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Home My WebLink AboutA4293 - BROWN & DIVEN SETTLEMENT AD155 Brown & Diven • Settlement Agreement AGREEMENT #4293 M06742, 11-1-00 SETTLEMENT AGREEMENT AND STIPULATION TO-TUDGMUN-1— Plaintiffs CITY OF PALM SPRINGS, a California municipality ("City") and STONE & YOUNGBERG, LLC ("S&Y"), on the one hand (collectively referred to herein as "Plaintiffs") and Defendants BROWN & DIVEN, a law partnership or professional corporation (`B&D") F. MACKENZIE BROWN (`Brown"), WARREN B. DIVEN ("Diven"), on the other hand (collectively herein referred to as "Defendants")hereby stipulate and agree as follows: RECITALS A. In or around July, 1989, the City formed Assessment District No. 155 ("AD 155"). Pursuant to AD 155's formation, the City issued 1915 Act Improvement Bonds ("Bonds") to fund certain infrastructure improvements (the "Improvements") benefiting approximately 857 acres of undeveloped land within the boundaries of AD 155. This improved area also included approximately 80 acres owned by members of the Agua Caliente Indian Tribe. The City issued$7,638,119.64 of the Bonds. B. S&Y acted as underwriter for the issuance and sale of the Bonds. B&D acted as bond counsel to the City. Additionally, pursuant to S&Y's underwriting agreement with the City and pursuant to B&D's engagement as bond counsel to the City, B&D rendered a"Supplemental Legal Opinion" to S&Y relating to, among other things, the adequacy of disclosure in the Official Statement ("OS"), commonly referred to as a "10(b)5 Opinion." Also pursuant to S&Y's underwriting agreement with the City and B&D's engagement by the City, B&D issued S&Y a "Reliance Letter" wherein it advised S&Y that S&Y could rely on B&D's opinion attesting to the validity of the proceedings and issuance of the Bonds in the same manner as if the opinion were addressed to S&Y. C. Part of B&D's charge as bond counsel was to conduct the proceedings for AD 155 and to insure on behalf of the City that there was full and accurate disclosure in the OS concerning risks inherent in investing in AD 155 bonds. Similarly, Defendants' Reliance Letter and 10(b)(5) opinion to S&Y was intended to assure S&Y as to the validity of the AD 155 proceedings and that there was full and accurate disclosure in the OS concerning the formation of the assessment district, issuance of the AD 155 bonds, and the risks inherent in investing in the AD 155 bonds. D. As of March, 1998, $5,590,000 of the Bonds remained outstanding. As structured, principal and interest due on the Bonds was to be paid through assessments imposed upon certain fee properties, contributions from the City's Airport Enterprise Fund and assessments imposed upon certain possessory interests in leaseholds of Indian land within AD 155 which received the benefits of the Improvements. E. Pursuant to federal law, assessment liens may not be maintained against the fee interest in Indian-owned lands. However, where an Indian allottee leases Indian land to a third person, the possessory interest in the leasehold can serve as security for assessments based upon the benefit conferred by the improvements upon the Indian land. Thus, when an assessment 348/014084-0115 119861.05 al 1/02/00 • 0 district is formed which includes leaseholds of Indian-owned land, the sole security for the assessment is the lessees' possessory interests. In the event of an assessment payment default, only the leasehold can be foreclosed, the underlying fee cannot. F. Approximately 18% of the original assessments were supposed to be secured by a lien on the possessory interest in a lease between an Indian allottee and the Wessman Development Company. An additional 31% of the original assessments were supposed to be secured by a lien on the possessory interest in a lease between another Indian allottee and Knutson Capital Investment, Inc. Consequently, the assessment on possessory interests in Indian leases represented almost 50% of the total security for the AD 155 bond issuance. G. Plaintiffs alleged that B&D failed to follow statutory requirements for levying assessments on possessory interests in the leaseholds of Indian lands, failed to take adequate and necessary precautions to coordinate the City's obligation to foreclose upon this security interest with the encumbrancer provisions in the leases, and failed to take steps to preserve the security interest in the event of a default on the Indian allottee leases. Thus, unbeknownst to the City or S&Y, as alleged by bondholders, the OS failed to disclose problems presented by utilizing leaseholds on Indian lands as security for assessment district debt. Specifically, as alleged by the bondholders, the OS failed to discuss the issue of Indian (lessor) sovereign immunity, and that the liens on possessory interests constituting security for the assessments could be eliminated. Equally importantly, as the bondholders contended, the lease termination procedures were not properly structured and were not properly disclosed in the OS. For example, nowhere in the OS is it disclosed that the leases could be unilaterally terminated if the lessee did not make installment payments. Plaintiffs also contended that B&D did not advise the City or S&Y that the OS did not disclose that lease termination on default will invariably precede the City's deadline for commencing foreclosure. Similarly, Plaintiffs alleged that B&D did not advise the City or S&Y that the OS did not articulate that the City is under no legal obligation to foreclose pending depletion of the Reserve Fund, thus rendering the foreclosure remedy identified in the OS futile. Lastly, Plaintiffs alleged that B&D did not advise the City or S&Y that the OS also failed to explain that in the event of lease termination, the lien on the possessory interest terminates, future lessees are not obligated to pay assessments, and as a consequence, bondholders would lose security for approximately 50% of the principal amount of the unpaid assessments. H. Subsequent to the creation of AD 155, the Lessees on the Indian leases went into default, and the leases were terminated effectively terminating the liens on the possessory interests thereby adversely affecting the City's ability to pay principal and interest on the Bonds and, consequently, the market value of the Bonds. I. As a result of this default and ensuing adverse consequences, Allstate Insurance Company ("Allstate"), which had purchased a substantial portion of the Bonds on original issuance, as a principal purchaser and bondholder of the Bonds, asserted certain claims related to the creation and administration of AD 155, the issuance of the Bonds and disclosure in the OS. Specifically, Allstate contended that the OS did not fully disclose the risks presented by securing assessments with possessory or leasehold interests in Indian lands, including, among others, that the leases can be terminated if the lessee does not pay assessments, that lease termination may precede the City's deadline for commencing foreclosure, thus making the mandatory obligation 348/014084-0115 119861.05 all/02100 -2- 0 meaningless, and that in the event of lease termination, future lessees are not obligated to pay assessments and bondholders will lose security for approximately 50% of the principal amount of the unpaid assessments. In summary, Allstate contended that the OS was materially misleading as to the risks the bondholders undertook upon investing in AD 155 related securities and that the bond issuance was structured improperly. J. As a result of B&D's alleged misfeasance, the City contended it faced general fund liability, a peril B&D expressly assured against in the Bond indenture, and in legal opinions coincident with the creation of AD 155. Further, the City and S&Y contended that B&D's negligence breached its 10(b)(5) opinion that the OS contained no material misrepresentations or omissions. K. Ultimately, in response to the imminent filing of a lawsuit by Allstate, the City entered into a Settlement Agreement (attached hereto and incorporated herein by reference as part of Exhibit "A") with Allstate in March of 1998. Pursuant to the Settlement Agreement, the City agreed to restructure the AD 155 debt. By virtue of entering into this Settlement Agreement, the City suffered damages, including but not limited to, the acquisition of approximately $1,030,000 of non-recourse debt and expending in excess of$150,000 as a cost of issuance of new bonds for purposes of removing the AD 155 Bonds from the market. In connection with the settlement, S&Y agreed to reimburse the City for a portion of its expenses. Allstate also agreed that it would not bring any claims against S&Y in comnection with the OS if S&Y purchased its unsecured AD 155 bonds over a period of time. S&Y has incurred damages by payments to the City of $36,000, and has incurred (or will do so in the future) additional damages of approximately $1,030,000 from a purchase of unsecured AD 155 bonds from Allstate. All totaled, therefore, as of the date of the restructuring of the AD 155 Bonds pursuant to the settlement with Allstate, Plaintiffs were damaged in the amount of approximately $2.2 million. L. In or around February of 1999, Plaintiffs filed suit against Defendants (the "Litigation"). A true and correct copy of the Complaint which initiated this Litigation is attached hereto as Exhibit "A". Incident to the Litigation, Plaintiffs sought in excess of$2.2 million and their attorneys fees related to the Litigation. M. In connection with Plaintiffs assertion of claims against Defendants, Defendants alerted their malpractice insurance carrier, Golden Eagle Insurance Company ("GEIC"). Specifically, on October 11, 1996, Defendants tendered defense of any potential claim to GEIC. On or about August 14, 1997, GEIC denied coverage and Defendants made a request for reconsideration. On or about October 17, 1997, GEIC issued a re-denial of Defendants tender. On or about May 10, 1999, after Plaintiffs filed litigation regarding AD 155, Defendants re- tendered the claim to GEIC. On or about July 21, 1999, GEIC denied the re-tender. GEIC was placed into a conservatorship pursuant to Insurance Commissioner of the State of California v. Golden Eagle Insurance Company, San Francisco County Superior Court Case No. 984502. Consequently, on or about August 20, 1999, Defendants filed a proceeding within the conservatorship action seeking coverage for the Litigation under the GEIC issued insurance policy (the"Insurance Proceeding"). 348/014084-0115 119861.05 a11/02/00 -3- a • N. Prior and subsequent to the filing of the Litigation Plaintiffs and Defendants engaged in intensive efforts to settle. These efforts included multiple and extended negotiations amongst lawyers and no fewer than three (3) face-to-face meetings amongst the principals, including a full day mediation conducted by retired Supreme Court Justice Edward Panelli under the auspices of JAMS/ENDISPUTE. The mediation before Justice Panelli occurred on February 23, 2000 and eventually resulted in a series of offers and counter offers culminating in the settlement reflected herein which was ultimately negotiated in a face-to-face meeting amongst the parties which occurred on September 13, 2000. WHEREFORE, the parties hereto agree as follows: 1. Effective Date. The Effective Date of this Settlement Agreement shall be November_, 2000 (the "Effective Date"). 2. Stipulation to Judgment. The parties stipulate and agree that judgment in the Litigation may be entered in favor of Plaintiffs and against Defendants in the amount of $1,000,000. Specifically, the parties stipulate and agree to entry of the judgment attached hereto as Exhibit `B" (the "Judgment"). 3. Covenant not to Execute. Except as provided for herein, Plaintiffs covenant and agree not to execute on the Judgment against any asset or property of Defendants. Plaintiffs further covenant and agree not to file the Judgment for recordation at any recorder's office or in the office of any secretary of state, so that it shall not appear as a lien of record against any real or personal property interest of Defendants. 4. Assignment of Claims Against Defendants Insurer. Defendants hereby assign and transfer to Plaintiffs all right, title and interest in any claims and/or causes of action Defendants may now have or hereafter acquire against GEIC, its successor, or any other liability insurer which claims or causes of action arise out of or are related to the Litigation and/or the Insurance Proceeding, including but not limited to claims based upon or related to GEIC's failure and refusal to settle with Plaintiffs, GEIC's failure and refusal to defend and/or indemnify Defendants regarding all claims and/or causes of action asserted in the Litigation, including the amounts set forth in the Judgment, as well as any and all claims or causes of action which are or shall be asserted as part of the Insurance Proceeding. All Claims assigned herein shall hereafter be collected referred to as the"Assigned Claims". 5. Plaintiffs Retention of DFI&S. The law firm of Daniels, Fine, Israel & Schonbuch, LLP (hereafter "DFI&S") is currently counsel of record in the Insurance Proceeding relating to Defendants' claim that GEIC wrongfully refused to provide a defense to Defendants in the Litigation. DFI&S hereby agrees to represent Plaintiffs, as Defendants' assignees, in continuing to prosecute this pending claim seeking recovery of all costs and expenses relating to the defense of the Litigation. DFI&S further agrees to take all steps necessary to prosecute, on behalf of Plaintiffs as assignees, all claims and/or causes of action for indemnification under Defendants' insurance policy with GEIC, including the recovery of amounts set forth in the Judgment against Defendants. DFI&S and Defendants acknowledge that Plaintiffs have assumed those rights previously held by Defendants under the GEIC insurance policy at-issue in the Insurance Proceeding and that Plaintiffs are now entitled to any monetary 348/014084-0115 119861.05 al 1102100 -4- 0 recovery associated with GEIC's failure to defend and/or indemnify Defendants with respect to the Litigation, subject to paragraph 8. DFI&S agrees to prosecute such and any other Assigned Claims on Plaintiffs' behalf as part of the Insurance Proceeding and to otherwise undertake whatever legal actions are necessary to obtain a final adjudication of GEIC's or any other insurers liability for these Assigned Claims. DFI&S also agrees to undertake all actions reasonably necessary to enforce and collect upon any judgment or other final adjudication concerning the Assigned Claims. All fees, costs and expenses associated with DFI&S' prosecution of, and recovery upon, Assigned Claims shall be borne by Defendants jointly and/or severally. Subject to the limitation set forth in 5.1 below, Plaintiffs shall not under any circumstance be responsible for any such fees, costs and expenses. Moreover, the refusal and/or failure of Defendants to fulfill the obligation to fund the prosecution of the Assigned Claims shall not excuse DFI&S from its obligation to prosecute the aforementioned Assigned Claims against GEIC or any other insurer to a final adjudication at the trial court. DFI&S retains the right to withdraw as counsel for good cause in the event of an appeal. In the event DFI&S withdraws or is removed as counsel or cannot otherwise proceed as counsel regarding the prosecution of Assigned Claims, Plaintiffs may retain substitute counsel at Defendants expense. All parties consent to DFI&S' representation of Plaintiffs notwithstanding DFI&S' prior representation of Defendants. 5.1 B&D's Obligation to Fund an Appeal by Plaintiffs. In the event either City or S&Y desires to appeal (other than a cross-appeal) a final trial court judgment or like final adjudication in the Insurance Proceeding, and B&D disagrees with the decision to appeal, B&D shall not be obligated to fund such appeal provided it can demonstrate that the party desiring to appeal does not have a good faith belief that such appeal has a reasonable probability of success. Any disagreement as to the good faith of the party desiring to appeal shall be resolved through a binding arbitration hearing before a third party neutral conversant with insurance matters appointed pursuant to the rules of the American Arbitration Association. Such arbitration shall be expedited and conducted solely based on written materials (briefs and declarations) and oral argument. In this regard, such arbitration shall be conducted as a "law and motion matter" without any live testimony and shall not entitle either side to do discovery. The parties shall cooperate to insure that such hearing is completed in advance of the time for filing an appeal. The arbitrator shall be required to issue his ruling immediately upon concluding the hearing. In the event a decision by the arbitrator cannot be had prior to any deadline relative to an appeal, DFI&S shall take all steps necessary to preserve the right to appeal pending such decision. In the event of a decision adverse to the party desiring to appeal, such appeal may still continue but B&D shall be relieved of the obligation to fund such appeal. 6. Defendants Covenant of Coo ern ation. Defendants covenant and agree to cooperate to the full extent necessary for Plaintiffs to successfully prosecute the Assigned Claims to a final adjudication, including but not limited to testifying in any legal proceeding related thereto, and executing any documentation reasonably required by Plaintiffs to evidence, establish or enforce the Assigned Claims. 7. Payment by Defendants to City. Defendants, jointly and severally, agree to pay City the sum of$250,000 within two (2) weeks of the Effective Date of this Agreement. In the event Defendants fail to timely pay City this settlement sum, City shall have the right to execute on the Judgment up to the amount of$250,000 plus interest at the legal rate until paid. 348/014084-0115 119861.05 al 1/02/00 -5- i ! S&Y has assigned to City any right it would otherwise have to any portion of this settlement sum in order to facilitate the settlement, subject to paragraph 8. S&Y is not otherwise obligated to make such an assignment. 8. Plaintiffs Covenant to Distribute Proceeds From the Insurance Company. The parties further agree that any monies recovered pursuant to the Insurance Proceeding, or any related action in pursuit of Assigned Claims, shall be divided as follows: (1) all monies up to the first $375,000 shall be divided two-thirds to S&Y and one-third to Defendants; (2) all monies in excess of the first $375,000, up to a total of$750,000, shall be divided one-third to City, one- third to S&Y and one-third to Defendants; (3) all monies in excess of$750,000 shall be divided equally by and between City and S&Y. For demonstrative purposes, attached hereto as Exhibit"C" is a chart showing how such monies would be divided in the event of a $1,000,000 recovery in the Insurance Proceeding. hi regard to the prosecution of Assigned Claims, DFI&S' clients are City and S&Y, not Brown, Diven or B&D. City and S&Y alone shall have sole discretion to direct the conduct of the Insurance Proceeding or any related action in pursuit of Assigned Claims. All decisions concerning such proceedings, including whether, and at what amount, to settle shall require the mutual consent of City and S&Y. 9. Authority. Each individual executing this Settlement Agreement on behalf of an entity represents and warrants that he or she is a duly authorized representative of that entity with full power and authority to bind it to each term and condition hereof. 10. Further Acts. Each of the Parties hereto agrees promptly to execute all other documents and take all other actions reasonably necessary to effectuate all of this Settlement Agreement's terms and conditions. 11. Interpretation or Enforcement: Attorneys' Fees. In the event that any legal action is necessary to enforce or interpret any provision of this Settlement Agreement (or any documentation delivered pursuant thereto or in connection therewith), by way of motion or otherwise, that action will be brought in a court of competent jurisdiction located in the County of Orange, and the Parties to this Settlement Agreement consent to personal jurisdiction and venue in such a court. The prevailing party in any such action shall recover its costs and reasonable attorneys' fees. 12. Successors. This Settlement Agreement shall bind the successors, assigns, heirs and personal representatives of each of the Parties hereto. 13. Parties Represented. Each party to this Settlement Agreement has been advised and represented by counsel they deem competent in connection with the negotiation and preparation hereof, and each shall be deemed its co-author for purposes of the Settlement Agreement's construction. 14. Integrated Writing. This Settlement Agreement (along with the other documentation specifically called for herein) constitutes the whole and only existing and binding agreement between the Parties hereto on the subject matter hereof, superseding all prior statements and understandings, whether written or oral. Other than the representations expressly stated as such in this Settlement Agreement, there are no warranties, promises or representations 348/014084-0115 119861.05 a11/02/00 -6- • 0 of any kind, express or implied, upon which either party has relied in entering into this Settlement Agreement, or as to the future relations or dealings of the Parties. 15. Representations and Warranties Regarding Assignment. Defendants represent and warrant that there has been no previous assignment, hypothecation, division, encumbrance, mortgage or other transfer, in whole or in part, of any Assigned Claim except the assignment set forth herein. Defendants moreover represent and warrant that they are aware of no procedural, contractual or other impediment to the assignment or prosecution of the Assigned Claims. Defendants further represent and warrant that there are no liabilities which do or will accrue to Plaintiffs, City and/or S&Y, because of or in connection with the assignment or prosecution of Assigned Claims . For instance, Plaintiffs will not incur any obligation to pay monies (as prevailing party attorneys fees or for any other reason) to GEIC or any other party as a result of the prosecution of Assigned Claims, even in the event of a Judgment adverse to the insured and in favor of the insurer. Regardless, Defendants B&D, Brown, and Diven will pay any and all costs, fees, expenses and/or damages associated with the Insurance Proceeding and otherwise associated with the prosecution of the Assigned Claims. Defendants shall indemnify Plaintiffs and hold Plaintiffs harmless from any and all loss or damage related to any breach of these representations and warranties. 16. Counterparts. This Settlement Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Amendments. This Settlement Agreement may be modified or amended only by a writing signed by all Parties hereto. 18. No Waiver. The waiver by any party hereto of any right, privilege, covenant or condition hereunder will not operate as or indicate a continuing waiver of the same or any other right,privilege, covenant or condition hereunder. 19. Choice of Law. This Settlement Agreement shall be governed by the laws of the State of California applicable to contracts executed and to be wholly performed in that state. 20. Notices and/or Payments. Any notice required or permitted under this Settlement Agreement and any payment to be made pursuant to this Settlement Agreement shall be considered given or made upon delivery to counsel for the affected party as identified herein below. As to notices, such notice may be delivered personally, via facsimile or by U.S. mail. In the case of payments, delivery shall be via check, in good and sufficient funds payable to the appointed law firm in trust for the party to be paid, and effected via personal or overnight delivery. To CITY: Rutan& Tucker, LLP 611 Anton Boulevard, Suite 1400 Costa Mesa, California 92626 Attn: Layne H. Melzer, Esq. 349/014084-0115 119861.05 al1/02/00 -7- Facsimile: 714.546.9035 Telephone: 714.641.5100 With a copy to: 3200 E. Tahquitz Canyon Way Pahn Springs, California 92263 Attn: Tom Kanarr Facsimile: 760.323.8320 Telephone: 760.323.8221 To S&Y: Kirkpatrick& Lockhart 100 Pine Street, Suite 3200 San Francisco, California 94111.5218 Attn: R. David Mishel, Esq. Facsimile: 415.249.1001 Telephone: 415.249.1015 To Defendants: Daniels, Fine, Israel & Schonbuch, LLP 1801 Century Park East, 9`h Floor Los Angeles, California 90067 Attn: Paul Fine, Esq. Facsimile No.: 310.556.2807 Telephone: 310.556.7900 Either party may change its address and/or its designated recipient for notice or payment for purposes of this Settlement Agreement by giving notice of such change in accordance herewith. 3481014084-0115 119861.05 all/02/00 '8' • • - IN WITNESS WHEREOF, the parties hereto have executed this Settlement Agreement as of the date set forth above. Dated: November 2000 CITY OF PALM SPRINGS, a California ! municipglit`y By: offV COUNCIL Its: Mayor Dated: November 2000 STONE& YOUNGBERG, LLC By: Managing Director Dated: November 2000 BROWN & DIVEN, a law partnership or professional By: Its: Managing Partner Dated: November 2000 F. MACKENZIE BROWN By: F. MacKenzie Brown, individually and as a member of B&D Dated: November 2000 WARREN B. DIVEN By: Warren B. Diven, individually and as a member of B&D Dated: November 2000 DANIELS, FINE, ISRAEL & SCHONBUCH, LLP By: Paul Fine Its: Managing Partner 349/014084-0115 119861.05.11/02/00 -9- ! • IN WITNESS WHEREOF, the parties hereto have executed this Settlement Agreement as of the date set forth above. Dated: November_, 2000 CITY OF PALM SPRINGS, a California municipality By: Its: Mayor Dated: November_-7-, 2000 STONE & YO IGBERG, LL By: Managing Director Dated: November 2000 BROWN & DIVEN, a law partnership or professional By: Its: Managing Partner Dated: November 2000 F. MACKENZIE BROWN By: F. MacKenzie Brown, individually and as a member of B&D Dated: November, 2000 WARREN B. DIVEN By: Warren B. Diven, individually and as a member of B&D Dated: November_, 2000 DANIELS, FINE, ISRAEL & SCHONBUCH, LLP By: Paul Fine Its: Managing Partner 348/014084-0115 119861 05 AM00 -9- IN WITNESS WHEREOF, the parties hereto have executed this Settlement Agreement as of the date set forth above. Dated: November 2000 CITY OF PALM SPRINGS, a California municipality By: Its: Mayor Dated: November 2000 STONE &YOUNGBERG, LLC By: Managing Director Dated: November 2000 BROWN IVEl?I, a law partnership or professiona ,�� BY: Its: Managing Partner D Dated: November 0, 2000 F. MAGZIE BRO n 7� By: F. MacKenzie,/Brown, individually and as a member of B`&D Dated: November , 2000 WARREN B. DIVEN By: Warren B. Diven, individually and as a member of B&D Dated: November_, 2000 DANIELS, FINE, ISRAEL & SCHONBUCH, LLP By: Paul Fine Its: Managing Partner 3481014084-0115 _ 119861.05.00 9 i • IN WITNESS WHEREOF, the parties hereto have executed this Settlement Agreement as of the date set forth above. Dated: November_, 2000 CITY OF PALM SPRINGS, a California municipality By: Its: Mayor Dated: November , 2000 STONE &YOUNGBERG, LLC By: Managing Director Dated: November_, 2000 BROWN & DIVEN, a law partnership or professional By: Its: Managing Partner Dated: November_, 2000 F. MACKENZIE BROWN By: F. MacKenzie Brown, individually and as a - member of B&D Dated: November�c), 2000 WARREN B. DIVEN By: Warren B. Diven, individually and as a member of B&D Dated: Novembers 3, 2000 DANIELS�, ISRAEL & SCHONBUCH, LLP By: l��.L Paul Fine Its: Managing Partner 348/014084-0115 119861.05=00 SUMMONS (CITACION JUDICIAL) FOR OOURT USE ONLY NOTICE TO DEFENDANT: (Aviso a Acusado) (SOLO PARA USO DELA COME) BROWN & DIVEN, a law partnership or professional corporation; F. MACKENZIE BROWN; WARREN B. DIVEN; AND DOES 1 THROUGH 100, INCLUSIVE YOU ARE BEING SUED BY PLAINTIFF: (A Ud. le esti demandando) CITY OF PALM SPRINGS, a California municipality, and STONE & YOUNGBERG LLC, a professional corporation, You have 30 CALENDAR DAYS after this sum- Despues de que le entreguen esta citaci6n judicial usted mons is served on you to file a typewritten re- tiene un plazo de 30 DIAS CALENDARIOS para presentar sponse at this court una respuesta escrita a maquina en esta torte. A letter or phone call will not protect you; your Una carta o una 11amade telef6nica no le ofrecera typewritten response must be in proper legal profecci6n; su respuesta escrita a maquina tiene que form if you want the court to hear your case. cumplir con las formalidades lega/es apropiadas si usted If you do not file your response on time, you may quiere que/a torte escuche su caso. lose the case, and your wages, money and pro- Si usted no presenta su respuesta a tiempo,puede perder perry may be taken without further warning from elcaso,ylepuedenquitarsusalario,sudineroyotrascosas the court. de su propiedad sin aviso adicional por parte de la torte. There are other legal requirements. You may Exfsten otros requisitos lega/es. Puede que usted quiera want to call an attorney right away. If you do not Ilamar a un abogado inmediatamente. Si no conoce a un know an attorney, you may call an attorney refer- abogado, puede Ilamar a un servicio de referencia de ral service or a legal aid office (listed in the phone abogados o a una oficina de ayuda legal(vea el directorio book). felef6nico). The name and address of the court is: (Ei nombre y direcci6n de la torte es) CASE NUMBE el sa SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF ORANGE, CENTRAL JUSTICE CENTER 700 CIVIC CENTER DRIVE WEST/P.O. BOX 1994 ,. FELL, COMM SANTA ANA, CA 92701 DEPT. C18 (714) 834-3734 The name, address, and telephone number of plaintiffs attorney, or plaintiff without an attorney, is: (El nombre, la direcci6n y el n6mero de telefono del abogado del demandante, o del demandante que no tiene abogado, es) RUTAN & TUCKER, LLP (714) 641-5100 (714) 546-9035 LAYNE MELZER (SBN 132292) ROBERT E. KING (SBN 198325) 611 ANTON BLVD. , SUITE 1400/P.O. BOX 1950 COSTA MESA, CA 92628-1950 DATE: FEB 41999 PLAN SLATER NA)�JSF3ETH GAMBOA'• Clerk, by , Deputy (Fechal (Actuatlo) (De/egado) [SEAL) NOTICE TO THE PERSON SERVED: You are served 1.LI:] as an individual defendant. 2.0 as the person sued under the fictitious name of(specify): 3.0 on behalf of(specify): under: E-]CCP 416.10 (corporation) 0 CCP 416.60(minor) CCP 416.20(defunct corporation) EIJ CCP 416.70(conservatee) 0 CCP 416.40(association or partnership) F__1 CCP 416.90(individual) 0 other: 4.= by personal delivery on (date): Form Adopted by Rule 982 (See reverse for Proof of Service) CCP 412.29 Judioal Council of California SUMMONS 982(a)(9)[Rev.1V94] 1 RUTAN & TUCKER, LLP LAYNE H. MELZER (SBN 132292) SUPERIOR COURT 2 ROBERT E. KING (SBN 198325) COUNTS'OF ORANGE 611 Anton Boulevard, Suite 1400 CENTRAL"US TICF CENTER z�¢ 3 Costa Mesa, California 92626-1998 FEDG 1/yQQ W ,999 ozp Telephone: (714) 641-5100 $ o r 4 ALAN SLATER,Clerk of the Coun J Attorneys for Plaintiff cne%J 5 CITY OF PALM SPRINGS BY E. GAMBOA o6 THELEN, REID & PRIEST, LLP m R. DAVID MISHEL (SBN #48345) w �~ 7 Two Embarcadero Center, Suite 2100 Z San Francisco, CA 94111-3995 NR 8 Telephone : (415) 955-3610 o 1o�a 9 Attorneys for Plaintiff o r s! STONE & YOUNGBERG LLC 0 SUPERIOR COURT OF THE STATE OF CALIFORNIA zoma ?1 �1-o c `rh vT o z> 11 COUNTY OF ORANGE CENTRAL JUSTICE CENTER N�dq p- W r y �... �2 .2 806041 ¢� F> > U N F y Ili 3 3 CITY OF PALM SPRINGS, a ) CASE NO. California municipality, and ) 14 STONE & YOUNGBERG LLC, a ) ASSIGNED FOR ALL PURPOSES TO: professional corporation, ) JUDGE 15 ) DEPARTMENT Plaintiffs, ) om 0216 ) COMPLAINT FOR: zv' M"' Vs . ) I. PROFESSIONAL MALPRACTICE; i-a < 17 ) 2 . BREACH OF CONTRACT; , qm BROWN & DIVEN, a law partnership) 3 . BREACH OF FIDUCIARY AND mgrn=N 18 or professional corporation; F. ) ETHICAL DUTY; yY=m MACKENZIE BROWN; WARREN B . ) 4. CONSTRUCTIVE FRAUD; �yvmm, 19 DIVEN; and DOES 1 THROUGH 100, ) 5. NEGLIGENCE; f�r^i-Ia INCLUSIVE, ) 6 . EQUITABLE INDEMNITY; and c„zw, 20 ) 7 . DECLARA Zomm Defendants . ) SHELWB. LI, R ra-16 21 > DEPT. C18 t oMo=0 22 Plaintiffs, by way of this Complaint, hereby allege as r Sm0og 23 follows: Niam smzr 24 I. GENERAL ALLEGATIONS >03- Cwmp cc z2om 25 1 . Plaintiff City of Palm Springs ("Plaintif E" or "City" or "Palm - zam mz�S�� 26 Springs") is a California municipality and duly organized and a moaa. =mmi 27 existing by virtue of the Constitution and laws of the State of -+o w oy�1 28 California. mzoui Z."�CC m ZZ� -1- 650/014094-0085/3221567. 202/24/99 COMPLAINT OF CITY OF PALM SPRINGS 1 2 . Plaintiff Stone & Youngberg LLC ("Plaintiff" or "S&Y") is a 2 financial underwriting firm with offices in San Francisco, Sherman 3 Oaks and San Diego. 4 3 . Defendant Brown & Diven ("Defendant" or "B&D") is a law firm 5 with an office in San Diego. Plaintiffs are informed and believe 6 and based thereon allege that Defendant F. Mackenzie Brown resides 7 in and/or is domiciled in the County of Orange, and that Defendant 8 Warren B. Diven resides in and/or is domiciled in the County of San 9 Diego, and that Defendants Brown and Diven are partners in the law 10 firm of Brown & Diven. it 4. Plaintiffs are informed and believe and based thereon allege 12 that Defendant F. Mackenzie Brown ( "Brown") is and at all relevant 13 times herein was a natural person residing and/or domiciled in 14 Orange County and is a partner with Brown & Diven. 15 5 . Defendant Warren B. Diven ( "Diven") is and at all relevant 16 times herein was a natural person residing and/or domiciled in San 17 Diego County and is a partner with Brown & Diven. 18 6. Defendants Brown, Diven and B&D and other associates, 19 partners, agents and employees acted in concert and/or conspired to 20 commit those wrongful acts and/or omissions alleged herein. 21 7. The acts and/or omissions of the various B&D attorneys and 22 partners alleged herein were committed in the course and scope of 23 partnership business and authority. B&D and each and every 24 individual partner with B&D is jointly and severally liable for each 25 of the causes of action alleged herein and all liability created by 26 the conduct of Defendant B&D and any other partner, associate, 27 employee or agent with B&D. 28 8 . Plaintiffs are ignorant of the true names and capacities of -2- 650/014084-0085/3221567. a02/24/99 COMPLAINT OF CITY OF PALM SPRINGS • 1 the Defendants sued herein as DOES 1 through 100, inclusive, by such 2 fictitious names. Plaintiffs will amend this Complaint to allege 3 the true names and capacities of said Defendants when the same are 4 ascertained. 5 9 . Plaintiffs are informed and believe and on that basis allege 6 that Defendants are responsible, in full or in part, for the acts or 7 omissions alleged herein and that at all times herein mentioned, 8 Defendants and their partners, associates and employees were acting 9 as alter egos of each other and/or acting within the full course and 10 scope of their agency and employment and with the full knowledge and 11 consent, either express or implied, of each other and Defendants. 12 As such, all Defendants are jointly and severally liable for the 13 acts or omissions alleged herein. 14 10. In or around July, 1989, the City of Palm Springs formed 15 Assessment District No. 155 ( "AD 155") . Pursuant to AD 155' s 16 formation, the City issued 1915 Act Improvement Bonds ("Bonds") to 17 fund certain infrastructure improvements (the "Improvements") 18 benefitting approximately 857 acres of undeveloped land within the 19 boundaries of AD 155. This improved area also included 20 approximately 80 acres owned by members of the Agua Caliente Indian 21 Tribe. The City issued $7, 638, 119 . 64 of the Bonds. 22 11. Stone & Youngberg LLC acted as underwriter for the issuance 23 and sale of the Bonds. 24 12 . Brown & Diven acted as bond counsel to the City. 25 Additionally, pursuant to S&Y' s underwriting agreement with the City 26 and pursuant to B&D's engagement as bond counsel to the City, B&D 27 rendered a "Supplemental Legal Opinion" to S&Y relating to, among 28 other things, the adequacy of disclosure in the Official Statement -3- 650/01408¢0085/3221567. a02/24/99 COMPLAINT OF CITY OF PALM SPRINGS 6 1 ( "OS") , commonly referred to as a 1110 (b) 5 Opinion. " Also pursuant 2 to S&Y's underwriting agreement with the City and B&D' s engagement 3 by the City, B&D issued S&Y a "Reliance Letter" wherein it advised 4 S&Y that S&Y could rely on B&D' s opinion attesting to the validity 5 of the proceedings and issuance of the Bonds in the same manner as 6 if the opinion were addressed to S&Y. 7 13 . Part of B&D's charge as bond counsel was to conduct the 8 proceedings for AD 155 and to insure on behalf of the City that 9 there was full and accurate disclosure in the OS concerning risks 10 inherent in investing in AD 155 bonds. Similarly, Defendants' 11 Reliance Letter and 10 (b) (5) opinion to S&Y was intended to assure 12 S&I� as to the validity of the AD 155 proceedings and that there was 13 full and accurate disclosure in the OS concerning the formation of 14 the assessment district, issuance of the AD 155 bonds, and the risks 15 inherent in investing in the AD 155 bonds. 16 14. As of March, 1998, $5, 590, 000 of the Bonds remained 17 outstanding. As structured, principal and interest due on the Bonds 18 was to be paid through assessments imposed upon certain fee 19 properties, contributions from the City's Airport Enterprise Fund 20 and assessments imposed upon certain possessory interests in 21 leaseholds of Indian land within AD 155 which received the benefits 22 of the Improvements. 23 15 . Pursuant to federal law, assessment liens may not be 24 maintained against the fee interest Indian-owned lands. However, 25 where an Indian allottee leases Indian land to a third person, the 26 possessory interest in the leasehold can serve as security for 27 assessments based upon the benefit conferred by the improvements 28 upon the Indian land. Thus, when an assessment district is formed -4- 650/014094-009513221567. a02/24/99 COMPLAINT OF CITY OF PALM SPRINGS 1 which includes leaseholds of Indian-owned land, the sole security 2 for the assessment is the lessees' possessory interests. In the 3 event of an assessment payment default, only the leasehold can be 4 foreclosed, the underlying fee cannot. 5 16. Under B&D' s counsel, approximately 18%- of the original 6 assessments were supposed to be secured by a lien on the possessory 7 interest in a lease between an Indian allottee and the Wessman 8 Development Company. An additional 31%- of the original assessments 9 were supposed to be secured by a lien on the possessory interest in 10 a lease between another Indian allottee and Knutson Capital 11 Investment, Inc. Consequently, the assessment on possessory 12 interests in Indian leases represented almost 50!k of the total 13 security for the AD 155 bond issuance. 14 17. Despite the obvious predominance of this type of perilous 15 security, and despite issuing its opinion that the assessment 16 procedure was properly completed, in fact B&D failed to follow 17 statutory requirements for levying assessments on possessory 18 interests in the leaseholds of Indian lands, failed to take adequate 19 and necessary precautions to coordinate the City' s obligation to 20 foreclose upon this security interest with the encumbrancer 21 provisions in the leases, and failed to take steps to preserve the 22 security interest in the event of a default on the Indian allottee 23 leases . 24 18 . Thus, unbeknownst to the City or S&Y, which relied on B&D' s 25 advice and opinions, as alleged by bondholders, the OS failed to 26 disclose problems presented by utilizing leaseholds on Indian lands 27 as security for assessment district debt. Specifically, as alleged 28 by the bondholders, B&D failed to advise the City and S&Y that the -5- 650/014084-0085/3221567. a02/24/99 COMPLAINT OF CITY OF PALM SPRINGS i 0 1 OS failed to discuss the issue of Indian (lessor) sovereign 2 immunity, and that the liens on possessory interests constituting 3 security for the assessments could be eliminated. 4 19 . Equally importantly, as the bondholders contended, B&D did not 5 clarify or properly structure the lease termination procedures and 6 did not advise the City or S&Y that the lease termination procedures 7 were not properly disclosed in the OS. For example, nowhere in the 8 OS is it disclosed that the leases could be unilaterally terminated 9 if the lessee did not make installment payments. B&D likewise did 10 not advise the City or S&Y that the OS did not disclose that lease 11 termination on default will invariably precede the City's deadline 12 for commencing foreclosure. 13 20 . Similarly, B&D did not advise the City or S&Y that the OS did 14 not articulate that the City is under no legal obligation to 15 foreclose pending depletion of the Reserve Fund, thus rendering the 16 foreclosure remedy identified in the OS futile. Lastly, B&D did not 17 advise the City or S&Y that the OS also failed to explain that in 18 the event of lease termination, the lien on the possessory interest 19 terminates, future lessees are not obligated to pay assessments, and 20 as a consequence, bondholders would lose security for approximately 21 50% of the principal amount of the unpaid assessments. 22 21. Subsequent to the creation of AD 155, the Lessees on the 23 Indian leases went into default, and the leases were terminated 24 effectively terminating the liens on the possessory interests 25 thereby adversely affecting the City' s ability to pay principal and 26 interest on the Bonds and, consequently, the market value of the 27 Bonds . 28 22 . As a result of this default and ensuing adverse consequences, -6- 6501014084-008513221567. .02/24199 COMPLAINT 014 CITY OF PALM SPRINGS 1 Allstate Insurance Company ( "Allstate") , which had purchased a 2 substantial portion of the Bonds on original issuance, as a 3 principal purchaser and bondholder of the Bonds, asserted certain 4 claims related to the creation and administration of AD 155, the 5 issuance of the Bonds and disclosure in the OS. Specifically, 6 Allstate contended that the OS did not fully disclose the risks 7 presented by securing assessments with possessory or leasehold 8 interests in Indian lands, including, among others, that the leases 9 can be terminated if the lessee does not pay assessments, that lease 10 termination may precede the City's deadline for commencing 11 foreclosure, thus making the mandatory obligation meaningless, and 12 that in the event of lease termination, future lessees are not 13 obligated to pay assessments and bondholders will lose security for 14 approximately 50%- of the principal amount of the unpaid assessments. 15 In summary, Allstate contended that the OS was materially misleading 16 as to the risks the bondholders undertook upon investing in AD 155 17 related securities and that the bond issuance was structured 18 improperly. 19 23 . The City and S&Y contended that primary liability for such 20 claims rested with B&D which served as counsel to the City with 21 respect to forming AD 155, structuring the Bond issuance and issuing 22 opinions to the effect that the Bonds were properly issued and that 23 there was adequate disclosure to bondholders in the OS pertaining to 24 the Bonds. 25 24 . As a result of B&D's misfeasance, the City faced general fund 26 liability, a peril B&D expressly assured against in the Bond 27 indenture, and in legal opinions coincident with the creation of AD 28 155 . Further, B&D' s negligence breached its 10 (b) (5) opinion that -7- 6501014084-0085/3221567. a02/24/99 COMPLAINT OF CITY OF PALM SPRINGS 9 ` 1 the OS contained no material misrepresentations or omissions. 2 25. Faced with the specter of litigation, in January and again in 3 March of 1997, Plaintiffs made good faith attempts to negotiate with 4 B&D for B&D to assume responsibility for its misfeasance. B&D 5 refused Plaintiffs, entreaties, denied responsibility and rejected 6 any claim of liability. 7 26. Ultimately, in response to the imminent filing of a lawsuit by 8 Allstate, the City entered into a Settlement Agreement (attached 9 hereto and incorporated herein by reference as Exhibit A) with 10 Allstate in March of 1998 . Pursuant to the Settlement Agreement, 11 the City agreed to restructure the AD 155 debt. By virtue of 12 entering into this Settlement Agreement, the City suffered damages, 13 including but not limited to, the acquisition of approximately 14 $1, 030, 000 of non-recourse debt and expending in excess of $150, 000 15 as a cost of issuance of new bonds for purposes of removing the AD 16 155 Bonds from the market. In connection with the settlement, S&Y 17 agreed to reimburse the City for a portion of its expenses. 1S Allstate also agreed that it would not bring any claims against S&Y 19 in connection with the OS if S&Y purchased its unsecured AD 155 20 bonds over a period of time. 21 27. S&Y has incurred damages by payments to the City of $36, 000, 22 and incurred additional damages of $107, 000 from a purchase of 23 unsecured AD 155 bonds from Allstate and may incur additional 24 damages from further purchases of bonds from Allstate. 25 28 . But for the conduct of B&D, neither the City nor S&Y would 26 have been faced with the threat of litigation with Allstate. 27 Moreover, but for the conduct of B&D, the City would not have been 28 required to restructure AD 155 debt so as to cause damages to the -s- 650/0140W0085/3221567. a02/24/99 COMPLAINT OF CITY OF PALM SPRINGS • 1 City and to S&Y. Moreover, but for the conduct of B&D, S&Y would 2 not have made payments to the City of $36, 000 or purchased unsecured 3 AD 155 bonds from Allstate. 4 II. PLAINTIFF CITY'S CLAIMS 5 FIRST CAUSE OF ACTION 6 (Professional Malpractice Against All Defendants) 7 29 . Plaintiff City refers to the allegations of the preceding 8 paragraphs and incorporates them herein by reference as though set 9 forth in full . 10 30 . As counsel for Plaintiff City, Defendants owed various legal 11 and fiduciary duties to Plaintiff City, including but not limited to 12 the duty of reasonable care in the performance of legal services. 13 31. Defendants nonetheless breached these duties owed to Plaintiff 14 City by failing to exercise reasonable care and skill, including but 15 not limited to the following: 16 A. B&D did not comply with statutory prerequisites for 17 perfecting a security interest in an Indian lease. Specifically, 18 B&D failed to comply with the provisions of Streets and Highways 19 Code § 5333 which requires that an assessment against a possessory 20 interest in Indian lands (such as the Wessman and Knutson leases) be 21 secured by an assignment to the City of the subject leasehold 22 interest. 23 B. B&D failed to comply with Streets and Highways Code 24 § 5334 which requires that the resolution of intention declare that 25 the bonds represent an assessment against a possessory interest. 26 C. B&D failed to comply with Streets and Highways Code 27 § 6460 . 1 which specifies the precise form of the bond to be used 28 where an assessment is secured by a possessory interest in Indian -9- 6501014084-008513221567. a02124199 COMPLAINT OF CITY OF PALM SPRINGS 1 land. 2 D. B&D failed to inform the City and to disclose in the OS 3 that leases could be unilaterally terminated if the lessee did not 4 make installment payments. 5 E. B&D failed to coordinate the encumbrancer and termination 6 provisions in the leases with the City' s foreclosure covenant in the 7 bond indenture. In the indenture, the City agreed that in the event 8 of any assessment-related default, it would initiate foreclosure 9 proceedings within 150 days following the date upon which it 10 received notice of the delinquency from the auditor/controller of 11 the County. However, the covenant also authorized the City to 12 further defer foreclosure proceedings if funds are advanced to the 13 reserve fund to maintain it at the reserve requirement. In 14 contrast, the- Indian leases afford the Indian allottee the right to 15 terminate the possessory interest in the event of a rent default 16 within a time frame which will necessarily expire before the City is 17 obligated to commence a foreclosure. Since the lease termination 18 may precede the City' s deadline for commencing foreclosure, the 19 identified foreclosure remedy becomes futile. 20 F. B&D failed to explain to the City and advise the City to 21 disclose in the OS that in the event of lease termination, the lien 22 on the possessory interest also terminates . 23 G. B&D failed to explain to the City and advise the City to 24 disclose in the OS that in the event of lease termination, future 25 lessees are not obligated to pay assessments and that as a 26 consequence, bondholders would lose security for approximately 50% 27 of the principal amount of the unpaid assessments . 28 H. Defendants failed to disclose the risks to City and S&Y -LO- 6501014084-008513221567. a02124199 COMPLAINT OF=OF PALM SPRINGS 1 in issuing AD 155 Bonds. 2 32 . Had Defendants exercised proper care and skill in the 3 foregoing matter, Plaintiff City would have avoided restructuring 4 the bond offering and the resulting damages from the acquisition of 5 approximately $1, 030, 000 of non-recourse debt and the expenditure of 6 in excess of $150, 000 as a cost of issuance of new bonds for 7 purposes of removing the AD 155 Bonds from the market. Further, 8 Plaintiff S&Y would have avoided incurring damages for payments to 9 the City and the purchase by S&Y of unsecured AD 155 bonds from 10 Allstate. 11 33 . As a direct and proximate result of such negligence, Plaintiff 12 City incurred damages in excess of $1, 180, 000. 13 SECOND CAUSE OF ACTION 14 (Breach of Contract Against All Defendants) 15 34. Plaintiff City refers to the allegations of the preceding 16 paragraphs and incorporates them herein by reference as though set 17 forth in full . 18 35 . When Defendants agreed to serve as bond counsel for the AD 155 19 Bonds, Defendants became contractually obligated to Plaintiff City 20 to provide competent legal services consistent with the 21 aforementioned legal and ethical duties and obligations. 22 36 . Defendants agreement with Plaintiff City for the provision of 23 legal services contained an implied covenant of good faith and fair 24 dealing. This covenant required that Defendants perform all actions 25 necessary to insure Plaintiff City' s interests incident to the AD 26 155 Bonds were protected. The covenant of good faith and fair 27 dealing obligated Defendants to, among other things, insure on 28 behalf of the City that there was full and accurate disclosure in -11- 650/0140N-0085/3221567. 102/24/99 COMPLAINT OF Carl'OF PALM SPRINGS 0 1 the OS concerning risks inherent in investing in AD 155 Bonds. 2 Defendants were also contractually obligated to exercise due care in 3 rendering their services as bond counsel. 4 37. Plaintiff City has performed all conditions, covenants and 5 promises required of it in order to receive performance under its 6 agreement for legal services with Defendants. 7 38 . However, Defendants have failed and refused to perform the 8 covenants, conditions and promises required under its legal services 9 agreement by committing those acts and/or omissions alleged in the 10 preceding paragraphs. Defendants breach in this regard was reckless it and/or negligent. 12 39 . As a direct and proximate result of Defendants breach of 13 contract, Plaintiff City has been damaged in an amount not precisely 14 known but believed to be in excess of approximately $1, 180, 000 . 15 Plaintiff City is presently unaware of the precise amount of its 16 damages but will establish the amount at trial according to proof. 17 THIRD CAUSE OF ACTION 18 (Breach of Fiduciary and Ethical Duty Against All Defendants) 19 40 . Plaintiff City refers to the allegations of the preceding 20 paragraphs and incorporates them herein by reference as though set 21 forth in full . 22 41. As Attorney for Plaintiff City, Defendants owed Plaintiff City 23 various fiduciary duties and occupied a position of trust with 24 respect to Plaintiff City. Plaintiff City did in fact repose such 25 trust and confidence in Defendants with respect to matters of public 26 finance. Consequently, Defendants owed Plaintiff City those duties 27 as alleged in the preceding paragraphs above. 28 42 . Defendants nonetheless breached their fiduciary duties to -12- 650/014094-0085/3221567. •02/24/99 COMPLAINT OF CrrY OF PALM SPRINGS 1 Plaintiff City by engaging in those acts and/or omissions alleged in 2 the preceding paragraphs hereinabove. 3 43 . The aforementioned breaches of duty and obligation were 4 committed recklessly and/or negligently. Defendants' conduct was 5 wrongful and actionable and violated various rules of professional 6 responsibility including, but not limited to, Rules 3-110 and 3-500. 7 44. As a direct and proximate result of Defendants breach of duty, 8 Plaintiff City has been damaged in an amount not precisely known, 9 but believed to be in excess of $1, 180, 000 . Plaintiff City is 10 presently unaware of the precise amount of its damages but will 11 establish the amount at trial according to proof. 12 1FOURTH CAUSE OF ACTION 13 (Constructive Fraud Against All Defendants) 14 45 . Plaintiff City refers to the allegations of the preceding 15 paragraphs and incorporates them herein by reference as though set 16 forth in full. 17 46. As Attorney for Plaintiff City, Defendants owed Plaintiff City 18 various fiduciary duties and occupied a position of trust with 19 respect to Plaintiff City. Plaintiff City did in fact repose such 20 trust and confidence in Defendants with respect to matters of public 21 finance. Consequently, Defendants owed Plaintiff City those duties 22 as alleged in the preceding paragraphs . 23 47 . As alleged hereinabove, Defendants engaged in various acts 24 and/or omissions in violation of its professional and legal duties 25 and obligations to Plaintiff City. Significantly, despite 26 Defendants duty of full, fair and complete disclosure, Defendants 27 failed to insure a full and accurate disclosure concerning risks 28 inherent in issuing and investing in AD 155 Bonds. These facts were -13- 6501014084-0095/3221567. .02/24/99 COMPLAINT OF CITY OF PALM SPRINGS 1 material. 2 48 . Defendants failed to disclose these material facts recklessly 3 or negligently without regard to the probability that such non- 4 disclosure would cause Plaintiff City legal or economic injury. 5 Defendants knew or were aware of or should have known that this non- 6 disclosure would be misleading to Plaintiff City. 7 49 . Plaintiff City at all relevant times reposed trust and 8 confidence in Defendants and assumed Defendants were acting in a 9 manner consistent with their fiduciary duties to Plaintiff City. 10 Plaintiff City had no reason to believe that Defendants would fail it to disclose material facts. Moreover, Plaintiff City had no reason 12 for concluding that Defendants had not disclosed all relevant 13 material facts . Plaintiff City therefore reasonably relied upon 14 Defendants in forming AD 155, structuring the Bond issuance, and 15 issuing the Os pertaining to the Bonds. 16 50 . As a direct and proximate result of Defendants constructive 17 fraud, Plaintiff City has been damaged in an amount not precisely 18 known, but believed to be in excess of $1, 180, 000 . Plaintiff City 19 is presently unaware of the precise amount of its damages but will 20 establish the amount at trial according to proof. 21 FIFTH CAUSE OF ACTION 22 (Negligence Against All Defendants) 23 51. Plaintiff City refers to the allegations of the preceding 24 paragraphs and incorporates them by reference as though set forth in 25 full. 26 52 . As alleged hereinabove, notwithstanding the existence of an 27 attorney-client relationship with Defendants, Defendants owed 28 Plaintiff City a duty of reasonable care and professional conduct in -14- 650/014094-009513221567. &02/24/99 COMPLAINT OF CITY OF PALM SPRINGS • r 1 light of Defendants special relationship with Plaintiff City. 2 Nevertheless, Defendants breached their duty of care and 3 professional conduct owed to Plaintiff City by engaging in those 4 acts and/or omissions hereinabove alleged in the preceding 5 paragraphs. 6 53 . As a direct and proximate result of Defendants negligence, 7 Plaintiff City has been damaged in an amount not precisely known, 8 but believed to be in excess of $1, 180, 000. Plaintiff City is 9 presently unaware of the precise amount of its damages but will 10 establish the amount at trial according to proof. 11 SIXTH CAUSE OF ACTION 12 (Equitable Indemnity Against All Defendants) 13 54. Plaintiff City refers to the allegations of the preceding 14 paragraphs and incorporates them herein by reference as though set 15 forth in full . 16 55. As the allegations above attest, Plaintiff City acted as a 17 passive party in the issuance of the Bonds. Plaintiff City deferred 18 to Defendants active role as Bond Counsel in structuring the Bond 19 issuance and issuing the OS pertaining to the Bonds. 20 56. Defendants negligent acts and/or omissions resulted in injury 21 to Plaintiff City. As a result of Defendants negligent acts and/or 22 omissions, Plaintiff City faced imminent litigation and general fund 23 liability. 24 57. To mitigate such impending damages, Plaintiff City negotiated 25 a settlement with Allstate. Consequently, Plaintiff City suffered 26 injury in an amount in excess of $1, 180, 000 as a direct and 27 proximate result of Defendants acts and/or omissions. Plaintiff City 28 is presently unaware of the precise amount of its damages -but will 6501014084-009513221567. •02/24/99 COMPLAINT OF CITY OF PALM SPRINGS r 0 1 establish the amount at trial according to proof. 2 58 . Because Plaintiff City served as a passive party deferring to 3 Defendants active role as Bond Counsel, and because Plaintiff City 4 harbors no fault and never would have suffered injury but for 5 Defendants negligent acts and/or omissions, Plaintiff City is 6 entitled to equitable indemnity from Defendants for the full amount 7 of its damages. 8 III. PLAINTIFF STONE & YOUNGBERG'S CLAIMS 9 SEVENTH CAUSE OF ACTION 10 (Professional Malpractice Against All Defendants) it 59 . Plaintiff S&Y refers to the allegations of the preceding 12 paragraphs and incorporates them herein by reference as though set 13 forth in full . 14 60. As a condition of underwriting the issuance of the Bonds, S&Y 15 required that B&D render a 10 (b) 5 opinion to it and that B&D provide 16 its opinion on the validity of the bond issuance proceeding. 17 Accordingly, B&D rendered a "Supplemental Legal Opinion" to S&Y 18 relating to, among other things, disclosure in the OS, commonly 19 referred to as a 1110 (b) 5 Opinion. " B&D also issued to S&Y a 20 "Reliance Letter" wherein it advised S&Y that S&Y could rely on 21 B&D' s opinion attesting to the validity of the proceedings and 22 issuance of the Bonds in the same manner as if the opinion was 23 addressed to S&Y. 24 61. Because B&D was engaged to issue and issued its 10 (b) 5 opinion 25 directly to S&Y and was engaged to advise and advised S&Y that S&Y 26 could rely on B&D' s Bond Opinion as if it were issued to S&Y, 27 Defendants owed various legal and fiduciary duties to Plaintiff S&Y. 28 These duties included, but were not limited to the duty of -16- 650/014084-0085/3221567. a02/2199 COMPLAINT OF CLTY OF PALM SPRINGS 1 reasonable care in the performance of legal services. 2 62 . Defendants nonetheless breached these duties owed to Plaintiff 3 S&Y by issuing an erroneous opinion and Reliance Letter and failing 4 to exercise reasonable care and skill as alleged hereinabove. 5 63 . As a direct and proximate result of such negligence, Plaintiff 6 S&Y incurred damages in excess of $143, 100 in payments incident to 7 the purchase of AD 155 Bonds from Allstate. 8 EIGHTS CAUSE OF ACTION 9 (Breach of Contract Against All Defendants) 10 64 . Plaintiff S&Y refers to the allegations of the preceding 11 paragraphs and incorporates them herein by reference as though set 12 forth in full . 13 65. In connection with S&Y's agreement with the City to underwrite 14 the Bonds and Defendants' engagement to render a 10 (b) 5 opinion and 15 Reliance Letter to S&Y pursuant to that agreement and engagement, 16 Defendants were contractually obligated to Plaintiff S&Y to provide 17 competent legal services consistent with the aforementioned legal 18 and ethical obligations. S&Y did, in fact, reasonably rely upon 19 B&D' s 10 (b) 5 opinion and Reliance Letter. 20 66. Plaintiff S&Y' s agreement to underwrite the Bonds conditioned 21 on receiving B&D' s 10 (b) 5 opinion and Reliance Letter and 22 Defendants' engagement to render a 10 (b) 5 opinion and Reliance 23 Letter to S&Y and S&Y' s reliance thereon created an implied covenant 24 by B&D of good faith and fair dealing. This covenant required that 25 Defendants perform all actions necessary to insure that Plaintiff 26 S&Y' s interests incident to the AD 155 Bonds were protected. The 27 covenant of good faith and fair dealing obligated Defendants to, 28 among other things, insure on behalf of S&Y that there was full and _17_ 650/014094-0085/3221567. a02/24/99 COMPLAINT OF CITY OF PALM SPRINGS 1 accurate disclosure to S&Y and in the OS concerning risks inherent 2 in investing in AD 155 Bonds. 3 67. Plaintiff S&Y has performed all conditions, covenants and 4 promises required of it in order to receive performance under its 5 agreement for legal services with Defendants. 6 68 . However, Defendants have failed and refused to perform the 7 covenants, conditions and promises required under the agreement by 8 committing those acts and/or omissions alleged in the preceding 9 paragraphs . Defendants' breach in this regard was reckless and/or 10 negligent. 11 69 . As a direct and proximate result of Defendants' breach of 12 contract, Plaintiff S&Y has been damaged in an amount not precisely 13 known but believed to be in excess of approximately $143, 100 . 14 Plaintiff S&Y is presently unaware of the precise amount of its 15 damages but will establish the amount at trial according to proof. 16 NINTH CAUSE OF ACTION 17 (Breach of Fiduciary and Ethical Duty Against All Defendants) 18 70 . Plaintiff S&Y refers to the allegations of the preceding 19 paragraphs and incorporates them herein by reference as though set 20 forth in full . 21 71. Because B&D was engaged to, among other things, issue, and did 22 issue, its 10 (b) 5 opinion directly to S&Y and because B&D was 23 engaged to advise, and did advise, S&Y that S&Y could rely on B&D's 24 Bond Opinion as if it were issued to S&Y, Defendants owed Plaintiff 25 S&Y various fiduciary duties and occupied a position of trust with 26 respect to Plaintiff S&Y. Plaintiff S&Y did, in fact, repose such 27 trust and confidence in Defendants with respect to matters of the 28 Assessment District Proceedings, the security for the assessments ->8- 650/014084-008513221567. a02/24/99 COMPLAINT OF CITY OF PALM SPRINGS 0 0 1 and disclosure in the OS. Consequently, Defendants owed Plaintiff 2 S&Y those duties as alleged in the preceding paragraphs above. 3 72 . Defendants nonetheless breached their fiduciary duties to 4 Plaintiff S&Y by engaging in those acts and/or omissions alleged in 5 the preceding paragraphs hereinabove. 6 73 . The aforementioned breaches of duty and obligation were 7 committed recklessly and/or negligently. Defendants' conduct was 8 wrongful and actionable, and violated various rules of professional 9 responsibility including, but not limited to, Rules 3-110 and 3-500. 10 74 . As a direct and proximate result of Defendants' breach of 11 duty, Plaintiff S&Y has been damaged in an amount not precisely 12 known, but believed to be in excess of $143 , 100. Plaintiff S&Y is 13 . presently unaware of the precise amount of its damages but will 14 establish the amount at trial according to proof. 15 TENTH CAUSE OF ACTION 16 (Constructive Fraud Against All Defendants) 17 75 . Plaintiff S&Y refers to the allegations of the preceding 18 paragraphs and incorporates them herein by reference as though set 19 forth in full. 20 76 . Because B&D was engaged to issue, and did issue, its 10 (b) 5 21 opinion directly to S&Y and because B&D was engaged to advise, and 22 did advise, S&Y that S&Y could rely on B&D's Bond Opinion as if it 23 were issued to S&Y, Defendants owed Plaintiff S&Y various fiduciary 24 duties and occupied a position of trust with respect to Plaintiff 25 S&Y. Plaintiff S&Y did, in fact, repose such trust and confidence 26 in Defendants with respect to matters of the assessment district 27 proceedings, the security for the assessments and disclosure in the 28 OS. Consequently, Defendants owed Plaintiff S&Y those duties as -19- 650/014084-008513221567. n02/24/99 COMPLAINT OF CITY OF PALM SPRINGS I alleged in the preceding paragraphs . 2 77. As alleged hereinabove, Defendants engaged in various acts 3 and/or omissions in violation of their professional and legal duties 4 and obligations to Plaintiff S&Y. Significantly, despite 5 Defendants' duty of full, fair and complete disclosure, Defendants 6 failed to fully and fairly disclose to Plaintiff S&Y and insure a 7 full and accurate disclosure in the OS concerning risks inherent in 8 investing in AD 155 Bonds. Defendants failed to disclose to S&Y 9 risks inherent in S&Y's participation in the issuance of AD 155 10 Bonds. These facts were material . 11 78 . Defendants failed to disclose these material facts to 12 Plaintiff S&Y recklessly and/or negligently without regard to the 13 probability that such non-disclosure would cause Plaintiff S&Y legal 14 or economic injury. Defendants knew or were aware of or should have 15 known that this non-disclosure would be misleading to Plaintiff S&Y. 16 79 . Plaintiff S&Y, at all relevant times, reposed trust and 17 confidence in Defendants and assumed Defendants were acting in a 18 manner consistent with their fiduciary duties to Plaintiff S&Y. 19 Plaintiff S&Y had no reason to believe that Defendants would fail to 20 disclose material facts. Moreover, Plaintiff S&Y had no reason for 21 concluding that Defendants had not disclosed all relevant material 22 facts. Plaintiff S&Y, therefore, reasonably relied upon Defendants' 23 Reliance Letter and 10 (b) 5 opinion attesting to the validity of the 24 proceedings, the security for the assessments, issuance of the 25 Bonds, and disclosure in the OS. 26 80. As a direct and proximate result of Defendants' constructive 27 fraud, Plaintiff S&Y has been damaged in an amount not precisely 28 known, but believed to be in excess of $143, 100 . Plaintiff S&Y is -zo- 650/014084-008513221567. e02/24/99 COMPLAINT OF CITY OF PALM SPRINGS • 0 1 presently unaware of the precise amount of its damages but will 2 establish the amount at trial according to proof. 3 ELEVENTH CAUSE OF ACTION 4 (Negligence Against All Defendants) 5 81. Plaintiff S&Y refers to the allegations of the preceding 6 paragraphs and incorporates them by reference as though set forth in 7 full. 8 82 . As alleged hereinabove, because B&D was engaged to issue and 9 issued its 10 (b) 5 opinion directly to S&Y and was engaged to advise 10 and advised S&Y that S&Y could rely on B&D' s Bond Opinion as if it 11 were issued to S&Y, and because Plaintiff S&Y reasonably relied on 12 the opinion and Reliance Letter, Defendants owed Plaintiff S&Y a 13 duty of reasonable care and professional conduct. Nevertheless, 14 Defendants breached their duty of care and professional conduct owed 15 to Plaintiff S&Y by issuing an erroneous opinion and Reliance Letter 16 which contained misrepresentations and by engaging in those acts 17 and/or omissions hereinabove alleged in the preceding paragraphs . 18 83 . As a direct and proximate result of Defendants' negligence, 19 Plaintiff S&Y has been damaged in an amount not precisely known, but 20 believed to be in excess of $143, 100 . Plaintiff S&Y is presently 21 unaware of the precise amount of its damages but will establish the 22 amount at trial according to proof. 23 TWELFTH CAUSE OF ACTION 24 (Equitable Indemnity Against All Defendants) 25 84 . Plaintiff S&Y refers to the allegations of the preceding 26 paragraphs and incorporates them herein by reference as though set 27 forth in full. 28 85 . As the allegations above attest, Plaintiff S&Y acted as a -21- 650/014094-0085/3221567. a02/24/99 COMPLA M OF CITY OF PALM SPRINGS 0 0 1 passive party in the issuance of the Bonds. Plaintiff S&Y deferred 2 to Defendants' active role as Bond Counsel in making appropriate 3 disclosure in the OS and in ensuring the validity of the proceedings 4 and security for and issuance of the Bonds. 5 86. Defendants' negligent acts and/or omissions resulted in injury 6 to Plaintiff S&Y. As a result of Defendants' negligent acts and/or 7 omissions, Plaintiff S&Y faced imminent litigation and liability. 8 87. To ,mitigate such impending damages, Plaintiff entered an 9 agreement with Allstate in March, 1998 . Consequently, Plaintiff S&Y 10 suffered injury in an amount in excess of $143, 100 as a direct and 11 proximate result of Defendants' acts and/or omissions. Plaintiff 12 S&Y is presently unaware of the precise amount of its damages but 13 will establish the amount at trial according to proof. 14 88 . Because Plaintiff S&Y served as a passive party deferring to 15 Defendants active role as Bond Counsel, and because Plaintiff S&Y 16 harbors no fault and never would have suffered any injury but for 17 Defendants' negligent acts and/or omissions, Plaintiff S&Y is 18 entitled to equitable indemnity from Defendants for the full amount 19 of its damages. 20 THIRTEENTH CAUSE OF ACTION 21 (Declaratory Relief Against All Defendants) 22 89 . Plaintiff S&Y refers to the allegations of the preceding 23 paragraphs and incorporates them herein by reference as those set 24 forth in full. 25 90 . An actual controversy has arisen between Plaintiff S&Y and 26 Defendants relating to their legal rights and duties with respect to 27 the AD 155 Bonds. Specifically, Plaintiff S&Y contends as follows: 28 A. Because, pursuant to Plaintiff S&Y' s agreement with the i _22_ 650/014094-0085/3221567. a02/24/99 COMPLAINT OF C=OF PALM SPRINGS 0 1 City, Defendants were engaged to issue and issued their 10 (b) 5 2 opinion directly to Plaintiff S&Y and because B&D was engaged to 3 advise and advised S&Y that S&Y could rely on B&D' s Bond Opinion as 4 if it were issued directly to S&Y, and because Plaintiff S&Y 5 reasonably relied on this opinion and advice which were erroneous 6 and constituted material representations and omissions, Defendants 7 owed Plaintiff S&Y duties including, but not limited to, the duty of 8 reasonable care in the performance of legal services, the duty of 9 professional and ethical conduct, and the duty of full and fair 10 disclosure and open communication. 11 B. The various acts and/or omissions alleged in the 12 preceding paragraphs constituted a violation of those duties owed by 13 Defendants to Plaintiff S&Y and violated Rules 3-110 and 3-500 of 14 professional responsibility. 15 C. Defendants breach of duty as alleged herein constituted 16 a breach of Defendants' agreement to provide legal services to 17 Plaintiff S&Y. 18 D. Future purchases by S&Y of unsecured AD 155 debt from 19 Allstate shall constitute damages to S&Y due to Defendants' 20 misfeasance and negligence as alleged hereinabove. 21 91. Plaintiff S&Y has suffered injury in the form of payments to 22 the City and the purchase of unsecured bonds from Allstate because 23 of Defendants' negligent acts and/or omissions. Further, without 24 this necessary declaratory relief, Plaintiff: S&Y faces future 25 damages of additional compelled purchases of unsecured bonds from 26 Allstate as part of a negotiated agreement. 27 92 . Plaintiff S&Y is informed and believes and on that basis 28 alleges that Defendants deny the foregoing contentions. -23- 6501014084-008513221567. a02124199 COMPLAINT OF CITY OF PALM SPRINGS 0 1 93 . No adequate remedy other than that prayed for herein exists by 2 which the rights of the parties hereto may be adjudicated. 3 WHEREFORE, Plaintiffs pray for judgment as follows: 4 AS TO THE FIRST THROUGH TWELFTH CAUSES OF ACTION, INCLUSIVE 5 1. For compensatory damages in the sum of $1,323, 100 or such sum 6 as will be proven at trial; 7 2 . For interest on the sum of compensatory damages awarded as 8 permitted or required by law. 9 AS TO THE THIRTEENTH CAUSE OF ACTION 10 3 . For a declaration pursuant to Code of Civil Procedure § 1060 it that: 12 A. Because Defendants were engaged to issue and issued their 13 10 (b) 5 letter directly to Plaintiff S&Y and because B&D was engaged 14 to advise and advised S&Y that S&Y could rely on B&D's Bond Opinion 15 as if it were issued directly to S&Y, and because Plaintiff S&Y 16 reasonably relied on this opinion and advice which was erroneous and 17 contained material representations, Defendants owed Plaintiff S&Y 18 duties including, but not limited to, the duty of reasonable care in 19 the performance of legal services, the duty of professional and 20 ethical conduct, and the duty of full and fair disclosure and open 21 communication. 22 B. The various acts and/or omissions alleged in the 23 preceding paragraphs constituted a violation of those duties owed by 24 Defendants to Plaintiff S&Y and violated Rules 3-110 and 3-500 of 25 professional responsibility. 26 C. Defendants breach of duty as alleged herein constituted 27 a breach of Defendants' agreement to provide legal services to 28 Plaintiff S&Y. -24- 650/014084-0085/3221567, 102/24/99 COMPLAINT OF CITY OF PALM SPRINGS 1 D. Future purchases by S&Y of unsecured AD 155 debt from 2 Allstate shall constitute damages to S&Y due to Defendants 3 misfeasance and negligence as alleged hereinabove. 4 AS TO ALL CAUSES OF ACTION 5 4 . For attorneys' fees and costs of suit herein; and 6 5 . For such other and further relief as the Court may deem just 7 and equitable. 8 DATED: February 24, 1999 RUTAN & TUCKER, LLP LAYNE H. MELZER 9 ROBERT E. KING 10 11 By: Robert E. King 12 Attorneys for Plaints f City of Palm Springs 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -25- 650/014084-0085/3221567. a02/2199 COMPLAINT OF CPCY OF PALM SPRINGS SETTLEMENT AGREEMENT THIS SETTLEMENT AGREEMENT (the "Settlement Agreement") is entered into as of March 2, 1998 by and among THE CITY OF PALM SPRINGS ("City") and ALLSTATE INSURANCE COMPANY ("Allstate,,) (collectively the "Parties") . RECITALS A. In or around July, 1989 the City formed Assessment District No. 155 ("AD 15511) and issued assessment bonds (the "Bonds" ) to fund certain infrastructure improvements within the boundaries of AD 155 (the '"Improv'ements11) . B. The City issued $7, 638, 119 . 64 of the Bonds. Stone & Youngberg LLC ("Stone & Youngberg") acted as underwriter for the issuance and sale of the Bonds. Currently, $5, 590, 000 of the Bonds remain outstanding. C. Principal and interest due on the Bonds is paid through assessments imposed upon certain fee properties, contributions from the City' s Airport Enterprise Fund and certain possessory interests in Indian land within AD 155 which receive the benefits of AD 155 improvements . D. AD 155 includes approximately 80 acres of land owned by members of the Agua Caliente Indian Tribe ( "Indian Allottees") . Pursuant to federal law, assessment liens may not be maintained against such Indian owned lands. However, where an Indian Allottee leases Indian land to third persons, the possessory interest in the leasehold can serve as security for assessments based upon the benefit conferred by the Improvements upon the Indian land. Consequently, assessments for the benefit of improvements affecting Indian owned lands in AD 155 were secured by possessory interests in certain leaseholds (the "Indian Leases") . These Indian Leases represented almost 500 of the total security for the Bonds . E. Since the creation of AD 155, the Indian Leases have gone into default thereby adversely affecting the ability to pay principal and interest on the Bonds and, consequently, the market value of the Bonds. As a result, Allstate, as a principal bondholder of the Bonds, has asserted certain claims relating to the creation and administration of AD 155 and the issuance of the Bonds . The City and Stone & Youngberg contend that primary liability for such claims rests with bond counsel ( "Original Bond Counsel" ) who advised the City about formation of AD 155 and structuring the bond issue and who issued its opinion to Stone & Youngberg to the effect that there was adequate disclosure to Bondholders in the Official Statement pertaining to the offering of the Bonds . F. In pursuit of the aforementioned claims, Allstate threatened to file litigation against the City and Stone & 349/01408 -009513137799.3 a0224198 EXHIBIT PG 2 C, ' Youngberg. In fact, absent a tolling or settlement agreement or agreements, Allstate would have filed such litigation. However, the City, Stone & Youngberg and Allstate have developed a plan to resolve the claims and disputes between the City and Allstate and between Stone & Youngberg and Allstate without any admission of wrongdoing or liability. The City and Allstate wish to resolve any claims and disputes between themselves and without any admission of wrongdoing or liability. Pursuant to that wish, the Parties entered into a Tolling Agreement as of June 4, 1997 (the "Tolling Agreement") . The Parties have subsequently extended the Tolling Agreement at various times. By signing this Settlement Agreement, the Parties intend to extend, the terms of the Tolling Agreement to the extent permitted by law up until and including the Effective Date as set, �fprth in this Settlement Agreement. G. Toward the end of resolving the disputes between Allstate and the City and Allstate and Stone & Youngberg, the City is attempting to restructure AD 155 related debt as follows: The Bonds will be called by the City in their entirety pursuant to the optional redemption provisions of the Bond Indenture. The Bonds will be reclassified as "Class 1" and "Class 2" . The Class 1 Bonds will have a senior lien on assessments from AD 155 and the Class 2 Bonds will have a junior lien. Outstanding Bonds will be redeemed at a price equal to their principal amount plus accrued interest and premium as provided in the Bond Indenture and statute. Pursuant to a Bond Exchange Agreement, Allstate will purchase AD 155 Bonds (Class 2) in the principal amount of $1, 030, 000. Bonds (Class 1) in the principal amount of $3 , 425, 000 will be held by the City of Palm Springs Financing Authority (the "Authority" ) as local obligations securing the issuance of the Authority' s 1998 Limited Obligation Revenue Bonds, Series A (!'Assessment District No. 155 Bond Refunding" ) in the aggregate principal amount of $3 , 690, 000 (the "Series A Authority Bonds") . The Series A Authority Bonds will be sold to Stone & Youngberg pursuant to a Bond Purchase Agreement and offered to the public for sale by Stone & Youngberg pursuant to various disclosure documents prepared by the City and Rod Gunn Associates, Inc. (the "Financing Consultant" ) . The Authority will also issue its 1998 Limited Obligation Revenue Bonds , Series B (Assessment District No. 155 Bond Refinancing) (the "Series B Authority Bonds") which will be acquired in their entirety by Allstate pursuant to a Purchase Agreement. Stone & Youngberg will enter into an Agreement with Allstate ("S&Y Allstate Agreement" ) pursuant to which it may acquire over time the AD 155 Class 2 Bonds held by Allstate. The Authority on behalf of the City will also hold AD 155 Class 2 Bonds in an aggregate principal amount of $1, 030, 000 as local obligations securing in part the Series B Authority Bonds held by Allstate. The City will fund a reserve fund for the Series A Authority Bonds and advance the full costs of issuing the Series B Authority Bonds . Allstate will provide the City and the Redevelopment Agency for the City of Palm Springs (the "Agency" ) with a liability release and certain other nonmonetary benefits. Allstate also will provide Stone & Youngberg with a liability release to be effective if and when Stone & Youngberg purchases Allstate' s $1, 030, 000 of AD 155 Class 2 Bonds . i 3481014084-0085/3l37799.3 a02/24198 -2- EXHIBIT _ PG "7 If Stone & Youngberg does not purchase such AD 155 Class 2 Bonds, Allstate may look only to Stone & Youngberg for any potential liability, but only to the extent of the par value, plus accrued interest, of such $1,030,000 of Class. 2 Bonds that have not been purchased by Stone & Youngberg. If there is any default on the Series B Authority Bonds, Allstate may look only to the City for any potential liability, but only to the extent of the par value, plus accrued interest, of the Series B Bonds. The aggregate of the transactions and agreements described above constitute an integrated transaction which must be completed in its entirety to be completed at all and shall be hereinafter referred to collectively as the "Refunding" . NOW, THEREFORE, IT HEREBY IS AGREED BY AND-AMONG'"THE PARTIES AS FOLLOWS: 1. The Refunding. This Settlement Agreement, including but not limited to the release and covenant not to sue contained herein, is contingent upon the successful completion, funding, and closing of the Refunding. Though the City will make reasonable efforts to accomplish the Refunding to satisfy this contingency and make this Settlement Agreement effective, the City shall not be contractually obligated to proceed with or close the Refunding. If the Refunding does not occur by March 2, 1998, then the Settlement Agreement shall be null and void and of no force and effect. 2 . Effective Date. This Settlement Agreement shall be effective and binding as of the date the Refunding is funded and closed (the "Effective Date") . 3 . Mutual Release. a. In consideration of this Settlement Agreement and the terms and conditions thereof, as of the Effective Date, the Parties, on behalf of themselves and their successors and assigns (collectively "Releasors") , hereby fully and forever release and discharge each other and the Agency, and each of their elected or appointed representatives, agents, employees and attorneys, past and present, from any and all Released Claims, as defined in subparagraph (b) below. b. Subject to subparagraph (d) below, "Released Claims" shall be defined as follows: any and all claims, demands, liens , agreements, contracts, covenants, debts, costs, expenses, damages , judgments, orders and liabilities of whatever kind or nature, in law, equity or otherwise, including but not limited to claims for attorneys` fees or costs (any and all of the foregoing referred to herein as "Claims") , whether now known or unknown, vested or contingent, suspected or unsuspected, and whether or not concealed or hidden, that have existed or may have existed, or that do exist as of the Effective Date, or that could or do later accrue as a result (in whole or in part) of transactions, occurrences, acts or omissions that have occurred as of the Effective Date. Subject to subparagraph (d) below, Released Claims shall include 1 345:0I3081_p�g513V37799.3 a02124/98 -3- EXH161T A- PG 2- any and all Claims arising out of or in any way connected with (i) all transactions, occurrences, acts, omissions or Claims arising out of or related in any way to the Bonds; (ii) claims for attorneys' fees or costs in connection with any Released Claim, including but not limited to Claims for such fees or costs that were, might have been, or could have been awarded or sought in connection with any other action or proceeding that had occurred or might in the future occur arising out of or related to any Released Claim; and (iii) Claims arising out of or in any way connected with the prosecution or settlement of any Released Claim. C. It is the intention of Releasors in executing this release that the same shall be effective as a bar to each and every Released Claim hereinabove specified, known or unknown; and Releasors hereby knowingly and voluntarily waive any and all rights and benefits otherwise conferred by the provisions of Section 1542 of the California Civil Code, which reads as follows: "A general release does not extend to claims which the creditor does not know or-suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. " Releasors expressly consent that, notwithstanding Section 1542 of the California Civil Code, or any other statute or rule of law of similar import whether enacted or in force in California or in any other State of the Union or in any other nation of the world, this general release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown or unsuspected Claims that exist as of the Effective Date as well as those relating to any other Claims hereinabove specified (including but not limited to any Claims that may or will accrue in the future based on transactions, occurrences , acts or omissions that have occurred as of the Effective Date) . Releasors acknowledge and agree that this waiver is an essential and material term of this release and the settlement reflected herein, and without such waiver, the settlement would not have been entered into. Releasors have been advised by their legal counsel with respect to this waiver, and understand and acknowledge the significance and consequence of this general release and of this express waiver of Section 1542 and other similar statutes or rules of law wheresoever enacted or in force . d. The release and covenant not to sue granted in this Settlement Agreement does not extend to, and nothing in this Settlement Agreement (including without limitation paragraphs 2 and 3 hereof) will be construed to limit, either party's rights to enforce this Agreement according to its terms. Furthermore, the release shall not apply to Claims specifically assigned_ to City pursuant to paragraph 6 or to any claim which arises on or after 348/014094-009513137799.3 .02124/98 4 EXHIBIT '4 PG 2-2 the Closing of the Refunding on the part of Allstate in relation to the Series Authority Bonds or the AD 155 Bonds (Class 2) . e. Except as set forth in paragraph 6, Releasor represents and warrants that no Claim or right that would have been released or dismissed under this Settlement Agreement if held by Releasor on the Effective Date has been transferred, hypothecated, assigned or given away by Releasor prior to the Effective Date of this Settlement Agreement to any person or entity that would not be bound hereby. Releasor shall indemnify, defend and hold harmless every other person or entity then entitled to a release hereunder from and against any and all Claims (including without limitation attorneys' fees) resulting from its own actual or alleged breach of.-- this representation and warranty. 4 . Covenant Not to Sue. As of the Effective Date, and subject to the exception provided in paragraph 3 (d) above, Releasors covenant and agree not to assert in any procedural form or forum, whether initially or by way of defense, offset, or cross- , counter- or third-party claim,. any Released Claim against any person or entity then entitled to a release hereunder. As of the Effective Date, and subject to the exception provided in paragraph 3 (d) above, Releasors further covenant and agree not to assert against any person or entity not then entitled to the benefit of a release hereunder, in any procedural form or forum, whether initially or by way of defense, offset, or cross- , counter- or third-party claim in any action, any Claim arising or accruing on or before the Effective Date hereof (or arising or accruing later, but 'based on any transaction, occurrence, act or omission that occurred on or before the Effective Date hereof) that causes or results in the assertion by any person or entity whatsoever of any Claim against any person or entity entitled to the benefit of a release hereunder. Releasor shall indemnify, defend and hold harmless every person and entity then entitled to a release hereunder from and against any and all Claims (including without limitation attorneys' fees) resulting from its own breach of this covenant not to sue. 5 . Nonsignatories . The signatories to this Settlement Agreement are Allstate, the Agency and City. To the extent that this Settlement Agreement provides for releases in favor of persons or entities not signatories hereto ("Nonsignatories") , this Settlement Agreement is declared to have been made for their use and benefit, and is further declared to be intended to bar the assertion by Nonsignatories of Released Claims against persons or entities entitled to the benefit of a release hereunder. 6 . Assignment. In consideration of this Settlement Agreement and the terms and conditions thereof, as of the Effective Date, Allstate, on behalf of itself and its successors and assigns, hereby transfers and assigns to the City all right, title and interest in any Claims against any party other than the City, the Agency, and Stone & Youngberg, arising out of or related to the issuance or purchase of the Bonds, whether now known or unknown, 3481014084A085/3137799.3 .02/24198 -5- EXHIBIT PG LD vested or contingent, suspected or unsuspected, and whether or not concealed or hidden, that have existed or may have existed, or that do exist as of the Effective Date, or that could or do later accrue as a result (in whole or in part) of transactions, occurrences, acts or omissions that have occurred as of the Effective Date except as set forth in this paragraph. Without limiting the generality of the foregoing language, such Claims shall specifically include those against the law firm of Brown & Diven including any of its constituent partners, members or attorneys, and any other persons or entities involved with the creation and/or administration of AD 155 or disclosure and/or oversight relative to the Bonds. Nothing herein shall constitute an assignment of, any claim(s) which Allstate may have against any party for events unrelated to the issuance or administration of the Bonds. 7 . Other Facts. The Parties acknowledge and understand that it is possible that they, or their agents or attorneys, may discover other or further Claims or facts than the ones they presently believe to exist concerning this Settlement Agreement or the Claims compromised, released or assigned hereby. The parties each expressly accept and assume the risk of any such other or further Claims or facts, and agree that this Settlement Agreement, and the release and other provisions hereof, and any other documentation to be delivered in connection herewith, shall remain effective notwithstanding the discovery of any such other or further Claims or facts. 8 . No Admissions. This Settlement Agreement is entered into in compromise of disputed Claims. Neither the execution of this Settlement Agreement and the releases, dismissals and other documentation provided for herein, nor the payment of any consideration hereunder, nor any other act or agreement in furtherance of this settlement, shall be construed in any way as an admission of wrongdoing on the part of any party hereto. 9 . Authority. Each individual executing this Settlement Agreement on behalf of an entity represents and warrants that he or she is duly authorized representative of that entity with full power and authority to bind it to each term and condition hereof . 10 . Further Acts . Each of the parties hereto agrees promptly to execute all other documents and take all other actions reasonably necessary to effectuate all of this Settlement Agreement' s terms and conditions . 11 . Interpretation or Enforcement: Attorneys' Fees . In the event that any legal action is necessary to enforce or interpret any provision of this Settlement Agreement (or any documentation delivered pursuant thereto or in connection therewith) , that action will be brought in a state or federal court of competent jurisdiction located in Riverside County, and the parties to this Settlement Agreement consent to personal jurisdiction and venue in such a court . The prevailing party in 348/014094-008513137799.3 .02124198 -(- EXH OT 6 PG any such action shall recover its costs and reasonable attorneys' fees . 12 . Successors. This Settlement Agreement shall bind the successors, assigns, heirs and personal representatives of each of the parties hereto. 13 . Parties Represented. Each party to this Settlement Agreement has been advised and represented by counsel in connection with the negotiation and preparation hereof, and each shall be deemed its co-author for purposes of the Settlement Agreement's construction. 14 . Integrated Writing. This Settlement Agreement (along with the other documentation specifically called for herein) constitutes the whole and only existing and binding agreement between the parties hereto on the subject matter hereof, superseding all prior statements and understandings, whether written or oral. Other than the representations set forth in this Settlement Agreement, there are no warranties, promises or representations of any kind, express or implied, upon which either party has relied in entering into this Settlement Agreement, or as to the future relations or dealings of the parties. 15 . Amendments . This Settlement Agreement may be modified or amended only by a writing signed by both parties hereto . 16. No Waiver. The waiver by any party hereto of any right, privilege, covenant or condition hereunder will not operate as or indicate a continuing waiver of the same or any other right, privilege, covenant or condition hereunder. 17. Choice of law. This Settlement Agreement shall be governed by the internal law of the State of California applicable to contracts executed and to be wholly performed in that State. 18 . Tolling of Claims . The Parties have entered into the Tolling Agreement as of June 4, 1997. The Tolling Agreement and all amendments thereto are hereby incorporated herein and made part of this Settlement Agreement by reference. By signing this Settlement Agreement, the Parties intend to extend the terms of the Tolling Agreement to the extent permitted by law up until the Effective Date as set forth in this Settlement Agreement . 3481014094-008513137799.3 .02/24198 -7- EXHIBIT PG 52- Dated: ALLSTATE IINNS/URANCE COMPANY By ( uav Its: AIITP-1f;Rt7Ftl �,rantnT;;:av RLFS D roZES By I 1T 091nf PATRIMA W. Wll90 Dated: CITY OF PALM SPRINGS By L4GC /14 Its: Treasurer/Finance Director 34810I4084-008513I37799.3 a02/241918 EXHIBIT PG 53 r ,W 2220-001 EOH:mak\sjl 1 DANIELS, FINE, ISRAEL& SCHONBUCH, LLP 1801 CENTURY PARK EAST,NINTH FLOOR LOS ANGELES.CALIFORNIA 90067 2 TELEPHONE(310)556-7900 Fmsm!-E(310)666-2807 3 Paul R. Fine, State Bar No. 053514 Erin O. Hallissy, State Bar No. 176696 4 Attorneys for Defendants BROWN&DIVEN, F. 5 MACKENZIE BROWN, and WARREN B. DIVEN 6 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF ORANGE 10 11 CITY OF PALM SPRINGS, a California CASE NO. 806041 municipality, and STONE &YOUNGBERG [Assigned For All Purposes to 12 LLC, a professional corporation, Commissioner Sheila B. Fell, Department C18] 13 Plaintiffs, 14 vs. STIPULATION FOR ENTRY OF 15 BROWN &DIVEN, a law partnership or JUDGMENT IN EXCHANGE FOR professional corporation; F. MACKENZIE COVENANT NOT TO EXECUTE 16 BROWN; WARREN B. DIVEN; and DOES 1 AND ORDER THEREON THROUGH 100, INCLUSIVE, 17 Defendants. 18 19 20 Plaintiff City of Palm Springs ("CITY"),plaintiff Stone &Youngberg ("S & Y") 21 and defendants Brown&Diven, F. MacKenzie Brown, and Warren B. Diven (hereinafter 22 collectively "BROWN&DIVEN')hereby stipulate and agree as follows: 23 RECITALS 24 1. On February 24, 1999, the CITY and S &Y filed a complaint for 25 professional malpractice;breach of contract; breach of fiduciary duty and ethical duty; 26 constructive fraud; negligence; equitably indemnity; and declaratory relief entitled CITY of Palm 27 Springs v. Brown&Diven, et al., Orange County Superior Court Case No. 806041. This action 28 is scheduled for trial on April 23, 2001. 1 Stipulation for Entry of Judgment in Exchange for Covenant Not to Execute 1 2. At the time of the incident,which is the subject of said lawsuit, BROWN 2 &DIVEN were insured under a professional liability insurance policy issued by Golden Eagle 3 Insurance Company,Policy No. LPL-372234 ("Golden Eagle policy"), with coverage limits of 4 $1,000,000 per claim including claims expense. 5 3. The CITY and S &Y claim damages in said lawsuit in excess of 6 $2,200,000. 7 4. On February 23, 2000, the parties participated in a mediation before the 8 Honorable Edward A. Panelli,Ret. The parties and Justice Panelli discussed the possibility of a 9 settlement which included a stipulated judgment with a covenant not to execute, in light of a 10 BROWN&DIVEN's coverage dispute with Golden Eagle. J J = 11 5. Although a settlement was not reached at the mediation, the parties U m `g 12 continued to discuss various settlement proposals, both individually and with Justice Panelli, Z LLr O ro _ =m 13 through September, 2000. ozm o UJ W CON 0 M N 14 6. On September 13, 2000, the parties once again met to discuss settlement. W LUu o a v g` 15 At this meeting the parties resolved their dispute. It was agreed by and be the parties that y ;��x ui v a` LL 16 BROWN&DIVEN would pay, upon execution of the Settlement Agreement by all parties, Z o 0 LL 17 $250,000 to the CITY. In addition, BROWN&DIVEN agreed to a Stipulated Judgment for J w 18 $1,000,000 with a covenant not to execute subject to the reimbursement schedule set forth in the z O 19 Settlement Agreement. The overall terms and conditions of this settlement are reflected in a 20 detailed Settlement Agreement and Stipulation to Judgment. A true and correct copy of this 21 Settlement Agreement is attached hereto as Exhibit "A". 22 7. The parties hereto believe that this settlement is fair and reasonable in 23 light of the damages claimed by the CITY and S &Y and the evidence regarding BROWN& 24 DIVEN's legal responsibilities for causing such damages. 25 8. The parties hereto further believe that if this case goes to trial, there is a 26 substantial probability that the CITY and S &Y will recover a judgment against BROWN & 27 DIVEN for substantially more than $1,000,000, in which event BROWN &DIVEN could be 28 personally liable for the amount of the judgment above $1,000,000, 2 Stipulation for Entry of Judgment in Exchange for Covenant Not to Execute 1 9. Golden Eagle denied BROWN&DIVEN's request for a defense and 2 indemnity in this action. Accordingly, in addition to the potential for personal liability for a 3 judgment, BROWN& DIVEN have been responsible for all defense fees incurred to date. 4 10. The parties hereto believe Golden Eagle's rejection and refusal to defend 5 and indemnify BROWN&DIVEN was unreasonable and that such refusal breaches Golden 6 Eagle's obligations to BROWN &DIVEN under the Golden Eagle policy, including without 7 limitation its implied covenant of good faith and fair dealing in respect to settling claims against 8 BROWN &DIVEN within the available policy limits in order to avoid the risk of personal 9 liability. a 10 NOW THEREFORE, THE PARTIES AGREE AS FOLLOWS: J J = 11 11. Judgment in the form attached hereto as Exhibit "B" shall be entered U m `g 12 against BROWN &DIVEN and in favor of the CITY and S &Y immediately. Z u^ O 8 om � 13 IT IS SO STIPULATED z o0 C O N 0 m o 14 J W ' M W =AUOW a v Sao 15 DATED: 2000 CITY OF PALM SPRINGS V1 Z n x Q 16 Z_ C.) m wL o 17 By: - � J w 18 Z Its: Q 0 19 20 DATED: 12000 STONE &YOUNGBERG 21 22 By: 23 Its: 24 25 DATED: 2000 26 F. Mackenzie Brown 27 28 3 Stipulation for Entry of Judgment in Exchange for Covenant Not to Execute 1 2 DATED: 2000 3 Warren B. Diven 4 5 APPROVED AS TO FORM AND CONTENT BY: 6 DATED: 12000 DANIELS, FINE, ISRAEL & SCHONBUCH, LLP 7 8 By: 9 Paul R. Fine Attorneys for Defendants BROWN& DIVEN, F. o. 10 MACKENZIE BROWN, and WARREN B. DIVEN J J = 11 DATED: 12000 RUTAN & TUCKER m o 12 Z LLn _ 13 o S •G O N aS A w='6 14 By: J W m�N w ��N s Layne H. Melzer a a sm 15 Attorneys for Plaintiff CITY OF PALM SPRINGS co Z mmX w vaV 16 Z O o DATED: 2000 KIRKPATRICK & LOCKHART LL �- 17 _ m � r J w 18 Z Q 0 19 By: David R. Mishel 20 Attorneys for Plaintiff STONE & YOUNGBERG, LLC 21 22 23 IT IS SO ORDERED: 24 25 Dated: Commissioner Sheila B. Fell 26 27 28 4 Stipulation for Entry of Judgment in Exchange for Covenant Not to Execute 2220-001 EOH:mak\eoj 1 2 3 4 5 6 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 COUNTY OF ORANGE 10 11 CITY OF PALM SPRINGS, a California CASE NO. 806041 municipality, and STONE & YOUNGBERG [Assigned For All Purposes to 12 LLC, a professional corporation, Commissioner Sheila B. Fell, Department C18] 13 Plaintiffs, 14 vs. 15 BROWN &DIVEN, a law partnership or JUDGMENT professional corporation; F. MACKENZIE 16 BROWN; WARREN B. DIVEN; and DOES 1 THROUGH 100, INCLUSIVE, 17 Defendants. 18 19 20 In the above-entitled case, plaintiffs City of Palm Springs ("CITY") and Stone & 21 Youngberg ("S &Y") and defendants Brown&Diven,F. MacKenzie Brown, and Warren B. 22 Diven (hereinafter collectively 'BROWN &DIVEN")having stipulated that judgment be entered 23 in favor of the CITY and S &Y and against BROWN& DIVEN in the sum of$1,000,000 and 24 that each party bear his/her/its own costs, disbursements and attorneys' fees, and good cause 25 appearing therefor, 26 27 28 /// 4 ,w 1 IT IS HEREBY ADJUDGED, ORDERED AND DECREED that: 2 1) Judgment be entered in favor of the CITY and S & Y and against 3 BROWN &DIVEN, F. MACKENZIE BROWN, WARREN B. DIVEN, and each of them, in the 4 sum of$1,000,000 and that each party shall bear his/her/its own costs, disbursements and 5 attorneys' fees; and 6 2) Defendants have waived any right to appeal this Judgment. Defendants 7 have likewise waived, to the extent otherwise required, findings of fact, conclusions of law, 8 statement of decision and any notice of entry of Judgment. 9 (L 10 J 11 DATED: c=� Commissioner Sheila B. Fell m 8 12 Q LL O _ 13 c� n U) ?eCa om off m °nN 14 J W n u W YU o a yob 15 N m�X ui d a LL 16 Z_ U o "- 17 m J W 18 Z a 19 20 21 22 23 24 25 26 27 28 -2- 0 0 9/29/00 CITY OF PALM SPRINGS ad155settle SETTLEMENT AGREEMENT - BROWN & DIVEN LITIGATION EXHIBIT C Payment from Insurance Co. To City To S &Y To B & D First $ 375,000 $ - $ 250,000 $ 125,000 Next 375,000 125,000 125,000 125,000 Next 250,000 125,000 125,000 - Totals $ 1,000,000 $ 250,000 $ 500,000 $ 250,000 Note: The City of Palm Springs receives $250,000 before the distribution of any proceeds from the Insurance Company. In the above scenario, the total amounts received by the City and S &Y are equal. RUTl�N �LIrzpTANlNllln�TT BOSS rz 011lllll DE IAML511 DERICM MIII LIAIL C Rp51 r]pI1GLn51 a NINGTpN ('Nnx LESn r]nVI NI•pR1.111 nu nET MC nar uprzrvnrc Itr I wUFGEmGG rnmA IWANDLII muu untw alnrzL n cue Nurr PIInuPu rcorvN rzoINETIS Oww mop urn. 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LNEI CMITH LANE II[EI[VII1 COSTA MESA,CALIFORNIA 92G2G- Ill REYMo HILATEL IH ILSEPSLM l[PwERgCcnnOHIR or COUNSEL DIRECT ALL MAIL TO POST OFFICE BOX 1950 WO HRVMLTII L m [ KING WARDD Sr u,Irz mre IL srov a [r nrzrvN rcxac E u epu EqT [L ry COSTA MESA,CALIFORNIA 92620-1950 % nowrrz DART TYLOR RAC DEBRA ANSAUNNSHfeL LnAM TELANGHEMINGWAY onvHDl cnrzlRnml.Ul DARCIA An E5 DART R CLOR IFEVE LAN SLATER R11LR[A L MISTER TCLEPIIONE]i4-G41-510p FACSIMILE 714-546-9035 WILLIAnrORSYEII comma LICTIN KINTm CLAYTDENSION SEERSE ANDREW MO CORPORATION LIAM I.,MArziICOR[NA NnNS VAN L11111 K Rm[N51D A SONL ISMS nilpN INTERNCT ADDRESS www ru[an.cam IAMESI Morzlns srrnrvwn Sus srrvINl eoory nuSonL nno corzepR Direct Dial: (714)641-3486 E-mail: 1 melzer@rutan.corn November 20, 2000 Thomas M. Kanarr Director of Finance & Treasurer City of Palm Springs 3200 East Tahquitz Canyon Way Palm Springs, CA 92263 Re: City of Palm Springs, et al. v. Brown & Diven, et al. Dear Tom: Pursuant to the City Clerk's request, enclosed herewith is the settlement agreement with the original, executed signatures. The settlement check from our general trust account, in the amount of$250,000, will be forwarded to you once the eight checks that were sent to us by F. MacKenzie Brown and Warren B. Divert have been processed. If you have any further questions, please do not hesitate to contact me. Very truly yours, RUT /&T CKER, LLP e' Lae]3Yzer— LHM:hd ��If U cc: David J. Aleshire, Esq. William M. Marticorena, Esq. Robert King, Esq.