94-1025 ORIGINAL Council File #
Green Sheet # /9 .r/8
RESOLUTION
CI OF SAINT PAUL, MINNESOTA 30
Presented By t
Referred To Committee: Date
1
2
3 WHEREAS, section 5.02 of the Saint Paul City Charter and section 3.04 of the
4 Administrative Code authorize the City Council, upon request of the City Attorney, to appoint
5 special counsel and provide compensation therefore in cases of conflict or special
6 circumstances; and
7
8 WHEREAS, on March 31, 1994, the Minnesota Court of Appeals issued an opinion in the
9 case of In re: Hennepin County 1986 recycling bond litigation which contains language that
10 could serve as precedent for restricting the rights of bond issuers such as the City from acting
11 to protect its own financial interests as opposed to those of bondholders; and
12
13 WHEREAS, a group of municipalities is organizing to ask the Minnesota Supreme Court to
14 review the Court of Appeals decision and either reverse or modify the position of the Court of
15 Appeals; and
16
17 WHEREAS, the City's bond counsel, Briggs and Morgan, and another bond counsel firm,
18 Leonard, Street and Deinard, have advised the City that it would be in the city's best interests
19 to participate in the group of municipalities; and
20
21 WHEREAS, the issues involved in the case present special and unusual public financing
22 issues which the City Attorney's Office lacks the specialized expertise to handle; and
23
24 WHEREAS, law firm of Leonard Street and Deinard has offered to represent a group of
25 municipalities on this matter at a maximum cost to the city of up to $2,500.
26
27
1
99 - /o ?.S
1 Now, Therefore, be it Resolved:
---- -I 2
zC 3 1. The law firm of Leonard Street and Dienard may be retained to represent the interests of
Z 4 the City in the above matter.
— 5
CD 6 2. The total amount to be paid to the Leonard Street and Dienard shall be no more than
7 $2,500 based on an hourly rate of no more than $175.
CDC: 8
CD 9
10
Yeas Nays Absent Requested by Department of:
Blakey ✓
Harris V ! � / }/
Grimm 2
Guerin
Mcgard I c
Rettman By: y ? f - '
Thune
Co' 0 1
Form Approved by City Attorney
Adopted by Council: Date All 9n t
Adop ' n C rtifie• . v / ncil Secretary By: 7(L"- --/ „AVC'^
By: ' ' A rill& Approved b Mayor for S bmi- ion? to
Approve by Mayor: Date. A NZ Council' ) '
�� = ZZ� ,64( By: d/6/66"
/
2
D
Fy — lo��
DEPARTMENT /OFFICE/COUNCIL DATE INITIATED N° 19 918
Office of the City Attorney 06/27/94 GREEN SHEET
INITIAUDATE INITIAUDATE —
CONTACT PERSON & PHONE
DEPARTMENT DIRECTOR ❑ CITY COUNCIL
Timothy E. Marx, 266 -8710 ASSIGN CITY ATTORNEY n CITY CLERK
NUMBER FOR
MUST BE ON COUNCIL AGENDA BY (DATE) ROUTING ❑ BUDGET DIRECTOR FIN. & MGT. SERVICES DIR.
July 6, 1994 ORDER M MAYOR (OR ASSISTANT)
TOTAL # OF SIGNATURE PAGES (CLIP ALL LOCATIONS FOR SIGNATURE)
ACTION REQUESTED:
Approval of attached resolution to appoint outside counsel to represent the City of Saint
Paul as part of a group of municipalities to seek Supreme Court review of a Court of
Appeals decision which could affect city bond transactions.
RECOMMENDATIONS: Approve (A) or Reject (R) PERSONAL SERVICE CONTRACTS MUST ANSWER THE FOLLOWING QUESTIONS:
_ PLANNING COMMISSION _ CIVIL SERVICE COMMISSION 1. Has this person/firm ever worked under a contract for this department?
- CIB COMMITTEE YES NO
2. Has this person/firm ever been a city employee?
— STAFF YES NO
- DISTRICT COURT 3. Does this person/firm possess a skill not normally possessed by any current city employee?
SUPPORTS WHICH COUNCIL OBJECTIVE? YES NO
Explain all yes answers on separate sheet and attach to green sheet
INITIATING PROBLEM, ISSUE, OPPORTUNITY (Who, Whet, When, Where, Why):
The Court of Appeals recently issued a decision involving Hennepin County which contains
language and sets a precedent which may give greater rights to bond holders as opposed
to issuer cities in deciding, for example, whether bonds can be refinanced at a lower
interest rate. The City would participate in a group including Minneapolis and the
Metropolitan Council to submit an amicus curia (friend of the Court) brief with the
Minnesota Supreme Court to request that the Court of Appeals decision be limited or
overturned. The Department of Finance and Management Service joins in this request.
See attached letter from Leonard, Street and Deinard.
ADVANTAGES IF APPROVED:
DISADVANTAGES IF APPROVED: RECEIVED
Council Research Center
None. JUN 27 1994
JUL 01 19$4
MAYORS OFFICE
DISADVANTAGES IF NOT APPROVED:
The City of Saint Paul would not join in effort with other cities to protect its
financial interests and rights in bond transactions.
TOTAL AMOUNT OF TRANSACTION $ 2,500 COST /REVENUE BUDGETED (CIRCLE ONE) ® NO
FUNDING SOURCE General Government Accounts ACTIVITY NUMBER 09073
Outside Counsel
FINANCIAL INFORMATION: (EXPLAIN)
NOTE: COMPLETE DIRECTIONS ARE INCLUDED IN THE GREEN SHEET INSTRUCTIONAL
MANUAL AVAILABLE IN THE PURCHASING OFFICE (PHONE NO. 298 - 4225).
ROUTING ORDER:
Below are correct routings for the five most frequent types of documents:
CONTRACTS (assumes authorized budget exists) COUNCIL RESOLUTION (Amend Budgets /Accept. Grants)
1. Outside Agency 1. Department Director
2. Department Director 2. City Attorney
3. City Attorney 3. Budget Director
4. Mayor (for contracts over $15,000) 4. Mayor /Assistant
5. Human Rights (for contracts over $50,000) 5. City Council
6. Finance and Management Services Director 6. Chief Accountant, Finance and Management Services
7. Finance Accounting
ADMINISTRATIVE ORDERS (Budget Revision) COUNCIL RESOLUTION (all others, and Ordinances)
1. Activity Manager 1. Department Director
2. Department Accountant 2. City Attorney
3. Department Director 3. Mayor Assistant
4. Budget Director 4. City Council
5. City Clerk
6. Chief Accountant, Finance and Management Services
ADMINISTRATIVE ORDERS (all others)
1. Department Director
2. City Attorney
3. Finance and Management Services Director
4. City Clerk
TOTAL NUMBER OF SIGNATURE PAGES
Indicate the #of pages on which signatures are required and paperclip or flag
each of these pages.
ACTION REQUESTED
Describe what the project/request seeks to accomplish in either chronologi-
cal order or order of importance, whichever is most appropriate for the
issue. Do not write complete sentences. Begin each item in your list with
a verb.
RECOMMENDATIONS
Complete if the issue in question has been presented before any body, public
or private.
SUPPORTS WHICH COUNCIL OBJECTIVE?
Indicate which Council objective(s) your project/request supports by listing
the key word(s) (HOUSING, RECREATION, NEIGHBORHOODS, ECONOMIC DEVELOPMENT,
BUDGET, SEWER SEPARATION). (SEE COMPLETE LIST IN INSTRUCTIONAL MANUAL.)
PERSONAL SERVICE CONTRACTS:
This information will be used to determine the city's liability for workers compensation claims, taxes and proper civil service hiring rules.
INITIATING PROBLEM, ISSUE, OPPORTUNITY
Explain the situation or conditions that created a need for your project
or request.
ADVANTAGES IF APPROVED
Indicate whether this is simply an annual budget procedure required by law/
charter or whether there are specific ways in which the City of Saint Paul
and its citizens will benefit from this project/action.
DISADVANTAGES IF APPROVED
What negative effects or major changes to existing or past processes might
this project/request produce if it is passed (e.g., traffic delays, noise,
tax increases or assessments)? To Whom? When? For how long?
DISADVANTAGES IF NOT APPROVED
What will be the negative consequences if the promised action is not
approved? Inability to deliver service? Continued high traffic, noise,
accident rate? Loss of revenue?
FINANCIAL IMPACT
Although you must tailor the information you provide here to the issue you
are addressing, in general you must answer two questions: How much is it
going to cost? Who is going to pay?
RECEIVED
LAW OFFICES
LEONARD, STREET AND DEINARD JUN 20 1994
PROFESSIONAL ASSOCIATION
LANDMARK TOWER, SUITE 1414 CITY ATTORNEY
345 ST. PETER STREET
ST. PAUL, MINNESOTA 55102
TELEPHONE (612) 222 -7455
FACSIMILE (612) 222 -7644
June 17, 1994
Mr. Timothy Marx
City Attorney
City of Saint Paul
400 City Hall
Saint Paul, Minnesota 55102
Re: Hennepin County Bond Litigation
Dear Tim:
As we have discussed, we have been asked by Hennepin County and its counsel to discuss
with you the possibility of some of our municipal clients filing a supporting request in connection
with Hennepin County's request that the Minnesota Supreme Court review the recent Minnesota
Court of Appeals decision in this litigation. A copy of the Court of Appeals decision is attached
for your reference.
Hennepin County believes the Court of Appeals decision raises issues of significant
importance to municipal bond issuers, and for those obligated to pay the debt service on those
issues, whether the bond issue is structured as a "governmental" issue (i.e., the issuer is directly
obligated) or as a "conduit" issue (i.e., another party is obligated). For the reasons stated below,
we agree with Hennepin County's assessment, and recommend that you seriously consider
participating in Hennepin County's request for review by the Supreme Court, as part of the
"package" that we have put together.
First, with respect to the Court of Appeals decision, we have highlighted the offending
language on pages 9 and 11, where the Court of Appeals states that Section 8.09 of the Loan
Agreement required the County (as issuer) and HERC (as the borrower of the bond proceeds) "to
consider the bondholders' best interests, and not [their] own" in making a decision under the
documents. The implication here is that if there is any doubt as to the interpretation of the
documents, discretionary decisions must be made in a manner which favors the bondholders, and
that competing interests of the taxpayers, or of the borrower of funds (whether the governmental
unit or a private party) must be subordinated. Since the language of the Loan Agreement relied
upon by the Court of Appeals appears, in substance, in virtually every bond financing, the
principle enunciated in this decision could have very broad application.
Up to now, neither bond lawyers nor issuers have interpreted provisions similar to Section
8.09 of the Hennepin County agreement in anything like the way the Court of Appeals views it.
The customary interpretation is that such provisions are intended to make the bondholders third
party beneficiaries of the contract, but only in accordance with its terms. Where the contract
provides for discretionary decision - making, the customary interpretation is that the discretion may
Mr. Timothy Marx
June 17, 1994
Page 2
be exercised by a party as it deems appropriate. This view is consistent with the usual
interpretation of third -party beneficiary clauses (see 17A Am. Jur. 2d § § 459,460).
Regardless of whether you agree with the action taken by Hennepin County in refusing
to renew the letter of credit in this transaction, we find it startling that the Court of Appeals has
chosen to question its action in a way that may require that discretion be exercised in the future
so as to subordinate the public interest, or the interest of the contracting parties, to the interest
of the bondholders.
The Court of Appeals decision is precedent, and while it could probably be distinguished
in subsequent cases on the basis of both (a) the facts involved in the Hennepin County situation
verses the normal discretionary action taken by issuers and (b) the fact that the statement is not
in line with the normal interpretation of similar provisions, the mere existence of this sentence
may restrict the ability /flexibility of issuers and other parties in the exercise of contractual rights
given them in bond agreements. We think the decision is fundamentally flawed in that it is
premised on a misinterpretation of the careful balancing of rights and decision - making powers
inherent in bond agreements. The Supreme Court should review the Court of Appeals decision
in light of its implications beyond the Hennepin County situation.
As a matter of practice, the Supreme Court has been reluctant to review Court of Appeals
decisions, and therefore a strong case must be made to the Supreme Court that this case is one
deserving of its review. Hennepin County needs the support of the municipal bond community
to persuade the Supreme Court to undertake that review. Hennepin Count has asked us to request
that you join with Hennepin County in seeking that review. While we generally agree with
Hennepin County's concerns, for the reasons stated above, we are also concerned that the cost of
participation not outweigh the benefits. Leonard, Street & Deinard is willing to represent the
City of Saint Paul in this matter, or to assist in preparing and filing a request for review with the
Supreme Court. Several government units have been approached about this, and we think 3 or
more of them will join in a request for review. That request will be submitted jointly, by this
firm representing the entire group. We have agreed with that group that our fees will be charged
at a standard rate of $175 per hour, and no one participant will be charged more than $2,500. We
would be pleased to include the City of Saint Paul in that arrangement.
Hennepin County must file its request for further review by the Supreme Court by the end
of June. The request for permission to participate as amicus is due 20 days after that filing. We
ask that you give this matter serious consideration, and hope that you will consider joining the
group that we have put together in an attempt to allow municipal issuers to have a separate voice
in this matter, at a minimum individual cost.
C/y /z5
Mr. Timothy Marx
June 17, 1994
Page 3
Please call either Rich Martin or me if you have any additional questions, or would like
to discuss this further.
Yours very truly,
LEONARD, STREET AND DEINARD
By
Pi • y Hansen
RH/j 1
Enclosure
cc: Richard Martin
Greg Poe