County defense bills rising in broadband related lawsuitLegal fees are mounting in Lake County’s ongoing legal battle over financing its broadband project.
By: Tammy Francois, Lake County News Chronicle
Legal fees are mounting in Lake County’s ongoing legal battle over financing its broadband project.
The county is the defendant in a federal District Court suit brought by Orix Public Finance, LLC. The Texas company entered into an bond purchase agreement with the county that would have provided needed funding for the broadband project, now well underway in the area.
According to court documents, in Dec. 2010, Orix was approached by the county and agreed to purchase Private Placement Broadband Bonds from in an amount not to exceed $6,250,000. The money from the sale of the bonds, in addition to federal grants and loans made available through the Rural Utility Service, was slated to be used to pay for the broadband project. In return, Orix would receive interest payments from the county at a “true rate,” not to exceed 15 percent.
The agreement also included protections to ensure the security of Orix’s investment and the rights and responsibilities of each party.
County Administrator Matt Huddleston said that the county will continue to “vigorously defend itself” but that he could not comment on the case. In court documents, however, the county argues that in Feb. 2011, it received word that the federal government would “refuse to loan any funds to the county if the county proceeded to use the (bond purchase agreement) to provide gap financing.” The county contends that this frustrated the sole purpose of the agreement with Orix, and therefore discharges Lake County’s obligation to meet the requirements of the agreement. It further asserts that a typographical error occurred in the rush to complete the agreement. It also claims the attorney preparing the document “intended to create conditions precedent in favor of and waivable by the issuer and borrower” but in the process of cutting and pasting portions of the document “did not change the identity of the party that could waive the conditions.”
The upshot of this error was that the agreement didn’t include language that would have allowed the county – under certain circumstances — to waive the agreement. The county asks the court to take this into consideration to “avoid an absurd result” in the case.
Orix argues that the terms of the agreement allow for no such exit from performance under the agreement and it is asking for damages in the amount of $4.8 million dollars – a figure that represents Orix’s losses after the county’s abrupt change of direction.
Orix claims that it was left hanging and didn’t know that the county had bowed out of the deal until it learned through a press release that the county had opted to use its own money in place of funds it would have received through the sale of the bonds.
Lake County made a motion in U.S. District Court asking for a dismissal of the case. Its motion was denied on Oct. 31, by Chief Judge Michael J. Davis. In documents filed April 2, the county and Orix filed documents to support a motion for summary judgment in the case – with each party outlining its arguments and supporting legal precedent.
Ken Bayliss of Quinlivan & Hughes, the law firm representing county, said that the hearing on the judgment will take place in July.
The court can issue summary judgment in a civil case, if there are no disputes of material facts in case and if, after the law is applied to the facts, one party’s case emerges as the stronger of the two. A trial would be averted if an award of summary judgment were to be made.
Although reluctant to discuss the case, the county agreed to provide court documents to the Lake County News-Chronicle. In an email Commissioner Rich Sve said:
“I regret that at this point we (the county) will be unable to comment…I am sure you can appreciate the confidentiality and protocol one must adhere to when a legal issue, like a lawsuit, is involved,” adding that “the excitement for this service still exists and recently was reaffirmed at the community meetings that were held in Duluth Township, Knife River and the Town of Silver Creek. It is true that we have had our stumbling blocks, and we are, and will, work through those issues. But in my view the positives far out way the negative.”
Michael Rosow, of Winthrop and Weinstine, the Twin Cities law firm representing Orix declined to comment on the case.
“Orix Public Finance has a policy of not commenting on litigation,” he said.