Bondholders who were left high and dry when the Washington Public Power Supply System defaulted on financing for two nuclear plants in July 1983 plan to file a $7.25 billion lawsuit today in Seattle against the state of Washington and four current and former state officials.
The amount, which represents the principal and interest due on the bonds at maturity, is believed to be the largest liability suit ever filed against a state. The WPPSS $2.5 billion bond default in the summer of 1983 was the largest municipal bond default in history.
The plaintiffs are Arthur Hoffer, Lynn Samuels and Norman Benson, executives of bondholder committees representing the estimated 70,000 investors who lost $2.5 billion when nuclear projects No. 4 and No. 5 were abandoned. The defendants named in the class action are John Spellman, former governor of Washington, state auditor Robert Graham and the leaders of the state House and Senate.
Hoffer said the group was suing Spellman because it contends that "the state controlled WPPSS; the state and WPPSS are one and the same." Auditor Graham, who signed all 14 issues of the bonds, is named because he was the one who certified that the bonds complied with state law and thus would be honored by the utilities, Hoffer said in an interview yesterday.
Just last week, the Washington State Supreme Court reaffirmed its 1983 decision that utilities in that state, Oregon, Idaho, Wyoming and Montana would not be reponsible for paying for the abandoned power projects' bonds. Chemical Bank, the trustee for the defaulted bonds, declared that it would ask the U.S. Supreme Court to review the case. The high court has already refused to hear one appeal involving a WPPSS suit in Idaho.
Hoffer said that while the case to be filed today in King County Superior Court has the full support of Chemical Bank, it was originated by hundreds of bondholders who wrote the committee demanding it sue the state.
In November of last year, a commission appointed by the governors of Washington and Oregon proposed that bondholders be reimbursed at 36 cents on the dollar through creation of a new agency that would take over all of WPPSS' liabilities. However, no action has been taken by the states on the commission's report.