Kendall Yards suit settled

Source:, July 5, 2011
By John Stucke

A legal fight over an $8 million pollution cleanup at the Kendall Yards housing development near downtown Spokane has been settled.

The lawsuit didn’t threaten current homebuilding on the 77-acre site along the north bank of the Spokane River. Rather, it was a dispute involving a company run by Marshall Chesrown that paid for some of the cleanup work several years ago, the Union Pacific Railroad, which used the site for decades as a refueling depot, and the bankruptcy trust of Metropolitan Mortgage and Securities Co., the company that bought the railroad yard 21 years ago from UP with visions of an urban development.

Ending the litigation now will allow Metropolitan to disburse more money to its creditors that had been held back as a precaution. Those creditors include thousands of people across the Inland Northwest.

Maggie Lyons, the Metropolitan bankruptcy trustee, said creditors can expect another small payout later this year of between 1.5 cents and 2 cents on the dollar of their principal investment that was lost when the Spokane financial conglomerate failed seven years ago.

Most creditors have already received about 21 cents on the dollar from several earlier payouts, although the trustee didn’t send checks out last year.

The 2009 lawsuit initially pitted Chesrown’s company, River Front Properties LLC, against the railroad. Chesrown, stung by an $8 million bill for environmental remediation after paying $12.8 million to Metropolitan in a 2005 bankruptcy auction, sued the railroad in an effort to recover polluter funds.

The railroad then asserted it had been indemnified from its pollution cleanup responsibilities when it first sold the property to Metropolitan in 1990.

More than 223,000 tons of contaminated soil has been removed from the site, in part funded with federal grants and low-interest loans.

In the end all three corners of the litigation triangle were stuck with unanticipated costs. Chesrown ended up selling the Kendall Yards project to yet another developer, Greenstone Corp.

Court records referencing the private settlement characterized it as the lowest-risk option for the Metropolitan trust.

The Union Pacific was allowed to file a late bankruptcy claim totaling $1.7 million against Metropolitan, but will only collect about $362,000. Furthermore, the railroad is now indemnified from future pollution cleanup costs. The records did not reveal the settlement terms between the railroad and Chesrown.

Lyons said the slow pace of the payouts to Metropolitan creditors remains partly due to separate, complicated real estate assets and contracts, coupled with a desire to try to sell the properties for a fair price. Any attempt to dump those assets at “fire sale” prices, Lyons said, would have sacrificed about 80 percent of the value.

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