Square parking garage. Although Walker Parking has settled out this week, it is still listed here to provide context. And even though it looks as if the city will become the plaintiff, it, too, is listed. As negotiations continue over settling defendants out of the case, this offers a look at the players, their role in the deal and their potential exposure.
Walker Parking Consultants
The Indianapolis-based parking consultant is blamed for allowing suspect figures to creep into its analysis -- figures that would wind up being the foundation of the entire deal. Walker executive John Dorsett also seemed confused in his deposition about the nature of his work for the project. He claimed it was no feasibility study, yet on the official statement used to sell the bonds, it was listed as exactly that. As of this week, however, Walker was the first to settle the claims against it with the city for $1.5 million.
Public Parking Development Authority
The PDA (or PPDA) is the quasi-public entity given the responsibility to set operating policy for the garage. Having no assets, it is unlikely to be a major player in settlement talks.
This massive Seattle law firm had a small branch office in Spokane employing Roy Koegen, Spokane's bond counsel for the garage deal. Koegen, who still works in Spokane, is being blamed by the city for allowing city officials to certify questionable numbers and for representing the city and the PDA at the same time. His firm, which was not named by the bondholders, argues that he did nothing wrong in his advocacy for the city of Spokane.
This giant firm may have the deepest pockets of anyone in the litigation. It is being blamed for failing to fulfill its duty to the bond market by weeding out deals that didn't add up. Prudential will argue, however, that it did identify the risks associated with the transaction in its legal documentation and that any suspicious numbers were guaranteed to be as fair and reasonable as possible when it comes to projections.
Foster Pepper & amp; Shefelman
This Seattle law firm was hired by Prudential to lead the effort to write the Official Statement -- the legal document that bond buyers use to make their purchasing decision. Documents were circulated among the various parties numerous times, finally ending up as the OS. Critiques of the failure of the OS to adequately disclose the risks naturally wind up pointing to Foster Pepper, but the firm will argue that all its work meets professional standards. One thing missing from the OS that Foster Pepper may be blamed for, however, is that there is no mention of the potential impact of Spokane's stormy politics on the deal.
Spokane Downtown Foundation
This nonprofit entity was created to buy and hold the garage until the bonds were paid off. As a nonprofit, it could claim tax-exempt status, making the bond deal sweeter to investors. That status was later called into question by the Internal Revenue Service. The SDF is in the lawsuit because it may not have behaved like an independent buyer: For example, the purchase price of the garage appears to have been settled without any SDF input. But like the PDA, the SDF has no assets other than the garage. Its board members, however, have been named individually as defendants. To actually take ownership of the garage, as the city's new strategy aims to do, a settlement with the Foundation must be reached.
Preston Gates & amp; Ellis
This Spokane firm was hired to represent the Foundation, and it wrote an opinion on the tax-exempt status of the bonds. The IRS upheld that opinion, but later declared its intention of overturning that ruling because the garage deal, in the IRS view, benefited a private entity too much.
River Park Square
This is actually more than one company, but they all fit under the auspices of the mall. The developer, Spokane's Cowles family, is blamed for pumping up the purchase price that the Foundation, and later the city, would pay for the garage. They did this, it will be argued, by pushing unheard-of parking numbers into the projections, then by insisting on an out-of-the-ordinary appraisal. They did not deliver on promises about a validation program funding the garage, and when big holes were punched into the garage's revenues, they refused to renegotiate, claiming a deal's a deal. River Park Square, however, will argue that all the numbers were arrived at by compromise and negotiations with their partner in the deal, the City of Spokane. And they will argue that the city ultimately got what it wanted in a revitalized downtown.
Bob Robideaux's firm was the mall owners' agent in all the negotiations. He, like his bosses, will be blamed for artificially pumping up the numbers. Robideaux is also credited with the famous whopper about the validation system that is at the center of the controversy, telling consultants not to worry as validation would be "revenue-neutral." Still, as the Cowles' agent, his statements are legally the same as their own. Robideaux has since been fired by the Cowles group and has outstanding claims against them. Meanwhile, his legal fees are being covered by the Cowles. His defense will claim that he was doing his job and that he never exceeded his authority, although he negotiated very hard for a favorable deal.
City of Spokane
Like its former partner, the mall developer, the city is blamed for presiding over a financial house of cards. By allowing the numbers related to the garage to get so inflated, the city invited disaster. At least part of the reason for the meltdown, however, was the city's own political upheavals. In the financial markets, the city is viewed as an institution, regardless of who sits on the city council at a given time. But when some city council members frowned on previous decisions, a federal lawsuit was triggered. From the outside, it may have looked like a bad case of schizophrenia, but from the perspective of the new council majority, it was simply a case of finally doing the right thing. In denying funds to the garage to cover its shortfalls, the city argued it would not make loans that could not be repaid. While that action triggered the legal mess to follow -- which most likely was inevitable anyway -- whether it constitutes securities fraud is another question.
Although the city hoped to blame its former partner for the pumped-up numbers, Judge Shea would not allow it. That's part of the reason the city wanted out of the defendant's chair. After the events of the past week, the city has bought its way back to being able to blame the developer for the inflated estimates. Whether it will do that remains to be seen, however, since the city has some exposure on the issue of whether numbers were, indeed, pumped up.
Publication date: 04/15/04