CHICAGO - The Minnesota Court of Appeals has agreed to hear an appeal related to a lawsuit filed by former holders of $124.5 million of outstanding Hennepin County revenue bonds that were redeemed before a 1996 optional call date.

The appeal, filed by attorneys for Hennepin County, challenges a Hennepin County District Court decision in October that said bondholders could take their case to court before presenting it to the county board, according to Bill Pentelovitch, an attorney for the county.

The county's appeal also claims that bondholders do not have a right to file a suit based on an assertion that the county breached its implied duty of good faith and fair dealing related to the early redemption of the bonds.

The appeals court could hear the case in the late winter or early spring, Pentelovitch said

Robert Levy, an attorney for the bondholders, said that if the appeals court rules that bondholders did not have a right to seek a legal remedy for their claims before filing them with the county, and if bondholders choose not to appeal, bondholders would have to take their complaints to the county board. If the bondholders were dissatisfied with a county ruling, the case could land back in court, he said.

If the appeals court rules that bondholders had a right to take their claims to court but also sides with the county on the issue of good faith and fair dealing, bondholders would still be able to proceed with the suit based on other charges related to fraud and contract violations, Levy said.

The bondholders' suit, filed in October 1992, alleges that the county defrauded bondholders by failing to adequately disclose that the county could redeem the $124.5 million of bonds before the Oct. 1, 1996, optional call date.

The suit was filed shortly after the county allowed a letter of credit on the bonds to expire Oct. 15, 1992, causing a mandatory redemption. The action saved the county about $41 million in bond premiums and interest, according to county officials. The proceeds from the original $129 million of bonds, issued in 1986, financed the construction of an incinerator.

The Hennepin County District Court decision that gave bondholders the right to file their claims in court rather than with the county was handed down by Judge Robert Schiefelbein. Schiefelbein threw out some of the bondholders' original charges, including those that alleged the county breached covenants in the bond indenture. However, he gave bondholders more latitude on other claims.

For example, Schiefelbein said he saw no reason to dismiss the bondholders' claim that the county had breached its implied duty of good faith and fair dealing. In addition, Schiefelbein allowed the bondholders to clarify their claims that the county defrauded them when the bonds were sold.

Levy said that he did not expect Schiefelbein's court to proceed with the case until after the appeals court issues its ruling.

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