WASHINGTON - Fluvanna County, Va.'s three-year legal tussle with Davenport & Co., has come to a close after the county's Board of Supervisors accepted an offer from the firm to drop its pursuit of $1.6 million in legal fees in exchange for an end to the suit and a public statement by the board retracting the claims it made against Davenport.
The county announced the settlement Thursday after the board voted Sept. 25 to accept the offer.
"The lawsuit against Davenport was initiated by a prior Board of Supervisors in 2011," the current board said in a statement. "The current Board has re-evaluated the merits of the case, including recent information about the value of the refinancing of the high school debt which has since occurred, and concluded that the financing votes by the board and advice from Davenport concerning the bond issuance in 2008 have not proven to be unreasonable or cause the county financial harm. Therefore the board does not see the value in continuing to pursue the prior board's suit, and is voluntarily dismissing the litigation. The board further acknowledges that certain statements were made in the lawsuit against Davenport, and Mr. David Rose in particular, which were not accurate, and the board regrets this mistake."
The settlement includes a dismissal with prejudice, which means that the issues raised in the suit cannot be litigated again in the future.
It concludes a lawsuit in which the county's board alleged that Davenport, Fluvanna's financial advisor of 15 years, misled the county about $67.5 million of bonds issued through the Virginia Public School Authority in December 2008 to finance construction of a new high school. The suit claimed that Davenport recommended that deal because it would receive more compensation as FA than it would have as one of four underwriters participating in a VPSA pool issuance. The board further claimed Davenport began pushing for a refunding even before the issuance, a transaction from which it would also make money.
Davenport made $168,812.50 in financial advisory fees when the bonds were issued, its lawyers have said, and $17,397 from 2003 through 2008 in connection with its FA work on the deal. The firm was paid an additional $12,000 for helping the board explore the idea of a refunding.
The suit initially sought $18.5 million in compensatory damages, but that amount was later reduced to $5 million. The suit claimed the money would be compensation for "excess interest payments" the county, with a population of about 26,000 people, would pay over the life of the bonds because the pool securities had lower interest rates than the county's standalone bonds. Central to the complaint was the county's allegation that Davenport FA David Rose misled the board by saying the pool bonds couldn't be refinanced.
Richmond-based McGuireWoods attorney Joseph Reid, representing Davenport, sent the letter outlining the terms of the settlement offer to Douglas Palais of Richmond firm Park Palais, which is representing Fluvanna. Davenport extended the offer after Palais indicated in an email that the county was willing to talk terms to bring the long, costly lawsuit to an end. Davenport agreed to eat its legal fees but wanted Fluvanna to absorb its own $500,000 in costs.
The settlement letter took a tough stance, urging the county's current board to settle before Davenport could win at a trial which was scheduled to begin Oct. 21 in Charlottesville Circuit Court. The lawsuit had followed a dizzying trajectory, bouncing from Fluvanna Circuit Court to the Virginia Supreme Court and then back to the circuit court. Davenport successfully motioned to have the trial transferred to Charlottesville, which the Fluvanna court agreed to last month. The settlement letter indicated that Davenport was optimistic about its chances there.
"Davenport's advice - to use the standalone financing option in order to give the greatest future re-funding flexibility - was reasonable and appropriate under the circumstances in 2008, and has in fact proven to be so over time," Reid wrote. "We have every confidence that we can effectively communicate this position to a Charlottesville jury next month."
Reid said the board's case "has evaporated" because the board has conceded that the refinancing of the high school debt in late 2012 resulted in more than $10 million of interest cost savings. He also said the county's alleged damages were based on "mistaken information" about the VPSA's administrative fees and pool maturity schedule. He said the claim that the firm misled board officials was proven untrue.
The letter stated that while Davenport believed its quest for reimbursement of total legal fees was justified, the firm's attorneys recognized that a decision by the county to voluntarily pay those costs would be "a difficult one politically." The letter included a statement it wanted Fluvanna to endorse publicly in order to seal the deal, including an admission that Davenport's advice was sound and apologizing for its accusations against Rose. Davenport said in court documents it was prepared to prove at trial that Rose never misled the board, and was not even present at that time.
