Monticello signs FiberNet agreement to head off possible lawsuit

Monticello council members have signed a temporary agreement with a FiberNet bondholders representative to head off a possible lawsuit.
The city has been discussing options for restructuring the existing outstanding debt owed on the FiberNet system.
Legal counsel for Wells Fargo Bank N.A. recently asked the city to execute a tolling agreement to suspend the statute of limitations on any securities claims.
A tolling agreement is when parties agree to “toll” or delay the time in which a certain action must take place.
Its purpose is typically to allow a party additional time to assess and determine the legitimacy and viability of their claims and/or the amount of their damages without the necessity of filing a lawsuit.
In short, tolling agreements put costly litigation on hold.
According to City Attorney Joel Jamnik, the six-month tolling agreement that was approved March 11 by Monticello city leaders has an expiration date of June 1, 2013.
The agreement was revised to exclude tolling any claims that have lapsed between Wells Fargo and the city. Jamnik said the tolling agreement will not affect day-to-day FiberNet operations.
The tolling agreement essentially creates a “time out” on the running of the clock regarding possible legal action, he said.
“Basically, they informed us if we didn’t extend the statue of limitations or deal with it, they may be forced to bring a lawsuit,” Jamnik said.
“We have reviewed that proposal with the city council in two closed sessions [Feb. 11 and March 11],” he said. “We are recommending you approve the tolling agreement. That suspends the running of the statute and it will allow us additional time to negotiate and have further discussions with the bond trustee. The attorney for the League of Minnesota Cities Insurance Trust and our legal firm [Eagan-based Campbell Knutson P.A.] recommend you approve the tolling agreement tonight,” he added.
According to City Administrator Jeff O’Neill, council members met behind closed doors twice because a specific threat of litigation existed regarding the FiberNet revenue bond default.
The specific threat caused the city to initiate a request to the League of Minnesota Cities Insurance Trust insurance for assistance to defend the city under its insurance coverage.
Outside counsel was appointed by the Trust, O’Neill said, and at a closed Feb. 11 meeting, Cliff Greene and Megan Walsh from the Minneapolis-based law firm of Greene Espel were present to discuss the FiberNet revenue bond situation with city leaders.
Wells Fargo Bank N.A. notified FiberNet bondholders in October 2012  it had commenced trust proceedings in Hennepin County District Court because the city had stopped its supplemental debt service payments on $26.4 million in FiberNet 2008 bonds. Wells Fargo asked the court to rule on an order instructing it not to make a Dec. 1, 2012 payment for $883,000 as well as any future payments from surplus and reserve funds. The court granted the order Nov. 15, 2012.
According to O’Neill, the city is obligated under the indenture to pay net proceeds derived from the operation of the system to pay debt service.
At present, the FiberNet telecommunications system is not generating net revenues.
That means debt service is not being paid, and a bond default situation has occurred.
The closed sessions on Feb. 11 and March 11 were intended to allow the council time to receive confidential advice regarding the review and handling of the express threat of litigation, and in particular a request by the trustee’s attorney for the city to agree to sign the tolling agreement that would extend the statute of limitations beyond current expiration dates in order to preserve bondholders’ legal rights, O’Neill said.
The city also invoked attorney-client privilege.
According to Mark Anfinson, an attorney for the Minnesota Newspaper Association, the recent situation involving FiberNet and the attorney-client privilege exception to the Minnesota’s Open Meeting Law doesn’t offer really bright lines.
“Meetings can’t be routinely closed, simply because someone sees a possibility of litigation,” Anfinson said.
“A reasonably specific threat of imminent litigation must exist,” he added. “If it does, a city council can legally close a particular meeting.”

Contact Managing Editor Tim Hennagir at [email protected]