CHICAGO - The Minnesota Court of Appeals has upheld a district court's ruling to dismiss a lawsuit that challenged the state of Minnesota's ability to issue bonds to assist Northwest Airlines.
But the 3-to-0 decision, released last Friday, did not preclude similar lawsuits in the future and raised concerns about the law that permits the sale of $620 million of bonds by the state and Minneapolis/St. Paul Metropolitan Airports Commission to assist the carrier in building maintenance facilities in the state.
State officials said this week that plans to issue the bonds are on hold until the suit is ultimately resolved.
The court upheld the Ramsey District Court's dismissal of the suit in April on grounds that the plaintiffs did not comply with the lower court judge's order to file a $30 million surety bond with the court. Under Minnesota law, a judge can order a plaintiff to file a surety bond if a lawsuit against a government entity could result in costly delays. However, the appeals court left the door open to challenges against the state law that permitted the bond sales.
"We note for the record that we do not share the trial court's confidence that [the] suit lacks merit. [The plaintiffs] have raised several important and complex issues- ... While it is premature to gauge their chances of success, we cannot agree with the [defendant's] characterization that the complaint is clearly without merit," the appeals court said.
Associate Judge Gary Crippen said the opinion stands as a "legal cloud" over all bonds sold by the state under the law that permitted the bonds to be sold for Northwest.
"By broadcasting the threat of future litigation, an advisory opinion deliberately risks creating a de facto injunction prohibiting issuance and sale of these state bonds," Judge Crippen wrote.
The suit claimed a state law authorizing the state and the airports commission to issue bonds to assist Northwest in its expansion plans violates a state constitutional ban on "public taxation for a private purpose."
The suit was brought before the appeals court by a Bloomington, Minn., couple who requested that a surety bond requirement be overturned and that the case be returned to district court to be heard on its merits.
David Knodell, attorney for the plaintiffs, said his clients have not decided whether they will petition the Minnesota Supreme Court to hear their case. The Supreme Court requires a request be submitted within 30 days of an appeals court decision.
Peter Sausen, assistant state finance commissioner, said the state had "no comment," pending a review of the decision with the state's attorneys.
Northwest Airlines also declined to comment on the decision, saying the carrier is prepared to begin building the facilities after the lawsuit is resolved.
"We're ready to go and begin building as soon as some of the issues [regarding the lawsuit] are cleared up," said a Northwest spokesman, who declined to be identified.
George Leung, managing director for state ratings at Moody;s Investors Service, said Moody's is following developments in the case. He added that it was "premature" to comment on the lawsuit until the matter is resolved.
Jay Abrams, a director at Standard & Poor's Corp., said the appeals court decision had no apparent impact on the rating for $270 million of bonds issued by the airports commission in April. He added it was too soon to tell what impact, if any, resolution of the lawsuit could have on future bond issues.
"We'll really have to wait and see how this whole things plays out," he said. "There appears to be an opening here for further challenges. It's one of those situations that will take longer to resolve than anticipated."
The $270 million of taxable bonds were rated triple-A by Moody's and Standard & Poor's.
Meanwhile, the state's plan to issue up to $350 million of tax-exempt bonds to help build Northwest's maintenance plants in Duluth and Hibbing has been put on hold until the suit is resolved, according to Mr. Sausen.
The $350 million of bonds were part of $620 million of taxable and tax-exempt bonds scheduled to be issued by the state and the airports commission to benefit Northwest. Up to $175 million of the bonds would carry the state's general obligation pledge. Rating agency officials have said it would mark the first time a state has given its GO pledge to benefit a major airline.