West Basin Municipal Water District resolves action seeking rescission of an interest rate derivative swap transaction
Clients West Basin Municipal Water District
Jones Day brought and prosecuted claims on behalf of the West Basin Municipal Water District seeking rescission of an interest rate derivative swap transaction, disgorgement of fees earned by the defendants from those transactions, and fraud damages. The District entered into a swap transaction with a Rice Financial Company counterparty, with a notional amount of approximately $140 million, in October 2001. In June, 2003, an indictment was announced charging Tyrone Smith, one of the District's then-elected board members, with having taken an illegal bribe to promote and vote for the October 2001 swap transaction. Smith eventually pleaded guilty to extortion in federal court in December 2003. A focal point of the District's suit was its allegation that the bribe paid to Smith constituted a prohibited financial interest in the transaction, in violation of California's conflict of interest statute, Government Code section 1090. In a ruling on September 13, 2006, the trial court granted the District's motion for summary adjudication on this claim, finding the bribe paid was a financial interest, that the swap thus was void under Government Code section 1092, and that the District had no further obligations under the swap. The case was resolved by settlement with each of the defendants or defendant groups, and as part of those settlements the District entered into a new swap transaction with two Rice Financial Company entities on extremely favorable terms.
West Basin Municipal Water District v. Rice Financial Products, et al., Case No. BC 325420 (Ventura County, CA Superior Court)