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City of Bell Sues Nixon Peabody

LOS ANGELES (CN) - The City of Bell claims in court that the Nixon Peabody law firm and another attorney helped corrupt city officials accumulate more than $100 million in debt, including obligations from a $35 million bond deal that was not put to public vote.

The City of Bell and Bell Public Financing Authority sued Nixon Peabody LLP and non-partner attorney Edsell Martindale "Chip" Eady Jr.

Eady "had served the city continuously for approximately 15 years," including from 2003 to 2010, the complaint states - the time during which a municipal corruption scandal brewed that eventually made national headlines.

"Eady and Nixon provided service to Bell in connection with the matters stated herein," the complaint states. "Defendants Eady and Nixon had independent duties to the city in their representation of the city's interests related to the bond transactions described herein," according to the 26-page complaint in Superior Court.

The complaint centers on a $35 million bond transaction the city negotiated with nonparty Dexia, a Franco-Belgian financial firm, in 2007.

According to the city's complaint, Burlington North Santa Fe Railroad had leased 14 acres of city land to store shipping containers for its nearby Hobart rail yard.

The Bell Public Financing Authority then bought property from the federal government next to the leased land, and retained Nixon Peabody for services related to issuance of debt on the property for two bond transactions in 2006 and 2007, according to the complaint.

After refinancing 2006 notes through the issuance of 2007 bonds, Dexia purchased those bonds in October for $35 million.

In the interim, the city had entered into negotiations with Burlington North Santa Fe Railroad to sublease part of the property, the complaint states.

"Pending the city's completion of satisfactory long-term leasing arrangement with respect to the property with BNSF [Burlington North Santa Fe Railroad] the plaintiffs were required to provide funds for the payment in full of the 2006 notes at maturity on November 1, 2007, in addition to funds for transaction costs and funds for certain land improvements with respect to the property," the complaint states.

Bell claims that if it did not pay the 2006 notes, the authority would have defaulted and that Nixon Peabody, "concerned about their liability exposure for a default on the 2006 notes," rushed through the Dexia transaction "without voter approval."

"Plaintiffs relied on the misrepresentations and legal advice provided to them by defendants in entering into the Dexia transaction," the complaint states. "As a result, plaintiffs undertook an obligation to Dexia of $35 million, representing an additional debt of $8.4 million over the $26.6 million than was necessary to payoff the 2006 notes."

Bell claims that during these bond transactions, the city's corruption was "at its peak."

Bell, a Los Angeles suburb of about 36,000, made national headlines when the salaries of its top officials were revealed. State auditors found that the city's six highest-paid administrators received combined annual salaries of $6 million .

Assistant chief administrative officer Angela Spaccia was paid $376,000 a year, and City Manager Robert Rizzo's base salary of nearly $800,000 was almost twice the salary of the U.S. president.

Four of Bell's five-member council received more than $100,000 a year for their part-time jobs. Mayor Oscar Hernandez and the four council members all resigned or were recalled.

Former Police Chief Randy Adams' $457,000 salary was 50 percent higher than the salary of the Los Angeles police chief.

The enormous salaries placed the blue-collar town on the brink of bankruptcy.

In its new complaint, Bell claims that City Manager Rizzo "shielded excessive borrowing practices from public scrutiny" and Nixon Peabody "assisted Rizzo in incurring over $100 million in new debt."

"The Securities & Exchange Commission ('SEC') is currently investigating the borrowing practices of the city during the time when the city was represented by defendants in these bond transactions," the complaint states.

Bell claims Nixon Peabody charged it $615 per hour, and Eady charged it $545 per hour from 2006 to 2008 - more than the law firm and attorney typically charged their public agency clients.

"For example, by comparison in 2010, Nixon charged other public agencies, including the Los Angeles World Airports, $345 to $395 per hour for partners and $285 per hour for non-partners," the complaint states.

Dexia sued the city for more than $35 million in October 2011, the complaint states.

Bell claims it would not have incurred liability if Nixon Peabody had informed Dexia that the bond transaction required voter approval.

Bell seeks general, special, punitive and exemplary damages, alleging legal malpractice, False Claims Act violations, breach of fiduciary duty, equitable and implied indemnity, declaratory relief, breach of implied in fact contract, and negligent misrepresentation.

It is represented by Anthony Taylor, with Aleshire & Wynder, of Irvine.

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