U.S. District Judge Carleton Reeves denied in April motions for summary judgment filed by Radian Asset Assurance Company and Madison County. Radian insured $27.7 million in bonds sold by the Parkway East Public Improvement District. The district defaulted on the bonds, but Madison County paid $2.033 million to bondholders for the scheduled payments for two years. Radian sued Madison County for reimbursement of the payments it made to bondholders after the county stopped making payments. Madison County claimed it only had to pay the bondholders for two years per a 2005 contribution agreement made between the district and Board of Supervisors. However, Judge Reeves disagreed with the county and ruled there was no limit of two years on the county's liability to the bondholders if the district defaulted on the payments. Judge Reeves stated:
When the District failed, Madison County made the District’s bond payments between October 2011 and September 2013. The County then stopped, arguing that the contribution agreement required it to cover bond payments for only two years. As Madison County reads the agreement, it is now Radian’s duty as insurer to step forward and repay the bonds.
However, Radian acted as a typical insurer and looked for any language possible to shift the burden of payment to Madison County:
Radian disagrees. It filed this suit seeking, among other things, a declaration that Madison County remains responsible for bond payments...Judge Reeves delves into the issue of the two-year limit (page 7) and does not find favor for Madison County:
The County argues that its duty to cover the District’s bond payments lasts only two years. It derives this length of time from the third part of the contribution agreement, as presented and segmented above.
The two-year limit, however, refers to the amount of time the District has to reimburse the County. It does not apply to the County’s obligation to make bond payments. The first part of the agreement contains no time limit on the County’s obligation to make bond payments...
The language of the agreement suggests that the District’s insolvency cannot be a reason for the County to be dissatisfied. The County’s duty to make bond payments is, in fact, triggered by the District’s inability to pay. If the District’s insolvency entitled the County to be dissatisfied, the County’s agreement to make missed bond payments would have no meaning; it would never be reached.
It also would be unusual for a time limit in part three of the agreement to apply by implication to part one, given, among other reasons, the fact that part three opens with the words, “[n]otwithstanding the above.” When this bond deal was being put together, the parties were represented by capable counsel. Nothing precluded the County from seeking to limit, in the first part, any advanced payments for a period of two years. Undoubtedly, there would have been resistance from the other side. But such a limitation is not present. The amount of time the District has to reimburse the County is independent of the duration of the County’s duty to make bond payments.
Thus Judge Reeves disposes with the two-year limit argument made by Madison County and recognizes the arguments made by each side regarding actual liability for bond payments. The contribution agreement states:
Notwithstanding the above, Parkway East hereby convenants and agrees to provide full reimbursement of the County, no later than two years from the date thee deficient debt service payment is made, for the amounts the county provides to the paying agent and/or the bond trustee, pursuant to this Section 3...The county posits that the agreement states the bonds are not backed by the "full faith and credit of the county". Radian agrees with that position but states it must make payments "as long as it has sufficient unrestricted funds in its general fund." However, Judge Reeves said it was not "necessary" to resolve that issue at this time. Judge Reeves states that the main point of his opinion is
It is enough at this juncture simply to say that the contribution agreement does not state how long Madison County agreed to cover the District’s bond shortfall. The County agreed to make the District’s bond payments for some period of time, but whether the parties contemplated payments of one year, two years, five years, or something else is not contained within the four corners of the contract and cannot be inferred by the Court. Additional proceedings are necessary to answer that question, whether in the form of a trial (given the fact dispute suggested by the briefing, but not before the Court today) or additional motion practice.Judge Reeves scheduled a status conference later this month. It appears Madison County will not have the protection of a two-year time limit on paying the bondholders but the court may still impose a time limit on the contribution agreement- after more litigation. Score a round for Radian.
Note: Madison County made the following bond payments per what it argued were the terms of the contribution agreement:
October 24, 2011: $374,021
April 25, 2012: $464,376
October 24, 2012: $518,401
April 16, 2013: $676,514
Kingfish note: That was the news, now for the opinion. The county has repeatedly said taxpayers were protected and that it would only have to make payments for two years. Payments for bonds sold to support a project dreamed up by Montgomery, Ambrosino, and Sethi. Montgomery drew up this agreement and knew very well what he was doing. Judge Reeves makes it clear there is no two-year limit on the payments and the county could be on the hook for the payments for much longer than it repeatedly claimed in public and in court.