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Sewer district to face class action suit
Every investor who purchased revenue bonds from the Holmes Harbor Sewer District in late 2000 will get the opportunity to sue over the now-defunct investment.
On Monday, Island County Superior Court judge Alan Hancock allowed plaintiff's attorneys in the bond fraud case to bring their complaint as a class-action lawsuit.
Hancock's 28-page decision -- penned following a Nov. 17 hearing in which defense attorneys representing Prudential Securities, former sewer district commissioners and attorneys responsible for crafting the $20 million bond issue -- will give more than 200 investors a voice in court. Those investors paid out several thousand to several million dollars each in November 2000, when the Freeland sewer district sold revenue bonds to fund a private office development in Everett. The state auditor's office concluded eight months later that the deal violated state law.
The suit against the district, bond sellers, attorneys and trust companies involved in the deal was originally brought by part-time Freeland resident Bob Trimble and two other major investors. One of Trimble's attorneys, David Hoff of the Seattle law firm Tousley Brain Stephens, argued before Judge Hancock that a class-action suit was warranted in the case, since most of the bond investors did not have the money to pursue their own litigation.
Hoff said Hancock's decision was a step in the right direction for the plaintiffs' case.
"We're pleased with that," he said.
In making his decision, Hancock had to weigh a number of factors. A class action suit requires a large number of plaintiffs all with a similar complaint against a defendant or defendants. This case fits both requirements, he wrote in his decision. He was particularly careful to note that about half of the bond holders in the class invested a relatively small amount of money and were unlikely to sue on their own.
"... the amount at stake is small enough that the risks and costs associated with litigation are likely to deter individual suits," he wrote. "... a class action is the most appropriate means of adjudicating the factual and legal issues arising out of the issuance of Holmes Harbor revenue bonds."
Also included in the decision are sections in which Hancock shoots down several defense arguments against class action. Countering an argument that the case should be tried in another state, he writes that Washington is the appropriate place for a trial since all the defendants reside or do business in the state.
He also refuted an argument that bond purchasers who sold their bonds are subject to he same liability as companies like Prudential. Investor Trimble sold off more than $1 million in bonds at one point.
Hancock wrote sales such as this do not carry the same guarantees that come out of doing business with corporate bond dealers.
"This argument is dubious at best," he wrote.
Plaintiffs in the suit are seeking refund of the $20 million invested, plus 8-percent annual interest on the money and attorneys fees. The case is expected to go to trial in September or October 2003.