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Brainerd Oaks suit dismissed
Staff Writer A federal securities fraud lawsuit involving the Brainerd Oaks Development was dismissed in U.S. District Court Thursday, it was learned Friday.
The suit was filed by six banks against the city of Brainerd; Brainerd Housing and Redevelopment Authority and its executive director and board members; and the estate of a late Brainerd appraiser. The group of bondholders, Hardin County Savings Bank, Walworth State Bank, Eitzen State Bank, Northern National Bank, Kindred State Bank and First National Bank, sought the return of $3.3 million for the Brainerd Oaks Development.
The bondholders had purchased the $3.3 million in taxable revenue bonds issued by the Brainerd HRA in late 2003 for the real estate project on the east edge of Brainerd and in court documents contended that they were misled, the collateral was overvalued in the appraisal, that there was a failure to disclose material information and that proper due diligence would have revealed that the Grand Oaks project wasn't economically viable from the start.
The defendants included the city of Brainerd; Brainerd HRA and its executive director, Doug Grout, and board members Margaret Tiplady and Alma Miller; Dougherty and Co., LLC; John MacDonald, Thomas Wilder and James H. Bedard Inc.
U.S. District Court Chief Judge Linda R. Reade of the Northern District of Iowa dismissed the lawsuit Thursday. Six counts within that complaint were dismissed with prejudice, meaning that those issues cannot be brought back to federal court, while 16 counts were dismissed without prejudice, meaning they could be taken up again in state court if the bondholders and their attorneys decide to do so.
"Unless the plaintiffs decide to crank it up again and bring a new lawsuit in state court claiming some irregularity, I think it's over," Brainerd city attorney Tom Fitzpatrick said Friday. " On behalf of the city, we're very happy to see the lawsuit was dismissed. We believe it was the appropriate outcome."
Fitzpatrick said the city had "almost no involvement" in this project and the lawsuit claimed it was a city project, which was incorrect. The housing project is a Brainerd HRA project, which is independent of the city, he said.
Grout said Friday he couldn't comment on the outcome of the lawsuit since he hadn't yet spoken to the attorneys representing Brainerd HRA in the matter. Attempts to reach the lawyers representing Brainerd HRA were unsuccessful Friday afternoon.
Grout said another lawsuit filed by American National Bank of Minnesota against the Brainerd HRA in Crow Wing County District Court for the Brainerd Oaks Development also had been dismissed but the bank's attorneys are appealing the case. American National Bank is seeking $2 million for payments and performance for seven tracts that were in default in the development.
Grout said there are 13 homes currently built in Brainerd Oaks and seven of them have been sold.
JODIE TWEED may be reached at jodie.tweed@brainerddispatch.com or 855-5858.
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