Investors sue sewer district
June 25, 2008 · Updated 12:54 PM
A Seattle law firm hired by two Whidbey Island investors on Monday filed the first of what may be a torrent of class-action lawsuits against the Holmes Harbor Sewer District.
On behalf of part-time South Whidbey residents Bob and Mary Trimble and Seattle investor Ron Crockett, the firm of Tousley Brain Stephens filed suit in King County Superior Court seeking to recover $20 million of investors money spent on utility bonds illegally sold by the district last October.
Janissa Strabuk, an attorney with the firm, said the suit names not only the district and the five commissioners who represented district ratepayers at the time of the sale, but also attorneys, securities brokers, appraisers, underwriters, the trust company, and the land developer who were involved in the bond sale.
In the filing, the plaintiffs assert that the bonds they purchased have no market value because no one will buy them due to a well-publicized investigation by the Washington state auditor. In an August report, the auditor called the bonds illegal on more than a half-dozen counts.
Strabuk said her firm will prove in court that the bonds are illegal. She also claimed the firm can prove that a number of the people who created the bond sale engaged in fraud.
I believe well get confirmation of that, she said.
The Trimbles and Crockett could be two of the most badly hurt investors in the bond debacle. Each party invested about $1 million in the bonds.
News of the suit came as no surprise to sewer district commissioner Meg Wingard. She and other district commissioners noted in a public meeting last month that at least some lawsuits would be filed by the end of October to comply with a one-year federal statute of limitations on certain causes of action.
Were not blindsided, she said.
The suit filed for the Trimbles and Crockett hinges only upon state securities law, which provides a three-year statute of limitations. Strabuk said her firm is suing on behalf of all investors who purchased the sewer district bonds. The bonds were to be used by Mukilteo developer Terry Martin to make drainage and road improvements on 40 acres of Everett property. Martin spent $6.2 million to purchase the property, which is valued at $1.5 million. In all, about half of the bond proceeds have been spent on the land purchase and administrative costs for the bond. Martin planned to build office buildings on the property.
In an e-mail on Tuesday, Martin said the bondholders are jumping the gun. He said he plans to make good on his promise to pay back the district and investors for the bond.
Ive made good progress and have letters of commitment for financing to retire the bonds and start construction, wrote Martin. But I cant get final commitments for any of the financing until I obtain a binding site plan. I believe its in everyones best interest if lawyers for all parties involved can sit down and work through this confusing legal situation so the appropriate plans can be approved and permits can be issued.
Martin is still waiting for the city of Everett to approve building permits for his project, the Silver Sound Corporate Center.
Under securities law, the Trimbles and Crockett may sue to recover only their initial investment, 8 percent interest on their money, attorneys fees and other costs.
|Meeting to chart districts future|
|When the Holmes Harbor Sewer Districts commissioners meet at 6:30 p.m. Thursday, Oct. 18, they will find out whether the districts general counsel favors defending last years bond sale or condemning it.|
Attorney Michael Ruark will give his opinion on the legality of the bond sale and will recommend a course of action to support that opinion. One of the districts previous attorneys, Mark Hansen, warned the commissioners in a 1999 memo tha the bond sale appeared to be illegal.
Thursdays meeting will be at the Holmes Harbor Golf Course clubhouse.