HomeMy WebLinkAbout1991-03-21 Minutes105
MINUTES OF A PUBLIC MEETING ON INCINERATOR ISSUE
A public meeting regarding the incinerator issue was held Thursday,
March 21, 1991, at 5:00 p.m. in Room 219 of the City Administration
Building, 113 West Mountain, Fayetteville, Arkansas.
CALL TO ORDER
The meeting was called to order by Mayor Fred Vorsanger with seven
Directors present. The Mayor welcomed those present in the
audience, and introduced the Board and City staff. He stated that
the purpose for this meeting was for a discussion to consider the
City's position in the incinerator litigation that has been
ongoing. He stated that he would call upon the City's attorneys to
make a presentation and then questions will be taken from the
Directors. Mr. Froelich will then make his presentation, and
following that presentation, questions will again be taken from the
Board. After these presentations have been made, the meeting will
be opened to the audience,.with their questions being directed to
the Chair.
REPORT FROM TOM INGOLDSBY
Tom Ingoldsby, an attorney representing the City, reported on the
current status of the Board's position on termination of the
incinerator project. He commented on a memorandum submitted to the
Board by Larry Froelich. - a
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He stated that Mr. Froelich was one of the original attorneys in
the incinerator suit,.. where the City was named as a defendant and
the plaintiff sought to enjoin the City from making any payments on
the incinerator bonds. He,stated that Mr. Froelich was fired as an
attorney, in that action, although he has remained very active in
the case, devoting a *substantial amount of his time to its
resolution. His dismissal has' -been discussed in open court.
Ingoldsby stated Froelich contends that •he has given the City a
simple and painless proposal to cut its expenses without disclosing
what, in fact, may be happening here. The details of the proposal
would ensure a victory to his former client.. Froelich's memorandum
does three things: (1) He,severely criticizes the attorneys who
have been representing the City; (2) He has shared his views on the
municipal bond industry which he holds in a very low regard; and
(3) he has proposed• that the City take no further action in the
pending litigation in the state court, and that the City rely on.
the New York bond insurance company to represent its interest in
defending the waste supply agreement. The rationale underlying Mr.
Froelich's proposal is that between the plaintiff who is claiming
that the waste supply agreement is invalid, and the New York bond
insurance company which has an interest in seeing the waste supply
agreement being upheld and that all issues relevant to this
contract will be litigated. It is the belief of Mr. Ingoldsby,
that the factual assumptions underlying Mr. Froelich's proposal are
erroneous in several principle respects including the fact that
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March 21,•1991
Froelich states that the central issue in this matter is the
validity of the waste supply agreement.
Ingoldsby stated he disagreed because the central issue in this
case is how the short fall on the bonds is going to be paid.
Whether the City will pay the short fall and what funding source
will be used to pay the shortfall is the basic issue. He stated
that in looking at Mr. Froelich's proposal, the basic conclusion is
that the factual assumptions underlying the proposal are not
correct. Therefore, you wonder about the conclusion. He stated
that he also recognized the fact that a lot of money had been spent
on attorneys' fees in connection with this case, but it has become
a very sensitive issue within the community; therefore, regardless
of the merits of Mr. Froelich's proposal, it is important to look
at the impact of accepting this proposal to the City. He stated
that there are a couple of things that should be reviewed. If the
City accepts Mr. Froelich's proposal, it would in effect be saying
that we are going to no longer actively defend our position in the
waste supply agreement. We are simply going to stand back and let
the court decide the outcome on its own with the benefit of the
competing interest presenting their arguments.
He stated that the City's ability to present those issues cannot be
done as effectively by third parties as they can by the City.
There are several important collateral effects if Mr. Froelich's
proposal were accepted: (1) The City has made it known that if it
has legitimate third party claims in connection with the
incinerator project, they will prosecute them. If this proposal
were followed, the City will then be compromising its own ability
to pursue third party claims. (2) What is the impact on the City's
credit rating if it adopts this procedure? He stated that credit
ratings were determined on the willingness to pay and the ability
to pay. He stated that if the City abdicates its responsibility in
standing up beyond its contractual obligations, it will then raise
a serious question as to whether or not it has the willingness to
stick by the obligations which it signs. In this particular
instance, the abandonment of its current position would be
particularly serious. He stated that a credit rating is issued
only for specific debt obligations. Each issue is rated
individually. The reason being, facts and circumstances can change
the particulars. When you say the City has an "A" or "AA" rating,
what it means is that its latest issue had that rating, and
generally there will try to be a continuity between issues as to
what the rating is.
He stated that one thing he and Mr. Froelich do agree on is that
the acceptance of his proposal will reduce attorneys' fees. It
will not eliminate attorneys' fees but will reduce them. It has
always been known that the termination of the incinerator project
would be a very expensive proposition. In 1988, when the
nonbinding referendum was held, it stated on the ballot that if we
vote to terminate the project, sanitation rates will increase to
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March 21, 1991
$7.90. Today, with the $2.02 increase, sanitation rates are now at
$7.52. By August 1989, his firm had completed what they had
initially proposed to the city, in terms of how it should handle
the termination of the project. His firm had terminated all
existing contracts in regard to the project, the amount of the
shortfall was known, and its legal liabilities were determined.
All that remained to be done in August of '89, was to pursue any
third party claims that the City might wish to follow up on. In
August 1989, the Robson suit was filed to enjoin the City from
paying the shortfall on the bonds. Actually, the suit was filed to
enjoin any payment pursuant to the waste supply agreement, but the
practical effect was to close off a source of funds for the payment
on the bonds. At that point, $330,000 of legal fees had been
incurred. Since that time, between August 1989 and present,
$850,000 of legal fees have been incurred. They have all been
incurred in connection with the defense of the litigation that has
been filed against the City, either in connection with the suit
that was filed by Mr. Froelich or in connection with litigation
that has been spawned asla result of that suit.
The question ofwhether the City will continue its current position
in the lawsuit or whether it will adopt another action is both a
policy .question and a question that has legal and financial
implications. Much work has been given to the goal of trying to
get all of the parties and all of the issues in one court to be
settled at one time and.at one trial. He stated that they have
finally succeeded in this endeavor. Presently, in the state court
all the parties to the action and all the issues to be litigated
are there and one determination will be made in this one court.
•
If Mr. Froelich's proposal is accepted, these issues will be
divided again, and the parties will then have the opportunity to
litigate in different forums. 'It is :the belief of Mr. Ingoldsby
that the total legal expenses will increase substantially by the
multiplicity of actions, and more legal fees incurred due to the
duplicate work and trials`. In order) to minimize the total
expenditure, Ingoldsby recommends to continue in litigation and
that the City currently has to pursue it vigorously to get it
closed as quickly as possible and get a,decision. This approach
will minimize the overall cost to the City in terms of attorneys'
fees.
•
Ingoldsby stated that some major changes have taken place in the
City Board of Directors, .namely that four new directors were
elected to the Board. Steve Pflaum, a partner in Ingoldsby's firm,
has been responsible for the overall management of the litigation.
He has been asked to speak.to the audience about the status of the
litigation in terms of where it is today, and where do we expect it
to go in the near future. Particularly in terms of what issues
will be resolved and what parties are currently in the litigation.
March 21, 1991
STATUS OF LITIGATION
Steve Pflaum reported that currently there are two lawsuits pending
in two courts against the City. There is a state court litigation
and there is federal litigation. He reported that the state court
case is unappealed from the certification of Katherine Barnhart as
the class representative for the rate payers. Most of the delay in
getting that case to a decision has been as a result of the
problems that the plaintiffs have had in selecting a suitable class
representative.
Unfortunately, FGIC, the bond insurer, has filed an appeal from the
certification of Ms. Barnhart as class representative. As a result
of that appeal, the state court case came to a screeching halt.
The City does not support FGIC's appeal. That appeal hurts the
City by delaying the decision of the case. This is an instance
where a party that Mr. Froelich says will protect the City's
interest has actually taken action which directly hurts. This is
not the only time this has happened. Mr. Froelich has even
criticized us for taking this appeal. He has accused Mr.
Ingoldsby's firm of "criminal waste." Evidently, he is not
informed of all of the facts because we don't support FGIC's
appeal. We are not participating in that appeal. We have not and
will not file a single brief in that appeal. The City will not
spend attorneys' fees in connection with that appeal. The only
cost to the City has been a cost in time.
Pflaum stated that there is yet another appeal pending at present.
That is the appeal in the federal court. FGIC sued the City and
others in federal court, and that was the City's worst nightmare.
That meant that the City had to defend two lawsuits in two courts.
The goal has always been to get everyone who is interested in a
single court, and to get all the issues raised and decided in that
civil proceeding. The FGIC lawsuit has made that very difficult.
The state lawsuit filed by Mr. Froelich and his co -counsel was
filed first. FGIC was not named as a defendant in that lawsuit, so
consistent with the "big picture strategy," we tried to bring them
together -- we filed a motion to do that. Mr. Froelich opposed
that motion. Then, he said, "Well, we don't really need to have
FGIC involved in this case. We can handle it without them." The
judge denied the motion to join FGIC in the state court case.
FGIC, as a result, filed their separate federal court lawsuit, and
as a result, we're in the situation previously described, where two
lawsuits have to be defended in two different courts.
The current status of the federal court lawsuit brought by FGIC is
that case was dismissed by Judge Waters. FGIC then appealed that
decision to the federal Court of Appeals. The City does not
support or participate in this appeal.
March 21, 1991
Everything possible must be done to obtain a ruling that we have
the authority to pay the shortfall --then we could focus our
attention on pursuing third party claims. These are claims against
the other people who share the responsibility for the creation of
the problem that we now face. More than a year ago, the City filed
lawsuits against most .of those third parties, and with respect to
other third parties who weren't named as defendants in the claims,
the City attain agreements that preserve the City's authority to
file the suits against them at a later point and time. The idea
behind the agreements is to save attorney fees. We don't have to
worry about the third party claims until the time is right.
The strategy has been to determine
shortfall first. The outcome of that
on the strength of the claims against
the authority to pay the
case will have some bearing
the third party defendants.
The goal for the litigation up until now has been to attempt to do
everything possible to get a decision on the merits of this case as
•soon as possible, and to uphold the City's authority to pay the
shortfall on three separate grounds: (1) That we have the
authority to pay the shortfall to satisfy the debt that we incurred
under the waste supply agreement. (2) That we have the authority
to pay the shortfall to settle the claims.that would be asserted
against us by FGIC, if we don't pay the shortfall. (3) We have
the authority to pay the shortfall to protect the credit rating of
the City. The Court has already explained how that is going to be
adversely affected if the City decided not to pay the shortfall.
The pending appeals have to be decided and once that has been done,
the parties will undoubtedly want to conduct some discovery on the
case, such as depositions. -Our present intention would be to file
a motion for summary judgment once the discovery is completed.
Another goal, besides litigation strategy, is to try to do
everything possible to obtain a fair settlement. Settlement is
something that we cannot impose, it has to be agreed upon. The
ultimate question, with respect to a settlement -- it's not up to
the plaintiff's, the real question is: ,To what extent, if any,
will the third party defendants contribute to the payment of the
shortfall?We have explored that subject with the third party
defendants and will continue to do so.
The basic recommendation is to stay the -course. We have all
endured costly and frustrating delays beyondgour control. We can't
control everything that happens in the ,litigation, but we are
heading in the right direction.
In contrast, FGIC can't represent our interests in the lawsuit that
it would bring against us. We would have to incur attorney fees in
defending that case. We're talking about.an alleged securities
fraud case, and that would be complicated and expensive. We are
currently trying to prevent that case from being brought against
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March 21, 1991
us. That is our strategy. FGIC will not press those claims
against us if our authority to pay the shortfall is upheld.
Furthermore, we can't be passive about pursuing the third party
claims. We are the plaintiff, and it is up to us to so, and that
will ultimately involve some attorney fees in pursuing those
claims. The bottom line is that we are in a very messy situation.
There are not easy answers, there are not easy ways out. It is the
City's hope that the Board will consider and reaffirm the course of
action that we have been following. Our recommendation is to stay
that course. That is not a recommendation that comes without a
price. It is a recommendation that counsel agrees will cost the
least for the City of Fayetteville both in terms of minimizing
attorney fees and benefiting the city in terms of the ultimate
position it will find itself as a result of litigation.
Director Coody asked how FGIC's action was consistent with the
Barnhart litigation.
Ingoldsby responded by saying that their action was neither
consistent nor inconsistent. It just leads to delay. They say
that they don't believe Katherine Barnhart is a suitable
representative, that she doesn't truly represent the interests of
Fayetteville tax payers. Ingoldsby agreed that the clear majority
of the Fayetteville rate payers and tax payers don't agree with Ms.
Barnhart's position, but their feeling is someone is going to be
the class representative and it might as well be her. So, FGIC's
action just leads to delay.
Director Spivey asked if the parties that brought the lawsuit
couldn't just drop it. He wanted to know if there was something
prohibiting them from withdrawing the claim.
Ingoldsby stated the plaintiffs, with the Court's permission, would
be able to drop the lawsuit since it has been certified as class
action. He stated that if good cause is shown, it would be
appropriate to drop the case, but that would be up to the
plaintiffs.
Director Green asked if it would be possible to settle anything
prior to certifying a class representative. Ingoldsby responded
affirmatively.
Director Henry asked if all lawsuits, with respect to the third
party claims, had been filed. Ingoldsby responded by saying that
third party claims have been filed against everyone that did not
submit a tolling agreement.
Larry Froelich stated that his proposal for the City was to dismiss
the current set of counsels that the City has working for it. He
commented on the beauty of the Fayetteville Square at this point.
He stated that originally the plan of the City was to tear down the
Post Office (on the Square) and pour a parking lot. The reason
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March 21,• 1991 ,
that didn't happen is because concerned citizens of the community,
who were labeled protesters and agitators, came up to the meetings,
packed City Hall, circulated petitions, generally "raised cane"
until the City came to its senses. The building was saved, a
consortium of citizens put together the financing, and we now have
that beautiful Square. The point is that many times there is a
tendency to think that people like me come here and "object," but
at .times these people (protesters, etc.) are civic heros of the
highest order. They have made this town in saving that Square.
He stated that he had a very low opinion of the legal services that
this community has. He is rendering his opinion, as an attorney,
about the quality of services that this City has received.
First, he stated that he holds two law degrees and for many years
has lectured at the University on law. He has had 10 to 15 years
of law practice in this community and has taught school at the
Police. Academy.. In addition in the early eighties, he worked in
a financial house that his father had an interest in, and in a
municipal bond project that he had an interest in. He was a
manufacturer in Dallas. He stated that he has some inside
experience of what a municipal bond project was like from the
perspective of the promoters and how it is put together.
He stated that his motives, were voluntary. He has worked for the
good of the working people,.the working poor,and disabled children
in this community for 15 years. He stated that he has participated
in Children House, Head Start, low income housing, etc. He stated
that his motives were as pure and as high as they could be, and
they are not governed by money.
He stated that the thing to remember about how this case is handled
is that this is a public policy . issue. As a matter of public
policy, the hiring and firing of City employees, and the conduct of
this case, is a matter of public policy.
He stated that the majority of the people -in the community were not
in favor of continuing to pay these attorneys. He talked with many
attorneys and public officials in the community, and they believe
that Froelich's assessment of the situation is correct, and that it
would be in the best interest of this community to get rid of these
attorneys.
He stated that the associated issue of the Freedom of Information
suit, and the other lawsuit, directly concern Arkansas law. The
Arkansas statute concerning the creation.ofnthe Authority, and the
Arkansas constitution are•the guidelines for determining if the
City's guarantee of the Authority's debt is lawful. Those bonds
were issued by the Authority. They were,notEissued by the City of
Fayetteville, a separate entity altogether.
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March 21, 1991
The only connection that the City of Fayetteville has to the
Authority is one contract -- the waste supply agreement -- in which
the City, among others, signed and guaranteed that they would
finance the project in an amount sufficient to discharge the debt
of the Authority. He stated that he felt that contract was plainly
illegal, violating the constitution and statutes of this state.
It is not without good reason that our founding fathers put in that
constitution that municipal governments cannot guarantee the debt
of third entities. They cannot lend their credit, and they cannot
undertake a general obligation without a vote. That is the
difference between a general obligation bond and a revenue bond.
More than once, cities have been "sweet talked" into undertaking
debt without going to the voters.
He stated (directed to Director Spivey) that it is a time honored
tradition in this state and all across this nation -- rate payer
and/or tax payer lawsuits detest the legality of taxation. It is
a nation of free men and open courts, and it was expected that
there would be a rate payer lawsuit in this case. The City is a
necessary party in such a lawsuit. The FGIC has charged the
community $500,000 plus to guarantee that those papers are legal
and specifically asked the City to include the offensive language,
and then turn around and sue the City.
The other defendants in this case have engaged in a fanatical
defense of the case. You see that kind of activity typically in
criminal cases, but always it seems when we are guilty. The key
defendants in the case raised every possible issue, dragging it out
-- collateral issues, misdirection -- anything to avoid the central
issue of the case -- whether or not the City's guarantee of that
debt is legal. Their behavior is the best indication that contract
is obviously illegal. If that contract was plainly legal, they
would be stumbling over themselves to drag the citizens in the
courtroom and get the decision made.
Part of the overall strategy of these guys of how to defend the
citizens' lawsuit is to grind down the plaintiff's attorneys, drag
it out, run up the expenses, proliferate the litigation, anything
to confuse and overburden the counsel. That is part of the basic
strategy
of how to win a case when the clients are obviously
guilty.
Federal action by FGIC is a good example of a misdirection. To the
extent that the City's counsel has been a part of, and associated
with this wish -mash of running around and trying to wear and grind
everybody down in order to win thecase at any cost is a totally
inappropriate way for a city government to act. The central issue
of the rate payer lawsuit is the legality of the contract. Some
kind of political agenda that somebody may have with paying the
shortfall may be the issue in somebody's mind, but it is not the
issue in that lawsuit.
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March 21, 1991
Froelich stated he did not feel the tremendous amount of legal fees
were necessary. The case may be stopped, but the legal fees have
not stopped.
He stated that the nature of the conflict in the FOI lawsuit was.
that several members of the public have requested the memos from
the lawyers to the City. Those memos were directed as to how we
should proceedin this lawsuit. It is not a private lawsuit that
this Board of Directors is concerned with. This is the community's
lawsuit. The litigation has shown it was clear from the beginning
those memos were obviously covered by the FOI. Many attorneys that
Froelich talked to in this community feel that it was so clear
those memos were covered by the law, that it was malpractice for
the attorneys not to tell the City to turn over those documents.
He. stated that he believes the strategy of the lawsuit and tactics
of the lawsuit were malpractice. In the first place, they start
out on the jurisdictional run-around. The statute says clearly
that the jurisdiction is in circuit court not chancery court. They
just "throw money at the lawsuit" trying to wear the system down
and confuse the issues.
He stated that the fees on that case were outrageous and a waste.
He suggested there were 100 lawyers in Washington County who would
have taken the case and guaranteed it to the Supreme Court for
$10,000. He felt no fewer.than 100 attorneys would have done it
for $10,000.
He gave an example of one of his clients who had a complaint with
Circuit Clerk Alma Kollmeyer over the way -she was carrying out her
duties. Instead of filing a lot of unnecessary lawsuits, he called
George Butler, and they looked at the. statute together, they
couldn't agree, so they went to talk with Judge Gibson. They
wrote to the Attorney General, who.took care of it.
He stated that is the {way that disputes' between citizens and
governments should be handled. They should not be handled by
running around filing lawsuits in every court you can and dragging
it out. If any attorney had the,best interest of this community at
heart, it would have been handled that way:¢
He also strongly disagreed with some of the tactics that were used
in the case. Some of the things done in that case was nothing
short of •despicable. In the beginning of this lawsuit, the
attorneys were representing the,City.,After the rate payer lawsuit
was filed in Judge Lineburger's court, -they "snuck" over there,
behind Judge Lineburger's back to try to get an ex parte order.
With a visiting judge on the bench, they"got him to -sign the ex
parte order without taking the files for review. The judge signed
the protective order and about eight4or nine days later, he
rescinded the order. Froelich stated that in so doing this, the
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March 21, 1991
attorneys involved disgraced themselves and their profession. He
stated this alone was grounds for dismissal of the attorneys.
One of the most important things as far as this case is concerned
is Board liability. Froelich stated he felt they would make good
on their threats and start suing past and present Board members.
Froelich stated that board members -- before they can be held
personally liable -- must violate some duty. Board members are
required to exercise due diligence and not act in bad faith. If
this is done, Board members are protected even if they make
mistakes. If the law builds up a tremendous barrier around
corporate directors, it is hard to pierce the corporate veil. The
wall that is built up around the public servants is as high as the
price. He stated that any attorney that tells the Board they are
personally liable is only trying to be intimidating. He then read
the Board a "black letter law."
Mr. Robson stated that the law should be abided by. He further
stated, that Mr. Ingoldsby and others were being clocked in at over
$1,450.00 a day, seven days a week and have been for the last 19
months. That doesn't count the amount of money which paid for the
opinion initially.. He stated third party litigation has not been
pursued. If the Board had taken the course of action where they
pursued that up front, then the rate payers might not have had to
do what they have done. He stated that the list of third party
people who have liability is clear. He stated that at $1,450.00 a
day, all third party people who do have liability from whom we
purchased very expensive "expert opinions" which violated state
statutes and constitution have been systematically eliminated. He
felt the waste supply agreement was unenforceable and
unconstitutional.
FGIC will not issue bond insurance unless the City of Fayetteville
unconditionally guaranteed payment of the Authority's bonds from
the City sanitation fund revenues. They asked for it. He read a
statement concerning bond insurers.
Robson stated that one City Director had stated that the Board had
intentionally spent money as fast as it could before the referendum
vote, so that the people would have a choice between finishing the
project and discontinuing it. He stated that he agreed with Mr.
Froelich that there was probably no -- with the exception of one
person -- Board liability. That would not be as a Board member,
that would be as a person who acted as an individual and did not
necessarily act as a representative of this city, although that
intention was made. He stated that there have been people who have
targeted cities and municipalities. He thinks well-intentioned
people asked for grant money in 1969 to study solid waste
management, and those people were targetable in the sense that they
ended up on an available list. When the price of oil got high, the
power industry people in the mid -seventies began looking at
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March 21, 1991,..
incineration of garbage. At the same time, ironically, the
environmentalists had fought the nuclear power industry, so there
was a crunch both in terms of the people like Morris and Knutson,
etc., who stopped building nuclear power plants and started
targeting municipal people.
Mayor Vorsanger further stated that the "dorm incident" related in
theory to this because what the guys in the dorm did might not be
illegal, but what they did was not right. If a man robs a bank of
a million dollars, but it's going to cost a million and one-half to
catch him, do we let him go? There are some huge questions here.
He stated that he didn't know how it was going to work out.
Robson stated that it didn't need to be this expensive. There were
a lot of opportunities before the Board raised the rates and before
he filed his lawsuit that they could have gotten information. The
Supreme Court has already decided on this issue in this state, and
the Constitution is clear and unamended since 1874. The state
statutes are clear -- cities can't unconditionally guarantee to pay
the debts of others without receiving any service, or otherwise."
Had FGIC been allowed to sue whomever they wanted, it would have
been a lot cheaper. It is really not clear that we needed to spend
that money, and certainly we don't need to go on spending this
money. He then read a statement written by Mr. Engles.
He stated that there is a separate illegal exaction which is taking
place every time you vote to spend more of the City's money on this
lawsuit. You may be acting in "bad faith" in that, not only Joe
Robson and Katherine Barnhart and her attorneys, but even your own
attorneys are saying that the agreement -to do so void ab initio
right from the beginning, an ultra vires agreement, and has no
substance in the law -- is `totally unenforceable' and
unconstitutional, and so you need to consider that very carefully.
Director Spivey stated that this is so mind boggling when looking
at what the end result maybe. He stated that he did not read all
of the memos from attorneys, but he` did meet with Standard and
Poors and asked them how this going to affect the City. They said
it would not%be positive. To say that this is a separate authority
and the Ctywould not be affected by it is not true. You only
have to loon to the latest bond issue where the City had to pay to
the tune of over $50,000 to get .bond insurance, and the City hasn't
even gone in default.., There is a good chance that it will affect
more than the City's rating. To put it in simple terms, if it's my
only choice to pay $1 million to -protect the City's credit rating,
then pay the $1 million.
Mike Phillips, a resident of Fayetteville; stated that "this bed
was on fire when I crawled in it.",' He moved here in 1988 and does
not hold any bonds regarding this issue. He stated that he was not
here to speak to the legality of what happened, but he considers
himself to be an expert when dealing with bond issues and dealing
March 21; 1991
with credit. He stated that the definition of credit is trust,
credibility, confidence in the ability and the intention of a
person or institution to pay, based on its solvency and probity,
thereby entitling it to be trusted in borrowing and buying
regardless of what's transpired in the past. He stated that the
City of Fayetteville's credit was on the line. He further
explained that the three C's of credit are: Character, collateral,
capability to repay.
Mark Langaro, a resident of Fayetteville, and manager of the Trust
Division of First National Bank, stated that as a banker he deals
with bond issues and is trustee of some bond issues and urged the
Board to take the steps that are necessary to assure the payment of
these bonds. Good managers will forget the past and deal with the
situation that confronts them at the current time.
Rick McCollough, a member of the ad hoc committee that came up with
the $2.02 payment per month, stated that the City cannot afford to
let the city's credit rating be harmed. He stated that we need to
pay our debts and get on with the future.
Barbara Taylor,
that $2.02 is a
obligation that
stated that the
solid waste.
a resident of Fayetteville, stated that she felt
very small price to pay to get ourselves out of an
we all looked at very clearly, going into it. She
real issue as a community is what to do with our
Jim Compton, a resident of the City of Fayetteville, stated that
the incinerator problem was going on when he arrived in 1986. He
stated that he was in agreement with a lot of citizens that indeed,
it is a problem. He stated the meaning of one's credit, the
ability to pay its debt, is the only thing that makes it a
worthwhile investment or to a securities firm to underwrite
municipal bonds. They do have market risk, but financial credit
risk is something they can avoid, and market risk is something that
they cannot avoid. This is like a cancer, we need to cut it off --
pay it -- and go on because as citizens, we voted to add it to the
sanitation fees and we need to get it paid off and go on to other
projects.
Director Coody stated that if the City goes to court and a decision
is made and it is determined that the contract is illegal, did FGIC
put in language so if people acted without pure causes if
Fayetteville is not legally bound to pay the obligation because
it's an illegal obligation, do we still lose our credit rating?
Compton stated that gets into two areas. Arkansas and municipal
bonds are primarily absorbed from within the state of Arkansas.
The bonds are of fine quality and of low interest you can purchase
in the state. If the City's creditability is at risk, the increase
in interest income expense to borrow money can be devastating.
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March 21, 1991
Mayor Vorsanger requested comments to be held to three minutes per
person at this point.
Scott Sinclair, a resident of Fayetteville, stated that he was
confused after reading through some legal documents about the
credibility of our attorneys. He stated that the lawyers as well
as the citizens didn't stand an chance in this lawsuit. It's a no
win situation. -
Nancy Meyer, a resident of Fayetteville, addressed the Board
stating that the City Directors need to realize there is something
more important than our bond or credit rating, and that is the
public's trust that you are doing the right thing. She stated that
it was the job of the Directors to seriously think about this. The
attorneys have pointed out that there are, in fact, guilty parties
here. There are individuals who made mistakes who might have had
criminal intent, but there are also innocent parties, and those are
the rate payers. So, when you dismiss this by saying that it is so
complicated she states that she feels that the directors need to
think again and realize that it's really very simple. There are
innocent people here and there are guilty parties, and the
attorneys have spelled them out clearly. She stated her
appreciation of the forum for the people.
Steve Pflaum commented that a lot of the accusations that had been
made regarding the lawsuits were just not true. He stated that the
attorneys do not believe the contract is unenforceable. The
tolling agreement was entered into for the purpose of holding down
expenses, in regard to the third party claims. He stated that the
purpose of tonight's meeting should focus on where the City should
go from here, and not what has happened inthe past.
Director Coody stated that he didn't, think Mr. Froelich was
implying that the City should let FGIC represent the City. He
stated that all of the Directors should show respect to the public.
a
Director Green stated that•the citizens voted on this issue once
before, and they voted to pay off the shortfall. He believes that
if it came to a, vote again today,` the majority of the citizens
would still' vote to go ahead and pay andget it behind us and get
on with the business of the City. It was'also his conclusion, that
if we don't defend ourselves, the other parties involved in this
monumental lawsuit will -pick the City's bones clean because no one
is going to look out for the Cityof Fayetteville except for our
own counsel. The City should defend itself in the best way
possible. ,He, stated that he thought the City attorneys were very
open and forthright and have done exactly what the Board has told
them to do and been extremely thorough in their jobs.
Green, seconded by Henry,. made` a motion to keep current legal
counsel for the City and`stay on course and proceed as planned.
March 21, 1991
Director Spivey stated that indeed some people could derive some
benefit from this and their businesses would be affected. There is
definite evidence that this will hurt the community. It is just a
matter of degrees -- how bad? Nobody can predict that. The long-
term potential effects could be devastating to the community.
Director Nash stated that rather than voting tonight, she would
like to see this Board sit down and issue an updated statement on
the policy on the incinerator. There are a few things that could
be changed. When the newly elected directors met with the
attorneys, she had questions about this and still does. She stated
that she didn't know why the City was not suing the third parties
now. She stated that common sense says we should abide by the
Court's decision. She addressed the fact that the majority of the
statements that she heard from Mr. Froelich and Mr. Robson were not
being quoted from the papers. She stated that she would like to
see this put on the agenda and see if a full policy statement could
be developed.
Director Coody asked if a vote on trying to settle out of court
would be appropriate.
Director Green stated the whole purpose in what the Board needs to
do right now is to give proper direction to the attorneys. They
need to know clearly where this Board wants to go. It's very
obvious that the only course the Board can go is to defend
themselves and to use the same course that they have been trying to
do, even though it is expensive. To change course right now would
have a devastating impact on the outcome of this case.
Director Henry stated she felt that current legal counsel should be
urged to proceed with their actions and try to settle and get this
behind us.
Director Nash said that she would vote for that motion if we could
amend it that we would not appeal the court's decision. This issue
is now before the court waiting for a judgment, and legal fees
should be a thing of the past.
Nash, seconded by Coody, made a motion to amend the motion,
stipulating that an appeal would not be made following the Court's
decision.
Director Green stated that when we start "ham stringing" our
attorneys and giving them specific boundaries in which they can
operate, it is very similar to the problems that we got into in
Viet Nam just on a different scale. When we start restricting our
avenues of escape and avenues and choices that are available to us,
we put a very serious imposition on the legal battle.
Vorsanger stated that he questioned that if we put such a rider on
them, we would be "pre -judging". If by chance the City lost the
At?
March 21, 1991
case, then counsel would come back to the Board and ask if the
Board wanted to appeal or not. At that time, you make the decision
to move ahead or not.
Pflaum stated he felt the City had a good chance of winning the
case in terms of the authority to pay the shortfall. It would be
premature to make a decision now as to whether or not to appeal a
ruling that we don't even know yet. He stated that there would be
no appeal for a settlement.
Nash stated this had been such a big issue in the community, that
she felt the Board would be acting in good faith if the amendment
was added. She stated that she felt it would be the job of the
Board to re -hire the attorneys for the City.
Upon roll call, the amendment to the motion was defeated by a vote
of 2 to 5, with Coody and Nash voting in the minority.
Upon roll call, the motion passed by a vote of 6 to 1, with Nash
voting in the minority.
Mayor Vorsanger closed the meeting by saying that none of the
members of the Board were involved when all of this incineration
business started. This Board inherited this problem and should be
commended for trying to do their best for the community. He stated
that he felt almost identically the same way as Barbara Taylor. He
stated that a lot of energy had been wasted on this question and if
this could have beenharnessed and used for something positive in
the community, we would be so far ahead no one could touch the City
of Fayetteville. The Mayor thanked the Board members and staff for
all of the work they do for the City and in keeping it a priority
in their obligations.
ADJOURNMENT
Meeting adjourned at 7:48 p.m.
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