Loading...
HomeMy WebLinkAbout1995-08-14 MinutesMINUTES OF A MEETING OF THE CITY COUNCIL A special meeting of the Monday, August 14, 1995, Administration Building, 309 Fayetteville City Council was held on at 4:30 p.m. in the Room 326 of the City 113 W. Mountain, Fayetteville, Arkansas. PRESENT: Mayor Fred Hanna; Aldermen Stephen Miller (arrived late), Kit Williams, Cyrus Young, Woody Bassett, Steve Parker, Jimmy Hill, Len Schaper, and Heather Daniel; City Attorney Jerry Rose; Clerk Typist Jane Heth; members of staff, press, and audience. CALL TO ORDER Mayor Hanna called the meeting to order with seven aldermen present. INCINERATOR LAWSUIT THIRD -PARTY LITIGATION - ATTORNEY SELECTION City Attorney Rose, who had requested the special meeting, reminded the council of the reason for the meeting. The Legal Services Qualifications Committee brought to them three unranked recommendations for attorneys to represent the City in potential third party litigation involving the incinerator lawsuit. Statute requires that the selection be done this way. The statute prohibits competitive bidding to procure professional services and has been interpreted to prohibit the consideration of price until the most qualified firms have been selected and negotiations begun. Accordingly, the price of the services is not to be considered in the selection of the most qualified. However, it is proper to question the firms as to the method by which their fees will be determined, but not the actual price of the services to be rendered. Mr. Rose further advised that the merits of this lawsuit, the specific causes of action, and the specific firms or individuals to be sued are not issues for today's meeting. These issues have relevance only in determining the candidates' familiarity with the project and their capability to perform the work within a limited time frame. This is not a meeting to discuss generally the incinerator project. It is a meeting to specifically select the most qualified attorneys to advise the City as to the third party claims. Mr. Rose stated that the evaluation forms should reflect each alderman's ranking of the firms. This is a record of their votes. The evaluation form is a ballot and should be signed. The four criteria listed on the ballot are required by statute. The percentage marks, possible points, are part of the City's personnel policy and went out with the RFQ. They can be changed by majority vote. 311 August 14, 1995 Mr. Rose outlined the format of the meeting. Each firm will give a ten minute presentation. After all three presentations are made, the floor will be opened to questions and discussion. In response to a question from Alderman Basset, Rose said the evaluation factors, which are set by statute, could not be changed; but the possible points, which were sent out with the RFQ and established by personnel policy, could be changed. Alderman Basset asked how the votes would be tallied. Rose explained he would give the ballots to the City's Purchasing Manager, Peggy Bates, who would determine the points of each of the three. The one with the most points is first, the one having the second most points is second, and the one with the third most points is third. Ben Mayes pointed out it will be the one with the most first place votes who will be selected. If there is a tie, second place votes will be counted in. Alderman Bassett stated he wanted the opportunity to explain his vote to the public, whether the Council voted that night or not. Alderman Daniel asked for an example of changing the total number of votes. Rose acknowledged the points for each criterion could be changed but cautioned against spending the whole meeting deciding what the points should be. Before the meeting started, he'd been asked by several Council members if the system could be done away with and replaced by a simple ranking of first, second, and third choices. This could be done by a motion to amend the policy for this occasion. Alderman Schaper stated this is a standard way to rank and is a good framework that works. Alderman Williams stated he would be more comfortable with a simple one, two, three ranking. Alderman Young agreed and said Peggy Bates would kick it back if there was a tie on a ballot. Ben Mayes stated ties would not be allowed. Alderman Williams made a motion to rank the firms one, two, and three, and not use the point system. Alderman Parker seconded the motion. In response to Alderman Schaper's request for affirmation, Mr. Mayes said he believed Attorney Rose had said this was okay and it was the Council's prerogative to decide how they would make their selection. 313 August 14, 1995 City Attorney Rose asked the candidates if they had any objections to the one, two, three ranking. No objections were given. Alderman Daniel asked for confirmation that the factors listed were the only ones they could consider. City Attorney Rose assured her that by statute only those factors could be considered and no others. The motion passed by a vote of 7 to 1, with Hill voting no. Attorney Rose stated the presentations would be made in an order arrived at by random drawing. John Lisle from The Lisle Law Firm in Springdale was the first to speak. Mr. Lisle reminded the Council of his firm's involvement in the recent past with litigation that involved the City of Fayetteville. As stated in their written statement of qualifications, they would be willing to represent the City on a contingent fee basis. They would also be willing to represent the City on an hourly basis if that is what the Council chooses. It had been their understanding that the City was looking for someone to work on a contingent fee. They work both ways and are willing to handle the plaintiff's cases on a contingent fee basis, advancing the cost to be reimbursed on the successful conclusion of the case. The counterclaims or other suits brought against the City would be defended on an hourly basis. The City should anticipate that it would become a defendant in litigation and it can't defend itself on a contingent fee basis. The Lisle Law Firm is a small firm with five attorneys. They have handled a suit almost as complex as this in the recent past. They also have familiarity with all parties involved in this suit. They are set up to handle this case in their office or in association with outside attorneys whose help they would require. Hiring outside the office would be part of their advance costs and allows them to handle much that would seem beyond the scope a small firm. In response to a question from Alderman Williams, Mr. Lisle confirmed that the hiring of outside attorneys would be part of the contingent fee, absorbed as though that person were part of the firm. If they were defending a claim, however, and had to employ someone outside, then that cost would be passed to the City exactly as billed to the law firm. In answer to a question from Alderman Parker, Mr. Lisle stated the costs would be subtracted before the contingent fee would be determined. This is negotiable. 315 August 14, 1995 City Attorney Rose asked that any further questions be held until all three firms had made their presentations. The second presentation was made by Mr. Thomas M. Ingoldsby of McDermott, Will & Emery, along with Steven F. Pflaum. Mr. Ingoldsby is a bond attorney by training with a substantial part of his practice being legal matters associated with financing of state and local infrastructure projects. In recent years, a good amount of time has been spent on projects financed by bonds that have gone into default. Mr. Pflaum is a litigator who specializes in municipal litigation. Mr. Ingoldsby was originally hired by the City in 1988 after it decided to withdraw from the incinerator project. The scope of the work was to advise the City as to the legal issues and its responsibilities arising from the termination of the project. They first advised the City that it had a clear contractual obligation to make the payments due on the bond. They also told the City that there was a substantial legal question as to the enforceability of that contract. At the same time, they informed the City of the serious consequences to their credit rating. The City was contacted by the rating agencies in New York and was advised that failure to honor their contractual obligation would have a serious economic impact on the City. The second thing they advised the City was that in addition to its obligation under the waste supply agreement, if it didn't make the payments it could be sure it would be sued by the trustee on the bonds. The City had asked them to look at the question of its ability to recover claims against third parties. The firm told the City the possibility of recovering a significant amount of money was unlikely as long as there was an outstanding obligation to make the payments under the bonds. The Supreme Court decision brought to conclusion the first question as to the enforceability of the agreement. It is now time to move on to the recovery of any damages against third parties and the defense of claims that can be raised by the bond trustee against the City. According to Mr. Ingoldsby, there are essentially two issues the City should be looking at. One is the attorneys' fees. The second is what its potential liability is to bondholders for any shortfall. The larger risk is the $14 million shortfall, but the fees of the attorneys will not be an insignificant item no matter how they are calculated. The City should consider the source of funds it has for the payment of the fees. Any recovery the City makes is to its 317 August 14, 1995 advantage because it reduces its potential exposure on the $14 million but it does not automatically translate into the City having money to pay new attorneys' fees or to recover costs already invested in this project. McDermott, Will & Emery is prepared to work on an hourly rate basis, as they regularly do, and are prepared to work on a substantially discounted rate together with a modified contingent or success fee. Mr. Ingoldsby gave an example showing that under a contingent fee it is possible that the dollars paid out to the City will be more than on a fixed-rate basis, but the City may have to come up with additional money to make the payment to the attorneys. Mr. Ingoldsby concluded by saying his firm has worked with the City before, knows the facts of the case, has analyzed the issues and would be pleased to pursue to its conclusion the final phases of this transaction. With a few minutes left in the presentation time, Mr. Ingoldsby asked Steven Pflaum to address a couple of the major issues of the case. Mr. Pflaum focused his remarks on the question of where the City stands in terms of the incinerator litigation and where to go from here. The Supreme Court decision means the City does not have any contractual liability for the payment of this shortfall, but the City still faces significant potential liability with torte or securities claims. The shortfall will be paid by FGIC. When that happens, FGIC will become subrogated to the claims the bondholders have against any third parties or City of Fayetteville. There is likely to be litigation in New York over whether New York or Arkansas is the proper forum for those claims. McDermott, Will & Emery is well positioned to deal with that eventuality. They have a New York office and are experienced litigators in that state. The City itself has potential claims against third parties. The theory of the third party claims, in essence, is that these other entities are responsible for the bond offering going forward, a bond offering that was predicated upon an illegal contract. In addition to recouping whatever share the City might be determined to have of that shortfall, the damages of the third party claims would include attorneys' fees incurred in prior litigation as well as the losses associated with damage to the City of Fayetteville's credit rating as a result of what's happened. After more than six years of litigation, the City is on the brink of another round of litigation. One that could turn out to be more imposing than what has gone before. The City now opposes FGIC, the trustee, and five others. These parties are resourceful, well-heeled, and skilled. It is critical that whichever firm you chose has experience in this kind of litigation --legal malpractice claims, securities litigation --and will have the necessary manpower. 319 August 14, 1995 The third party claims do provide a potential way out for the City. Mr. Pflaum believes there is value to those claims and a way for the City to reduce its potential exposure. This cannot be walked away from because the City is going to be a defendant, is going to be sued. The third and last presenter was Dick Patton of Patton Law Offices from Texarkana. He believes any party who has a claim against the City and any party whom the City has a claim against should be included in this lawsuit. He includes those who have contingent claims against the City. Regarding the fee, Mr. Patton works only on contingent fee basis. He has been a plaintiff's lawyer for 25 years. He does not do hourly work. He has handled many legal malpractice cases and securities work. He sees this case as a bad advice case, malpractice either by attorneys or A. G. Edwards or others giving advice. It is not a simple case. He approaches lawsuits aggressively, hiring needed experts. This case will need the services of at least three, perhaps six, in different areas of expertise. Mr. Patton's proposal to the City is a contingent fee basis. He will advance the expenses and if the City loses, he will be out the money. That is the way he handles all his plaintiff cases. Mr. Patton has three other lawyers on staff in his office. One is an Arkansan from Ft. Smith. Regarding the contingent fee basis, Mr. Patton will not be a party to collecting a fee more than what his client receives. He has tried cases here before several judges. After Mr. Patton's presentation, Jerry Rose called for questions and urged councilmen to be as candid as they wished. In answer to a question from Alderman Young, Jerry Rose stated the City is hiring attorneys to pursue third party claims, not hiring attorneys to defend the City in potential litigation against the City. The City could hire a firm on a contingency basis and could hire that same firm on a hourly rate to defend us if sued, though there are reasons we may not want to do so. Alderman Williams asked if the City is planning to do any actual hiring at this time or would it wait until the Supreme Court decided about the petition for rehearing the City has filed. We have no mandate at this time. City Attorney Rose expressed his opinion that the City needs to go ahead. If the petition for rehearing is granted and we win this lawsuit, there still might be third party action the City would want to pursue. He would consider hiring them as soon as they are ranked, negotiate a contract, and bring it back to the Council. 323 August 14, 1995 Alderman Bassett expressed his concern over negative public reaction if the Council chose to hire the Lisle Law firm at this time. Mr. Lisle stated he wanted a chance to work with the City of Fayetteville partly as a result of the sales tax case. This would give him a chance to get back good will that may have been lost. He also feels this is the right side of the current legal question. His firm's performance in the sales tax lawsuit demonstrated his firm's work ethic. They work hard, have a record of success, do the work on time and the right way. They do not give up until the fight is over. All of this would benefit the City. Mr. Lisle further stated that the City is now changing courses in their legal arguments, having once said the incinerator fee was legal and now having to recover money because it was not legal. The Lisle Law Firm would be a fresh face with no ties to any past history of this case. They look forward to taking the side the City is now on, to recover money for the City. Alderman Parker asked Mr. Lisle and Mr. Patton if their law firms would be able to support the case in a location such as New York City. Mr. Lisle responded his firm would not handle that litigation but there may be ways to avoid filing in New York that he would not want to talk about in an open forum at this time. In any case, the City would have decisions to make regarding that matter. Mr. Patton replied there is a substantial chance that all claims cannot be pursued in Washington County because of venue statutes. He would be comfortable anywhere in Arkansas. If something does occur in New York, the City will have to get New York counsel. Alderman Williams questioned Mr. Patton about his contingent fee and his remarks on suing everyone at once. Mr. Patton said his preliminary thought would be to preemptively sue all parties suing the City that can be sued and to force the issue rather than to hope it will go away. He cannot make any recommendations until he has studied the issue further. As he does not do hourly work, this would be done on a contingent fee basis. He would not charge Fayetteville more money than the City would receive and is willing to enter into a contract that stipulates that aspect. It is possible, however, that a judge will award him money from another source. Alderman Schaper inquired as to at what point the fee gets awarded in a contingent case. Mr. Patton said he gets his fee when the the City receives its money. Mr. Lisle agreed that is the way it works. Alderman Daniel asked for a worst-case scenario of the possible length of this lawsuit. Mr. Patton suggested 18 months, excluding the appeal. He would add another year for the appeal. 325 August 14, 1995 Alderman Bassett expressed his belief that it is in the best interest of the City to get this matter closed as quickly as possible. The decision about selecting a lawyer should be based on which firm has the best chance to bring all the parties in the case together in an effort to settle this litigation. He asked all three firms if they agreed with him and if their firms would be able to do this. Mr. Lisle agreed it is in the City's interest to get this case settled as quickly as possible. It is in the interest of the lawyer handling a case on a contingent fee basis to get the case resolved as soon as possible. They have already copied over 95 notebooks of material from the City's offices. Mr. Lisle's associate, Joe Reed, added that mediation and arbitration is in its infancy in Arkansas. Many judges will try to informally mediate cases prior to trial. The Lisle Law Firm has had positive results with this in their office. He has gone to arbitration and mediation school in Texas and has met people nationally who mediate professionally. He feels this is a prime case for mediation. It is something his firm has talked about. Mr. Patton agreed it is the perfect type case for mediation. If it doesn't work, the City is only out the several thousand dollars in mediator's fees. Mr. Pflaum, of McDermott, Will & Emery, agreed that the objective should be to bring this litigation to an end as quickly as possible. He believes his firm is best poised to do this for two reasons: one, they are already up to date with the intricacies of this case and there will be no delay incurred here; and two, they have an office in New York and have as many lawyers as needed available to defend against the claims of the seven other parties. Mr. Ingoldsby added that you need to have the knowledge of what is standard public finance practice, what is the standard of care, how do these deals normally get done, and how does this deal deviate from the standard practice. The McDermott firm has this expertise and has made that analysis and knows, today, where those flaws are and is prepared to proceed on them. Regarding the contingent fee, they also have a keen desire to bring this matter to a conclusion most favorable to the City. Mr. Patton stated that he has litigated Motors, Delta Airlines, and others. He this meeting if he didn't feel he could hire the people, and spend the time and this business over. with Honda, General would not be present at finance this lawsuit, money necessary to get 327 August 14, 1995 Mr. Lisle agreed that his firm understands the risks from an attorney's point of view and is willing to spend the money up front and take the case on a contingent fee basis. In response to a question from Alderman Hill, Mr. Ingoldsby stated that his firm would be able to deliver their services at the same or lower cost than what is being proposed on a contingent fee basis. The reduced hourly rate plus the reduced contingent fee will be less than the overall contingent fee proposed by the other firms. Alderman Schaper asked City Attorney Rose for the reason for keeping the third party claims a separate legal matter and having two firms represent the City, one as plaintiffs and one as defendants. Mr. Rose responded that if the City's insurance company will provide a defense attorney for suits brought against the City, he would advise the City to avail itself of this. If the insurance company does not do this, there could be some advantage to having one law firm represent both cases. Regarding a change of venue question from Alderman Schaper, Mr. Patton said it could happen but is not likely. He would want to explore the possibility and make sure we are safe with this venue. Mr. Patton said a proposal he planned to make if selected is that the City, look very carefully at anybody it might sue and propose to those people a mediation before the suit is filed, waiving privileges and asking for documents to be furnished to a mediator. If this could be accomplished, the City could walk out of the mediation with potential liabilities over with. That would be the best thing for the City. Alderman Bassett reiterated his belief that getting this behind us should be the City's number one goal. Alderman Young said the possible settlement for millions of dollars should not get in anyone's way when considering the elements of right and wrong. Alderman Bassett said he feels strongly that people in the past blindly followed advice and that it is the Council's responsibility to make the final decisions. Mr. Lisle stated his experience with mediation is that no one settles until they feel they are at risk. Mediation is a good idea but there would still be a lot of work to be done. 329 August 14, 1995 There being no further questions, Mayor Hanna asked for City Attorney Rose's opinion as to whether a vote should be taken now or at the next evening's Council meeting. Mr. Rose stated a vote could be taken now or if the Council needed time to decide, a vote could be taken at the Council meeting. Aldermen Williams and Daniel expressed a wish to take the time to consider this overnight. Mayor Hanna asked the Council to be sure all questions were asked at this opportunity so the attorneys would not need to return for the regular Council meeting. Aldermen Young, Parker, and Williams expressed their desire to have an opportunity to explain to the public their votes. Attorney Rose suggested that the ballots be given to him after the discussion at the regular meeting and he would give them to Peggy Bates. Noting that this meeting would be reported in Tuesday's newspaper, Mayor Hanna questioned whether a public discussion would take place. Alderman Williams supported the council discussing this matter but not holding a public hearing. Alderman Parker wondered if the Rules of Procedure required the Council to open all questions before it to the public. Alderman Young said this was an option of the one presiding over the meeting. It was decided that the explanation of votes and balloting would take place at the beginning of the meeting and that City Attorney Rose would announce the results by the end of the meeting. Mr. Rose commended all members of the committee and their decision to present the three firms for the Council's selection. Each firm was worthy of consideration. The Mayor added his appreciation for the committee's work and for the firms represented. The meeting was adjourned at 5:55 p.m