In the summer of 1999, when the River Park Square Mall was about to open, the developer ran into a big misunderstanding with AMC Theaters, the project's prize tenant along with Nordstrom. Not surprisingly, the problem centered on parking: AMC thought its new landlord was asking it to fund more via validation than what the theater had committed to.
The episode provided some tense moments and was well known since shortly after it occurred. What was not so clear, however, was the extent of the problem. In recent depositions, it's now apparent that attorneys trying the case and witnesses alike believe the problem with AMC could have scuttled the whole garage purchase, which wasn't finalized until September 1999, a month after the mall opened.
AMC notified the developer, Spokane's Cowles family, that the developer was in default of their lease -- in other words, AMC threatened to nullify its lease because the developer wasn't handling the parking situation correctly. The garage was ultimately purchased by the Spokane Downtown Foundation, and in that purchase agreement it was specified that if Nordstrom and AMC were not in the project, the Foundation could walk away. In their depositions, neither Mike Ormsby, attorney for the Foundation, nor Duane Swinton, attorney for the developer, disputed that the default could have led to the calling off of the purchase.
Gary Ceriani (for the bondholders): Am I correct then that if there had been a default with respect to the cinema lease, there would be no obligation on the part of the Foundation to close the purchase?
Swinton: They were not obligated, but could waive that if they so chose.
As they say in the parlance of war with Iraq, here was the last off-ramp before the deal was done.
To fully appreciate the moment, it's worth getting a quick perspective on August-September 1999. Steve Eugster and Steve Corker were poised to win seats on the City Council and upset the existing power structure that had endorsed the project. In fact, the entire city manager form of government was soon to be history. It was the last gasp for the pro-garage political faction, and the clock was ticking.
Other vistas were coming into focus at this time, too. Many of those who were involved in examining the parking garage began to realize that the revenues needed to make the garage work were out of reach. The Foundation's attorney, Ormsby, even wrote a letter to project leaders saying the purchase price should be reduced.
Nobody took him up on his offer. Yet here was a perfect opportunity to get that price reduced and bring the project back into the realm of fiscal reality. With the entire transaction on the brink of oblivion, this was some serious leverage: Essentially, the city and the Foundation could have said, cut the price or we walk away.
It would have been a potent threat. Had the Foundation walked away, the developer would have taken a hit financially, having to swallow the construction debt and another $1.4 million in cash that would have gone back to the bondholders. If that had happened, while there undoubtedly would have been litigation by the Cowles, the dimensions of the legal problems would have been much smaller. And on the plus side, the developer would have kept an asset -- the garage -- which they had previously valued at nearly $30 million. The city's bond rating would have remained intact, and its HUD grant money unthreatened. Thousands of hours and millions of dollars in attorneys' time could have been spent on other disputes. Perhaps that would have provided the happy ending everyone was hoping for.
So what happened? One thing's for sure -- the public never heard about it. John Talbott, who was mayor at the time, says he was informed of the dispute with AMC, but he had no idea it offered a clean getaway from the project. Right now, it's unclear whether any elected city officials were told or understood the significance of the situation.
In his deposition, Ormsby says he notified the city's special counsel on the project, Roy Koegen, and the city's finance director, Pete Fortin. Whether they shared the significance of the information any further remains to be seen, as both men are yet to be deposed. Roberta Greene and Orville Barnes, two members of the finance committee, are also scheduled to be deposed in the coming months. Ormbsy testified that he viewed the Foundation's role as an extension of the city, so he ultimately did what the city wanted.
But when an official decision came back on whether to close the purchase, it came from the Public Parking Development Authority (PDA), not the city council or manager's office. After the Cowles agreed to cover only those losses resulting from AMC's total departure, the PDA agreed to go forward with the closing of the purchase without any attempt at renegotiation. A question to be answered in future depositions is this: who determined it was the PDA's call to make, instead of the city council or manager? At the time, Koegen represented both the PDA and the city.
From the line of questioning taken by Ceriani, the bondholders' lead attorney, it looks as if he believes the bondholders should have been notified about the events of August 1999.