CHICAGO - Attorneys for Hennepin County, Minn., and the owner of a recycling center financed by $129 million of county revenue bonds filed a motion this week to dismiss a lawsuit alleging that they defrauded bondholders.
The lawsuit, filed in April in Hennepin County District Court by a group of bondholders, alleges that the county and the recycling center failed to adequately disclose that the county had the authority to redeem $124.5 million of the outstanding revenue bonds before a 1996 optional call date. The bonds were issued in 1986. The suit is a consolidation of three separate suits filed last year.
Hennepin County District Court Judge Robert G. Schiefelbein took the motion to dismiss the suit "under advisement." A court official said that Schiefelbein is expected to issue a decision by mid-September.
Bill Pentelovitch, trial attorney for the county, said the suit should be dismissed primarily because the plaintiffs did not follow proper procedures for filing claims with the county.
Pentelovitch said that state law requires each complainant to file a claim with the county Board of Commissioners. If the board denies the claims, then appeals may be presented to the district court, Pentelovitch said.
Attorney Karl Cambronne, who represents the plaintiffs, said they did not have to follow that procedure because the state law governing the filing of claims applies only to demands for money judgments. In addition to asking for money damages, Cambronne said, his clients have asked the court to clarify the bond documents.
Even if the law does apply to bondholders, Cambronne said that the county waived its right to review claims by accepting a letter from one of the plaintiffs' attorneys demanding compensation equal to the interest and premiums on the bonds until the 1996 optional call date.
The county contends that receipt of the letter did not constitute a waiver of the right to review the claims, which could only have occurred if the Board of Commissioners had voted to accept the letter, according to court documents.
Pentelovitch said the suit also should be dismissed because the county abided by its contract with bondholders as presented in the official statement. The cover of the official statement says "the letter of credit expires on Oct. 15, 1992, unless earlier terminated in accordance with its terms. If the letter of credit is not extended and an alternate credit facility is not provided, all outstanding Series 1986 bonds will be subject to mandatory redemption upon the termination of the letter of credit."
Cambronne maintains that the official statement also says that the bonds were subject to mandatory redemption only under certain nonvoluntary events, such as the permanent shutdown of the recycling center facility, loss of tax-exempt status of the bonds, or the failure by the defendants to secure all government permits and licenses for construction. The bonds were subject to optional redemption only at a premium, and not at any time before Oct. 15, 1996, the optional call date, Cambronne said.
Lawsuits were filed after the county allowed a letter of credit on the bonds to expire, causing a mandatory redemption. The redemption saved the county about $41 million in bond premiums and interest costs, according to county officials.
The consolidated suit claims that the county's action cost bondholders $28 million in interest payments and was "motivated by the [defendants'] own financial gain," the suit says.
The recycling center is owned by Hennepin Energy Resource Company Ltd.