Bondholder Lawsuit Concerning The River Park Square

DAVIS & CERIANI, P.C.
1 Gary J. Ceriani
Michael P. Cillo
Valeri S. Pappas
2 1350 17th Street, Suite 400
Denver, Colorado 80202
3 Telephone: (303) 534-9000
MASLON EDELMAN BORMAN & BRAND, LLP

4 Alain M. Baudry
R. Christopher Sur
5 3300 Wells Fargo Center
90 South Seventh Street
6 Minneapolis, Minneapolis 55402
Telephone: (612) 672-8200
7 CRUMB & MUNDING, P.S.

John D. Munding
8 Steven A. Crumb
1950 Bank of America Financial Center
601 W. Riverside
9 Spokane, Washington 99201-0611
Telephone: (509) 624-6464
10
RIDDELL WILLIAMS, P.S.
John D. Lowery
11 Gavin W. Skok
1001 Fourth Avenue Plaza, Suite 4500
12 Seattle, Washington 98154
Telephone: (206) 624-3600
13 UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF WASHINGTON
14
15 IN RE RIVER PARK SQUARE No. CS 01-127-EFS
PROJECT BOND LITIGATION
16 PLAINTIFFS JOINT OMNIBUS
STATEMENT OF MATERIAL FACTS
17
IN OPPOSITION TO DEFENDANTS
18 MOTIONS FOR SUMMARY
JUDGMENT
19
20
Plaintiffs, by their respective counsel, jointly submit the following
21
22 Omnibus Statement of Material Facts in Opposition to Defendants Motions
23 for Summary Judgment:1

24
25
26
1 This Omnibus Statement of Material Facts is drawn in part from the
Statements of Material Fact submitted by Plaintiffs in opposition to
27 previous motions for summary judgment; however, all references to Ceriani
28 Declaration refer to the Declaration of Gary J. Ceriani submitted herewith.
PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 1

I.
1
TABLE OF CONTENTS
2
II. INTRODUCTORY STATEMENT--------------------------------------------------- 9
3
4 1. The Working Group and the Working Group members
active involvement in determining what would, and
5 would not, be disclosed to potential investors--------------------------- 9
6
III. THE RPS MALL / GARAGE PROJECT ---------------------------------------- 12
7
8 2. As of the mid 1990s, the Developers had owned the
RPS Mall and RPS Garage for many years ---------------------------- 12
9
10 3. Defendant R.W. Robideaux & Company, Inc., acting through
its principal R.W. Robideaux, managed the RPS Mall and the
11 RPS Garage for the Developers-------------------------------------------- 14
12
4. The Developers were looking for a way to finance the
13 renovation and expansion of the Mall and to justify the
14 issuance of revenue bonds to finance the Garage-------------------- 14
15 5. Walker Parking Consultants, Inc. had previously conducted

16 two studies for the City of Spokane -------------------------------------- 15
17 6. The 1995 Walker Report shows the renovated and expanded

18 RPS Garage was expected to generate $2 million in revenues
or less for the first ten years of operation ------------------------------ 16
19
20 7. Historic Garage revenues averaged about $800,000 between
1990 and 1995------------------------------------------------------------------- 16
21
22 8. The Developers were only willing to invest $15 million of
their own money in the RPS Project ------------------------------------- 17
23
24 9. The City, the Developers and Prudential used Walkers
1995 projections to size a bond issue that was not to
25 exceed $15 million ------------------------------------------------------------- 18
26
10. The City began to negotiate a consulting agreement with
27 Walker in July 1995----------------------------------------------------------- 19
28

11. The Developers discover the potential rewards of inflating
1
the purchase price of the Garage ----------------------------------------- 20
2
12. The Developers decide the City should use the investment
3
value method to value the Garage and inflate the purchase
4 price -------------------------------------------------------------------------------- 21
5
13. At the Developers request, Walker inflates the key parking
6 rate assumption ---------------------------------------------------------------- 23
7
14. Walker and the City agree that Walker will not independently
8 investigate the accuracy of the key assumptions -------------------- 25
9
15. The City told the appraisers to make exclusive use of the
10 investment value method, use Walkers projected revenues
and target a value of $23.5 million------------------------------------- 29
11
12 16. Key representatives of all the Defendants read the Auble,
Barrett and Coopers Reports and, therefore, knew the
13
Official Statements were false and misleading----------------------- 30
14
17. The continued manipulation of the numbers by Walker, the
15
Developers and the City ----------------------------------------------------- 32
16
18. The City refuses to raise parking meter rates to make the
17
$1.50-per-hour rate more appealing to the parking public ------- 33
18
19. The final Walker Financial Feasibility Analysis was
19
issued on June 14, 1996------------------------------------------------------ 34
20
20. The length of stay assumption--------------------------------------------- 35
21
22 21. The 85% capture rate assumption ---------------------------------------- 36
23
22. Walker assumed any future parking validation program
24 would be revenue neutral to the Garage ----------------------------- 38
25
23. The AMC Theatre revenues ------------------------------------------------ 40
26
24. Nordstrom believed the $1.50-per-hour rate was too high-------- 41
27
28

25. The Appraisers Auble and Barrett are highly critical of
1
Walker----------------------------------------------------------------------------- 42
2
26. The City and Prudential secretly reduce the Walker
3
revenue projections------------------------------------------------------------ 44
4
27. Walker was first asked to prepare proformas assuming a flat
5
rate after 6:00 p.m. and all day Sundays in August 1996 --------- 45
6
28. The City believed it could build the Garage for $13 million
7
and was advised to not pay more than $18 million for the
8 Garage----------------------------------------------------------------------------- 46
9
29. The Developers first announced a deal with AMC in
10 September 1996, and the deal involved free parking --------------- 47
11
30. Sabey Corporation addressed the city council and was highly
12 critical of the entire project and the Walker assumptions -------- 48
13
31. Key representatives of the Defendants either read the Sabey
14 Report or knew of its existence and willfully ignored it ----------- 49
15
32. Act III Theatres informed the City that Walkers cinema
16 revenue projections were unreasonable--------------------------------- 49
17
33. The City hires Coopers & Lybrand to evaluate the key
18 assumptions in the Walker Report --------------------------------------- 50
19
34. The Developers offer to form the Foundation and use it to
20 issue the Bonds to ease the Citys concern over opposition
to the project--------------------------------------------------------------------- 50
21
22 35. Contrary to representations in the Official Statements, the
Foundation did not participate in the purchase price
23
negotiations---------------------------------------------------------------------- 52
24
36. The Developers form the Foundation------------------------------------ 54
25
26 37. The Developers hire Preston to be general counsel, issuers
counsel and bond counsel for the Foundation knowing
27
Preston had a severe conflict of interest -------------------------------- 55
28

38. The Developers controlled the Foundation ---------------------------- 57
1
2 39. The Developers calculate that the $26 million purchase price
would net them close to $10 million excess cash that was
3
not needed for construction costs ----------------------------------------- 58
4
40. The Sabey Report is critical of the key assumptions---------------- 58
5
6 41. The Developers appoint the Foundation directors------------------- 59
7
42. Preston handled every aspect relating to the affairs of the
8 Foundation and the issuance of the Bonds for the Directors----- 61
9
43. The bond rating agency, Moodys, refused to give the Bonds
10 an investment grade rating------------------------------------------------- 62
11
44. The Working Group that was responsible for drafting the
12 Official Statements had a preliminary meeting on
December 13, 1996 ------------------------------------------------------------ 63
13
14 45. Nordstrom was still attempting to convince the Developers
that the $1.50-per-hour rate was too high in January 1997------ 64
15
16 46. The Coopers Report is critical of the key assumptions------------- 64
17
47. The City adopts the parking meter revenue loan ordinance ----- 65
18
48. The initial drafts of the Official Statements -------------------------- 66
19
20 49. As early as February 1997, Prudential and underwriters
counsel, Foster, had determined that the Bonds would not
21
be suitable for retail bond purchasers----------------------------------- 68
22
50. The bond issue is delayed by the CLEAN litigation------------------- 69
23
24 51. AMC Theatres will not willingly pay for parking ------------------- 70
25
52. Right after AMC said it would not pay for parking, the
26 Developers and Walker consider various parking validation
scenariosnone of which are revenue neutral to the City-------- 71
27
28

53. The Developers are told the entire project is not
1
economically feasible---------------------------------------------------------- 72
2
54. Prudential and the Developers revive the bond issue in
3
January 1998 and question the reliability of the Walker
4 Report ----------------------------------------------------------------------------- 73
5
55. The Nordstrom lease should have raised serious concerns
6 for the Working Group ------------------------------------------------------- 74
7
56. When it came to paying for a building permit, the Developers
8 were primed to convince the City the Garage really was not
worth what the City agreed to pay for it-------------------------------- 76
9
10 57. The Foundation directors are unanimously reelected to
the board of the Foundation ------------------------------------------------ 77
11
12 58. By March 1998, the City was questioning whether its actions
constituted an impermissible gift from the City to the
13
Developers ----------------------------------------------------------------------- 77
14
59. The Gonzaga professors conclude there has been no
15
feasibility study of the entire project and conclude
16 collateral is inadequate ------------------------------------------------------ 78
17
60. The Working Group completes work on the Preliminary
18 Official Statement ------------------------------------------------------------- 79
19
61. The Working Group was discussing key criticisms of the
20 Walker Report as late as May and June 1998 ------------------------ 82
21
62. The Citys bond counsel writes a revealing letter-------------------- 84
22
63. The Working Group rejects a renewed challenge to the
23
project ----------------------------------------------------------------------------- 85
24
64. The Working Group dealt directly with AGIC during the
25
summer of 1998----------------------------------------------------------------- 87
26
65. Preston and the City refute the challenge to the project ---------- 89
27
28

66. The Parking Facility Purchase and Sale Agreement --------------- 90
1
2 67. The false and misleading Other Risks and Limited
Remedies Upon Default sections take their final form ----------- 91
3
4 68. In the weeks preceding the closing, the Working Group
received additional warnings there was a significant
5
difference between the purchase price of the Garage and
6 its fair market value ---------------------------------------------------------- 93
7
69. The City secretly questions the variable ground rent
8 payments to the Developers ------------------------------------------------ 93
9
70. The Working Group reviewed the final Preliminary Official
10 Statement containing the false and misleading Other Risks
and Limited Remedies Upon Default sections---------------------- 95
11
12 71. The Prudential banker, Moore, vouches for the accuracy
of the POS ------------------------------------------------------------------------ 98
13
14 72. The Funds relied upon the POS ------------------------------------------- 98
15
73. The Bond Purchase Agreement required every member of the
16 Working Group to issue a 10b-5 opinion or certificate regarding
adequacy of disclosure as a condition precedent to Prudentials
17
obligation to purchase the Bonds from the Foundation----------- 100
18
74. The Official Statement is issued on September 15, 1998--------- 101
19
20 75. The members of the Working Group all knowingly sign
false and misleading certificates attesting to the accuracy of
21
disclosure in the Official Statements ----------------------------------- 103
22
76. The Trustees obligations to bond purchasers under the
23
Trust Indenture are extremely limited in scope--------------------- 111
24
77. The Bonds are issued and distributed to the Bond Funds
25
and retail bond purchasers ------------------------------------------------ 113
26
78. The Developers tell the City the Garage is really only worth
27
about $14 million ------------------------------------------------------------- 113
28

79. The Business Improvement District confirms it did not have
1
sufficient funds to underwrite a parking validation program
2 based upon the new $1.50-per-hour rate ------------------------------ 113
3
80. The Developers and Walker continue their flat rate studies---- 114
4
81. The Foundations proposed 1999 budget shows the entity
5
is a shell run by Preston on behalf of the Developers ------------- 114
6
82. The Developers confirm they also believed the theater
7
numbers projected by Walker were inflated-------------------------- 115
8
83. AMC Theatres demands free parking and declares its
9
lease with the Developers to be in default ---------------------------- 116
10
84. The City, Walker and the Developers study going to a flat
11
rate in the evenings and on weekends to mollify AMC ----------- 116
12
85. The Foundation and Preston question paying the full price
13
for the Garage, but are rebuffed by the Developers ---------------- 117
14
86. Members of the Working Group conceal the AMC blow up
15
from the public----------------------------------------------------------------- 120
16
87. The Garage is sold to the Foundation for $26 million in
17
bond proceeds ------------------------------------------------------------------ 121
18
88. The PDA closing certificate referencing the $1.2 million
19
revenue shortfall did not reach bond purchasers ------------------- 122
20
89. The Developers receive their profit from the sale of the
21
Garage---------------------------------------------------------------------------- 122
22
90. The City files a complaint asserting defenses to enforcement
23
of the parking meter revenue Ordinance ------------------------------ 122
24
91. On August 8, 2001, the IRS issued a Preliminary
25
Determination that the Bonds were not tax exempt--------------- 125
26
27
28

II.
1
INTRODUCTORY STATEMENT
2
1. The Working Group and the Working Group members active
3 involvement in determining what would, and would not, be
4 disclosed to investors.
5 Municipal Bonds are typically offered and sold by the delivery of a

6
Preliminary Official Statement (POS),2 a document that is required by law
7
8 to be delivered to prospective investors. The purpose of an Official
9 Statement is to make full, fair and accurate disclosure of all material facts
10
and allow the prospective investor to make an informed investment
11
12 decision. For every bond issuance, someone has to determine whether each
13 fact related to the bonds being sold, the security for the bonds, or the project
14
being supported by the bond issuance, is material and, if so, how it should
15
16 be disclosed. With respect to the RPS Bonds, those decisions were made by
17 a Working Group of the financial and legal professionals and other

18
interested parties who were working together to bring the Bonds to market.
19
20 The RPS Bonds were offered and sold by a POS that was principally
21 drafted by Foster, acting as counsel for Prudential, the underwriter. The

22
23
24
25 2Exhibit 118 to the Declaration of Gary J. Ceriani submitted herewith is an
26 excerpt from the POS. The complete POS was submitted as Exhibit 46 to
the Declaration of Gary J. Ceriani in Support of Bond Fund Plaintiffs
27 Opposition to Foster Pepper & Shefelmans Motion for Summary Judgment
28 on Washington Securities Act Claims.

process of, and the participants involved in, the preparation of the POS
1
2 and thus the parties who by virtue of their role in the process had or
3
assumed disclosure obligationswas described by John Moore, the
4
Prudential investment banker responsible for underwriting the issuance of
5
6 the Bonds, and by Marc Greenough, the Foster lawyer primarily responsible
7
for drafting the document.
8
According to Moore and Greenough, decisions regarding what would,
9
10 or would not, be disclosed in the POS were the result of discussions among,
11
and reflected the consensus of, a Working Group (Ceriani Decl., Ex. 182
12
[Greenough] pp. 174, 214, 295, 407-08, 413-14, 438; Ex. 188 [Moore] pp. 209-
13
14 10). The Working Group consisted of John Moore and Andrew Face of
15
Prudential (the underwriter); Marc Greenough and Hugh Spitzer of Foster
16
Pepper Shefelman (underwriters counsel); Bob Robideaux and Duane
17
18 Swinton as representatives of the Developers; Michael Ormsby and David
19
Thompson of Preston Gates & Ellis (counsel to the Foundation and bond
20
counsel); various City officials and Roy Koegen as representatives of the
21
22 City (issuer); Roy Koegen of Perkins Coie (counsel to the City); Walker (the
23
feasibility consultant); and the Spokane Downtown Foundation (issuer)
24
(Ex. 188 [Moore] pp. 59, 61, 247-48, 263, 269; Ex. 95). Each draft of the POS
25
26 was circulated to the Working Group (Ex. 188 [Moore] pp. 270, 538), and
27
members of the Working Group commented upon, and discussed the
28

comments and drafts, at numerous Working Group meetings (Ex. 188
1
2 [Moore] pp. 221:4-222:5).
3
There is thus no question that all of the members of the Working
4
Group were fully aware of the false and misleading statements contained in
5
6 the POS that are described in detail below because the members of the
7
Working Group were actually involved in determining what would, and
8
would not, be disclosed in the POS. For example, on March 31, 1998, the
9
10 Working Group, in a meeting called by John Moore, spent some thirteen
11
hours discussing a list of Open and Unresolved Due Diligence Items and
12
reaching a consensus of what investors would be told. The topics at the
13
14 meeting included:
15
Coopers criticisms of the Walker Analysis, including:
16
!Parking validation program implications
17 !Due Diligence questioned
!Hourly Parking Rate High
18
!Length of Stay Long
19 !Projected Cinema Revenues questioned
!Difference between appraised and negotiated price of land
20
!Construction costs high
21 !Walker Analysis not a Feasibility Analysis
22
(Ceriani Decl., Ex. 95).
23
It was the consensus of the Working Group not to disclose the Sabey
24
25 Report or its contents (Ceriani Decl., Ex. 188 [Moore] pp. 209-10); the
26
decision what to say, or not say, about the contents of the Auble and Barrett
27
Reports (and their criticisms of the Walker numbers) was a consensus
28

decision (Ex. 188 [Moore] pp. 409-410); the decision to attribute revenue and
1
2 expense information to the City rather than the Developers was a consensus
3
decision (Ex. 182 [Greenough] pp. 502-03); the decision that the entire text
4
of the Coopers Report was not material was a consensus decision (Ex. 182
5
6 [Greenough p. 503); and that the City should certify the reasonableness of
7
assumptions underlying the Walker numbers was a consensus decision
8
(Ex. 182 [Greenough] p. 438).
9
10 III.
THE RPS MALL / GARAGE PROJECT
11
12 2. As of the mid 1990s, the Developers had owned the RPS Mall
and RPS Garage for many years.
13
14 The Cowles family, directly or indirectly, own and control Defendants
15 Lincoln Investment Company of Spokane, Citizens Realty Company, RPS II,

16
L.L.C. and River Park Square LLC (collectively, the Developers), and
17
18 owned the RPS Mall, the RPS Garage and significant other downtown
19 Spokane real estate (Ceriani Decl., Ex. 175 [Cowles] pp. 26-27; Ex. 118,
20
p. PSI 0053, The Developer; p. PSI 0071, The Developer).
21
22 By the mid 1990s, downtown Spokane was in decline, Nordstrom was
23 threatening to leave downtown, and the Developers needed to find a way to

24
renovate and expand the Mall and Garage to keep Nordstrom and protect
25
26 the value of their downtown property (Ceriani Decl., Exs. 4, 12 and 16).
27
28

Initially, the Developers attempted to finance a redevelopment of the
1
2 Mall and the Garage (the RPS Project) privately but were unsuccessful in,
3
for example, finding a joint venture partner because the project did not
4
have the kind of returns necessary to interest a private partner (Ceriani
5
6 Decl., Ex. 175 [Cowles] pp. 37-38). By March 9, 1995, the Developers had
7
decided to tap public money to finance their development. On that date,
8
Betsy Cowles sent Bob Robideaux a memo in which she noted the need for a
9
10 PR firm to rekindle the save Nordstrom and downtown fervor and that
11
the only way to get all this done is to divide and conquer because if the
12
public learned the Developers were going to go after 108 and parking
13
14 money, that will be an open invitation to Sabey . . . . to say we can save you
15
a lot of money (Ex. 4, p. RPS 7148). Thus, from the outset, the Developers
16
knew that tapping the Citys 108 and parking money to finance keeping
17
18 Nordstrom downtown would cost the public significant additional money.
19
Betsy Cowles was the person responsible for making all decisions on
20
behalf of the Developers (Ceriani Decl., Ex. 175 [Cowles] p. 21).
21
22 By 1995 the City was desperately concerned about reversing the
23
plight of downtown. It kept waiting for investors to step forward who were
24
willing to put their dollars to work. No one except the developers was
25
26 willing to (Ceriani Decl., Ex. 181 [Greene] p. 96-97), and the Developers
27
were only willing to do so if the City purchased the Garage from them an
28

exorbitant price, and pledged the bulk of the funds necessary through
1
2 earmarking HUD loans for the mall redevelopment. Otherwise, the City
3
knew there was no deal (id.) It is this fundamental desperation by the City
4
which explains its refusal to engage in hard bargaining with the Developers
5
6 and its repeated acquiescence in whatever the Developers demanded, no
7
matter how unreasonable. None of this, of course, was disclosed to investors
8
in the Official Statements.
9
10 3. Defendant R.W. Robideaux & Company, Inc., acting through
its principal R.W. Robideaux (referred to collectively as
11
Robideaux), managed the RPS Mall and the RPS Garage for
12 the Developers.
13 At all times and in all things he did relating to the RPS mall,
14
Robideaux was the Developers right hand and chief coordinator of the
15
16 project (Ceriani Decl. Ex. 175 [Cowles] pp. 16-17; Ex. 197 [Swinton] pp. 206-
17 07; Ex. 192 [Robideaux] pp. 59, 234-35) and the Developers have conceded
18
that everything Robideaux did relating to the Mall and the Garage was done
19
20 within the course and scope of his agency relationship with the Developers
21 (id.). Accordingly, every act of Robideaux, and all knowledge of Robideaux
22
relating to the RPS Mall and Garage is imputed to, and is the act and
23
24 knowledge of, the Developers.
25 4. The Developers were looking for a way to finance the
26 renovation and expansion of the Mall and to justify the
issuance of revenue bonds to finance the Garage.
27
28

Once the Developers decided to tap public funds to finance the RPS
1
2 Project, it became necessary to generate numbers for the project. Initially,
3
the Developers consulted with Bill Maher of Ernst & Young and the
4
DeBartolo organization (Ceriani Decl., Ex. 5; Ex. 6, p. COS 1956). As part of
5
6 that process, Walker, as early as mid-1995, began preparing proforma
7
financial statements for a renovated and expanded Garage (Ex. 6, pp. COS
8
1958-59; Ex. 176 [Dorsett] pp. 705-06).
9
10 5. Walker Parking Consultants, Inc. had previously conducted
two studies for the City of Spokane.
11
12 A 1993 Downtown Parking Surplus and Deficiency Study
13 determined that Spokanes central business district had a surplus of over

14
15,000 parking spaces (Ceriani Decl., Ex. 3, p. WPS 0471). A Parking
15
16 Structure Feasibility Study addressed the feasibility of building a garage
17 near the intersection of Post and First Avenue (about three blocks from the
18
RPS Garage) in conjunction with the reopening of the Davenport Hotel
19
20 (Ex. 2). It was determined the project was not economically feasible
21 (p. 0658).
22
The Official Statements do not disclose any of this historical
23
24 information, or historical revenues (Ceriani Decl., Ex. 118, p. PSI 0074), to
25 potential investors or AGIC. Instead, investors are told historic revenues

26
were not important due to the significant changes anticipated in downtown
27
28

Spokane resulting from the development of the Commercial Project
1
2 (Ex. 118, p. PSI 0074).
3
6. The 1995 Walker Report shows the renovated and expanded
4 RPS Garage was expected to generate $2 million in revenues
or less for the first ten years of operation.
5
6 The May 17, 1995 Walker/Ernst & Young Report projected, based
7 upon estimated 1994 revenues of $993,700 from a 1316-space garage, that

8
the proposed renovated and expanded RPS Garage would generate total
9
10 revenues of $1,703,100 for the base year, $1,754,285 for year one, and
11 $1,805,914 for year two (Ceriani Decl., Ex. 6, p. COS 1958; Ex. 176 [Dorsett]
12
p. 296). In this initial iteration of the Walker numbers, the number of
13
14 parking spaces were assumed to increase in size by approximately 75% (750
15 spaces to 1316 spaces) and revenues were anticipated to not quite double
16
from the estimated 1994 revenues of $983,700 (Ex. 6, p. COS 1958). The
17
18 1995 Walker Report also addressed a parking validation program that was
19 to receive 20% of its funding from the Garage and was still projected to
20
result in deficits (Ex. 6, p. COS 1959).
21
22 7. Historic Garage revenues averaged about $800,000 between
1990 and 1995.
23
24 Consistent with the 1995 Walker Report, the Walker Report attached
25 to the Official Statements assumes the Garage would increase about 75% in
26
size (from 750 spaces to 1,306 spaces (556/750 = 74%)); however, contrary to
27
28 the 1995 Walker report, revenues were projected to increase almost 500%

over the highest reported historic revenue for the Garage between 1991 and
1
2 1995 (1991$834,262 ($4.0 million/$834,262 = 479%)) (Ceriani Decl.,
3
Ex. 28, pp. 70-74 (AUBLE 0403-06); 1994 actual revenues: $774,183; Ex. 27,
4
pp. 37-38 (BARRETT 0334-35)).
5
6 The historic revenues are obviously material to investors because it
7
allows an investor to evaluate whether it makes sense to assume a 500%
8
increase in revenues based upon an increase of only 75% in the number of
9
10 spaces. The Working Group was aware of the historic revenues because
11
they all read the Auble and Barrett Reports in which they are set forth.3
12
The members of the Working Group simply decided to suppress them.
13
14 8. The Developers were only willing to invest $15 million of their
own money in the RPS Project.
15
16 By June of 1995, the Developers had not only decided to use public
17 funds rather than private equity or loans to finance the RPS Project, they
18
had also decided that they were willing to invest only $15 million of their
19
20 own money (spread over three years) in what they now claim was a
21 $100 million project (Ceriani Decl., Ex. 5, p. RPS 5882). The Developers
22
recognized it would be difficult to achieve a $100 million dollar project if
23
24 they only put up $15 million in cash to develop it, but the $15 million limit
25 was not, in Betsy Cowles words, subject to compromise (id.). Obviously

26
27
28
3 See discussion infra. at 16.

the money had to come from somewhere and the Developers turned (as the
1
2 Cowles family has on many previous occasions) to the Citys tax-exempt
3
bonding capacity.
4
9. The City, the Developers and Prudential used Walkers 1995
5
projections to size a bond issue that was not to exceed
6 $15 million.
7 By June of 1995, the concept of having the City issue bonds to help
8
finance the project had progressed to the point that the Citys bond counsel,
9
10 Roy Koegen, provided Prudential various Ernst & Young and Walker
11 financial proformas (Ceriani Decl., Ex. 7, p. PSI 0023) so Prudential could
12
evaluate issuing revenue bonds.4 Prudential reviewed the proforma net
13
14 operating income projections for a garage that was projected to have a total
15 of 1,300 spaces (750 existing and 550 new spaces (Ex. 9, p. PC 3085) and
16
calculated that the projected revenues from this 1300-space garage would
17
18 support, at most, a bond issue of approximately $14,245,000 (Ex. 8,
19 pp. PSI 2024-25; Ex. 9, pp. PSI 3085-86). By the time the Bonds were
20
actually issued, the same size garage (1300 spaces vs. 1304 spaces5 ) in the
21
22 same City and at the same downtown location was projected to generate
23 enough revenues to support $31.5 million in bonds (Ex. 118, p. PSI 0070).
24
25
4 At this time, the Developers were willing to sell the existing Garage to the
26 City for $4.8 million. Improvements to the existing Garage were estimated
27 to cost approximately $2 million (Ceriani Decl., Ex. 9, p. PC 3085).
28
5 (Ex. 118, p. PSI 0209).

Based on Prudentials having sized the maximum bond issue at roughly
1
2 $14 million, the city council, in City Resolution 95-74 dated June 12, 1995,
3
authorized City officials to proceed with the development of a proposal for
4
the City to purchase the Garage from the Developers through the issuance
5
6 of not more than $15 million in revenue bonds (Ceriani Decl., Ex. 10, p. PG
7
1248).
8
10. The City began to negotiate a consulting agreement with
9
Walker in July 1995.
10
The City concluded that it would not issue revenue bonds to buy the
11
12 Garage until it had a Financial Feasibility Analysis and turned to Walker.
13 The City did not, apparently, care that Walker had a preexisting
14
relationship with the Developers and was, therefore, not truly independent.
15
16 Potential investors were never told of Walkers prior and ongoing
17 relationship with the Developers when the Walker study was appended to
18
the Official Statement as, supposedly, an independent study. The City
19
20 began to negotiate an agreement with Walker and, by July of 1995, a draft
21 Consultant Agreement was generated (Ceriani Decl., Ex. 11). This July
22
27, 1995 draft Consultant Agreement shows Walker did not wish to
23
24 independently investigate the reasonableness of the key assumptions that
25 would drive its revenue projections. Roy Koegen, the Citys bond counsel,
26
acknowledged it was critical that Walker independently investigate the
27
28 reasonableness of the key assumptions and wrote, No need to do own

investigation on the draft agreement (Ex. 11, p. PERKINS 0108; Ex. 186
1
2 [Koegen] pp. 161-62). As addressed below, however, in the final Consultant
3
Agreement signed in April 1996, Walker did not agree to independently
4
evaluate the reasonableness of the key assumptions underlying its revenue
5
6 projections.
7
11. The Developers discover the potential rewards of inflating the
8 purchase price of the Garage.
9 As of February 1, 1996, no purchase price for the garage had been set
10
by the Developers; however, the Developers internally were talking about a
11
12 need to clear about $5 million after tax to go back into the mall portion of
13 the project (Ceriani Decl., Ex. 12, p. RPS 5885). It was, Plaintiffs believe,
14
about this time that the Developers (and, perhaps, the City) began thinking
15
16 about inflating the price of the Garage in order to generate a significant
17 portion of the money the Developers needed to, for example, build
18
Nordstrom a first-class 130,000 square foot store at a cost of over
19
20 $22 million (Ex. 16, p. PC 3168). Other money needed to renovate the Mall
21 would come from a HUD loan.

22
For future reference, it is also significant that during this July 1996
23
24 time frame, the Developers internal memos confirm that solidifying a
25 parking validation program with property owners and retailers was among
26
the critical tasks to be accomplished by July 1, 1996 (Ex. 16, p. PC 3169).
27
28

12. The Developers decide the City should use the investment
1
value method to value the Garage and inflate the purchase
2 price.
3 In this same February 1996 time period, the Developers and their
4
appraiser, Derek Zimmer, began discussing the use of an investment value
5
6 appraisal method to inflate the value of the Garage (Ceriani Decl., Ex. 192
7 [Robideaux] pp. 134, 136). The investment value method uses discounted
8
cash flows to derive value, with the projected cash flows being reduced to
9
10 present value through use of a discount rate based upon the value of the
11 property to a particular investors unique purposes (Ex. 27 p. BARRETT
12
0291, 0344); Ex. 28, pp. AUBLE 0338-41). In this case, the investor was the
13
14 City, and the City understood from the outset that investment value was a
15 device designed to inflate the supposed value of the Garage and thereby
16
justify an inflated purchase price 6 (Ceriani Decl., Ex. 180 [Fortin] pp. 29, 31,
17
18 64; Ex. 186 [Koegen] pp. 46, 49, 62-65, 70-73, 785, 786, 831, 832; Ex. 171
19 [Beringer] p. 87). By April 1996, Zimmer, the Developers agent, Robideaux,

20
and the City had all agreed to make exclusive use of the investment value
21
22 method (Ex. 192 [Robideaux] pp. 134-136]; Ex. 186 [Koegen] pp. 785-86) to
23 assign a value to the Garage even though (1) Dennis Beringer, the Citys
24
25
26
6Prudentials counsel, Foster, claims it never discussed with anyone or even
considered defining investment value in the Official Statements (Ex. 182
27 [Greenough] pp. 141-42). As a result, investors never knew the unique use
28 of investment value here was to simply pump the price of the Garage.

own real estate manager, expressed the view that the investment value
1
2 method significantly over-valued the Garage (Ex. 171 [Beringer] pp. 8, 72);7
3
(2) the Citys experienced municipal finance counsel, Roy Koegen, had
4
never even seen the investment value method employed in any transaction
5
6 (Ex. 186 [Koegen] p. 78); (3) city officials were aware that using an
7
investment value approach would result in a very high value being
8
placed on the Garage (Ex. 180 [Fortin] p. 90). As noted, infra, at paragraph
9
10 15, when the City commissioned appraisals of the Garage, the appraisers
11
were instructed to use the investment value method and were provided
12
with a Scope of Appraisal (Ex. 18) which had been prepared by Zimmer,
13
14 the Developers appraiser, to follow (Ex. 169 [Barrett] pp. 21-22). Investors
15
were not told that the MAI Appraisals touted in the Official Statements as
16
the basis for the purchase price of the Garage were orchestrated by the
17
18 Developers, the seller, through the Developers appraiser. 8 Even the
19
20
21
22 7 When Beringer expressed his view to the City manager, William Pupo,
23 Pupo told Beringer that he was negative and not a team player and
Beringer was, thereafter, taken out of the loop (Ex. 171 [Beringer] pp. 73-
24 74).
25 8 The materiality of disclosing to investors the difference between
26 investment value to the City and value to investors was highlighted by
Fosters Spitzer. In his words, investment value to the City and the value
27 in which potential investors would be interested compares fish and
28 bicycles (Ex. 196 [Spitzer] p. 115).

Foundation's municipal bond expert, Donald Keysser, an individual with
1
2 over twenty years of municipal bond experience, acknowledged the
3
fundamental inappropriateness of structuring a bond offering based upon
4
an asset whose purchase price has been artificially inflated (Ex. 185
5
6 [Keysser] pp. 317-19).
7
Prestons Ormsby admitted that the purchase price of the Garage was
8
a material fact to investors (Ceriani Decl., Ex. 191 [Ormsby] p. 87). Ormsby
9
10 also agreed that if the purchase price of the Garage was substantially
11
higher than its fair market value, that could be a material fact but one
12
would have to know what the difference was and what accounted for it (id.,
13
14 p. 110). He further acknowledged that if the fair market value of the
15
Garage was substantially less than the $26 million, that would be a factor
16
that Preston would have considered with respect to its analysis as to
17
18 whether the bonds were tax exempt (id., pp. 110-11).
19
13. At the Developers request, Walker inflates the key parking
20 rate assumption.
21 Since an investment value appraisal is driven by the revenues
22
projected to be generated, it was necessary for those revenues to be large
23
24 enough to support an inflated purchase price. Robideaux and John Dorsett
25 of Walker accomplished that here by simply manipulating the numbers

26
until the deal worked. The manipulation was so brazen that Dorsett
27
28 actually wrote on an iteration of the financial statements being discussed

with Robideaux what does rate need to be in order for project to work?
1
2 (Ceriani Decl., Ex. 13, p. W 10000560; Ex. 176 [Dorsett] pp. 70-71). Within
3
five days of posing this question, Walkers proformas jump the hourly
4
parking rate by 74%, from $.75 per hour to $1.30 per hour (Ex. 14,
5
6 p. W 100000568). That, however, was still was not enough, so the next day
7
the rate is kicked up to $1.40 per hour (Ex. 15, p. W 10000570) and, by the
8
time Walker issued its June 1996 Report, the hourly rate had doubled from
9
10 its original $.75 to $1.50 per hour (Ex. 118, pp. PSI 0168, 0177). 9 Not only
11
were none of these financial shenanigans disclosed to investors, but
12
investors were simply lied to about the actual historical rate. In Walkers
13
14 early iterations (Ex. 14, p. W 1-0568; Ex. 15, p. W 1-0570), Walker
15
acknowledges that the historical rate was $.75 per hour. By the time the
16
Bonds were issued, the POS reported the historic parking rate to be $1.00
17
18 per hour (Ex. 118, p. PSI 0074), no doubt because potential investors who
19
would accept a 50% increase in rate (from $1.00 to $1.50) might well balk at
20
21
22
23
24
9 Even ignoring that a daily business hours rate of $1.50 per hour was
questionable in the Spokane market, Walker did absolutely nothing to
25 determine whether or not the Spokane market would accept a $1.50-per-
26 hour rate in evenings and on weekends (Ex. 176 [Dorsett] pp. 332, 342). To
put this failure into perspective, forty percent of Walkers projected revenue
27 came from AMC patrons who would be patronizing the Garage, if at all,
28 evenings and weekends.

a projected 100% increase in rate ($.75 to $1.50). It appears the rate was
1
2 increased to $1.00 sometime between February 1996 (when it was reported
3
by Walker to be $.75 per hour) and July 1996 when the Auble Report was
4
issued (see Ex. 28, p. AUBLE 0406 (reporting the current rate to be
5
6 $1.00/hour). Curiously, Dorsett testified he did not even know how the
7
$1.50 rate was developed (Ex. 176 [Dorsett] p. 265), but was clear that
8
Walker never independently evaluated whether the $1.50-per-hour rate
9
10 assumption was reasonable (Ex. 176 [Dorsett] pp. 305-06), in part because
11
the City did not make that a part of Walkers contractual obligations.
12
14. Walker and the City agree that Walker will not independently
13
investigate the accuracy of the key assumptions.
14
Prudential concedes that in the municipal finance world, calling a
15
16 report a financial feasibility analysis or a financial feasibility study
17 typically means that the person performing that study has not merely
18
accepted assumptions given to him but will test those assumptions and do
19
20 an independent expert critical analysis of the reasonableness of those
21 assumptions (Ceriani Decl., Ex. 188 [Moore] p. 66). Prudential and other
22
experienced members of the Working Group (Foster, Preston, the City, the
23
24 Developers, and Koegen, at least) thus knew that investors would view a
25 financial feasibility analysis as an analysis that incorporated the authors
26
independent and expert view of the reasonableness of the assumptions upon
27
28 which the financial structure of the deal was based. Here, the investors

were misled into believing Walker, a recognized expert firm (Ex. 118,
1
2 p. 0074), had prepared a financial feasibility analysis when, in fact, all of
3
the Defendants knew it was not.
4
The City and Walker finalized the Consultant Agreement in April
5
6 1996. The agreement states Walker would prepare a financial feasibility
7
analysis, but provides that the Walker revenue projections would be
8
premised in large part upon assumptions provided by the City and
9
10 others . . . and that Walker will not independently investigate the accuracy
11
of the assumptions or the information provided by the City or others . . .
12
(Ceriani Decl., Ex. 19, p. W 1-0013). Walker, in fact, got and accepted most
13
14 of the key assumptions from the Developers (Ex. 163, p. 3 [response to
15
interrogatory 6]; Ex. 176 [Dorsett] pp. 522-526). Thus, when the OS
16
downplays the concerns of Coopers by trumpeting that Walker is a
17
18 recognized expert (Ex. 118, p. PSI 0074), investors are not told that such
19
expertise is really meaningless because Walkers agreement with the City
20
did not require it to, and it did not, independently evaluate the
21
22 reasonableness of the key assumptions underlying its revenue projections.
23
Everyone but investors, it seems, was fully aware that Walker had merely
24
compiled assumptions from various sources without rendering any opinions
25
26 on the reasonableness of those same assumptions. Prudential and its
27
counsel, for example, were aware that Walker rendered no opinions with
28

respect to the reasonableness of the assumptions upon which their
1
2 projections were based (Ex. 182 [Greenough] pp. 434-35, 364) and, as late
3
as August 27, 1998 (four weeks before the Bonds were actually issued),
4
Prudential and its counsel were still searching for someone to sign off on
5
6 the numbers (Ex. 114, p. FPS 1628) which, according to. Greenough, meant
7
obtaining certification . . . as to the reasonableness of the assumptions
8
underlying the Walker feasibility analysis (Ex. 182 [Greenough] p. 363).10
9
10 Ultimately, the Walker Report was appended to the Official Statements11
11
where it is called both a Feasibility Analysis (Ex. 118, p. PSI 0069) and,
12
repeatedly, a Financial Feasibility Analysis (Ex. 118, pp. PSI 0138;
13
14 PSI 0048; PSI 0069, PSI 0073, PSI 0074, PSI 0312). However, Walker itself
15
acknowledges the simple fact that the Walker Report was not, and was not
16
intended to be, an independent financial feasibility analysis at all (Ex. 176,
17
18 pp. 93, 95). Again, this was no secret to anyone (other than investors) since
19
the issue is raised by Auble, Barrett and Sabey, and Coopers flatly stated in
20
its January 1997 report that the Walker Report was not, and was never
21
22
23
10This certification was, as is discussed below, provided by the signature of
the Citys Fortin on a certificate prepared by Koegen. Even Fortin
24 personally had serious and significant doubts about the reliability of the
25 Walker numbersi.e., did not believe the assumptions were reasonable.
26
11 And contrary to Walkers statement of facts, the Consultant Agreement
actually provides that [t]he Consultant acknowledges and consents to the
27 use of its final report in the Citys preliminary and official statements issued
28 in connection with any bonds . . . (Ex. 19, p. W 1-0014).

intended to be, a financial feasibility analysis (Ex. 63, p. 2313). The Walker
1
2 Report, in Prudentials words, was a foundation of the entire transaction
3
(Ceriani Decl., Ex. 178 [Face] p. 123), and to present it to investors as
4
something everyone agrees it was not is simple fraud.
5
6 The question must be asked. Why didnt Prudential or the City, or
7
any other member of the Working Group, require that Walker, the supposed
8
expert, sign off on the revenue numbers and the assumptions upon which
9
10 they were based? The only possible answer is that Prudential and the City,
11
as well as the other members of the Working Group, knew what Walker
12
would say and the deal would be dead. Everyone, but investors, knew the
13
14 numbers were contrived. Walker knew from the outset that its Report
15
would be attached as an appendix to the Official Statements (Ceriani Decl.,
16
Ex. 19, p. W 1-0014; Ex. 176 [Dorsett] pp. 208-09). Walker further
17
18 understood that investors would review and rely upon the Walker Report
19
(id.). The City knew Walker lacked independence because Walker had been
20
working for the Developers prior to entering into the Consultant Agreement
21
22 with the City (Ex. 180 [Fortin] pp. 466-68). This is also apparent from the
23
fact that Walkers 1995 proformas, which were prepared for the Developers
24
(Ex. 6), were given to Prudential by the Citys bond counsel, Koegen (Ex. 7,
25
26 p. PERKINS 0023).
27
28

15. The City told the appraisers to make exclusive use of the
1
investment value method, use Walkers projected revenues
2 and target a value of $23.5 million.
3 As noted earlier, the City, as part of the scheme, agreed to use the
4
appraisal method selected by the seller of the property. At a meeting in
5
6 April 1996, representatives of the City and representatives of Walker met
7 with five appraisers and outlined that the City wanted an investment value
8
appraisal (Ceriani Decl., Ex. 169 [Barrett] pp. 11, 14). The appraisers were
9
10 uncomfortable with the investment approach (id., p. 17); however, it was
11 obvious the City had already determined that was the approach that would
12
be taken (id., p. 18) because the target was to maximize the value of the
13
14 garage (id., pp. 17-18) by using an abnormal methodology (id., p. 14) that
15 would achieve the desired result (id., p. 16). Over the objections of the
16
Citys real estate director, Dennis Beringer (Ex. 171 [Beringer] pp. 72-73;
17
18 see also Ex. 28, p. AUBLE 0331-32; Ex. 27, p. BARRETT 0291-92), Auble and
19 Barrett were ordered to, and did, make exclusive use of the investment
20
value method to value the Garage (Ex. 186 [Koegen], p. 786), used the
21
22 revenue projections in the Walker Report (even while expressing concerns
23 about those very numbers), and used the Citys artificially low cost of funds
24
as the discount rate (the low 7.5% discount rate leads to a substantially
25
26 greater investment value) in order to reach the target they were given
27 before they ever began the engagement (Ex. 20, p. BARRETT 0139; Ex. 169,
28

pp. 26-32). Thus, the key assumptions underlying the Walker numbers (the
1
2 same assumptions that no one, prior to the Citys certificate in late 1998,
3
had ever signed off on) provided the foundation of the investment value
4
appraisals that Auble and Barrett, following the Citys orders, generated.
5
6 These Auble and Barrett Reports were presented to investors in the Official
7
Statements as two MAI appraisals commissioned by City upon which the
8
purchase price is primarily based (Ex. 118, p. 0075). Investors are not told
9
10 the appraisals were carefully orchestrated shams designed, as Barrett
11
said, to achieve a desired result. Nor are investors told that Auble and
12
Barrett themselves were careful to note that their evaluations were, in fact,
13
14 consulting exercises and were not real appraisals (Ex. 27, pp. 0291-92;
15
Ex. 28, p. 0332).
16
16. Key representatives of all the Defendants read the Auble,
17
Barrett and Coopers Reports and, therefore, knew the Official
18 Statements were false and misleading.
19 Prudentials Moore and Face, the investment bankers, read the Auble
20
Barrett and Coopers Reports (Ceriani Decl., Ex. 188 [Moore] pp. 182, 207,
21
22 227; Ex. 178 [Face] p. 25). In fact, Moore highlighted most of the key
23 provisions in the Coopers Report that were presented in a false and

24
misleading manner in the Official Statements (Ex. 64). Fosters Greenough
25
26 and Spitzer also admitted reading the Auble, Barrett and Coopers Reports
27 (Ex. 182 [Greenough] p. 60; Ex. 196 [Spitzer] p. 73). Prestons Ormsby was
28

(as on most topics) more vague on the subject, but still admitted reading
1
2 summaries of the Auble, Barrett and Coopers Reports (Ex. 191 [Ormsby]
3
pp. 73, 88, 183). Betsy Cowles (Ex. 175 [Cowles] pp. 13, 58, 59) and the
4
Developers agents Robideaux and Swinton admitted reading the Auble,
5
6 Barrett and Coopers Reports (Ex. 192 [Robideaux] pp. 185-86, 277; Ex. 197
7
[Swinton] p. 133). Fortin, the assistant city manager and director of
8
finance, and Koegen read the Auble, Barrett and Coopers Reports (Ex. 180
9
10 [Fortin] p. 105, 159, 361]; Ex. 186 [Koegen] p. 102). City council members
11
Greene (Ex. 181 [Greene] pp. 26, 27, 55) and Barnes (Ex. 170 [Barnes] pp.
12
28, 30) read the Auble, Barrett and Coopers Reports. Council member
13
14 Holmes read Auble and Barrett (Ex. 183 [Holmes] p. 17). The Foundation
15
directors also admitted reading the Coopers Report (Ex. 194 [Schnug] p. 56;
16
Ex. 200 [White] p. 29; see also Ex. 74). The directors also read the final
17
18 Official Statements which were signed by director White as the president of
19
the Foundation (Ex. 200 [White] p. 35; Ex. 194 [Schnug] p. 101; Ex. 172
20
[Broom] p. 47).
21
22 There were two lawyers at Preston involved in reviewing the Official
23
Statement, Michael Ormsby in Spokane and David Thompson in Seattle.
24
Thompson was the lead lawyer from Preston on disclosure issues (Ceriani
25
26 Decl., Ex. 198 [Thompson] p. 113). William Mantle, a third Preston lawyer,
27
28

who approved the unqualified tax opinion, admitted he did nothing that
1
2 could be considered due diligence (Ex. 187 [Mantle] pp. 70-71).
3
Ormsby claims he never even read the Walker report (Ceriani Decl.,
4
Ex. 191 [Ormsby] p. 77). His colleague, Thompson, claims only to have read
5
6 parts (Ex. 198 [Thompson] p. 58). Although he had access to both
7
appraisals, Ormsby claims he did not bother to read either. He read only a
8
summary of one; beyond that he did nothing to determine the fairness or
9
10 reasonableness of the purchase price (Ex. 191 [Ormsby] pp. 124-25).
11
Thompson also claims he did not read either appraisal (Ex. 198 [Thompson]
12
pp. 190-91). Ormsby testified he only read a summary of the Coopers
13
14 Report and not the entire document even though he had it (Ex. 191
15
[Ormsby] pp. 88, 183). Thompson browsed through it (Ex. 198 [Thompson]
16
p. 361).
17
18 17. The continued manipulation of the numbers by Walker, the
Developers and the City.
19
20 Walkers draft report dated May 17, 1996 (Ceriani Decl., Ex. 21,
21 p. BARRETT 0407) assumed that free Sunday parking will continue (id., p.
22
BARRETT 0443) since that had historically been the case in Spokane. On-
23
24 street parking was free on Sunday (as well as evenings after 6:00 p.m. and
25 on Saturday) (Ex. 180 [Fortin] p. 234; Ex. 177 [Edwards] p. 168; Ex. 192
26
[Robideaux] pp. 93-94). As a result, the Spokane parking public had been
27
28 conditioned to expect free parking on Sundays. To pump the revenue

numbers, however, Walker was told (Ex. 24, p. W 1-0607) to, and did,
1
2 assume in its final report that Sunday parkers would willingly pay an
3
hourly rate of $1.00 (Ex. 118, pp. PSI 0177, 0209). Investors were not told
4
that parking had traditionally been free on Sundays or that parkers could
5
6 park free on the street instead of paying Walkers assumed $1.00 per hour
7
in the evenings and on Sunday.
8
18. The City refuses to raise parking meter rates to make the
9
$1.50-per-hour rate more appealing to the parking public.
10
Walkers May 1996 draft report also assumed that the RPS garage
11
12 [would] capture 90% of the parking demand generated by the land uses in
13 River Park Square (Ceriani Decl., Ex. 21, p. BARRETT 0449). This projected
14
90% capture rate was, however, based on Walkers assumption that the City
15
16 would set parking meter rates in the vicinity of the RPS Mall at or near the
17 $1.50-per-hour rate projected for the Garage such that parkers would not
18
refuse to park in the Garage because it was cheaper to park on the street
19
20 (Ex. 176 [Dorsett] p. 540). The City, however, refused to raise meter rates
21 (Ex. 24, p. W 1-607) and, while Walker, in its final report, reduced the
22
capture rate assumption to 85%, investors were not told that the City had,
23
24 before the Bonds were issued, refused to impose street parking rates that
25 were consistent with what the financial projections assumed could be

26
charged by the Garage. Moreover, according to the Plaintiffs parking
27
28 expert, Wendell Pickett, an 85% capture rate for a pay parking garage is

extremely high and more consistent with the capture rates achieved by
1
2 suburban malls with free parking. 12
3
19. The final Walker Financial Feasibility Analysis was issued on
4 June 14, 1996.
5 As noted earlier, the June 14, 1996 (Ceriani Decl., Ex. 25, p. AUBLE
6
0168) Walker Report is repeatedly presented to investors as a Financial
7
8 Feasibility Analysis even though Walker itself knew it was not13 and
9 Coopers told all of the Defendants it was not. Based upon the numbers
10
generated by Walker (with input from, at least, the Developers and the
11
12 City), Prudential and the City sized a new bond issue at over $29.8 million
13 on May 30, 1996, about two weeks before the final Walker Report was
14
issued (Ex. 22, p. PC 3206). The June 1996 Walker Report (Appendix B to
15
16 the Official Statements) (Ex. 118, pp. PSI 0136-200) incorporates various key
17 assumptions (p. PSI 0168; 0176-77), including (in addition to the various
18
assumptions discussed above), a $1.50-per-hour rate for all hours of parking
19
20 except Sundays (on Sundays the rate was $1.00 per hour), a three-hour
21 length of stay for retail shoppers, an 85% capture rate of the parking
22
demand generated by the land uses in River Park Square, and a revenue
23
24
12See Exhibit 56 to Declaration of Gary J. Ceriani in Support of Bond Fund
25 Plaintiffs Opposition to Foster Pepper & Shefelmans Motion for Summary
26 Judgment on Washington Securities Act Claims dated September 15, 2003.
27
28

neutral parking validation program (Ex. 118, pp. PSI 0176-77). These
1
2 assumptions resulted in revenue projections of well over $4 million in each
3
of the first three full years after the Bonds were issued (Ex. 118,
4
pp. PSI 0070, 0180). The assumptions were bogus (which is why Walker
5
6 refused to opine on them), and the entire Working Group, mere weeks before
7
the bond issue, was scrambling to find someone to sign off on the numbers.
8
Ultimately, the City, desperate to get the deal done, bit the bullet and
9
10 convinced Fortin to sign a certificate that he, personally, did not believe in
11
by word-smithing the document to provide that proper City officials, but
12
not Fortin personally, were providing the certification (Ex. 135; Ex. 180
13
14 [Fortin] pp. 319-21; Ex. 186.
15
20. The length of stay assumption.
16
Walkers Analysis assumes a three-hour length of stay for transient
17
18 retail shoppers (Ceriani Decl., Ex. 118, p. PSI 0177). This key assumption
19 was subsequently, and expressly, criticized by Auble, Sabey and Coopers
20
(Ex. 28 (Auble), pp. AUBLE 0336, 0406; Ex. 54 (Sabey), p. PWC 2748; Ex. 63
21
22 (Coopers), p. 2314).. The Developers told Walker that the historical and
23 current length of stay at the Garage was 1.9 hours (Ex. 176 [Dorsett]
24
25
26 13 Of course, at the time, Walker signed two letters consenting to the
27 presentation of its Financial Feasibility Analysis to investors as part of the
28 Official Statements (Exs. 117 and 124).

pp. 102, 260-61), 14 which was completely consistent with the national
1
2 standard for length of stay which was about two hours and trending
3
downward (Ex. 54, p. PWC 2748). Walkers Dorsett actually thought the
4
national length of stay average was something well under 1.9 hours
5
6 because most retail customers stay less than 1.9 hours (Ex. 176 [Dorsett] pp.
7
292-93). This national standard, which would cause an investor to question
8
the reasonableness of the three-hour length of stay assumption incorporated
9
10 into the Walker Analysis, is not disclosed. All the Official Statements say
11
are that if these increased rates and longer stays are not achieved,
12
revenues generated by the Parking Facility could fall short of projections
13
14 (Ex. 118, p. 25 (PSI 0074)). It is, obviously, one thing to say that if the
15
demand isnt there, we wont get the revenues. It is something entirely
16
different to say, as should have been disclosed, in order to receive the
17
18 revenues we have projected, people must stay 36% longer in our garage than
19
they do, on average, anywhere else in the country.
20
21. The 85% capture rate assumption.
21
22 One of the critical assumptions upon which the Walker Report is
23 based is that The RPS garage captures 85% of the parking demand
24
25
26
14Actually, it was determined by Auble that the historical length of stay was
really only 1.2 hours (Ex. 28, p. AUBLE 0336, 0406). Auble based this
27 statement on its analysis of five years of historic garage revenues
28 (pp. AUBLE 0403-06)

generated by the land uses in River Park Square (Ceriani Decl., Ex. 118,
1
2 pp. PSI 0140, 0177). The Plaintiffs expert, Wendell Pickett, has
3
considerable operational experience running parking garages and focused
4
his expert report on a critique of the Walker Report. The Pickett report
5
6 addresses why the 85% capture rate was inflated and unreasonable,
7
addresses how Walker did not properly apply its own methodology, and
8
attributes the bulk of the inflated revenues in the Walker Report to the
9
10 fraudulently inflated 85% capture rate assumption.15 Picketts report
11
evidences what Prudential, Foster and the rest of the Working Group would
12
have discovered had they asked the most basic questions, questions that
13
14 they knew needed to be asked once the Walker Report was challenged by
15
Auble, Barrett, Sabey and Coopers.
16
The Official Statements and the Walker Report misrepresent that the
17
18 revenue assumptions do not take into account a parking validation program
19
(see, for example, Ceriani Decl., Ex. 118, p. PSI 0074, PSI 0176). The truth,
20
as Dorsett admits, is that Walker assumed a viable parking validation
21
22 program was in place in order to justify the 85% capture rate assumption
23
24
25
26 15See Exhibit 56 to Declaration of Gary J. Ceriani in Support of Bond Fund

(85% capture rate depends upon existence of a validation program) (Ex. 176
1
2 [Dorsett] p. 347). This key fact was addressed in the Coopers Report
3
(Ex. 63, p. 2314). The fact that a viable validation program was assumed to
4
justify the high 85% capture rate is not disclosed anywhere in the Official
5
6 Statements or the Walker Report.
7
22. Walker assumed any future parking validation program would
8 be revenue neutral to the Garage.
9 Although the Developers had stated, in July of 1996, that solidifying
10
a parking validation program with property owners and retailers was
11
12 among the critical tasks to be accomplished by July 1, 1996 (Ceriani Decl.,
13 Ex. 16, p. PC 3169), by the time the Bonds were issued, they either had not
14
been able to, or chose not to, get it done. Instead, the Developers (and the
15
16 City) told everyone dont worry about it, there will be one and it will be
17 revenue neutral to the Garage. For example, the Developers appraiser

18
Zimmer took the following note at a May 30, 1996 meeting with the Citys
19
20 appraisers at City Hall: Validation Program Terms will not be provided.
21 Validation program will be revenue neutral (Ex. 23, p. DZ 6598). As a

22
result, the Walker Report both pumps up revenue projections by making the
23
24 undisclosed (Ex. 118, p. 0074) assumption that a viable parking validation
25 program would be in place (Ex. 63, p. 2314), but does not account for the
26
expense of any parking validation program (Ex. 118, p. PSI 0176). The
27
28 Walker Report tells investors, however, not to worry about it because We

understand the funds necessary to pay for any parking validation program
1
2 are to be budgeted elsewhere, so are not included in this analysis (Ex.
3
118, p. PSI 0176). Although Prudential claims that it was Robideaux who
4
assured it on repeated circumstances that the validation program would
5
6 be revenue neutral (Ex. 188 [Moore] p. 456), the simple truth is that no one
7
really knew. Betsy Cowles has testified that when the bonds were issued,
8
what [the validation program] is, and who was going to pay for it had yet
9
10 to be determined (Ex. 175 [Cowles] p. 183). What investors should have
11
been told was: (1) the Developers had been trying to solidify a validation
12
program for two years and had not been able to accomplish it; (2) there were
13
14 no funds budgeted elsewhere to pay for a parking validation program; and
15
(3) there was no reasonable expectation that logical sources for the funds
16
would agree to subsidize a validation program, especially at the new higher
17
18 rates that would be charged for parking. As described below, the funds were
19
not available to fund the kind of validation program that would lead to
20
increased demand to park in the Garage. In fact, a memo from Michael
21
22 Edwards, president of the BID to the Transportation Council dated March
23
23, 1999 (Ex. 145, p. BID 0816), states the current validation program is
24
broken and no single revenue source (city, BID, businesses of customers) can
25
26 affordably fill the deficit individually or as a group. So much for the
27
validation funds being budgeted elsewhere.
28

For their part, none of the other members of the Working Group
1
2 putting together the Official Statements made any attempt to investigate
3
whether, indeed, the necessary funds really had been budgeted elsewhere
4
(Ceriani Decl., Ex. 182 [Greenough] p. 456; Ex. 178 [Face] p. 359]; Ex. 196
5
6 [Spitzer] p. 111). Robideaux, who Prudential claims was the source of the
7
information, claims conversations on that topic would not have been with
8
him (Ex. 192 [Robideaux] p. 158) and, in any case, Walker never asked
9
10 Robideaux to provide any support for the statement (id., p. 157).
11
23. The AMC Theatre revenues.
12
The ability of the Garage to generate the needed revenues was, in
13
14 large part, dependent on significant revenues from AMC cinema patrons. In
15 fact, the AMC cinema patrons were projected to pay full parking rates and
16
thereby generate over 40% of total Garage revenues (Ceriani Decl., Ex. 118).
17
18 As is discussed in detail below, however, from the outset AMC demanded
19 free parking for its patrons.16 This was no surprise since the assumption
20
that cinema patrons would pay $4.50 to park and see a movie downtown
21
22 when they could park for free at a mall was questioned and criticized by
23 every professional to review the Walker Report (Ex. 28 (Auble), pp. AUBLE
24
25
26
16 Very early in the process, the Developers were advised by their own
appraiser, Derek Zimmer, who had spoken to AMC, that AMC would
27 demand, as part of any lease, that AMC patrons park for free (Ex. 209,
28 p. RPS 8256; Ex. 197 [Swinton] p. 559).

0399-401; Ex. 27 (Barrett), pp. 0340-41; Ex. 54 (Sabey), pp. PWC 2746-47; Ex.
1
2 63 (Coopers), pp. 2311, 2314, 2316; Ex. 37 (Act III Theatres)). Moreover,
3
neither the City nor the Developers believed the assumption was reasonable
4
and, long before the Bonds were issued, were running analyses of the impact
5
6 upon revenues of such changes as charging cinema patrons a flat rate on
7
evenings and weekends (Ex. 31, p. W 1-0623; 1-0625; 1-0626). None of this
8
was disclosed to investors.
9
10 The Other Risks section of the Official Statements (Ceriani Decl.,
11
Ex. 118, p. PSI 0074) purports to address Coopers four primary areas of
12
concern, but fails to disclose the recognized speculative nature of AMC
13
14 revenue projections, the known fact that AMC did not want its patrons to
15
pay for parking, the known competition from other area multiplex cinemas
16
with free parking, and the known discount to cinema projections applied by
17
18 the City.
19
24. Nordstrom believed the $1.50-per-hour rate was too high.
20
A June 25, 1996 Memorandum from the Developers agent, Robideaux,
21
22 to a representative of Nordstrom has Robideaux conveying to Betsy Cowles
23 Nordstroms concern that the $1.50-per-hour rate was too high (Ceriani
24
Decl., Ex. 26, p. RPS 4821). As addressed below, Nordstrom was consistent
25
26 in its criticism of the $1.50-per-hour rate (Ex. 65, p. NORD 538); however,
27
28

Nordstroms criticism of the $1.50 per hour rate was not disclosed in the
1
2 Official Statements (Ex. 118, p. 0074).
3
25. The Appraisers Auble and Barrett are highly critical of
4 Walker.
5 The Auble and Barrett Reports were issued in July 1996. Auble
6
confirmed that this assignment is not a Market Value appraisal, but is a
7
8 consulting assignment (Ceriani Decl., Ex. 28, p. AUBLE 0332). This fact is
9 not disclosed in the Official Statements. Auble also confirmed using the
10
investment value method inflated the value of the garage: If Market Value
11
12 were estimated, the resulting value would be significantly lower than the
13 value estimated herein (id.). This fact is not disclosed in the Official
14
Statements. After thus qualifying his opinion and noting he was using what
15
16 we now know to be the inflated Walker revenue projections, Auble stated
17 the estimated investment value of the Garage as of March 1, 1999, as

18
$34 million (id.). Under the heading Walker Report Limitations, the
19
20 Auble Report concludes the Walker Report only professes to be (and,
21 therefore, is not) a financial feasibility analysis (Ex. 28 p. AUBLE 0404). The

22
Auble Report also states the historic average length of stay is approximately
23
24 1.2 hours (Ex. 27, pp. AUBLE 0336, 0406) which was based on its analysis of
25 five years of historic garage revenues (Ex. 28, pp. AUBLE 0403-06). The
26
Official Statements falsely represent the historic length of stay to be 1.9
27
28 hours, a misrepresentation that can be traced directly to the Developers

(Ex. 176 [Dorsett] pp. 102, 260-61), but a misrepresentation that all of the
1
2 Defendants were aware of because, as noted earlier, they all read the Auble
3
Report.
4
In his report, Barrett also expressed his concerns over use of the
5
6 investment value method by presenting his conclusions in three options: a
7
Best Case$30,820,000, a Moderate Case$23,025,000, and a Worst
8
Case$22,240,000 (Ceriani Decl., Ex. 27, p. BARRETT 0292). The moderate
9
10 and worst case scenario values are substantially less than the $26 million
11
purchase price (Ex. 118, p. PSI 0075) for the Garage. In yet another example
12
of the Working Groups selective editing of information that would be
13
14 provided to investors, Barretts moderate case and worst case valuations,
15
which are significantly lower than the $26 million purchase price, are
16
concealed from investors. Aubles and Barretts thoughtful, and expressly
17
18 stated, concerns about the reliability of the Walker Report (Ex. 27,
19
pp. BARRETT 0291, 0340-41, 0344; Ex. 28, pp. AUBLE 0336, 0343, 0400-01)
20
are likewise concealed from bond purchasers.
21
22 The Official Statements address the Auble and Barrett reports in the
23
Limited Remedies Upon Default section of the Official Statements, stating
24
only that [t]he purchase price is based primarily on two MAI appraisals
25
26 commissioned by the City (Ceriani Decl., Ex. 118, p. PSI 0075). Those
27
appraisals determine the investment value rather than the market value
28

of the Parking Garage (id.). There are no other disclosures about the Auble
1
2 and Barrett Reports anywhere in the Official Statements. There is, for
3
example, no mention that Barretts worst case and moderate case
4
scenarios do NOT support a purchase price of $26 million and no mention
5
6 that Auble stated, If Market Value were estimated, the resulting value
7
would be significantly lower than the value estimated herein.
8
In this same section, the Official Statements also misrepresent that it
9
10 is not certain that the amount realized upon a sale of the leasehold
11
interest in the Parking Facility would be sufficient to redeem all of the then-
12
outstanding principal amount of the Bonds (Ceriani Decl., Ex. 118,
13
14 p. PSI 0075). Actually, all of the Defendants knew full well there was no way
15
a fee interest in the Garage could be sold for enough to pay off the Bonds.
16
Saying it was not certain that the leasehold interest could be sold for an
17
18 amount sufficient to pay off the Bonds suggests that the Working Group
19
believed it was possible. That was simply false.17
20
26. The City and Prudential secretly reduce the Walker revenue
21
projections.
22
23
24 17There is no question the Working Group was focused on, and understood,
25 the issue. An August 12, 1998 draft of the POS shows an intent to expand
26 the scope of what became the Other Risks section contains the following
handwritten note under the Limited Remedies Upon Default section:
27 Value may not be 26 mill (check hospital OS) page 17 of Sea Life (Ceriani
28 Decl., Ex. 111, p. FPS 6428).

The Walker numbers were used by Prudential to both resize the bond
1
2 issue at $32 million (Ceriani Decl., Ex. 118, p. PSI 0070) and mathematically
3
demonstrate in the Official Statements that the projected revenues were
4
sufficient to both pay debt service on the Bonds and provide a 1.25 or
5
6 greater debt service coverage ratio (id.). The City and Prudential, were,
7
however, so concerned about Walkers assumptions that, at various times
8
before the bonds were issued, they ran proformas reducing the revenues
9
10 attributed to AMC Theatres by as much as 50% (Exs. 29 and 30) because the
11
revenues were considered speculative (Ex. 32, p. PC 7783). That the AMC
12
revenues were speculative or even that Prudential and the City believed
13
14 them to be, was not disclosed to investors (Ex. 118, p. PSI 0074).
15
27. Walker was first asked to prepare proformas assuming a flat
16 rate after 6:00 p.m. and all day Sundays in August 1996.
17 It is also apparent that, before the Bonds were issued, the City
18
believed it was unreasonable to assume parkers in Spokane would pay full
19
20 rate in the evenings and on weekends (when on-street parking was free).
21 An August 15, 1996 memo from Walker to the City shows that projected
22
revenues would be more than cut in half if the Garage went to a flat rate of
23
24 $1.00 after 6:00 p.m. and all day on Sundays (Ceriani Decl., Ex. 31, p.
25 W 1-0623). A flat rate in the evenings and on Sundays would act as a form
26
of parking validation, or subsidy, for cinema goers who tend to go to the
27
28 movies in the evenings and on Sundays. A switch to a flat rate would be

subsidized by the Garage, which would forego collecting the $1.50-per-hour
1
2 rate. By this time the Defendants knew the Garage would almost certainly
3
have to go to a flat rate in the evenings and on Sundays so AMC could
4
compete with suburban multiplex cinemas with free parking (addressed in
5
6 more detail below).
7
28. The City believed it could build the garage for $13 million and
8 was advised to not pay more than $18 million for the Garage.
9 During the discussions between the City and the Developers (they
10
cannot really be called negotiations) in July 1996, an assistant City
11
12 attorney, Stan Shultz, involved in those discussions noted that $26m-$30m
13 is where theyre @ for purchase, we are @ $20m and we could bld for $13m.
14
Excludes land lease (Ceriani Decl., Ex. 210; Ex. 180 [Fortin] p. 61).
15
16 Thereafter, the assistant City manager and director of finance, Pete
17 Fortin, and the Citys bond counsel, Roy Koegen, both understood that the
18
investment value method resulted in an inflated value for the Garage
19
20 (Ceriani Decl., Ex. 180 [Fortin] p. 33; Ex. 186 [Koegen] pp. 831-32). Fortin,
21 with the support of Koegen, advised the City to pay no more than
22
$18 million for the Garage (Ex. 180 [Fortin] pp. 29-31).18 Koegen admitted
23
24 to the head of the PDA, Terry Novak, that he was concerned that a purchase
25
26 18According to Novak, the president of the PDA, Koegen said the reason he
did not think the City should pay more than $18 million was because it
27 would jeopardize the tax-exempt status of the Bonds (Ex. 189 [Novak] pp.
28 333-34).

price in excess of $18 million would jeopardize the tax-exempt status of the
1
2 offering because it would be inappropriate private inurement to the
3
Developers (Ex. 189 [Novak] pp. 333-34). Investors naturally were not told
4
of this concern. After they did so, Fortin and Koegen were replaced as lead
5
6 negotiators by two City council members who were proponents of the project
7
(Ex. 180 [Fortin] pp. 64-65). With the inflated investment value estimates
8
in the Auble and Barrett Reports in hand, and totally disregarding the
9
10 advice of Fortin and Koegen to not pay more than $18 million for the Garage
11
(Ex. 180 [Fortin] pp. 29, 31, 64-65]; see generally Ex. 186 [Koegen]
12
pp. 72-73, 831-32), the City continued to negotiate with the Developers.
13
14 Ultimately, the City agreed to pay (using bondholders money of course)
15
$26 million for a leasehold interest in the Garage and a yearly ground rent
16
of $750,000, more than twice the market rate, to give the Developers the
17
18 equivalent of a $29 million purchase price (Ex. 45, p. WKDT 6571; Ex. 181
19
[Greene] p. 72).
20
29. The Developers first announced a deal with AMC in
21
September 1996, and the deal involved free parking.
22
A September 26, 1996 Spokesman Review article captioned River
23
24 Park Square to include 24-screen theater announced that AMC
25 Entertainment had signed a letter of intent with the Developers. The
26
article states, Parking for movie goers will be free after 5:30 p.m. and all
27
28 day on Sunday through a parking validation program . . . (Ceriani Decl.,

Ex. 42). The article further states that At other times, movie goers would
1
2 receive two hours of free parking with a validated ticket (id.). Thus, by
3
September 1996, the Developers were telling AMC and were conditioning
4
the public to expect that parking for movie goers would be free after 5:30
5
6 p.m. and all day on Sundays and they would receive two hours of free
7
validated parking at other times. This was directly contrary to the
8
assumptions the Developers instructed Walker to make and is directly
9
10 contrary to what bond purchasers were told in the Official Statements and
11
Walker Report (i.e., that movie goers would pay the going rate for parking
12
and that, if there was a validation program, it would be revenue neutral)
13
14 (Ex. 118, pp. PSI 0074, 0177, 0180). The above statements in this September
15
1996 Spokesman Review articles proved prophetic. As addressed in more
16
detail below, the Garage actually went to a low flat rate fee in the evenings
17
18 and on Sundays shortly after the Garage reopened in late 1999.
19
30. Sabey Corporation addressed the city council and was highly
20 critical of the entire project and the Walker assumptions.
21 Laurent Poole, the president of Sabey Corporation, which was the
22
owner of competing mall properties, addressed the city council on October
23
24 17, 1996. Unlike many competitors who merely rant and rave, Mr. Poole
25 offered well-thought-out and supported criticisms of the foundation of the
26
Garage project, the key assumptions in the Walker Report (Ceriani Decl.,
27
28 Ex. 38, pp. 2429-31). According to the Developers in an October 23, 1996

memo, Laurent Poole did an incredible amount of damage and asked the
1
2 questions that hit the mark . . . . (Ex. 40). This is the same information
3
that was not disclosed to investors and which, as noted below, Prudential
4
discounted without even evaluating. In retrospect, Mr. Poole was spot on.
5
6 31. Key representatives of the Defendants either read the Sabey
Report or knew of its existence and willfully ignored it.
7
8 The entire Working Group was aware of the Sabey criticisms of the
9 Walker numbers 19 yet there is no mention of it, or its questions that hit the
10
mark in the Official Statements. There is, however, a telling reference to
11
12 Sabey in one of the drafts of the POS. In that document (Ceriani Decl.,
13 Ex. 106, p. FPS 6602), Moore writes as part of his comments on changes to
14
the draft Should we disclose Sabeys efforts to derail our project? Just
15
16 kidding . . . (id., p. FPS 6602). Since drafts of the POS such as this were
17 circulated to the entire Working Group 20 and no one saw fit to question the
18
jocular treatment given by the underwriter to questions that hit the mark,
19
20 it seems no one was much interested in professionally evaluating what
21 should be disclosed to investors.

22
32. Act III Theatres informed the City that Walkers cinema
23 revenue projections were unreasonable.
24
25
19Although neither Ormsby nor Thompson acknowledges reading the Sabey
26 report, Thompson does concede he was aware that Sabey had made some
27 criticism of the project (Ceriani Decl., Ex. 198 [Thompson] pp. 372-73).
28
20 See discussion supra at 1.

On October 16, 1996, Act III Theatres, the owner of several area
1
2 movie theatres, wrote to the mayor and city council and told them Walkers
3
cinema revenue projections were inflated (Ceriani Decl., Ex. 37). No
4
mention of this, yet another professionals challenge of the Walker numbers
5
6 is found in the Official Statements (Ex. 118, p. PSI 0074).
7
33. The City hires Coopers & Lybrand to evaluate the key
8 assumptions in the Walker Report.
9 In late October 1996, the City hired Coopers to evaluate the key
10
assumptions in the Walker Report (Ceriani Decl., Ex. 41). The substance of
11
12 a report that would have been devastating to the project had it been
13 disclosed to investors is discussed in detail below. Significant now is the

14
fact that Coopers did not want any reference to Coopers, its presentation
15
16 materials or its reports to be included in or quoted in the Official
17 Statements for the Bonds without Coopers express written consent (id.,
18
p. SPO 0981). The Other Risks section of the Official Statements directly
19
20 addresses the Coopers Report (Ex. 118, p. PSI 0074). Coopers was never
21 asked to, and did not give, consent to or approve inclusion of the false and
22
misleading characterization of its Report drafted by Foster and included in
23
24 the Other Risks section of the Official Statements (Ex. 199 [Wenzell]
25 pp. 32, 33, 123-24).

26
34. The Developers offer to form the Foundation and use it to
27 issue the Bonds to ease the Citys concern over opposition to
28 the project.

By late October 1996, the City was so concerned about public
1
2 opposition to the project that it decided it no longer wanted to be the issuer
3
of the Bonds (perhaps because issuance by the City would require an
4
affirmative public vote). The Developers offered to form the Foundation to
5
6 serve as both the issuer of the Bonds and as the buyer of the Garage
7
(Ceriani Decl., Ex. 42). Once the Developers agreed to form the Foundation
8
to be the issuer of the Bonds, the City quickly agreed to pay $26 million for
9
10 the garage structure (the ground was not included) and to pay the
11
Developers exorbitant amounts of ground rent (Ex. 44; Ex. 186 [Koegen]
12
pp. 253-54; Ex. 45). The Foundation was not formed, and the Foundations
13
14 board of directors not appointed, until after City officials had agreed to the
15
$26 million purchase price (Ceriani Decl., Exs. 45, 47, 48, 58; see generally
16
Bond Fund Plaintiffs Statement of Material Facts in Opposition to Foster
17
18 Pepper & Shefelmans Motion for Summary Judgment on State Securities
19
Act Claims, pp. 26-28, 75-81.
20
The October 29, 1996 article in the Cowles newspaper pinpoints when
21
22 the Developers offered to form the Foundation and use it to issue the Bonds
23
(Ceriani Decl., Ex. 42). The article explains how this structure would limit
24
the Citys involvement in the project, states the price of the Garage would
25
26 not be the Citys concern under the new financing plan, and quotes the
27
Citys bond counsel, Koegen, as saying Were not involved. Of course, the
28

City was still involved because the revenue bonds would be issued on
1
2 behalf of (Ex. 118, p. PSI 0071) the City (leading to tax-exempt status for
3
the Bonds) and the City would lease and operate the Garage through its
4
controlled entity, the Spokane Public Parking Development Authority (the
5
6 PDA). The November 7, 1996 letter from the Developers counsel,
7
Swinton, to the Citys bond counsel shows the Developers were demanding
8
$29 million for the Garage but were willing to accept $26 million provided
9
10 the City would agree to pay out the other $3 million in inflated ground rent
11
payments (Ex. 44). By November 13, 1996 (Ex. 45), the City negotiators
12
had surrendered to the Developers demands and agreed to pay $26 million
13
14 for the Garage and make inflated ground rent payments to the Developers
15
to get them another $3 million. There are two significant facts here. First,
16
the City negotiators agreed to pay $26 million about six weeks before
17
18 Coopers was to issue its report and address the city council (Ex. 45).
19
Second, at the time the purchase price was agreed to, the Foundation had
20
not even been formed.
21
22 35. Contrary to representations in the Official Statements, the
Foundation did not participate in the purchase price
23
negotiations.
24
The Official Statements represent that: The purchase price of the
25
26 parking facility of $26 million is the result of negotiations involving the
27 Foundation, the City and the Developer (Ceriani Decl., Ex. 118, p. PSI
28

0075). The disclosure suggests, falsely, that the Foundation, as the buyer of
1
2 the Garage and as an independent third party, was involved in the
3
negotiations regarding the purchase pricethus suggesting that the
4
negotiations were arms length. However, the reality is the negotiations
5
6 were only between the City (which unknown to investors so desperately
7
wanted the project to save downtown that it would do whatever the
8
Developers told it to do) and the Developers, who got the money (Ex. 197
9
10 [Swinton] p. 198; see also Ex. 188 [Moore] p. 158). Ignoring that the
11
Foundation had no directors (other than as associate in the Developers law
12
firm prior to January 1997 and Ormsby was not involved, in any way, in the
13
14 negotiation of the purchase price (Ex. 197 [Swinton] p. 198), the $26 million
15
purchase price was agreed to on November 13, 1996 (Ex. 197 [Swinton] p.
16
151-52) and the Foundation was not even formed until November 15, 1996
17
18 (Exs. 47 and 48). Thus, there was thus no independent third party in the
19
negotiations. When the Foundation was formed, it was run completely by
20
the Developers until January 10, 1997, when the Developers counsel
21
22 appointed the Foundation board of directors (Ex. 58; Ex. 197 [Swinton]
23
p. 38). 21 The entire Working Group knew the Foundation was not involved
24
with the purchase price negotiations (Ex. 182 [Greenough] p. 101).
25
26
27 21See Exhibit 55 (p. 47) to Declaration of Gary J. Ceriani in Support of
28 Opposition to Foster Pepper & Shefelmans Motion for Summary Judgment

36. The Developers form the Foundation.
1
2 The Official Statements provide the following information about the
3 Foundation as issuer:
4
The Spokane Downtown Foundation (the
5 Foundation) is a nonprofit corporation created
6 under the Washington Nonprofit Corporation Act,
Chapter 24.03 Revised Code of Washington
7 (RCW). The Foundation was formed as a
8 nonprofit corporation in 1996. The Foundations
Articles of Incorporation and Bylaws authorize it to,
9 among other things, assist in the economic
10 development and community revitalization in the
City. Obligations of the Foundation are not
11 obligations of the City, the State of Washington (the
12 State), the Authority or any other municipal
corporation, agency or subdivision of the State.
13
14 (Ceriani Decl., Ex. 118, p. PSI 0053; see also Ex. 118, p. PSI 0071). As
15 developed below, the Official Statements are misleading because they do not
16
disclose: that the Foundation was formed by the Developers; that the
17
18 Foundation was controlled by the Developers at the time the purchase price
19 for the Garage was negotiated between the City and the Developers; that
20
the Foundation had been represented throughout the entire transaction by
21
22 counsel selected by the Developers; that Preston, counsel selected by the
23 Developers, the seller, to represent the Garage buyer, had a fundamental

24
conflict of interest due to its prior representation of the Developers; and that
25
26
27
28 on Washington Securities Act Claims.

the Developers controlled Prestons compensation (Ceriani Decl., Ex. 118,
1
2 pp. PSI 0053; PSI 0071).
3
37. The Developers hire Preston to be general counsel, issuers
4 counsel and bond counsel for the Foundation knowing Preston
had a severe conflict of interest.
5
6 On November 14, 1996the day before the Foundation was formed
7 and the day after the City agreed to pay $26 million for the Garage (Ceriani
8
Decl., Exs. 45, 47 and 48), the Developers hired Preston (Ex. 46) to be
9
10 counsel for the supposedly independent Foundation (Ex. 191 [Ormsby] pp.
11 30-35, 526; Ex. 197 [Swinton] pp. 185-86; Ex. 46). Since 1995, Preston had
12
represented the City of Spokane on a regular basis (Ex. 191 [Ormsby] p. 15).
13
14 In August 1996, two of the Developers entities retained Preston to
15 represent them and provide legal advice on various aspects of the RPS Bond
16
financing (Ex. 191 [Ormsby] pp. 19-25). Michael Ormsby was the Preston
17
18 lawyer who undertook the representation of the Developer entities (id.).
19 The exact scope of Prestons representation of the Developers is unclear
20
because the Developers instructed Ormsby not to answer questions
21
22 concerning his communications with the Developers on grounds of privilege
23 (Ex. 191 [Ormsby] p. 24). We do know, however, that Preston billed the
24
Developers $3,685 for one month of work on the RPS project (Ex. 34, p. PG
25
26 10352). We also know Ormsby recognized that Prestons representation of
27 the Developers created a conflict of interest due to its longstanding

28

representation of the City. In order to represent the Developers, in August
1
2 1996, Ormsby sought and obtained a waiver of Prestons conflict from the
3
City (Ex. 191 [Ormsby] p. 21).
4
In September 1996, Preston was asked by Prudential to serve as
5
6 underwriters counsel. Recognizing yet another conflict, Preston requested
7
that Prudential, the Developers and the City consent to Prestons
8
representation of Prudential because [o]ur professional rules of
9
10 responsibility do not permit us to represent a client if the representation
11
will be directly adverse to another client . . . unless each client consents
12
after consultation and a full disclosure of the material facts (Ceriani Decl.,
13
14 Ex. 36, p. PSI 2047). The City refused to waive the conflict (Ex. 191
15
[Ormsby] pp. 38-39). Preston later settled into its multi-faceted role of
16
issuers counsel to the Foundation, general counsel to the Foundation and
17
18 bond counsel for the transaction. In those roles, Preston was a part of the
19
Working Group that reviewed, discussed and reached a consensus on all
20
disclosure issues relating to the RPS bonds.22
21
22 Even though Prestons client, the Developers, were the seller of the
23
Garage, and its new client was the buyer, Ormsby claims it never occurred
24
to him that the interests of the Developers and the Foundation were directly
25
26 adverse (Ceriani Decl., Ex. 191 [Ormsby] p. 41). Ormsbys testimony was
27
28

directly contrary to a letter he authored on November 20, 1996, to both the
1
2 City and the Developers advising them of the Foundations request that
3
Preston represent the Foundation. Once again, Preston reiterated that
4
professional rules of responsibility do not permit us to represent a client if
5
6 the representation will be directly adverse to another client unless . . . each
7
client consents after consultation and a full disclosure of the material facts
8
(Ex. 49, p. PG 8595). The Official Statements have a Conflicts of Interest
9
10 section, but fail to disclose the various, and serious, Preston conflicts
11
(Ex. 118, p. PSI 0091).
12
38. The Developers controlled the Foundation.
13
14 At the time Preston was retained as counsel to the Foundation, the
15 sole director of the Foundation was an associate of Witherspoon Kelly,
16
Developers counsel (Ceriani Decl., Ex. 197 [Swinton] pp. 200-01]; Ex. 47, pp.
17
18 2862, 2865). The $26 million purchase price which the Foundation paid for
19 the Garage was thus negotiated and agreed to between the two Preston
20
clients (the City and the Developer) prior to Ormsby being retained as
21
22 general counsel to the Foundation (Ex. 191 [Ormsby] pp. 71-72). Ormsby
23 had no role in the negotiation of the purchase price and he was unaware of
24
any involvement by any member of the Foundation in the purchase price
25
26 negotiations (id.; Ex. 197 [Swinton] p. 198).
27
28 22 See discussion at 1.

39. The Developers calculate that the $26 million purchase price
1
would net them close to $10 million excess cash that was not
2 needed for construction costs.
3 A November 29, 1996 memo confirms the Developers expected to net
4
about $10 million out of the $26 million purchase price that would not be
5
6 used for construction costs (Ceriani Decl., Ex. 51, p. RPS 16018).
7 40. The Sabey Report is critical of the key assumptions.

8
In December 1996, Sabey Corporation issued two reports to the mayor
9
10 and city council which were highly critical of the entire project, the
11 financing structure and the assumptions underlying the Walker Report

12
(Ceriani Decl., Ex. 54). The Sabey Report states: Arguably, the Walker
13
14 Study is not a feasibility study at all, citing to the Auble Report (Ex. 54,
15 pp. PWC 2744-45). The Sabey Report, citing a 1995 Simon DeBartolo study,
16
states the national average shopper length of stay is 72 minutes, or 1.2
17
18 hours, as shoppers have less and less time to spend shopping (Ex. 54,
19 p. PWC 2748). The Sabey Report also quotes Aubles statement that this
20
appears to be a very aggressive assumption and states that the 1.9-hour
21
22 historic length of stay in the Walker Report is not supported by historic data
23 (id.).
24
As noted earlier, however, Prudential and Foster (and the rest of the
25
26 Working Group who received a copy of the draft POS) summarily dismissed
27 Sabey and the Sabey Report in its entirety (Ceriani Decl., Ex. 106,
28

p. FPS 6602; Ex. 182 [Greenough] pp. 332-33; Ex. 188 [Moore] p. 321-22),
1
2 some without even reading it. Prudential actually considered disclosing
3
Sabeys efforts to derail the project but summarily dismissed the idea that,
4
perhaps, Sabeys criticisms should be passed on to investors so they could
5
6 make up their own mind (rather than having their minds made up for them
7
by someone like Moore who just could not be bothered to even read a report
8
so cavalierly dismissed) (Ex. 188 [Moore] pp. 209-10; 320-21). The fact-
9
10 based criticisms in the Sabey Report were ignored by Prudential and the
11
other members of the Working Group without thought or analysis merely
12
because Sabey was a competitor (Ex. 188 [Moore] p. 321; Ex. 182
13
14 [Greenough] pp. 282-83; Ex. 56 (Developers respond to Sabey without
15
addressing substance of criticisms of Walker)) and, no doubt, because
16
Sabeys questions that hit the mark threatened the project.
17
18 41. The Developers appoint the Foundation directors.
19 The Developer-controlled Foundation did not appoint independent
20
directors until January 10, 1997 (Ceriani Decl., Ex. 58; Ex. 200 [White]
21
22 pp. 13-14). At the meeting where they were invited to join the board, the
23 three directors were advised by the Developers that Preston, and specifically
24
Ormsby, would serve as the Foundations general counsel (Ex. 200 [White]
25
26 pp. 12-13). Preston never advised the independent directors of its prior
27 representation of the Developers or of its conflict of interest (Ex. 200 [White]
28

p. 52; Ex. 172 [Broom] pp. 44-45; Ex. 194 [Schnug] pp. 80-81).
1
2 Notwithstanding the appointment of independent directors, Preston
3
understood that the Developers controlled the compensation it would receive
4
for its work on behalf of the Foundation. For example, in March 1998, when
5
6 Preston sought a fee increase for its work, it directed the request not to the
7
Foundation, but to Robideaux, agent for the Developers (Ex. 211, p. PG
8
14205-06). Preston billing records in fact listed Duane Swinton, counsel for
9
10 the Developers, as the client address (Es. 212, p. PG 19744; Ex. 213, p. PG
11
19736). Preston knew it would only get paid for its services if the bond
12
offering went forward (Ex. 191[Ormsby] p. 46). Thus, the Developers were
13
14 able to control the Foundation through Preston.
15
According to the Plaintiffs legal expert, Professor Ted Fiflis of the
16
University of Colorado Law School, the conflict created by Prestons prior
17
18 representation of the Developers and subsequent representation of the
19
Foundation in the very same transaction was so great, that even if waived,
20
Ormsby, under professional standards, should not have undertaken this
21
22 representation of the Foundation. 23 As noted above, Preston did not
23
disclose its conflict of interest or its prior representation of the Developers or
24
the City in the Official Statements.
25
26
27
28

42. Preston handled every aspect relating to the affairs of the
1
Foundation and the issuance of the Bonds for the Directors.
2
Because the three Foundation directors were unpaid volunteers, they
3
4 were heavily dependent on Preston for guidance in the transaction.
5 Accordingly, Preston was the representative of the Foundation who handled

6
every issue relating to the issuance of the Bonds and purchase of the Garage
7
8 on behalf of the Directors (Ceriani Decl., Ex. 200 [White] pp. 17-18; Ex. 172
9 [Broom] pp. 15-16; Ex. 194 [Schnug] pp. 68-69). Preston was a member of
10
the Working Group which produced the Official Statements (Ex. 198
11
12 [Thompson] p. 43; Ex. 188 [Moore] pp. 60). Each of the Foundation directors
13 repeatedly testified that they relied on Preston and the Working Group to
14
ensure that the Official Statements were true and correct and the purchase
15
16 price appropriate (see, e.g., Ex. 200 [White] pp. 35-36; Ex. 172 [Broom]
17 pp. 21-22, 48-49; Ex. 194 [Schnug] pp. 38-39, 108). Curiously, despite its
18
multiple roles in the transaction and its participation in the drafting of the
19
20 Official Statements as a member of the Working Group, Ormsby and
21 Thompson claim they did not undertake any investigation to make certain
22
that the Official Statements contained no false or misleading statements
23
24 (except with respect to the portions of the Official Statements that are
25
26 23See Exhibit 55 to Declaration of Gary J. Ceriani in Support of Bond Fund

expressly referenced in Prestons opinion letterswhich are themselves
1
2 misleading due to their failure to disclose the Developers control of the
3
Foundation and Prestons conflict) (Ex. 198 [Thompson] pp. 191, 366-67,
4
373; Ex. 191 [Ormsby] p. 191)
5
6 43. The bond rating agency, Moodys, refused to give the Bonds an
investment grade rating.
7
8 The Bonds were offered and sold to the investing public, including the
9 Bond Funds, with the statement that they were rated BBB by Standard &
10
Poors (S&P). The reader is referred to the Investor Suitability and
11
12 Rating sections of the Official Statements which note that S&P has
13 assigned its BBB rating to the Bonds (Ceriani Decl., Ex. 118, p. 42
14
(PSI 0091)). The representation is then made that no application was made
15
16 to any other rating agency for the purpose of obtaining an additional rating
17 on the Bonds (id.). This statement was simply false. In fact, the Working
18
Group sought, and obtained, a shadow rating from a second rating agency,
19
20 Moodys (Ex. 53; Ex. 180 [Fortin] pp. 196 and 322). Moodys shadow rating
21 told the Working Group that Moodys would not give the Bonds an
22
investment grade rating (Ex. 182 [Greenough] pp. 185-86). While members
23
24 of the Working Group now suggest Moodys refusal to give the Bonds an
25 investment grade rating is immaterial because it was just a rating indicator

26
(Ex. 188 [Moore] pp. 189, 194), Moore stated the reality in a December 4,
27
28 1996 memo, in which he said that the rating indication from Moodys was

essentially the same thing just different names as the credit
1
2 assessment from S&P (Ex. 53). The entire Working Group knew Moodys
3
had refused to give the Bonds an investment grade rating and, therefore,
4
knew the statement in the Official Statement was simply false (see, e.g.,
5
6 Exs. 53, 75, 214; Ex. 191 [Ormsby] pp. 461, 590-91). Any doubt that Moodys
7
shadow rating should have been disclosed is eliminated by Greenoughs
8
handwritten admission, made after the bonds were issued, that went to
9
10 Moodysshould have been disclosed (Ex. 140, p. RPSR 0394).
11
Obtaining an investment grade rating for the Bonds was essential to
12
the deal. The Bond Purchase Agreement made an investment grade rating
13
14 of the Bonds a condition precedent to Prudentials obligation to purchase the
15
Bonds. (Ceriani Dec., Ex. 122, p. NUV 1403-04 ( 8(c)(9)). Accordingly, the
16
entire Working Group (whose clients really wanted the deal or who did not
17
18 get paid unless the deal closed) were desirous of obtaining such a rating (Ex.
19
188 [Moore] pp. 155-56). The Working Group knew Standard & Poor's
20
received a copy of the Preliminary Official Statement (Ex. 59, p. PC 3658).
21
22 44. The Working Group that was responsible for drafting the
Official Statements had a preliminary meeting on December
23
13, 1996.
24
A December 10, 1996 mailing list setting the preliminary meeting of
25
26 the Working Group for December 13, 1996, includes Moore and Face for
27 Prudential, Fortin and Koegen for the City, Ormsby and Thompson as bond
28

counsel and Hugh Spitzer of Foster as underwriters counsel (Ceriani Decl.,
1
2 Ex. 55). The representatives of the Foundation are the Developers agents,
3
Robideaux and Swinton. The Working Group knew from the outset that it
4
would confront serious disclosure issues. For example, a January 15, 1997
5
6 Foster memo reporting on the January 13th meeting shows the Working
7
Group was anticipating that the Coopers Report may not be very
8
enthusiastic about the project and would need to be carefully reviewed by
9
10 Foster and Preston (Ex. 60).
11
45. Nordstrom was still attempting to convince the Developers
12 that the $1.50-per-hour rate was too high in January 1997.
13 An internal Developers memorandum shows the Developers
14
representatives Robideaux and Swinton discussed Nordstroms concerns
15
16 over the $1.50-per-hour rate with Dave Mackie of Nordstrom (Ceriani Decl.,
17 Ex. 65).
18
46. The Coopers Report is critical of the key assumptions.
19
20 Coopers presented its report (Ceriani Decl., Ex. 63) to the city council
21 in late January 1997 and was critical of Walkers key assumptions,

22
including hourly rate (pp. 2311, 2316), length of stay (pp. 2311, 2314, 2316),
23
24 cinema car parks (pp. 2311, 2314, 2316, 2322), the fact that the Walker
25 Report was not and was never intended to be a financial feasibility analysis
26
(p. 2313), the disparity between historic revenues and projected revenues
27
28 (p. 2315), the fact that Walker assumed that any future parking validation

program would be revenue neutral to the Garage (pp. 2314, 2322, 2323), and
1
2 the fact that Walker assumed that a viable parking validation program was
3
in place to justify an 85% capture rate (pp. 2314, 2322, 2323). Rather than
4
disclose the entire Coopers report to investors so they could make up their
5
6 own mind (or refuse to go forward with the Official Statements and refuse to
7
sign the 10b-5 opinion until Walker corrected its numbers), the Working
8
Group, in language initially drafted by Foster, selectively edited it. For
9
10 example, the Working Group did not disclose that Walker assumed a
11
validation program was in place for its capture numbers, the Working
12
Group chose to repeat Walkers misleading risk statement about the
13
14 validation program in the Other Risks section of the Official Statements
15
(Ex. 63, p. 0074). Coopers also stated that [t]he market value of the RPS
16
Garage would result in a substantially lower valuation than investment
17
18 value and noted that the appraisers were instructed to use the Walker
19
revenue projections (p. 2317). Of course, none of this appears in the
20
Working Groups selective summary of the Coopers Report.
21
22 47. The City adopts the parking meter revenue loan ordinance.
23 Rather than stop to address the issues raised in the Auble, Coopers,
24
and Sabey Reports before proceeding further, the City treated the Coopers
25
26 Report as if it was a ringing endorsement of the entire project and proceeded
27 to adopt Ordinance No. C31823 pledging parking meter revenues (Ceriani
28

Decl., Ex. 62). At this juncture, the City unquestionably knew the projected
1
2 revenues in the Walker Report were inflated, knew the purchase price of the
3
Garage was inflated and, therefore, knew the City would almost certainly be
4
called upon to make the loans called for in the Ordinance throughout the life
5
6 of the Bonds. The City knew, because Standard and Poors told it so, that to
7
obtain an investment grade rating two features of the bond structure were
8
critical: first, bondholders had to have a first lien on garage revenues;
9
10 second, the City had to pledge to loan parking meter revenues to pay the
11
amount of ground rent and operating expenses if Garage revenues, after
12
payment of debt service, were insufficient to pay these items (Ceriani
13
14 Decl., Ex. 180 [Fortin]. p. 196). It is undisputed that the City represented to
15
investors in the Official Statement that both features were present."
16
Prudential (who was now working for the Developers due to their
17
18 control over the Foundation) was instructed to begin working on the Official
19
Statement (Ex. 180 [Fortin] pp. 538-40). The Prudential banker, Moore,
20
focused directly on many of the criticisms of Walker in the Coopers Report
21
22 (Ex. 64, pp. PSI 2691, 2696, 2698, 2699, 2700, 2701, 2702, 2707, 2708;
23
Ex. 180 [Moore] pp. 199-201). Moore also read the Auble and Barrett
24
Reports (Ex. 180 [Moore] pp. 227, 234-36).
25
26 48. The initial drafts of the Official Statements.
27
28

In early drafts of the POS, the Working Group planned to attach the
1
2 Coopers Report as an appendix to the Official Statements (Ceriani Decl.,
3
Ex. 67, pp. FPS 6872, 6874, FPS 6891). A February 21, 1997 Foster
4
memorandum transmits an early draft of the POS to the Working Group
5
6 (Exs. 72; 73). Oddly, no one seems to have much memory of the details of
7
any discussions among the Working Group about disclosure issues,
8
however, it appears that as those discussions progressed, the plan changed24
9
10 from attaching the Coopers Report to limiting the disclosure about Coopers
11
to selectively summarizing it in the Other Risks section of the Official
12
Statements (Ex. 98, pp. FPS 6199, 6201, 6219; Ex. 106, p. FPS 6599; Ex. 116,
13
14 p. W 1-1170, 1177 (adding Other Risks section)).25
15
Coopers conclusion that the Walker Report is not, as is represented in
16
the OS, a financial feasibility analysis at all does not make it into the
17
18 Official Statements. Nor is there disclosure of the issues surrounding the
19
20 24 A June 2, 1998 draft POS indicates Foster was still considering listing
21 Coopers as a participant in the transaction and obtaining Coopers consent
to attach its Report as an appendix to the Official Statements (Ex. 98, pp.
22 FPS 6201, 6129; Ex. 182 [Greenough] pp. 281-82). This obvious solution to
23 disclosure was apparently abandoned by July 10, 1998, in favor of not
attaching the Coopers Report as an appendix to the Official Statements
24 (Ex. 103, p. FPS 5759) and, instead, including what ultimately became the
25 Other Risks section of the Official Statements (Ex. 118, p. PSI 0074).
26
25 Mike Wenzell of Coopers, however, has testified that Coopers never gave
approval to attach its report, nor did it ever approve the language regarding
27 its report that appears in the Other Risks section in the OS (Ex. 199
28 [Wenzell] p. 123; see also Ex. 118, p. PSI 0074).

cinema even though it was listed as something that needed to be
1
2 addressed in the Risks to the Bondholders section of the Official
3
Statements (Ceriani Decl., Ex. 68, p. PERKINS 9287).
4
When it prepared the Official Statements, Foster was aware that
5
6 Walker, the supposed expert, had NOT opined that the assumptions
7
underlying the Walker numbers were reasonable (Ceriani Decl., Ex. 197
8
[Spitzer] pp. 69-70). This fact is not disclosed in the Official Statements.
9
10 Instead, the Other Risks section dealing with the Coopers Report trumpets
11
Walkers recognized expertise in the area of parking garage operations
12
(Ex. 118, p. PSI 000074) in order to falsely elevate the credibility of the
13
14 Walker numbers that Coopers (and everyone else) had challenged.
15
Clearly issues of validation and the cinema revenues were discussed
16
among the Working Group (see, e.g., Greenoughs notes re 43% discount or
17
18 36% discount in cinema?) (Ceriani Decl., Ex. 96, p. FPS 3700) and parking
19
validationin place for cinema? (p. FPS 3701). There is thus no question
20
the Working Group was aware of the problems; they simply chose not to tell
21
22 investors about them.
23
49. As early as February 1997, Prudential and underwriters
24 counsel, Foster, had determined that the Bonds would not be
suitable for retail bond purchasers.
25
26 Notes taken at a February 10, 1997 meeting by Fosters Greenough
27 discussed the propriety of selling the bonds to retail purchasers (Ceriani
28

Decl., Ex. 69). The notes state, Are we really going to sell this to Mom and
1
2 Pop (p. FPS 3732). The same day, Prudentials Public Finance Business
3
Review Committee confirmed that retail sales may not be appropriate
4
and that the structure may need to be changed for institutional sales only
5
6 meeting (Ex. 70, p. PSI 4941). Investors were not told that the underwriter,
7
who would be expected to know as much about the deal as anyone it view of
8
its due diligence responsibilities, had secretly concluded that it would not
9
10 sell the bonds to any of Prudentials retail customers. Of course, that did
11
not stop Prudential from selling the bonds to other broker-dealers and
12
letting them sell the bonds to moms and pops based upon the POS and
13
14 summaries of the POS provided by Prudential. Somehow, the fact that
15
Prudential also deceived other broker-dealers in this regard does not give
16
the Plaintiffs here much comfort.
17
18 50. The bond issue is delayed by the CLEAN litigation.
19 Opponents of the project filed a civil action seeking mandamus
20
ordering the City to put the plan to issue revenue bonds to purchase the
21
22 garage to a public vote. Mandamus was ultimately denied on appeal in
23 November 1997. The pending lawsuit caused the bond offering and work on
24
the Official Statements to be put on hold from about February 1997 until
25
26 early 1998. The filing of the CLEAN litigation did not, however, result in a
27 cessation of activity by the Developers and the City.

28

51. AMC Theatres will not willingly pay for parking.
1
2 Consistent with the predictions of the City, Prudential, Auble,
3 Barrett, Sabey, Act III Theatres and Coopers,26 AMC Theatres really did
4
want free parking for its patrons so that it could compete with suburban
5
6 multiplex cinemas, and AMC made that clear in the first draft of its lease
7 (Ceriani Decl., Ex. 76, p. RWR 21788). The final AMC lease also states that
8
AMC and its customers shall have the use of the parking deck without
9
10 being required to pay any charge or fee whatsoever for such use. (Ex. 85,
11 p. PG 11921).
12
Neither AMC demands for free parking, the language of the lease nor
13
14 the fact that the City and Prudential believed Walkers projected cinema
15 revenues were speculative and were discounting them by as much as 50%

16
(Ceriani Decl., Ex. 30; Ex. 32, p. PC 7783) in internal analyses were disclosed
17
18 to investors (Ex. 118, p. 0074).
19 The Other Risks section of the Official Statements (Ceriani Decl.,

20
Ex. 118, p. PSI 0074) which purports to summarize the Coopers report says,
21
22 about AMC, only that the impact of any parking validation program
23 between the authority and the cinema operator is unknown. How hard
24
would it have been to add the phrase but it probably doesnt make any
25
26
26 (Ceriani Decl., Ex. 30; Ex. 28 (Auble) pp. AUBLE 0399-401), (Barrett)
27 (Ex. 27, pp. BARRETT 0340-41), (Sabey) (Ex. 54, pp. PWC 2746-47), (Coopers)
28 (Ex. 63, pp. 2311, 2314, 2316.

difference because the cinema operator is demanding that its patrons park
1
2 for free? Of course, disclosing that true fact would have taken 40% of
3
Walkers projected revenues away and the project would fall on it face.
4
This, not incidentally, was an issue known to the entire Working
5
6 Group since Coopers, without ever seeing the actual lease, had warned that
7
due to local area cinema competition, AMC would likely expect that its
8
patrons will not be required to pay for parking (Ceriani Decl., Ex. 63,
9
10 p. 2311).
11
The fact that the cinema is addressed at all in the Other Risks section
12
of the Official Statements (Ceriani Decl., Ex. 118, p. PSI 0074) and that
13
14 patrons of AMC Theatres were projected to provide over 40% of the total
15
projected revenues for the RPS Garage (Ex. 118, p. PSI 0212) shows these
16
false and misleading statements are material as a matter of law.
17
18 52. Right after AMC said it would not pay for parking, the
Developers and Walker consider various parking validation
19
scenariosnone of which are revenue neutral to the City.
20
When AMC confirmed its demands for free parking, the Developers
21
22 agent, Robideaux, asked Walker to prepare new proformas assuming 100%
23 validation (i.e., free parking) for cinema patrons. (Ceriani Decl., Ex. 77; Ex.
24
78; Ex. 81). The change in assumptions reduced projected revenues by more
25
26 than half (Ex. 77, p. RWR 39409 Another proforma assuming a flat rate of
27 $1.50 per hour on after 6:00 p.m. and Sundays also resulted in similar
28

deficits (id.). As they had before, Robideaux and Walker kept manipulating
1
2 the numbers with various validation scenarios to deal with the AMC
3
situation in September 1997 (id., pp. RWR 39411-19. Each scenario resulted
4
in substantial declines in projected revenues (id., pp. RWR 39415-17).
5
6 Robideaux was eager to get the September 1997 validation scenarios
7
because he needed to attend a meeting on validation (Ex. 80). Obviously,
8
then, long before the Bonds were issued, the Developers, the City and
9
10 Walker (and, very likely, the entire Working Group) knew it was very likely
11
that a flat rate, if not 100% validation, would have to be implemented to
12
accommodate AMCs demand for free parking. None of this, or the
13
14 devastating impact on revenues it would mean, was disclosed to bond
15
purchasers.
16
53. The Developers are told the entire project is not economically
17
feasible.
18
The Developers applied to SeaFirst Bank to obtain financing for a
19
20 portion of the retail mall. On December 19, 1997, the Banks appraiser,
21 Tully West Company, issued an appraisal of the Mall which concluded that
22
the value upon stabilization was estimated to be $53.6 million, which was
23
24 about $9 million less than the cost to renovate the Mall (Ceriani Decl.,
25 Ex. 88, p. BA 0188; Ex. 197 [Swinton] pp. 594-604). The appraisal also
26
addresses the $26 million purchase price for the Garage and states:
27
28

Many critics of the redevelopment cite the price
1
being paid by the City is well above a market value,
2 and that the City could build a new parking garage
for much less. But without the extra money being
3
paid to the subject developers for the parking
4 garage, the new Nordstrom store, and subsequently
the retail space and movie theater components,
5
could not be built. Both City officials and Spokane
6 CBD property owners recognize the need for
redeveloping the River Park Square in order to
7
reverse the blight of failed businesses and vacated
8 buildings in downtown Spokane. Paying what may
be an above-market price for the garage is
9
effectively the only way the City of Spokane can
10 make a direct contribution in an attempt to improve
the vitality of the CBD.
11
12 (Ex. 88, p. 0188). Thus, even an appraiser used in connection with an
13 attempt by the Developers to obtain private financing concluded the

14
purchase price of the Garage was inflated and was intentionally inflated by
15
16 the City and the Developers. This was not, of course, disclosed to investors.
17 54. Prudential and the Developers revive the bond issue in

18 January 1998 and question the reliability of the Walker
Report.
19
20 The CLEAN appeal was resolved in favor of the City in November 1997
21 (Ceriani Decl., Ex. 118, p. PSI 0089-90). On January 6, 1998, Moore sent the
22
Developers agent, Robideaux, a memorandum with attachments containing
23
24 projections and pointing out a few areas which will require feedback and/or
25 modification (Ex. 90, p. PG&E 068). Among the areas requiring feedback
26
and/or modification were the following:
27
28

1 ! The several points raised by the Coopers & Lybrand report need
2 to be reconciled and resolved.

3
! The Walker study is two years old. Should it be updated?
4
5 ! Is the expectation of Full Walker revenues reasonable?
6 This is yet another example of how the entire Working Group was aware
7
that the many criticisms of the Walker Report in the Coopers, Auble,
8
9 Barrett, and Sabey Reports were never reconciled or resolved. In closing,
10 Moore stated, We would like to reiterate our keen interest in bringing this
11
financing to a close (Ex. 90, p. PG&E 069). Moore noted that Prudential had
12
13 expended considerable time and effort on the project and would continue to
14 commit substantial resources (id.).

15
It is not an accident that Moore is sending this letter to Robideaux,
16
17 the Developers agent, instead of the board of directors of the Foundation or
18 its counsel, Preston. Prudential clearly understood it was working for the
19
Developers and, in fact, the Developers dictated to Prudential who it would,
20
21 and would not, talk to (Ceriani Decl., Ex. 180 [Fortin] pp. 538-40).
22 55. The Nordstrom lease should have raised serious concerns for
23 the Working Group.
24 Nordstrom signed the final Nordstrom lease in early January 1998

25 (Ceriani Decl., Ex. 89, p. BOZMAN 169). Of particular significance are the
26
provision that require the Developers to enter into a Parking Management
27
28 Plan covering the operations of the Garage (Ex. 89, pp. BOZMAN 126-27) and

the provision that such plan should include a rate structure which is
1
2 affordable for retail shoppers and a validation program which is much better
3
for retailers than the program currently existing in downtown Spokane
4
(id.). The lease further provided that such programs shall be incorporated
5
6 into the Parking Management Plan which shall also provide that
7
Nordstroms maximum cost for full participation in any validation program
8
shall not exceed $1.00 per year, and any additional validation cost in excess
9
10 of such amount shall be paid by Landlord (Ex. 89, p. 0127). Thus, the
11
largest retailer and anchor tenant in the Mall was not committed to the
12
validation program in any meaningful way. That becomes significant when
13
14 evaluating the representation made to investors that monies to cover a
15
revenue neutral validation program will be budgeted elsewhere because
16
Nordstroms contribution to that budget was capped at $1.00 per year.
17
18 Even if the Developers contend they had the financial wherewithal to cover
19
Nordstroms share of a validation program, Nordstroms lack of
20
participation in such program is still important because the Developers
21
22 would have every incentive to minimize their contributions to the plan (just
23
as they attempted to minimize their contributions to the entire Mall and
24
Garage renovation process and focused exclusively on using other peoples
25
26 money to create the potential for them to profit). This is what ultimately
27
28

occurred in 1999 when a new validation program that reimbursed just $1.00
1
2 was implemented.
3
56. When it came to paying for a building permit, the Developers
4 were primed to convince the City the Garage really was not
worth what the City agreed to pay for it.
5
6 In a February 4, 1998 letter to the Citys director of buildings, the
7 Developers counsel states, As you know, the Developer is not in agreement

8
with the valuation proposed by the City concerning the structures that are
9
10 to be built, and the City has agreed that, in the event the valuation is
11 deemed to be a lower amount, a portion of the fee submitted will be
12
refunded accordingly (Ceriani Decl., Ex. 92, p. PERKINS 1135). After the
13
14 Bonds were issued, the Developers convinced the building department to
15 give them a refund on their building permit because, in their view, the
16
Garage had been substantially over-valued at $26 million and it was not fair
17
18 to make the Developers pay for a building permit based on that value when
19 the Garage was really worth $14 million. An October 8, 1998 memo from
20
Bob Eugene, building official, states that further review of the estimated
21
22 valuation of the River Park Square project revealed that certain errors were
23 made in establishing the valuation and that The value for the parking
24
garage should be reduced from $26,050,713.71 to $14,527,271.28 (Ex. 137).
25
26 Investors were not, of course, told that while the City was going to use $26
27 million of bondholders money to buy the Garage and line the pockets of the
28

Developers, the City and the Developers, in their private dealings, put a
1
2 value of only $14.5 million on the Garage.
3
57. The Foundation directors are unanimously reelected to the
4 board of the Foundation.
5 The Foundation board minutes dated February 10, 1998, show Tom
6
White, Christine Schnug and David Broom were all unanimously reelected
7
8 as directors of the Foundation by the Foundation members on February 10,
9 1998 (Ceriani Decl., Ex. 93).
10
58. By March 1998, the City was questioning whether its actions
11 constituted an impermissible gift from the City to the
12 Developers.
13 In a March 4, 1998 memo, assistant city attorney Stanley Schwartz

14
authored a memorandum to the city manager, the deputy city manager, the
15
16 city attorney and the director of community development pointing out,
17 among other things, that it has been suggested that the lease payment over
18
the term of twenty (20) years greatly exceeds the reasonable value of the
19
20 land and thus constitutes a gift to the developer (Ceriani Decl., Ex. 94,
21 p. SPO 576). Obviously someone had challenged the additional $3 million in

22
purchase price the Developers negotiated for themselves in the form of
23
24 inflated ground lease payments (Ex. 44), and the City was put on notice that
25 this constituted an illegal gift from the City to the Developers. The issue
26
was obviously under consideration at the highest levels of the City and
27
28 while the City failed to take action on this challenge in March 1998 (before

the Bonds were issued), the first thing the City did when it was actually put
1
2 in the position to loan substantial parking meter revenue funds under the
3
Ordinance, was argue the loans would be an impermissible gift to the
4
Developers and refuse to make the loan. High City officials were obviously
5
6 preparing their potential defenses to the parking meter revenue ordinance
7
by March 1998. The City obviously believed it had a gift defense in its
8
back pocket when the Bonds were issued but never disclosed it to bond
9
10 purchasers.
11
59. The Gonzaga professors conclude there has been no feasibility
12 study of the entire project and conclude collateral is
inadequate.
13
14 In about September 1997, the City hired three Gonzaga professors
15 (Clarence Barnes, Kent Hickman and Carl Bozman) to review the quality of
16
the collateral supporting the HUD loan that, if made, would finance
17
18 construction of the new Nordstrom store (Ceriani Decl., Ex. 79). The
19 preliminary confidential draft of the report noted that no feasibility study
20
had been done of the entire project or even the garage (Ex. 82, p. 1164),
21
22 found that the loan failed to satisfy any of the HUD-approved loan criteria
23 and ranked the credit low overall (Ex. 82, pp. 1145-47). The draft and final
24
report also attributed the assumption that any future parking validation
25
26 program would be revenue neutral to the Developers agent Robideaux
27 (Ex. 86 p. 0041). Robideaux obviously knew this was not possible because
28

he was having Walker study the ramifications of going to a flat rate in the
1
2 evening and on weekends to satisfy AMCsomething that would not have
3
been necessary if the funds needed to pay for the program and make the
4
validation program revenue neutral were otherwise available.
5
6 Contemporaneous notes indicate someone (either Robideaux or a
7
representative of the City or both) believed the above findings were overall
8
a kiss of death and that the top paragraph kills project (Ex. 83, p. SPO
9
10 0965). Stanley Schwartz, an assistant city attorney, wanted the offending
11
findings removed (Ex. 84, p. HICKMAN 0335; 0367-68). Minor changes were
12
made to the collateral supporting the loan and the offending findings were
13
14 removed from the final report (Ex. 86, p. BOZMAN 0332-34).
15
60. The Working Group completes work on the Preliminary
16 Official Statement.
17 The Working Group held an eleven-and-a-half-hour document review
18
and POS drafting session at the offices of Witherspoon Kelly (the
19
20 Developers counsel) on March 31, 1998 (Ceriani Decl., Ex. 139, FPS 8489).
21 On March 24, 1998, Moore circulated an agenda for the meeting to the
22
Working Group. (Ex. 95, p. PC 4189). Among the topics for discussion were a
23
24 list of open, unresolved issues/due diligence (Ex. 95, p. 4189). During this
25 lengthy document review and drafting session, the Working Group

26
discussed virtually all of the issues that were ultimately misrepresented or
27
28

not disclosed in the Official Statements (Ex. 95, p. 8489). The list of open,
1
2 unresolved issues and due diligence matters included the following:
3
The Coopers & Lybrand report raises several points
4 about the Walker Report that need to be resolved.
These points include:
5
6 " cash flows seem aggressive in hourly parking
rate ($1.50/hour)
7
8 " length of stay for transient shopper appears
high (3 hours)
9
" parking validation program implications
10
11 " cinema parking and cinema competition
subsidy implications note
12
" appraised versus negotiated price differential
13
on land
14
....
15
" due diligence questioned
16
17 " estimated hard costs appear high
18 " estimated soft costs appear high

19 ....
20
" intent of Walker study to not be a feasibility
21 study noted.
22 (Ex. 95, p. PC 4195). Remarkably, after this eleven-and-a-half-hour meeting
23
to discuss these critical issues, nobody can remember what was discussed or
24
25 what was done to determine what the truth really was. Moore remembers
26 only that he was there and that the topics listed in his agenda were covered
27
during the meeting (Ex. 188 [Moore] p. 273).
28

Foster has little recollection. (Ceriani Decl., Ex. 182 [Greenough]
1
2 pp. 369-70). Ormsby says he did nothing, that he had no reason to believe
3
he had not received the list but says he could not recall reading it, although
4
it was important (Ex. 191 [Ormsby] pp. 391-92). He attended the Working
5
6 Group meeting called to discuss it, but he could not recall participating in
7
the resolution of any of these issues (id., pp. 394-400). He did not know if
8
Preston Gates had, although he was the Foundations general counsel (id.,
9
10 p. 400). He could not identify anything he did with respect to any of the
11
issues except with respect to S&Ps requirement of pledged parking meter
12
revenues (id., p. 411). He said Thompson was more involved with disclosure
13
14 issues (id.).
15
Thompson, the Preston lawyer supposedly focused on disclosure
16
issues, likewise did nothing although Prestons time records reveal that he
17
18 spent nine hours on March 31 attending a meeting regarding the financing
19
structure, timing, disclosure (Ceriani Decl., Ex. 212, p. PG 12855). He
20
believed he had no obligations to do anything even if he had concerns about
21
22 the validity of the Walker projections (Ex. 198 [Thompson] p. 366). Neither
23
was he concerned about the disclosure of the Coopers Report in the Official
24
Statements (id., p. 367). He felt it was not his job to evaluate the adequacy
25
26 of the disclosure about the Coopers Report (id.), nor did he think it was his
27
job to evaluate the Walker Report or criticisms of the Walker Report (id.).
28

The meeting was at Swintons office but he has no specific recollection
1
2 of any discussions and, in fact, has no specific recollection of the meeting
3
being held (Ceriani Decl., Ex. 197 [Swinton] p. 339).
4
The Plaintiffs legal expert, Professor Ted Fiflis, has opined that
5
6 neither Foster nor Preston did any meaningful due diligence and had no
7
meaningful concern for the disclosures in the Official Statement. He
8
concludes:
9
10 Like Foster Pepper, Preston Gates, by its failure to
correct the false OS, displayed a disregard for
11
investors interests of an extreme nature and
12 thereby played a substantial part in the whole
fraudulent scheme alleged by Plaintiffs. As with
13
Foster Pepper, Preston Gates conduct, in my
14 opinion, was highly unreasonable, representing an
extreme departure from the standards of reasonable
15
and ordinary care, and it presented a danger of
16 misleading investors that is so obvious that Preston
Gates must have been aware of the danger. 27
17
18 61. The Working Group was discussing key criticisms of the
Walker Report as late as May and June 1998.
19
20 Handwritten notes taken by Fosters Greenough on May 2, 1998, show
21 the discounting of Garage revenues by the City and Prudential was no

22
longer a secret and was now being considered by the entire Working Group
23
24
25
26
27See Exhibit 55 (p. 73) to Declaration of Gary J. Ceriani in Support of Bond
Fund Plaintiffs Opposition to Foster Pepper & Shefelmans Motion for
27 Summary Judgment on Washington Securities Act Claims dated September
28 15, 2003.

as part of questioning whether parking validation was in place for the
1
2 cinema (Ceriani Decl., Ex. 96, p. FPS 3700-01).
3
As discussed in part above, the City and Prudential substantially
4
discounted the projected revenues from the AMC cinema as reported in the
5
6 Walker Report on the grounds the projections were speculative. It appears
7
the entire Working Group knew the City and Prudential were discounting
8
the AMC cinema revenue projections because Greenough states in notes
9
10 dated May 2, 1998: 43% discount or 36% discount in cinema? (Ceriani
11
Decl., Ex. 96, p. FPS 3700; Ex. 182 [Greenough] pp. 104-05). There is no
12
disclosure of these facts in the Official Statements.
13
14 A June 22, 1998 memorandum from Fosters Greenough to the
15
Working Group transmits a draft POS with the request, Please review it
16
carefully. (Ceriani Decl., Ex. 99). Another Greenough transmittal shows
17
18 the Working Group received redlined drafts of the POS (Ex. 115).
19
The July 10, 1998 draft POS contains Greenoughs (Ceriani Decl.,
20
Ex. 103, p. FPS 5755) extensive handwritten revisions to the The Issuer
21
22 section which (as demonstrated below) was false and misleading (pp. 3 (FPS
23
5762), 21 (FPS 5848)). This draft also shows Greenough making
24
handwritten revisions to the Feasibility Analysis section which (also as
25
26 demonstrated below) was also false and misleading (p. 20 (FPS 5847)), and
27
28

making deletions to the Limited Remedies Upon Default section which (as
1
2 demonstrated below) was false and misleading (p. 23 (FPS 5850)).
3
62. The Citys bond counsel writes a revealing letter.
4
As the bond issue drew near, the Developers began to question
5
6 payment of the considerable legal fees charged by the Citys bond counsel,
7 Perkins Coie, out of bond proceeds. Roy Koegen, the Perkins attorney
8
responsible for acting as bond counsel to the City, authored a July 1, 1998
9
10 letter to city council member Orville Barnes justifying why Perkins fees
11 should be paid out of bond proceeds. The letter opens by stating that
12
Koegen has been thinking of ways to make the payment of the City of
13
14 Spokanes (the City) administrative costs more palatable to the Developer
15 (Ceriani Decl., Ex. 101, p. PC 4308). Obviously, everyone understood that
16
the Developers controlled the Foundation because the Foundation (along
17
18 with the City) was the issuer of the Bonds and was responsible for how bond
19 proceeds were distributed. This letter is not addressed to the Foundation or

20
even to its counsel, Preston. It is sent to the City addressing the Developers
21
22 objections to Perkins fees. In the letter, Koegen confirms that the City did
23 not want to issue the Bonds due to political pressure and confirms that due
24
primarily to the purchase price of the garage and public sentiment, the
25
26 transaction was restructured to create the Foundation and have it be the
27 bond issuer (id.). Koegen then confirms that Perkins was asked to do
28

research and convince Preston that the bonds issued by the Foundation
1
2 would be tax exempt (id., p. PC 4309) The letter states that Perkins was
3
successful in doing so. Obviously, Preston had serious reservations about
4
the tax-exempt status of the bonds, but nonetheless permitted the City and
5
6 the Developers to convince it to issue a clean bond opinion (and, as
7
addressed below, when questioned by a bond purchaser, confirmed that it
8
stood behind the bond opinion).
9
10 63. The Working Group rejects a renewed challenge to the project.
11 In a July 13, 1998 letter from the Developers counsel to Nordstroms
12
counsel, reference is made to Steven Eugsters latest shot at the River Park
13
14 Square project. The letter refers to Mark Schwartz as a disgruntled former
15 employee of Prudential (who happens to also be a lawyer) (Ceriani Decl.,
16
Ex. 104, p. RWR 20092). The letter references complaints filed with the IRS
17
18 and SEC concerning the proposed bond issue, states that the Developers
19 made inquiry of both Preston and Prudential as to the potential impact of

20
the complaints and accompanying press release on the bond issue and
21
22 stated that it is the opinion of Preston Gates that the complaint will have
23 no impact on the issuance of the bonds and assertions that the bonds do not
24
qualify for tax-exempt status are meritless (id.). Prudential did not feel the
25
26 purported complaint would affect the marketability of the bonds nor the
27 interest rate that could be obtained (id.).

28

The Preston attorney, Ormsby, confirmed this in a July 29, 1998
1
2 interview with the news service, Reuters (Ceriani Decl., Ex. 107, p. PSI
3
1936). Ormsby is quoted as saying that the RPS Garage Bonds do not run
4
afoul of laws governing tax-exempt finance, is characterized as having
5
6 rebuffed opponents to the bond issue who say that it should not be eligible
7
for tax-exempt status because it seeks to generate money that would benefit
8
private parties and does not constitute a true public project (id.). Ormsby
9
10 also stated, this type of transaction is not uncommon and we are confident
11
that the regulations and code allow for this transaction to occur (id.).
12
The Working Group was aware of this challenge to the project in July
13
14 1998 and disclosed the existence of it in the Litigation section of the POS
15
(Ceriani Decl., Ex. 118, pp. PSI 0089, 90). At this juncture, the entire
16
Working Group knew the challenge had merit and, as a result, merely
17
18 disclosing the existence of the challenge without taking the painful steps
19
necessary to make full and fair disclosure throughout the Official
20
Statements was itself misleading. For example, the representation that
21
22 the purchase price is based primarily on two MAI Appraisals commissioned
23
by the City (Ex. 118, p. PSI 0074), the representations that Walker was a
24
recognized expert firm (id.), and Prestons clean bond opinion (Ex. 133) all
25
26 served to inform bond purchasers that the challenge was without merit
27
(Exs. 203 and 204)
28

64. The Working Group dealt directly with AGIC during the
1
summer of 1998.
2
Preston acted as a spokesperson to AGIC, holding itself out to AGIC
3
4 as a source of information about the Bonds and the project and reassuring
5 AGIC that criticisms of the Bonds (that ultimately proved to be well-

6
founded) were baseless. For example, when AGIC was approached to issue
7
8 secondary market insurance for the Bonds, AGIC was told to direct any
9 questions about the Bonds to David Thompson of Preston, the underwriter,

10
or the City (Ceriani Decl., Ex. 207). In other words, AGIC need not rely only
11
12 on Prudential because Preston was also vouching for the Bonds (both
13 through its opinion letters attached to the OS and directly to AGIC, if

14
asked).
15
16 Sally Bennett Campbell, the AGIC analyst assigned to review the
17 Bonds for AGIC, conducted a site visit of the Garage in Spokane on July 22,
18
1998, where she met with Ormsby of Preston and other members of the
19
20 Working Group regarding AGIC's questions about the Bonds (Ceriani Decl.,
21 Ex. 206). The meeting included a discussion of challenges by Steve Eugster

22
and Mark Schwartz to the tax-exempt status of the Bonds and the adequacy
23
24 of disclosure in the offering documents. Ms. Campbell was assured that
25 Preston had examined those challenges and determined that they were
26
baseless (Ex. 173 [Campbell] pp. 457-58; Ex. 105). Ms. Campbell's notes of
27
28 the meeting explain:

Filed complaint with SEC and IRS. Found
1
Pennsylvania lawyer, former bond counsel and
2 underwriters counsel, to help him challenge,
claiming OS violates 10b-5 laws, not yet issued. IRS
3
doesn't look prospectively. Preston not
4 concerned and will give full unqualified
opinion.
5
6 (Ex. 105 (emphasis added). Ms. Campbell testified:
7 A. I think, after talking to everyone, they convinced

8 me that the assumptions weren't high, that Walker
knew what they were doing and everyone else knew
9 what they were doing, so the assumptions weren't
10 high, given historical research.
11 (Ex. 173 [Campbell] p. 155). Ms. Campbell got comfortable with the
12
Walker assumptions after discussions with the consultant and the people in
13
14 Spokane and other people involved in the deal (id., pp. 153-154). Ms.
15 Campbells notes indicate that she was assured during the July 22 meeting
16
that Walker feels revenues won't be affected and that Nordstrom & AMC
17
18 have agreed to participate in validation program (Ex. 105). This statement
19 is flat wrong. 28 As addressed in more detail below AMC did not agree to
20
any parking validation program and even filed a notice of default under its
21
22 lease with the Developers when the Developers told AMC that AMC would
23 have to participate in a validation program and its customer would not

24
receive free parking.
25
26 28 Ms. Campbell had two conversations with Walker about the Walker
27 projections and relied on the Walker Report in making its decision to insure
28 the RPS Bonds (Ex. 173, pp. 9, 108-09)..

65. Preston and the City refute the challenge to the Project.
1
2 Ormsby was carbon copied on a September 14th fax from an attorney
3 in Pennsylvania representing a public interest group warning that the

4
Bonds did not qualify as tax exempt because, among other reasons:
5
6 The owner/developer is receiving a multiple of the
appraised value of the facility ($21 million of bond
7 proceeds plus ground lease payments for a garage
8 currently appraised at $2.3 million which is to be
expanded and renovated and which may have a
9 final value of some $ 10 million.).
10
(Ceriani Decl., Ex. 217).29 The Preston bond lawyer, Thompson, without
11
12 having conducted an analysis of the difference between the purchase price
13 and the fair market value of the Garage, later advised Ben Stairs (and,
14
therefore, both Nuveen Funds) that the taxability question raised by the
15
16 public interest group is without merit (Ex. 121).
17 The city council weighed in on the issue in an August 21, 1998

18
statement signed by five of the six city council members. The statement
19
20 points to the fact that Preston was prepared to issue a clean bond opinion
21 and confirm that the disclosures concerning the bond issue were accurate in
22
all material respects (Ceriani Decl., Ex. 112, p. SPO 340). As to the purchase
23
24 29 The Official Statements disclose that opponents of the project filed an
25 inquiry and request for investigation with the IRS and SEC and states, The
26 opponents have declined to make the request public (Ex. 118, p. PSI 0090).
While that statement may, technically, be true, it is also misleading since
27 the basis and substance of the inquiry is set forth in this September 14,
28 1998 fax to Prudential, Foster, the City and Preston.

price of the Garage, the council gave the false impression the negotiations
1
2 had been arms length by stating the price was the result of long
3
negotiations involving the Foundation, the City and the Developer and is
4
primarily based on two MAI appraisals commissioned by the City of
5
6 Spokane (id.). The councils statement further points out that the Garage
7
has been operating profitably for twenty-four years and originally cost
8
$7.5 million to build. The councils statement also addresses the obvious
9
10 that the purchase price takes into account not only the expansion of the
11
Garage by approximately 554 spaces and the renovation of the Garage to a
12
state-of-the-art facility, but also factors in the expected revenue as indicated
13
14 in the Walker Report (id.).
15
66. The Parking Facility Purchase and Sale Agreement.
16
The Parking Facility Purchase and Sale Agreement was entered into
17
18 between the Foundation and the Developers in early August 1998 (Ceriani
19 Decl., Ex. 108). Among other things, the agreement contains provisions
20
requiring the Foundation and the Developers to make certain certifications
21
22 or warranties effective as of the anticipated August 1999 closing on the sale
23 of the Garage from the Developers to the Foundation (id.). The transaction
24
was structured such that the Developers would privately finance
25
26 renovations to the Garage and then close on the sale of the Garage to the
27 Foundation as soon as renovations were complete and the Garage was ready
28

to reopen. In the interim, bond proceeds would be placed in escrow so they
1
2 could be paid back to bond purchasers in full in the event the Garage was
3
not sold to the Foundation in accordance with the underlying agreements
4
(id.).
5
6 The Developers were required to warrant that there was no litigation
7
pending or threatened against the Developers and that, to the Developers
8
knowledge, there had been no default or any claim of a default and that no
9
10 event of default had occurred with respect to the Nordstrom and AMC leases
11
(Ceriani Decl., Ex. 108, p. 2552). In fact, as addressed below, by the
12
summer of 1999, AMC had objected to being forced to pay for parking and
13
14 had declared its lease with the Developers to be in default.
15
The Working Group knew that Standard & Poors had received and
16
was relying upon the Official Statement (Ceriani Decl., Ex. 218). The
17
18 Standard & Poors Credit Memo dated August 5, 1998, explicitly provided
19
that in rating the Bonds BBB-, S&P relies upon the issuer and its counsel,
20
accountants and other experts for the accuracy and completeness of the
21
22 information submitted in connection with the rating (id).
23
67. The false and misleading Other Risks and Limited
24 Remedies Upon Default sections take their final form.
25 Greenough made extensive handwritten revisions to another draft
26
POS dated August 6, 1998 (Ex. 110), including the false and misleading
27
28 Feasibility Analysis section (p. 20 (FPS 6520)) and expanded the discussion

of what ultimately became the Other Risks section of the Official
1
2 Statements (p. 23 (FPS 6523); Ex. 182 [Greenough] p. 327). On August 12,
3
1998, Greenough made the following notes: disclose appraisal and other
4
areas of disclosure concern (Ex. 111; Ex. 182 [Greenough p. 130). Despite
5
6 this focus by Greenough, and his presumptive discussion of the issue with
7
the Working Group, the truth about the appraisals was never disclosed
8
(see 15, 70).
9
10 The August 12, 1998 draft POS shows an intent to expand the scope of
11
what became the Other Risks section (Ceriani Decl., Ex. 111, p. 23
12
(FPS 6427)). This draft also had the following handwritten note under the
13
14 Limited Remedies Upon Default section: Value may not be 26 mill (check
15
hospital OS) page 17 of Sea Life (p. 24 (FPS 6428)). The Official Statements
16
make no such disclosure. These drafts were provided to the Working Group
17
18 (see supra paragraph 1, Ceriani Declaration Exhibit 72). The logical
19
inference is the Working Group knew the appraisers Auble and Barrett
20
believed the fair market value of the Garage was significantly less than the
21
22 investment value based upon the numbers dummied up by Walker and the
23
Developers, thought about disclosing this important fact to Bond purchasers
24
but ultimately opted to hide the truth. Foster also knew that the
25
26 investment value, which is based upon the unique investment criteria of
27
the Citye.g., expanded tax base, jobs, saving downtownwas not of
28

particular interest to investors. In Spitzers words, investment value to
1
2 the City and the value in which potential investors would be interested are
3
fish and bicycles (Ex. 65, p. 115, ll. 5-13).
4
68. In the weeks preceding the closing, the Working Group
5
received additional warnings that there was a significant
6 difference between the purchase price of the Garage and its
fair market value.
7
8 On August 20, 1998, the Preston lawyer, Ormsby, received a fax from
9 a representative of Rocky West, the Developers public relations firm,
10
enclosing a press release by the Mayor of Spokane (Ceriani Decl., Ex. 218).
11
12 The Developers public relations firm sent the press release to Ormsby with
13 the one-word message, Help! Among other things, the press release
14
contained the statement by the Mayor that I fear that we are going to be
15
16 the laughing stock of the nation for paying $26 million for a garage
17 currently appraised at $2.3 million, even if we add $10 million for the
18
renovations. The City has never explained why, if it felt the garage was
19
20 only worth these kinds of values, it would participate in a scheme in which
21 $26 million of unsuspecting bondholders money would be used to buy the
22
Garage.
23
24 69. The City secretly questions the variable ground rent payments
to the Developers.
25
26 On August 25, 1998, Koegen, Fortin and assistant city attorney
27 Schwartz met to discuss why the City was being required to make variable
28

ground rent payments to the Developers and, if the payments were going to
1
2 be made, why those payments had to be made before the City could be
3
repaid on any loans made from the parking meter revenue fund (Ceriani
4
Decl. Ex. 113). The variable ground rent payments were a mechanism for
5
6 permitting the Developers to profit from the Garage revenues in the event
7
they were realized in the amounts projected in the Walker Report.
8
Schwartz felt the Developers had already profited enough through the
9
10 purchase price. However, the decision had been brought before the finance
11
committee and had been negotiated with the Developers by council members
12
with the concurrence of the city council. Schwartz also objected to variable
13
14 ground rent payments being made to the Developers before the City would
15
be repaid on parking meter revenue loans and said it did not seem
16
appropriate in that debt should be paid before any profit was taken (Id.). In
17
18 secret, the City obviously had serious problems with the Ordinance before
19
the Bonds were issued and those concerns were under consideration by the
20
highest level City officials, bond counsel and the City attorneys office. The
21
22 Citys secret beliefs with respect to the variable ground rent payments were
23
not disclosed to bond purchasers and further support the bond purchasers
24
allegations that the City secretly intended to either not make the loans or
25
26 assert defenses to making the loans in the event they were needed. As
27
addressed throughout this Statement of Facts, the City obviously knew
28

substantial ongoing loans would be required because it knew the revenue
1
2 projections in the Walker Report were fraudulently inflated.
3
70. The Working Group reviewed the final Preliminary Official
4 Statement containing the false and misleading Other Risks
and Limited Remedies Upon Default sections.
5
6 Prudential and Foster circulated the final draft of the POS to the
7 Working Group on September 1, 1998 (Ceriani Decl., Ex. 116). The

8
transmittal memorandum accompanying the draft shows the draft was sent
9
10 to Robideaux and Swinton on behalf of the Developers, to Moore, Face and
11 two other representatives of Prudential, to Koegen on behalf of the City, to
12
Thompson and Ormsby on behalf of Preston and the Foundation, to a
13
14 representative of Walker and to representatives of U.S. Bank and S&P
15 (Walker, U.S. Bank and S&P were not included when earlier drafts of the
16
POS were circulated). This draft contains a newly-added Investor
17
18 Suitability section (Ceriani Decl., Ex. 226, p. W1-1159), which makes
19 general statements regarding the risks of the Bonds and minimum
20
suitability standards, but fails to disclose that Prudential had decided it just
21
22 wasnt going to sell the RPS bonds to Prudentials retail customers. The
23 Feasibility Analysis section continues its false presentation of the Walker

24
Report as a financial feasibility analysis (p. W1-1170). This section
25
26 indicates the City hired Walker to conduct the feasibility analysis, but fails
27 to disclose the facts that would call Walkers independence into question,
28

including Walkers prior relationship with the Developers and Walkers
1
2 ongoing work on behalf of the Developers with respect to such ongoing work
3
as calculating substantial revenue deficits caused by going to a flat rate in
4
the evenings and on Sundays. Nor, perhaps most importantly, is there any
5
6 disclosure that Walker is not rendering an expert opinion on the
7
reasonableness of the assumptions upon which the financial projections are
8
based.
9
10 Review of this draft also establishes that the Working Group had
11
reached their consensus on how to address the Coopers Report and how to
12
deal with the appraisals because it is in this draft that Other Risks
13
14 section relating to Coopers (Ceriani Decl., Ex. 116, p. W1-1177) and the
15
Limited Remedies Upon Default section first appears in final form (id.,
16
p. W1-1178). The Working Groups discussion of this draft of the POS
17
18 represented the final chance for some member of the Working Group to
19
speak out and state the obvious before the POS was issued to the investing
20
publicthat, based upon what each member of the Working Group knew as
21
22 a result of their review of the Auble, Barrett, Sabey and Coopers Reports,
23
the POS simply did not make full, fair and accurate disclosure of all
24
material facts relating to the bonds. The obligations of the members of the
25
26 Working Group under these circumstances is not subject to debate. Indeed,
27
Prestons own expert witness, testified flatly that if Preston was aware of a
28

materially misleading statement in the POS, it had an obligation to correct
1
2 it or withdraw (Ex. 193[Rollow] pp. 70-71). The simple reason no one spoke
3
up was greed. The Developers wanted the many millions the inflated
4
purchase price put in their pocket, the City was genuflecting to the
5
6 Developers in order to save downtown (as long as that could be done with
7
someone elses money) and wanted to get reimbursed for $300,000 -
8
$400,000 in administrative costs out of bond proceeds (Ceriani Decl.,
9
10 Ex. 215) and all the remaining members of the Working Group had a
11
substantial financial stake in getting the deal done because they would not
12
get paid unless the deal closed. Payment of Fosters attorney fees was
13
14 contingent upon a successful bond closing (Ceriani Decl., Ex. 118, p. 42
15
(PSI 0091)). Koegen was to be paid when the deal got done (Ceriani Decl.,
16
Ex. 186 [Koegen] p. 190); Prestons bills were paid out of bond closing
17
18 proceeds (Ceriani Decl., Ex. 191 [Ormsby] p. 54); Walker was paid over
19
$40,000 out of bond proceeds (Ceriani Decl., Ex. 197 [Swinton] pp. 388-89).
20
And, of course, there was the matter of an $11,000 bill from Moodys for the
21
22 shadow rating [id.]. Perkins Coie was paid $150,000; Preston $83,000;
23
Witherspoon Kelly $83,000, and the Developers $150,000 (Ceriani Decl.,
24
Ex. 216, p. PSI 1889).
25
26 No one spoke up and the fraudulent POS was issued to the public on
27
September 2, 1998.
28

71. The Prudential banker, Moore, vouches for the accuracy of the
1
POS.
2
Immediately after the RPS bonds were offered to the public by means
3
4 of the fraudulent POS, the Prudential Public Finance Business Review
5 Committee met to review the bond issue with Moore. Moore told the
6
committee that despite recent news articles, he was assured that the issue
7
8 was properly approved and that the mayor of the City of Spokane was
9 withdrawing his objections to this transaction (Ceriani Decl., Ex. 120, p. PSI
10
4899). Moore also told the committee that underwriters counsel had
11
12 suggested, and he agreed, to the limitations of the sale of these securities to
13 institutional clients only (id.). Prudential made no effort, via a sticker or

14
otherwise, to correct the POS being circulated to the public and disclose the
15
16 view of Prudential, and Foster, that the bonds were to risky for retail
17 customers. Prudential simply sold the bonds to other broker dealers and let
18
them sell the Bonds to their moms and pops.
19
20 72. The Funds relied upon the POS.
21 Paul Flynn was the Vanguard analyst involved in the purchase of the
22
RPS bonds. Mr. Flynn confirmed that the first thing he does when asked to
23
24 review a credit is review the preliminary official statement (Ceriani Decl.,
25 Ex. 179 [Flynn] p. 19). His analysis is based upon what he read in the
26
POS (id., p. 22). We know he read the POS relating to the RPS Bonds
27
28 because the copy of the POS in Vanguards files contain Mr. Flynns

handwritten annotations made when he reviewed the document (id., pp. 41-
1
2 42). Similar documents are not available to prove the Smith Barney Funds
3
reliance upon the POS because Smith Barneys offices were located in the
4
World Trade Center and all files were lost in the terrorist attack on
5
6 September 11, 2001. However, Smith Barneys reliance on the POS is
7
confirmed in the Affidavit of Michael Maher submitted in opposition to
8
Prudentials Motion to Dismiss the Smith Barney claims.
9
10 Ben Stairs was the Nuveen analyst responsible for reviewing the RPS
11
Garage Bonds and making a purchase recommendation to the portfolio
12
managers for the two Plaintiff Nuveen Funds (Ceriani Decl., Ex. 203, 1).
13
14 Based upon the information in the POS, Stairs prepared a New Issue
15
Review on September 14, 1998, which, based upon his review of the POS,
16
sets forth, among other things, the positives and negatives of the bond
17
18 issue (Ex. 121, p. NUV 3009). The Rationale section notes the gross pledge
19
on revenues, a 1.25 debt service coverage ratio covenant, the City covenant
20
to loan parking meter revenue, and the fact that the parking meter revenue
21
22 fund had $1.3 million in it over the past two years. This section notes that
23
the quality of the projections are key; however the rate covenant, strong
24
tenants (Nordstrom and an AMC theater with 20 screens), the gross pledge
25
26 of revenues and City loan covenant provide some security (id.). This
27
section goes on to state that the wild card is the publics division relative to
28

the proper use of public funds, but points out that Nuveen has relied upon
1
2 the city attorneys opinion that the pending suit regarding the initiative
3
would not impact this deal even if the appeals court reverses the lower
4
courts ruling (id.). This section also states that we have relied on bond
5
6 counsels opinion as to the tax-exempt status of the deal (id.). The
7
Negatives section notes that an ex Pru banker/bond lawyer is upset with
8
the deal and has sued several times regarding this issue, notes that the
9
10 interest group is allegedly taking their fight to the IRS & SEC (id.), and
11
notes that the City Council and populace appear to be deeply divided on
12
this issue, because some believe this is not an appropriate use of public
13
14 funds (id.). Nuveen obviously considered the public controversy as a
15
negative, but also obviously relied upon the disclosure contained in the POS
16
and the clean bond opinion in making its decision to purchase the Bonds.
17
18 73. The Bond Purchase Agreement required every member of the
Working Group to issue a 10b-5 opinion or certificate
19
regarding adequacy of disclosure as a condition precedent to
20 Prudentials obligation to purchase the Bonds from the
Foundation.
21
22 The Bond Purchase Agreement is dated September 15, 1998 (Ceriani
23 Decl., Ex. 122), and, in paragraph 4(f), required the Foundation to represent
24
and warrant to Prudential that the information relating to the issuer
25
26 contained in the POS was true and correct in all material respects and
27 that the Official Statements would not contain any untrue or misleading
28

statement of a material fact relating to the Issuer or omit to state any
1
2 material fact relating to the Issuer necessary to make the statements
3
therein, in the light of the circumstances under which they were made, not
4
misleading (id., p. NUV 1397). The Foundation, upon Prestons advice,
5
6 provided this certificate via the signature of Fortin (Ceriani Decl., Ex. 135).
7
Paragraph 8 of the Bond Purchase Agreement lists additional
8
conditions to Prudentials obligation to purchase the Bonds, including
9
10 further warranties of the issuer and, in subparagraph (c), the receipt of
11
opinions or certifications from every member of the Working Group
12
attesting to the accuracy of various portions of the Official Statements
13
14 (Ceriani Decl., Ex. 122, p. NUV 1403). As addressed in more detail below,
15
the necessary opinions and certificates (without which the bond sale would
16
never have closed) were provided by all of the members of the Working
17
18 Group despite their actual knowledge (as described throughout this
19
Statement of Facts) that the Official Statements were false and misleading.
20
Notably, while the parties to the agreement are Prudential and the
21
22 Foundation, the Foundation was not allowed to sign the agreement without
23
the consent of the Developers, under the signature of Elizabeth A. Cowles,
24
their president (id., p. 1410). This is, of course, further evidence of the
25
26 Developers control of the Foundation.
27
74. The Official Statement is issued on September 15, 1998.
28

The OS is, for the purposes of this Statement of Facts, substantively
1
2 identical to the POS and, therefore, will not be further addressed here. The
3
Bond Funds purchased their Bonds during the initial distribution of the
4
Bonds (Ceriani Decl., Ex. 136). The Bond Funds received and relied upon
5
6 the false and misleading Official Statements Foster drafted (see, e.g.,
7
Ceriani Decl., Ex. 202).
8
Vanguard High-Yield Tax-Exempt Fund (the Vanguard Fund)
9
10 purchased $6,000,000 in face value of the RPS Garage Bonds from
11
Prudential on September 16, 1998 (Ceriani Decl., Ex. 136 (p. VAN 3761)).
12
The Vanguard Fund received a copy of the Official Statements from
13
14 Prudential (Ceriani Decl., Ex. 53 (pp. VAN 0438-39; VAN 0743-44)). The
15
Vanguard Fund relied upon the Official Statements prior to making the
16
decision to purchase the Bonds (Ex. 179 [Flynn] p. 19).
17
18 Smith Barney Municipal Fund Limited Term (the SB Limited Term
19
Fund) purchased $3,900,000 in face value of the RPS Garage Bonds from
20
Prudential on September 15, 1998 (Ceriani Decl., Ex. 136, p. SB 0001). The
21
22 SB Limited Term Fund relied upon the Official Statements prior to making
23
the decision to purchase the Bonds (Ceriani Decl., Ex. 202 (Maher Decl.),
24
4).
25
26 Smith Barney Municipal High Income Fund (SB High Income Fund)
27
purchased $3,365,000 in face value of the RPS Garage Bonds on September
28

15, 1998 (Ceriani Decl., Ex. 136, p. SB 0006). The SB High Income Fund
1
2 relied upon the Official Statements prior to making the decision to purchase
3
the Bonds (Ceriani Decl., Ex. 202 (Maher Decl.), 4).
4
Nuveen Washington Fund purchased $1,675,000 in face value of the
5
6 RPS Garage Bonds from Prudential on September 17, 1998 (Ceriani Decl.,
7
Ex. 136, p. NUV 2998). The Nuveen Washington Fund was subsequently
8
merged into the Nuveen Premium Income Municipal Fund, 4, Inc. (the
9
10 Nuveen Premium Fund). The Nuveen Washington Fund received a copy of
11
the Official Statements from Prudential (Ceriani Decl., Ex. 119 (p. NUV
12
0001-02, 2771-72). The Nuveen Premium Fund relied upon the Official
13
14 Statements prior to making the decision to purchase the Bonds (Ceriani
15
Decl., Ex. 203 (Stairs Decl.), 2).
16
Nuveen Quality Income Municipal Fund, Inc. (the Nuveen Quality
17
18 Fund) purchased $3,350,000 in face value of the RPS Garage Bonds from
19
Prudential on September 14, 1998 (Ceriani Decl., Ex. 136, p. NUV 3003).
20
The Nuveen Quality Fund received a copy of the Official Statements from
21
22 Prudential (Ceriani Decl., Ex. 119, p. NUV 0001-02, 2771-72). The Nuveen
23
Quality Fund relied upon the Official Statements prior to making the
24
decision to purchase the Bonds (Ceriani Decl., Ex. 203 (Stairs Decl.), 2).
25
26 75. The members of the Working Group all knowingly sign false
and misleading certificates attesting to the accuracy of the
27
disclosure in the Official Statements.
28

The Bond Purchase Agreement made it clear that Prudential would
1
2 not purchase the Bonds if every member of the Working Group did not sign
3
a pre-approved opinion or certificate attesting to the accuracy of disclosure
4
in the Official Statements. The following addresses the pertinent provisions
5
6 of those opinions and certificates.
7
Foster. In one of its opinions, Foster represents to Prudential that,
8
after reading various materials regarding Mark D. Schwartz and the recent
9
10 attacks on the project pertaining to the request for investigation made to the
11
IRS and SEC, none of the issues raised by Mr. Schwartz or Mr. Eugster has
12
led us to reconsider our other September 24, 1998 opinion (Ceriani Decl.,
13
14 Ex. 125, p. PSI 4999). Foster based this opinion upon its review of a
15
memorandum from Preston Gates, acting as bond counsel to the
16
Foundation. Thus, the two principal law firms involved with advising the
17
18 underwriter and the issuer on the project reviewed the facts and
19
circumstances surrounding this challenge to the project and confirmed
20
(albeit falsely) to Prudential that the challenge to the project did not have
21
22 any impact on the accuracy of disclosure in the Official Statements. In its
23
other September 24, 1998 opinion, Foster confirms that, among other
24
things, it reviewed the content of the Official Statement of the issuer prior
25
26 to issuing the opinion and ultimately opines:
27
28

Without undertaking to determine independently or
1
assuming any responsibility for the accuracy,
2 completeness or fairness of the statements
contained in the Official Statement, we have no
3
reason to believe that the Official Statement as of
4 this date contains any untrue statement of a
material fact or omits to state a material fact
5
required to be stated therein or necessary to make
6 the statements therein, in light of the circumstances
in which they were made, not misleading (except
7
that we express no opinion or belief with respect to
8 any financial or statistical data contained in the
Official Statement).
9
10 (Ceriani Decl., Ex. 126, p. PSI 1917). For the reasons set forth throughout
11 this Statement of Facts, this opinion was obviously false and Foster knew it
12
was false at the time it rendered the opinion. Likewise, its client,
13
14 Prudential, knew the opinion was false because Prudential and its counsel,
15 Foster, actually selected the words used in the most false and misleading
16
portions of the Official Statements and because, in any event, the knowledge
17
18 of Foster, the agent, is imputed to Prudential, the principal.
19 The City. The city attorney issued a closing opinion attesting to the
20
accuracy of the disclosure contained in specific subsections of the Official
21
22 Statements, including the sections dealing with the public purpose of the
23 Bonds and the Citys pledge of parking meter revenues (Ceriani Decl.,
24
Ex. 127, p. PS 3499). For the reasons set forth throughout this statement of
25
26 facts, the City knew the revenue projections in the Walker Report were
27 fraudulently inflated and, therefore, that the City would almost certainly be
28

called upon to make substantial loans to the project from the parking meter
1
2 revenue fund throughout the life of the Bonds. The City also believed, but
3
did not disclose, that the City had already begun developing various
4
defenses that it would assert to evade making the loans (such as, for
5
6 example, the gift defense because there was no way the loans could be
7
repaid).
8
The city attorney issued a second opinion directly to AGIC authorizing
9
10 AGIC to rely upon the above-referenced false and misleading legal opinion
11
issued by the city attorneys office (Ceriani Decl., Ex. 128).
12
The Citys bond counsel, Perkins, also issued a 10b-5 opinion attesting
13
14 to its belief in the accuracy of certain sections in the Official Statements,
15
including sections dealing with the City pledge of parking meter revenues
16
(Ceriani Decl., Ex. 130, pp. PSI 1914-15). For reasons set forth throughout
17
18 this Statement of Facts, the City and, in particular, its bond counsel,
19
Perkins (who was heavily involved in the entire bond underwriting process),
20
knew that the purchase price for the Garage had been wrongfully inflated,
21
22 knew the Walker revenue projections were inflated, knew that the City
23
would, therefore, likely be called upon to make substantial loans from the
24
parking meter revenue fund for the life of the bond issue, and also knew, in
25
26 view of its expertise in municipal law matters, that the City could assert a
27
28

defense to making the loans on the grounds that the loans would be an
1
2 impermissible gift because they could not be repaid.
3
The deputy City manager, Pete Fortin, signed a Certificate required
4
by Section 8(c)(21) of the Bond Purchase Agreement which attests to the
5
6 Citys belief that proper officials of the City are familiar with the
7
Feasibility Study and believe that the assumptions used therein are
8
reasonable and that the projections set forth in the Feasibility Study and
9
10 the Official Statement are reasonable (Ceriani Decl., Ex. 135, p. PSI 1872).
11
Fortin testified that he was not one of the proper officials referenced in the
12
Certificate and that he did not personally believe the assumptions were
13
14 reasonable and did not know who the proper officials were (Ceriani Decl.,
15
Ex. 180 [Fortin] p. 144-45). Investors were not told of Fortins true belief
16
regarding the assumptions (id., p. 102), nor were they told that Fortin did
17
18 not even know who these supposed proper City officials were. In Koegens
19
view, proper city officials referred to the City Council (Ceriani Decl., Ex.
20
186 [Koegen] p. 165) and when asked who, specifically, referenced Orville
21
22 Barnes (id.). Of course, when then asked what kind of study Mr. Barnes
23
had made of the Walker Report in order to certify it, Koegen conceded he
24
25
26
27
28

really didnt know whether Barnes had ever even read the Walker Report
1
2 [id.]. 30
3
The Foundation. As an issuer, the Foundation represented in its
4
General Certificate that all information in the Official Statement was true
5
6 and correct, excepting from its representation only information about the
7
Developers, the underwriter, the City, the PDA or the trustee (Ceriani Decl.,
8
Ex. 220). Preston understood that the Foundation was an issuer and the
9
10 Official Statement was the issuers document (Ex. 191 [Ormsby] p. 82). It
11
must be remembered that because Ormsby was acting as the Foundations
12
agent, everything Ormsby knew is imputed to the Foundation even though
13
14 it appears Ormsby did not actually share all of his knowledge with his
15
clients.
16
The Developers. Elizabeth Cowles, signing on behalf of the
17
18 principal developer entities, issued a Certificate attesting to the accuracy of
19
the information contained in the Official Statements relating to the
20
Developer, its Project Director and its Contractor (Ceriani Decl., Ex. 13,
21
22
23
24
25 30 Remarkably, Prestons expert witness, Mr. Rollow, was of the opinion that
26 it was perfectly proper for Preston to rely on the Citys certificate even if
Preston didnt know who the proper city officials were and what, if any,
27 qualifications or knowledge they had to provide a certificate (Ceriani Decl.,
28 Ex. 193 [Rollow] p. 135).

p. PSI 1870). While this statement is somewhat vague and could conceivably
1
2 be read to encompass all the disclosure in the Official Statements since it all
3
relates directly to the Developers, it is knowingly false and misleading in at
4
least one obvious respect. The Official Statements falsely represent that the
5
6 negotiation of the $26 million purchase price was the result of arms-length
7
negotiations between the City, the Developers and the Foundation. As
8
noted above,31 the Developers knew the Foundation did not participate in
9
10 the negotiation of the purchase price because the Developers did not even
11
form the Foundation until after the purchase price was agreed to and, for
12
months thereafter, the only Foundation principals was a director who was
13
14 an associate in the Developers law firm and a lawyer selected by the
15
Developers because he had a pre-existing relationship with the Developers.
16
In addition, the Developers knew critical information about them was
17
18 falsely omitted from the Official Statements, such as, for example, the fact
19
that the Developers formed the Foundation, appointed the Foundation
20
board of directors, appointed the Foundations counsel (who had a conflict of
21
22 interest with the Developers), and controlled the activities of the
23
Foundation. The Developers knowingly signed this false certificate to
24
ensure a bond closing and to ensure that the false and misleading Official
25
26 Statements made its way to the investing public.
27
28 31 See discussion supra at 35.

Preston. The Preston law firm issued a number of opinions on
1
2 September 24, 1998, each of which was a condition precedent to Prudentials
3
obligation to purchase the Bonds (Ceriani Decl., Exs. 133, 134 and 129).
4
Among the opinions issued by Preston was the clean bond opinion attached
5
6 as an appendix to the Official Statements and was, therefore, intended by
7
Preston to directly reach and influence bond purchasers . Preston issued an
8
unqualified bond opinion which was attached to the Official Statement.
9
10 Preston acknowledged that its opinion needed to be based upon an
11
examination of material legal and factual sources including certificates, or
12
to the relevant facts provided by persons in a position to have knowledge
13
14 and reasonable certainty as to the subjects addressed therein (Ex. 198
15
[Thompson] p. 121). In one opinion, Preston attests to its belief in the
16
accuracy of the disclosure contained in various sections of the Official
17
18 Statements, including the sections making disclosure regarding the
19
Foundation and tax-exempt status of the Bonds (Ex. 133). Preston
20
obviously knew the disclosure regarding the Foundation was misleading due
21
22 to the failure to disclose that the Foundation did not participate in the
23
purchase price negotiations because it had not even been formed as of the
24
date those negotiations were completed, did not disclose its own serious and
25
26 ongoing conflicts of interest with the City and the Developers, and did not
27
disclose that Preston really answered to the Developers and, thereby, helped
28

the Developers exercise control over the Foundation. Prestons
1
2 Supplemental Opinion to Prudential Securities opined that the statements
3
in the Official Statement concerning the Foundation are true, accurate and
4
correct summaries thereof in all material respects and do not omit to state a
5
6 material fact necessary in order to make the statements therein, in light of
7
the circumstances under which they were made, not misleading (Ex. 2 to
8
the Decl. of David Thompson dated September 9, 2003). In the September
9
10 24, 1998 10b-5 opinion addressed to Prudential, the Foundation and the
11
Authority, Preston states:
12
Based upon our experience as counsel for the issuer
13
and on our review of and participation in the
14 drafting of the Official Statement, and after diligent
inquiry, we have no reason to believe that the
15
information regarding the issuer in the
16 Official Statement contains any untrue
statement of a material fact or omits to state
17
any material fact necessary in order to make
18 the statements made therein, in light of the
circumstances under which they were made,
19
not misleading (emphasis added).
20
These opinions were a condition precedent to Prudentials purchase of the
21
22 Bonds (Ceriani Decl., Ex. 122 ( 8(c)(3-4)).
23 76. The Trustees obligations to bond purchasers under the Trust
24 Indenture are extremely limited in scope.
25 The Indenture of Trust between the Foundation and U.S. Bank is
26
dated as of August 1, 1998 (Ceriani Decl., Ex. 109). Under the Trust
27
28 Indenture, the trustee shall only perform such duties and only such duties

as are specifically imposed upon it as set forth in this Indenture (Ex. 109,
1
2 7.01(a), p. FPS 7053). Section 7.01(f) of the Trust Indenture, covering the
3
Duties, Immunities and Liabilities of Trustee, states: The Trustee shall
4
have no responsibility with respect to any information, statement or recital
5
6 in the offering memorandum or other disclosure material prepared or
7
distributed with respect to the Bonds (id., p. FPS 7055). Section 7.04 of the
8
Trust Indenture states: The Trustee shall have no responsibility or liability
9
10 with respect to any information, statement, or recital in any offering
11
memorandum or other disclosure material prepared or distributed with
12
respect to the issuance of the Bonds (id., p. FPS 7056). The OS is consistent
13
14 with the Trust Indenture. The section of the Official Statements addressing
15
The Trustee states that the Trustee has undertaken only those duties and
16
obligations that are expressly set forth in the Indenture (Ex. 118, p. PSI
17
18 0091). This section further provides, Except for the contents of this section,
19
the Trustee has not reviewed or participated in the preparation of this
20
Official Statement and has assumed no responsibility for the nature,
21
22 content, accuracy or completeness of the information included in this
23
Official Statement (id.). Bruce Colwell, a vice president and manager of
24
U.S. Bank Corporate Trust Services, confirmed the trustee does not review
25
26 the official statement for completeness or accuracy except as to what is said
27
about the trustee (Ex. 174 [Colwell] p. 14).
28

77. The Bonds are issued and distributed to the Bond Funds and
1
retail bond purchasers.
2
The fraudulent POS was issued on September 2, 1998 (Ceriani Decl.,
3
4 Ex. 118, cover page), the OS was issued on September 15, 1998 (Ex. 123,
5 cover page). Fosters 10b-5 opinion is dated September 24, 1998 (Ex. 126,
6
p. PSI 1916). The bond closing occurred on September 24, 1998 (Ex. 125,
7
8 p. PSI 4999-5000).
9 78. The Developers tell the City the Garage is really only worth
10 about $14 million.
11 In an October 8, 1998 memo, in connection with issuing the
12
Developers building permit, City building official Bob Eugene confirms the
13
14 value for the parking garage should be reduced from $26,050,713.71 to
15 14,527,271.28 (Ceriani Decl., Ex. 137, p. SPK 336). Thus, once they got the
16
money and there was no longer any need to pump the value of the garage to
17
18 justify a $31 million bond issue, the Developers and the City came back to
19 earth.
20
79. The Business Improvement District confirms it did not have
21 sufficient funds to underwrite a parking validation program
22 based upon the new $1.50-per-hour rate.
23 The Developer representatives, Robideaux and Stacey Cowles, sat on

24 the board of the Downtown Business Improvement District and attended a
25
board meeting on October 21, 1998. The minutes confirm:
26
27 [A] gap from approximately August 20, 1999 to the
end of 1999, when the rates at the RPS garage
28

increase significantly to $1.50 per hour and the
1
funding from BID cannot underwrite it. How to fill
2 that gap is a continuing problem which needs
examination, but taking money from other programs
3
to fill it is not the solution.
4
! The year 2000 poses even more significant
5 problems if the Board decides to underwrite the
6 cost of parking, so the search for a solution needs
to begin in 1999.
7
8 (Ceriani Decl., Ex. 138, p. BID 0758-59). This confirms there were
9 insufficient funds available to provide a meaningful and attractive parking

10
validation program going forward. One of the principal problems was the
11
12 increased parking rates at the RPS Garage substantially increased the
13 amount of subsidy required. Since this information was known to the BID
14
board in within days of the issuance of the Bonds, it either was or should
15
16 have been known to the Working Group before the Bonds were issued.
17 80. The Developers and Walker continue their flat rate studies.
18 At the Developers request, Walker submitted another in its series of
19
proformas assuming a flat rate for parking in the evenings and on Sundays
20
21 on November 24, 1998 (Ceriani Decl., Ex. 141, p. W1-1254). Like the others
22 that preceded it, this one projects substantial reductions in revenues (id.).
23
81. The Foundations proposed 1999 budget shows the entity is a
24 shell run by Preston on behalf of the Developers.
25
A January 28, 1999 memo from the Preston attorney, Ormsby, to the
26
27 Developer attorney, Swinton, addresses a proposed 1999 budget for the
28

Foundation (Ceriani Decl., Ex. 142, p. PG 0926). The budget memorandum
1
2 is addressed directly to the Developers counsel, and is not even copied to the
3
actual Foundation board. The entire proposed 1999 budget for the
4
Foundation is $19,350, of which $11,650 is budgeted to go for Prestons
5
6 attorney fees (p. PG 0927). The budget indicates that actual payments of the
7
amounts in the budget will be subject to submission and approval of invoices
8
by both the Foundation directors, representatives of the Developer and the
9
10 PDA (id.). This is, of course, yet another example of the Developers control
11
of the Foundation.
12
82. The Developers confirm the theater numbers projected by
13
Walker were inflated.
14
By the spring of 1997, a Business Improvement District memorandum
15
16 addressing the existing parking validation program states Bob Robideaux
17 stated he felt the theater numbers projected by Walker were inflated

18
(Ceriani Decl., Ex. 143, p. BID 0800) because the Walker study did not
19
20 anticipate the availability of free on-street parking after 6:00 p.m. on
21 weekdays and Saturdays and all day on Sundays (pp. BID 800-01). The
22
impact upon Walkers numbers of available on street parking was, of course,
23
24 known long before the bonds were issued. The same information is provided
25 in a memo from Michael Edwards, president of the Downtown Spokane
26
Partnership, to the Transportation Council dated March 23, 1999 (Ex. 145,
27
28 p. BID 0820). The memo also states the current validation program is

broken and no single revenue source (city, BID, businesses of customers) can
1
2 affordably fill the deficit individually or as a group (Ex. 145, p. BID 0816).
3
So much for the validation funds being budgeted elsewhere.
4
83. AMC Theatres demands free parking and declares its lease
5
with the Developers to be in default.
6
An August 10, 1999 letter from AMCs counsel to the Developers
7
8 confirms that the dispute between AMC and the Developers with respect to
9 whether AMC patrons had to pay for parking that was ongoing. (Ceriani
10
Decl., Ex. 148, p. AMC 1986). The letter states negotiations had not been
11
12 successful and, pursuant to paragraph 24(B) of the lease which AMC read as
13 granting AMC and its customers free parking (id.), AMC considered any
14
requirement that AMC patrons pay for parking to be an event of default
15
16 under its lease. In fact, after many threats, AMC did formally declare the
17 Developers in default of the lease in a letter dated August 20, 1999 (Ex. 152,
18
p. AMC 0405).
19
20 Prudential was aware of the AMC dispute as indicated in an August
21 23, 1999 memo from the Prudential banker, Face, to the Prudential banker,
22
Moore (Ceriani Decl., Ex. 155, p. PSI 2482).
23
24 84. The City, Walker and the Developers study going to a flat rate
in the evenings and on weekends to mollify AMC.
25
26 A July 23, 1999 memorandum from Walker to the City shows the
27 impact of going to a flat rate of $2.00 after 5:00 p.m. and all day Sunday
28

(Ceriani Decl., Ex. 146, p. PDA 1223-24). Like every other proforma
1
2 addressing the flat rate scenarios, it resulted in substantial reductions in
3
projected operating revenues.
4
An August 6, 1999 memorandum from Walker to Fortin, which was
5
6 copied to the Developers agent, Robideaux, contains more detailed
7
projections and assumes a $2.00 flat rate after 5:00 p.m. and all day Sunday
8
(Ceriani Decl., Ex. 147, p. PC 4533).
9
10 85. The Foundation and Preston question paying the full price for
the Garage, but are rebuffed by the Developers.
11
12 On August 13, 1999, Terry Novak, president of the PDA (responsible
13 for operating the Garage and the entity which leased the Garage from the
14
Foundation) informed Ormsby that, in the view of the PDA board, it would
15
16 be unable to lease the facility from the Foundation based upon Walkers
17 revised revenue estimates and the projected $1,240,000 revenue shortfall

18
(Ceriani Decl., Ex. 150, pp. PG 9336-37). The PDAs solution to the dilemma
19
20 was to institute parking rates in the amount and times that were used in
21 the original Walker study that resulted in the issuance of the Bonds or leave
22
parking rates at the reduced levels projected by Walker until 2001 and then
23
24 raise rates in an amount sufficient to provide adequate revenues to pay the
25 Bonds (p. 9337).

26
In August 13, 1999, Ormsby gently raised the issue with the fellow
27
28 that hired him by writing Swinton:

Since the purchase price of the Facility was based
1
on the revenue stream expected to be generated by
2 the Facility, it may be appropriate to consider
adjusting that purchase price to reflect the revised
3
revenue stream based on the most recent estimates
4 developed by Walker given the change in
assumptions.
5
6 (Ceriani Decl., Ex. 149, p. SDF 2464). Obviously, the decision had been made
7 to go to a flat rate in the evenings and on weekends in an attempt to

8
accommodate AMC. In July 1999, before any bond proceeds had been
9
10 turned over to the Developers, Ormsby learned of a dispute between the
11 Developers and the cinema tenant AMC over the lack of free parking for
12
AMC patrons (Ex. 191 [Ormsby] p. 207). On July 31, 1999, prior to the
13
14 disbursement of any funds from escrow, Ormsby advised the Foundation
15 that the dispute created significant short and long term concerns regarding
16
arrangements for parking for patrons of the AMC theater, including a
17
18 potential $600,000 annual revenue shortfall (Ex. 191 [Ormsby] p. 208-09];
19 Ex. 214). Ormsby knew that as a condition to closing the transaction and
20
disbursing the Bond proceeds held in escrow by the Trustee to the
21
22 Developers, the Developers had to warrant to the Foundation that to the
23 Developers knowledge there has been no default or any claim of default and
24
no event has occurred that . . . would constitute a default with respect
25
26 to . . . the cinema lease (Ex. 191 [Ormsby] pp. 327-28). The AMC notice of
27 default prevented the Developers from complying with this condition and
28

Ormsby and the Foundation had the absolute right to refuse to close
1
2 the purchase. However, Ormsby never advised his client, the Foundation,
3
of this right. He unilaterally decided to waive this right on behalf of the
4
Foundation, even though he knew the Foundation did not have to waive it
5
6 and even though it was the Foundations decision whether to seek to unwind
7
the transaction and return the money to the bondholders (id., pp. 270-71,
8
330-31). Ormsby never followed up with his former client, the Developers,
9
10 to attempt to get them to agree to a lower price (Ex. 191 [Ormsby] pp. 242-
11
45). Why Ormsby and the Foundation did not protect the bondholders is a
12
question they shall have to answer at trial. Instead, the Foundation left the
13
14 rates exactly the way they were until after sale was closed; then the Garage
15
went to a flat rate in the evenings and on Sundays.
16
Ormsby never for a moment considered disclosing the new Walker
17
18 projections and annual revenue shortfall to either the bondholders or the
19
trustee, even though he knew that if the Foundation refused to close,
20
bondholders could have gotten 100% of their money back (Ceriani Decl., Ex.
21
22 191 [Ormsby] pp. 242-45).
23
Investors continued to purchase bonds in the secondary market after
24
August 1999 when Preston learned that there were problems with the deal
25
26 (see, e.g., Ex. 190 [ONeill] p. 49).
27
28

86. Members of the Working Group conceal the AMC blow up from
1
the public.
2
Other Working Group members were involved in the successful effort
3
4 to hide these serious developments from bond purchasers. Notes taken by a
5 Perkins representative attending an executive session of the PDA on August

6
25, 1999, attended by representatives of the City and the PDA, indicate
7
8 Koegen recommended keep quiet but communicate w/Dwayne [Swinton]
9 once resolve can close (Ceriani Decl., Ex. 157, p. PERKINS 18130). Later in
10
the notes, Koegen is reported to be concerned about things going public
11
12 (p. 18131). Koegen reportedly asked if there was any way to set up so not
13 public knowledge @ this time (id.). The notes further indicate Koegen said
14
meet w/Ormsby (not public) + let him know & he handle certain items @
15
16 this time since the Foundation not public (p. 18132). There was obviously a
17 conspiracy to keep bond purchasers in the dark. The City now admits
18
through its expert witness, Jarvis, that the City was wrong to keep the AMC
19
20 dispute from being publicly aired and disclosed to bondholders (Ex. 184
21 [Jarvis]). The City further admits it was wrong to allow the transaction to
22
close knowing there was a material revenue shortfall going forward (id.).
23
24 In a September 2, 1999 letter, the Developers informed the City,
25 through Koegen, that the claim of default by AMC with regard to its Lease
26
was an economic issue between the Developer and AMC and should not
27
28 impact closure of the sale of the garage (Ceriani Decl., Ex. 158,

p. WKDT 6380). In view of this conclusion, the Developers counsel concluded
1
2 that the Foundation should waive the representation and warranty
3
contingency regarding alleged defaults (p. 6381). The Foundation did
4
exactly that.
5
6 In a September 9, 1999 letter from Ormsby to Swinton, Ormsby states
7
I would like nothing better than to wrap this matter up and facilitate the
8
transfer of money to your client as quickly as possible (Ceriani Decl.,
9
10 Ex. 159, p. WKDT 16479). This memo to the Developers attorney is not
11
copied to the Foundation directors.
12
87. The Garage is sold to the Foundation for $26 million in bond
13
proceeds.
14
On August 23, 1999, the Developers issued a closing certificate to the
15
16 Foundation attesting that all conditions, representations and warranties
17 required of the Developers in connection with the sale of the Garage had
18
been satisfied with the exception of the purported default asserted by
19
20 Tenant concerning the cinema lease as previously disclosed to the
21 Foundation on August 20, 1999 (Ceriani Decl., Ex. 156, p. RWR 11528). The
22
closing was, however, put off until late September. The certificate is
23
24 blatantly inconsistent with the requirements of the Parking Facility
25 Purchase and Sale Agreement, which required the Developers to represent

26
and warrant that no such allegations of default existed as a condition
27
28 precedent to the Foundations obligation to close on the Garage purchase

(Ex. 108, p. 2552). At the time of the September 20, 1999 closing on the sale
1
2 of the Garage, the dispute with AMC was still ongoing. Nonetheless,
3
Preston caused the Foundation to close on the sale of the Garage without
4
any disclosure being made to bond purchasers and without even consulting
5
6 with the directors of the Foundation. This reconfirms Prestons true loyalty
7
was to the Developers and not to its client, the Foundation, and confirms the
8
Developers had always controlled the Foundation through Ormsby.
9
10 88. The PDA closing certificate referencing the $1.2 million
revenue shortfall did not reach bond purchasers.
11
12 Terry Novak, as president of the PDA, issued a closing Certificate on
13 behalf of the PDA in connection with the September 1999 closing on the sale
14
of the Garage which makes direct reference to the $1.2 million revenue
15
16 shortfall projected by Walker (Ceriani Decl., Ex. 160, p. WKDT 1395).
17 89. The Developers receive their profit from the sale of the
18 Garage.
19 A September 28, 1999 wire transfer confirmation shows the Developer

20
entity RPS II LLC received $8,052,480.08 as net proceeds from sale of the
21
22 Garage (Ceriani Decl., Ex. 161, p. RPS 11083). This appears to be direct
23 profits to the Developers as a result of inflating the purchase price of the

24
Garage.
25
26 90. The City files a complaint asserting defenses to enforcement of
the parking meter revenue Ordinance.
27
28

The City filed a complaint in the Superior Court for the State of
1
2 Washington, County of Spokane, on July 18, 2000, asserting a variety of
3
affirmative claims in the nature of defenses to the Citys obligations under
4
the parking meter revenue Ordinance (Ceriani Decl., Ex. 162). The City
5
6 alleges that it retained Kaiser Marston Associates, Inc. (Kaiser) in
7
February 2000 to prepare a new projection of the Garages net income for
8
the years 2000 through 2019, alleges that Kaiser delivered its report to the
9
10 city council on April 26, 2000, and alleges that the City determined there
11
was no realistic expectation that the PDA would ever be able to repay any
12
loan that the City might make to the PDA (id., pp. 16-18). In its
13
14 accounting claim, the City alleges it would be unlawful for the City to
15
make additional loans to the PDA without assurance that the initial
16
$26 million the Foundation paid the Developers for the Garage fairly
17
18 reflected the Developers renovation and expansion costs (id., p. 23). For
19
reasons set forth throughout this Statement of Facts, the City knew from
20
the outset that the $26 million purchase price was inflated and knew from
21
22 the outset that the Walker revenue projections were inflated to help drive
23
the inflated purchase price for the Garage (id.). In its declaratory
24
judgment claim, the City sought a judicial determination that the City
25
26 does not have an enforceable obligation to loan the PDA whatever funds
27
are necessary to pay the ground rent claimed by the Developer and to cover
28

the operations and maintenance costs of the Garage . . . (id., p. 24). The
1
2 declaratory judgment claim proceeds to set forth in seven separate
3
subparagraphs different defenses to enforcement of the Ordinance,
4
including that the Ordinance does not provide the essential terms of the
5
6 loan agreement and is therefore incomplete and unenforceable (the City
7
obviously knew this at the time the document was drafted); that the
8
Ordinance was unenforceable because it would result in the transfer of
9
10 substantial public funds to private parties for private purposes in violation
11
of the Washington Constitution (the City knew this would occur from the
12
outset and was the entire purpose for inflating the purchase price of the
13
14 Garage in the first place); and that the Ordinance is unenforceable because
15
the Defendants, including Walker and the Developer entities, had unclean
16
hands (id., pp. 24-25) (the City knew from the outset that the Developers
17
18 and Walker had unclean hands because they were willing co-conspirators
19
with the City in the fraudulent conspiracy to defraud bond purchasers) (id.,
20
pp. 24-25). The Citys special counsel issued a detailed fourteen-page report
21
22 addressing the facts and circumstances surrounding the underwriting and
23
issuance of the Bonds on October 30, 2000 (Ex. 164). The statement is rife
24
with truthful admissions regarding virtually every aspect of the fraudulent
25
26 scheme addressed throughout this Statement of Facts. Among the
27
conclusions reached in the report are the $26 million transfer price for the
28

RPS Garage and the ground lease rent were deliberately inflated in order to
1
2 provide the maximum possible subsidy for the RPS developers (id., p. PG
3
10109). Avoidance of a public vote was a driving factor for the
4
extraordinarily complex strategy that facilitated the Foundations sale of
5
6 $31.5 million of bonds (id.).
7
91. On August 8, 2001, the IRS issued a Preliminary
8 Determination (Ceriani Decl., Ex. 165) that the Bonds were not
tax exempt.
9
10 The IRS reissued a second, more detailed Preliminary Determination
11 on April 4, 2002 (Ceriani Decl., Ex. 166). One of the grounds for the IRS
12
Preliminary Determination was that the fair market value of the Garage
13
14 was only $15 million, and that the purchase price in excess of that amount
15 was an impermissible private inurement to the Developer (id., p. PG 20222).
16
Since April 26, 2000, when the City rejected the PDA request for a $450,000
17
18 loan to fund its revenue shortfalls, the City has repudiated its promises to
19 investors and refused to loan any funds, claiming the shortfalls were
20
unexpected. The City has refused to loan one dime to the PDA since then.
21
22 Instead, the City has waged a scorched earth litigation strategy, requiring
23 the bondholders to spend hundreds of thousands of dollars in seeking state

24
court orders requiring the City to loan funds. Currently, the City is seeking
25
26 discretionary review by the Washington Supreme Court of the Court of
27
28

Appeals recent affirmance of a district court mandamus order requiring the
1
2 City to make the loans.
3
4 DATED this __________ day of March, 2009.
5
DAVIS & CERIANI, P.C.
6
7
8 By:
Gary J. Ceriani
9
10
By:
11
Michael P. Cillo
12 Valeri S. Pappas
Attorneys for Bond Fund Plaintiffs
13
14 MASLON EDELMAN BORMAN &
BRAND, LLP
15
Alain M. Baudry
16 R. Christopher Sur
Attorneys for Plaintiff U.S. Bank
17
National Association
18
CRUMB & MUNDING, P.C.
19
John D. Munding
20 Steven A. Crumb
Attorneys for Bond Fund Plaintiffs
21
and Plaintiff U.S. Bank National
22 Association
23
RIDDELL WILLIAMS, P.S.
24 John D. Lowery
Gavin W. Skok
25
Attorneys for Intervenor-Plaintiff
26 Asset Guaranty Insurance
Company
27
28

Bondholder Lawsuit Concerning The River Park Square

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Bondholder Lawsuit Concerning The River Park Square

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DAVIS & CERIANI, P.C.

MASLON EDELMAN BORMAN & BRAND, LLP

7 CRUMB & MUNDING, P.S.

23 for Summary Judgment:1

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 1

15 5. Walker Parking Consultants, Inc. had previously conducted

17 6. The 1995 Walker Report shows the renovated and expanded

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 2

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 3

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 4

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 5

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 6

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 7

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 8

5 Municipal Bonds are typically offered and sold by the delivery of a

17 a Working Group of the financial and legal professionals and other

21 drafted by Foster, acting as counsel for Prudential, the underwriter. The

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 9

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 10

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 11

15 Lincoln Investment Company of Spokane, Citizens Realty Company, RPS II,

23 threatening to leave downtown, and the Developers needed to find a way to

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 12

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 13

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 14

13 determined that Spokanes central business district had a surplus of over

25 potential investors or AGIC. Instead, investors are told historic revenues

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 15

7 upon estimated 1994 revenues of $993,700 from a 1316-space garage, that

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 16

25 was not, in Betsy Cowles words, subject to compromise (id.). Obviously

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 17

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 18

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 19

21 would come from a HUD loan.

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 20

19 [Beringer] p. 87). By April 1996, Zimmer, the Developers agent, Robideaux,

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 21

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 22

25 of Walker accomplished that here by simply manipulating the numbers

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 23

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 24

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 25

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 26

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 27

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 28

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 29

23 provisions in the Coopers Report that were presented in a false and

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 30

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 31

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 32

25 were consistent with what the financial projections assumed could be

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 33

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 34

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 35

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 36

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 37

17 revenue neutral to the Garage. For example, the Developers appraiser

21 Validation program will be revenue neutral (Ex. 23, p. DZ 6598). As a

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 38

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 39

PLAINTIFFS OMNIBUS STATEMENT OF MATERIAL FACTS 40