Wells Fargo & Co. was ordered last week to pay $4.1 million to various union pension funds tied to the failed Mercado development project in the early 1990s.
A Maricopa County Superior Court jury found in favor of the pension funds on their claim that the bank breached a tri-party agreement's covenant of good faith and fair dealing, and cited damages of more than $4.14 million.
In 1990, the pension funds agreed to lend former Gov. Fife Symington's Mercado development partnership $10 million. The Mercado eventually failed and the pension funds' loan went into default.
The bank at the time was First Interstate Bank of Arizona, which later was purchased by Wells Fargo.
In 2002, the Arizona Supreme Court overturned a Court of Appeals decision and said banks can be sued if they aid in a fraud on a third party. The ruling meant union pension funds that were defrauded by Symington could seek to recover some of their losses from Wells Fargo. The court said the bank had full knowledge that Symington was providing false financial statements to the pension funds.
Wells Fargo plans to appeal the Superior Court verdict.
“Wells Fargo, as successor to First Interstate Bank of Arizona, believes that the jury verdict in favor of the Teamsters Pension Funds was incorrectly decided,” said Marjorie Rice, a Wells Fargo spokeswoman. “Wells Fargo intends to pursue a vigorous appeal of the matter before the Arizona Court of Appeal, and believes that it will ultimately prevail on its claim that First Interstate Bank of Arizona did nothing wrong or inappropriate with respect to its handling of any of the real estate matters that were the subject of this lawsuit.”
The Mercado project in downtown Phoenix forced Symington to declare personal bankruptcy and was one of several projects that resulted in his criminal prosecution and conviction on numerous counts of bank fraud related to his work as a real estate developer. The conviction was overturned on appeal, and he was pardoned by former President Bill Clinton as federal prosecutors were considering whether to reindict him.
The pension funds obtained a judgment against Symington and the value of the claim reached $17.4 million. Symington declared bankruptcy and had all of his debts discharged except the Mercado debt. He settled with the pension funds, which then pursued Wells Fargo to offset their remaining losses.