February 16, 2005
A bank that helped finance the busted real estate empire of former Gov. Fife Symington was slapped with a civil judgment that could total $12 million for failing to warn another lender of his financial problems in 1990.
Wells Fargo Bank was ordered to pay a consortium of union pension funds that financed Symington’s Mercado development in downtown Phoenix $4.1 million in damages, plus attorney’s fees and interest dating to 1990. The order was issued last month by Judge Janet Barton of Maricopa County Superior Court.
Though Wells Fargo is the defendant in the lawsuit brought by the pension funds, the transactions involved the old First Interstate Bancorp. First Interstate merged with Wells Fargo in 1996.
Symington was not a party to the lawsuit, but did appear as a witness. He was ousted from office in 1997 after being convicted on federal fraud charges related to the Mercado loan and other transactions involving his real estate development company. That conviction was later tossed by a federal appeals court. As prosecutors weighed whether to bring the charges again, Symington was pardoned by former President Bill Clinton shortly before he left office in 2001.
In recent weeks, Symington has suggested he might run for governor next year. He said Tuesday that his past legal troubles should not hurt him politically and will not factor into his decision whether to run.
"I don’t think at the end of the day it’s going to make any difference to voters," Symington said of the legal battles that continue to play out in court. "All of this stuff preceded my being governor. I’m sure people will obsess about it. But they’ll just have to get over it and we’ll talk about the issues that are important to the future of the state."
The lawsuit involves a series of agreements among Symington, First Interstate and the pension funds related to the Mercado. First Interstate would provide the construction loan, to be secured by a personal guarantee from Symington, according to the agreement signed in 1988. Once the project was finished, the pension funds were to provide up to $10 million for a permanent loan, according to documents related to the lawsuit.
The permanent loan was put in place in June 1990. But before it was finalized, Symington defaulted on a separate First Interstate loan related to a shopping center in Mesa, according to the lawsuit. Symington and his development partnership later defaulted on the Mercado loan.
Michael Manning, who represented the pension funds, said First Interstate had a duty to warn them about Symington’s financial condition before the permanent loan was finalized. First Interstate had an incentive to conceal Symington’s financial problems, since the permanent loan would be used to repay the construction loan made by the bank, Manning said.
A jury sided with the pension funds in September.
"(First Interstate executives) had the obligation not to help him defraud the pension funds," Manning said. "The jury believed that the bank helped Fife keep his desperate financial condition quiet from the pension funds so that the pension funds would fund the Mercado loan. All of the Mercado pension fund loan proceeds went to First Interstate Bank to pay off Fife’s construction loans."
Aside from the $4.1 million in compensatory damages, Barton’s judgment awarded the pension funds 10 percent annual interest on that amount dating to June 1990. Barton also awarded the funds $1.87 million in attorney’s fees.
Including the interest, the total will come to about $12.1 million, Manning said.
But Randall Papetti, the lawyer who represented Wells Fargo, said he does not necessarily agree with Manning’s computation, adding he has not yet calculated the total amount of the judgment. He referred all other questions to Wells Fargo executives.
Marjorie Rice, spokeswoman for Wells Fargo, said she could not comment, citing the company’s policy not to discuss pending litigation. She would not say whether the bank will appeal.
Symington, who declared bankruptcy, reached a settlement with the pension funds in 2001 that obligates him to pay $2 million he will receive through an inheritance when a relative dies.
Symington and Wells Fargo said the Mercado project ultimately proved to be a moneymaker for the pension funds, which sold it to Arizona State University for $8.8 million in 1999.