Bank backing fight against FEMA for cleanup costs
Livingston Parish President Layton Ricks confirmed Tuesday the identity of the bank that has been paying the legal fees in the parish’s fight with federal authorities to recover Hurricane Gustav-related cleanup costs.
But it turns out the parish could still be on the hook for the fees, based on the parish’s written agreement with the law firm selected and paid for by the bank, SE Property Holdings LLC.
Ricks confirmed SE Property Holdings is a bank that loaned more than $26 million to the parish’s cleanup contractor. The contractor is awaiting payment from the parish for its work, while the parish is seeking cost reimbursement from the Federal Emergency Management Agency.
Ricks said the legal team at Baker Hostetler’s Washington, D.C., office has assured him the parish will never owe a dime for the high-powered law firm’s services.
However, the parish’s agreement with the firm says the bank has a right to later seek repayment of the legal fees and expenses advanced on the parish’s behalf. The bank already has paid the law firm, whose lawyers are paid as much as $650 an hour, a $25,000 retainer.
The law firm acknowledges in its agreement with the parish that, while the lawyers see no conflicts of interest in their representation of the parish, such conflicts may arise in the future, especially if efforts to arbitrate the parish’s dispute with the FEMA are unsuccessful.
FEMA has denied about $60 million in claims for the parish’s debris removal costs stemming from the 2008 storm. The agency contends much of the work ran afoul of federal guidelines and was therefore ineligible for reimbursement.
Parish officials previously refused to name the financial institution paying for the parish’s attorneys in the case, saying only that they represented “the lenders of a stakeholder” in the cleanup dispute.
That stakeholder, International Equipment Distributors, of Foley, Ala., and its affiliates — IED LLC, Unified Recovery Group LLC, Green and Sons II LLC, Catahoula Trading Co. LLC, and several of their owners — borrowed roughly $31 million from Vision Bank, a now-defunct financial institution with offices in Alabama and Florida, court records show.
About $26 million remained unpaid in early 2012, when the bank’s parent company, Park National Corp. of Newark, Ohio, decided to sell Vision Bank’s holdings to another financial company.
The underperforming loans and other assets the purchaser bank didn’t want, including International Equipment’s loans, were rolled into Park National’s subsidiary, SE Property Holdings, according to Park National’s filings with the Securities and Exchange Commission.
SE Property Holdings sued the contractor and its affiliates for the unpaid sums in Baton Rouge federal court in April 2012, but by the end of September 2012, Park National’s board of directors had lost confidence in the bank’s ability to recoup its investment and decided to write off $13 million of the total, court records and SEC filings show.
The decision came as a result of “continued delays in the expected repayment of the loan” and “recent events that have raised concern about the collectibility” of the loan, Park National said in its quarterly filing.
In July 2013, U.S. District Judge James J. Brady granted SE Property Holdings a final judgment against International Equipment and its affiliates for the full $26 million owed.
Court records show the bank and contractor entered into a forbearance agreement, with SE Property Holdings agreeing to take no further action unless it became necessary to do so.
The judgment specified that part of the security for the loans would be any money International Equipment may be awarded in its state court civil suit against Livingston Parish.
The contractor sued the parish in 2011 for more than $50 million in unpaid invoices stemming from the company’s cleanup work following Hurricane Gustav.
The case has been put on hold, pending the outcome of the parish’s arbitration with FEMA.
“The only reason the benefactor for Hurricane Gustav arbitration wanted to remain anonymous is to avoid being dragged into the petty political squabbles that they have witnessed in Livingston Parish regarding Hurricane Gustav,” Ricks said in a written statement to The Advocate on Tuesday.
Ricks stressed the law firm represents the parish, not the contractor’s bank.
“Of course, we have a common interest with the contractor, subcontractors, engineers and the contractor’s lender, which is we want to see everyone get paid for the work that was performed to help our parish recover from Hurricane Gustav,” Ricks said in his written statement.
Parish Councilman Marshall Harris has questioned that common interest, asking whether the parish’s arbitration attorneys will continue to push for FEMA to pay all of the parish’s claims if the bank paying the attorneys needs only a portion of that amount to make it whole again.
Harris said the bank’s payment of the firm could present a conflict of interest — a possibility the firm itself acknowledged in its engagement letter with the parish.
“Even though the interests of the banks and the parish are, in our view, substantially aligned at this time, there is a possibility that those interests may later diverge, especially if a favorable outcome is not realized in connection with proceedings against FEMA,” Baker Hostetler lead attorney Hilary S. Cairnie writes in the agreement.
In the event that such conflicts arise, the agreement gives the law firm the right to stop representing the parish and continue representing the banks or any other party, “even if such representation is in connection with claims the banks have asserted against IED or its related entities and their respective interests are not aligned with those of the parish.”
The agreement says the bank’s payments of legal fees are “advances,” for which the bank may later seek reimbursement from the parish.
In addition, if the bank later decides the case is not progressing favorably and decides to stop paying, the firm can halt all work on the case until the parish signs a new payment agreement with the firm, the letter states.
Ricks said there is no way to predict how the case will go.
“What we can say is, unless we are willing to find the money in our own coffers to pursue this arbitration, let’s be thankful that someone has stepped up to the plate and is willing to help this parish in order that all parties, hopefully, at the end of the day can be paid,” he said.