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Is FMPA facing class action suit?

STORY BY LISA ZAHNER (Week of May 28, 2015)

Two law firms – one in Tallahassee and one in Charleston – specializing in class-action suits against behemoth companies have taken a keen interest in the Florida Municipal Power Agency and its record of risky hedging and questionable investments.

Public records show that a paralegal from the Richardson Patrick Westbrook and Brickman law firm located in a Charleston suburb submitted an extensive records request to the FMPA on April 20 requesting 18 different categories of documents, most relating to FMPA’s relationship with its financial advisors and to the advice those professionals provided related to interest-rate swaps and fuel hedges.

For example, one of the items asked for, “Copies of all documents in any form whatsoever concerning how the decision was made by FMPA to utilize interest-rate swaps and/or fuel hedges.”

Along with meeting minutes dating back years, and documents from FMPA’s “hedging department,” the law firm wants to see the FMPA’s contracts with all of its legal and financial advisors, and wants any record of discussions about the liability of those financial advisors for the recommended actions.

Another item in the request asked for “Copies of all studies, presentations or proposals requested by or provided to FMPA relating to the implementation of interest-rate swaps and or fuel hedge programs.”

A recent probe by the Florida Auditor General pointed out that the FMPA’s hedging and other investment practices did not meet industry standards. “Fuel hedging practices were not consistent with industry practices utilized by other joint action agencies,” the Auditor General stated, followed by, “Investment in natural gas exploration and drilling were not consistent with industry practices utilized by other joint action agencies and were more complex and involved more risk than alternative forms of hedging commonly practiced.”

The FMPA over the past decade has sustained heavy losses due to its hedging on natural gas – losses which the co-op passed down to its customers, including the nearly 34,000 ratepayers served by Vero Beach electric.

Then to make matters worse, the FMPA entered into more than $600 million of interest-rate swaps, which it intended to cash in when it took out bonds to build the Taylor County coal plant. When the FMPA could not get a permit to build the coal plant, it was stuck with the swaps, which were designed to lock in a low interest rate on the bonds. This summer, the FMPA is in the process of terminating those swaps, issuing more than $136 million in debt to pay them off.

About those, the Auditor General said, “Certain interest rate swaps were not employed consistent with industry practices utilized by other joint action agencies, which resulted in significant termination fees likely to be incurred.”

The paralegal was asked by the FMPA to pare down his request, which he did, to 12 items.

All the paralegal’s correspondence was copied to two attorneys, William H. Garvin of Tallahassee and A. Hoyt Rowell of the Richardson Patrick firm. Both firms specialize in class-action suits, with Richardson Patrick’s attorneys being rather famous for taking on the Phillip Morris tobacco company and winning.

Rowell’s wins against large companies go back to the 1970s. Among the entities Rowell has beaten in either class-action or antitrust suits are the Duke Energy Pension Fund, GMAC Residential Funding Corp., U.S. Bank, German American Capital Corp., Empire Funding Home Loan Owner Trust, Household Goods Movers and Volkswagen America.

The two attorneys have a recent case in common that may explain how they came to be looking into the FMPA. On March 31, a Berkshire Hathaway subsidiary, Starcraft buses, settled a class-action suit that led to the recall of more than 8,000 buses. Both Rowell and Garvin represented plaintiffs in this case.

Who might the potential plaintiffs be in a class-action against the FMPA and its financial advisors? The ratepayers could sue individually, but the cities served by FMPA municipal utility members could collectively have more clout.

Garvin has experience representing cities that banded together in a class-action suit. Garvin’s “results” page of his firm’s website states, “We have served as counsel representing a class of municipalities against a major drug wholesaler and helped secure a settlement of $92 million.”

Ironically, the records request from the class-action law firms was obtained in an effort by the Town of Indian River Shores to determine whether or not Vero Beach officials had done any digging into FMPA financial practices, in light of the Auditor General’s findings.

In the packet of records requests – which included two from Councilwoman Pilar Turner, but none from any other Vero official or attorney representing Vero – was the correspondence from the Richardson Patrick law firm.