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 tim.hennagir@ecm-inc.com

  • http://www.moodys.com/research/Moodys-downgrades-to-A2-from-Aa3-the-GOULT-rating-for--PR_256505 Concerned Citizen

    Citizens of Monticello need to be very concerned. This venture is costing the city dearly from all aspects. See the article from Moody’s that details the downgrade of the City’s ratings due to the default on the telecommunication bonds.

    http://www.moodys.com/research/Moodys-downgrades-to-A2-from-Aa3-the-GOULT-rating-for–PR_256505

  • Monticello Resident

    From Moody’s Report of above web link:
    “CHALLENGES – Likely write off of substantial outstanding interfund loans, including loans to the city’s telecommunications utility from its General and Liquor Funds.”

    If you’ll recall, the elected council members approved nearly $4.5 Million dollars for Fibernet expenses the city had to cover due to lack of revenue by the telecommunications business. Much of it as interfund loans and yes also, from the general fund. I ask “by what authority” were these funds transferred? This is a LOT of money and I can guarantee you $4 Million dollars worth of transfers to cover Fibernet’s expenses did not come before the council for approval.

    How did this happen? Does the city administrator get to handle the money as he sees fit, go ahead and use it on Fibernet and then place it in front of the council at the end of the year for approval “after” it’s spent? Shame on the council members for not asking who specifically was responsible for making the money transfer. They should have asked the city finance director for an audit of the city books to determine how $4.5 million was made to cover Fibernet costs.

    If Moody anticipates it won’t be paid back, what does that say about this grave financial situation the city has allowed our tax dollars to be wasted on? And please…don’t recite the adage of “Fibernet is not using tax payer dollars” because it has been and city hall is the enabler. Any dollars used to cover costs of the failing fiber company are dollars that could have been used to offset other needed city expenses and to keep the levy low. Imagine what that $4.5 million dollars could have done to improve our community had it not been thrown at Fibernet? Why isn’t more of the community upset by this action on the city’s part?

    Thank you to the news editor for bringing this article on pending litigation for the city and its fiber financial failure to print in the local newspaper. It’s time for the residents and businesses of Monticello to voice concerns to their elected council members and ask them to quit throwing good money after bad.

  • Monticello Resident

    Oh, and by the way…let’s not forget about the legal fees that are adding up on top of everything else. Based on the city’s bills list for the upcoming March 25 council meeting here it is for this month – the city’s attorney CAMPBELL KNUTSON PA – Fiber/Broadband project $2,032.10. The bills (see pg 3) are posted on the city’s website at: http://www.ci.monticello.mn.us/vertical/sites/%7B46185197-6086-4078-ADDC-0F3918715C4C%7D/uploads/5A_Approve_bills_-_CCA(42).pdf

  • Kevin Boynton

    This has gone on entirely too long. The only way to fix things will to be to take the loss. Thanks for good reporting.

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