Maverick County Public Facility Corporation sued by UMB Bank, N.A., as Trustee of Bondholders for Breach of Contract on Detention Center

By: Jose G. Landa, Eagle Pass Business Journal, Inc., Copyright 2015

The Maverick County Public Facility Corporation (“PFC”), an instrumentality of Maverick County, Texas (“County”) established to own and operate the 625 bed Maverick County Detention Center (“Project”), is being sued by UMB Bank, N.A., as Trustee for the owners of the $42.225 Million Bondholders for breach of contract, alleging damages of $1,019,939.67 in the United States District Court for the Western District of Texas, Del Rio Division, in Del Rio, Texas.

According to UMB Bank, N.A.’s original complaint filed in federal district court on August 3, 2015,  Maverick County “has been converting Project Revenues to its own use and paying operating expenses for the Project before first paying any funds over to the UMB.  This constitutes a breach of the Lease.”

UMB Bank, N.A. alleges that pursuant to a Trust Indenture, dated July 1, 2007, between the Maverick County Public Facility Corporation and U.S. Bank National Association, as Original Trustee, the Maverick County Public Facility Corporation issued $42,225,000 (Million) in Bonds to “finance the acquisition of real property and the construction, furnishing, and equipping thereon of a multi-classification secure detention center known as the Maverick County Detention Center.”  

The complaint further alleges that the Maverick County Public Facility Corporation owns the Maverick County Detention Center and leases it to Maverick County, Texas pursuant to a Lease Agreement, dated July 1, 2007, between the PFC and the County.   UMB, N.A. is the successor trustee to U.S. Bank National Association pursuant to the “Instrument of Removal, Appointment and Acceptance, dated October 1, 2014.”

The complaint further alleges that “under the terms of the Indenture, the PFC assigned its rights under the Lease to UMB to secure the payment of the Bonds and the PFC’s and the County’s obligations under the Indenture and the Lease.”

UMB, N.A.’s lawsuit alleges that the PFC has an obligation under the Indenture to “pay or cause to be paid, from Rentals, including Rental Payments paid by the County and other accounts received in respect of the Leases….and to further cause such amounts received to be deposited with the Trustee [i.e. UMB] prior to the due date of each installment of principal and interest and prior to the maturity of any Bond in amounts sufficient to pay such installment.”  The suit also alleges that “all Rental Payment Deposits and Rental Payments due under the Lease are payable to Trustee [i.e. UMB] on or before the 10th of each month.”  The complaint alleges that “all Project Revenues are pledged to the PFC (and, in turn, assigned to UMB as Trustee), and all Rental Payments are a first charge against all Project Revenues to the extent necessary to pay all Rental Payments when due….Accordingly, UMB has a security interest in all Project Revenues.”

UMB, N.A.’s lawsuit alleges that “under the terms of the Indenture, a Mandatory Sinking Fund Payment (i.e. principal payment) was due and owing with respect to the Bonds on February 1, 2015, in the amount of $1,415,000.  On such date, the amount on deposit in the Bond Fund under the Indenture to pay such amount was $707,546.67 short of the required amount, and such amount remains past due and owing.  In addition, UMB has not received the Rental Payment Deposits due under the Lease for the month of July 2015 in the amount of $312,393.00, and such amount is past due and owing.”  Thus, the total amount currently due and owing to UMB, N.A. by Maverick County is the sum of $1,019,939.67, which UMB is suing the Maverick County Public Facility Corporation to pay this amount owed.  UMB alleges that the Maverick County Public Facility Corporation has breached its Lease Agreement with UMB, N.A. as Trustee for the Bondholders of the $42,225,000 (Million) Bonds issued by the PFC to construct this detention center.

The UMB lawsuit alleges that since November of 2013 the only agency housing detainees at the Maverick County Detention Center is the U.S. Marshal’s Service, but that as of July 24, 2015 the U.S. Marshal’s Service removed all of its detainees, effectively closing the Maverick County Detention Center down.  Without any detainees, the Maverick County Detention Center is not making any revenues to pay the obligations owed by the Maverick County Public Facility Corporation to the Bondholders through the Indenture Agreement.  The suit alleges that the U.S. Marshal’s Service still owes funds to Maverick County for detainees that were housed at the Maverick County Detention Center during periods prior to July 24, 2015.

UMB, N.A. alleges that “the failure of UMB to receive Rental Payment Deposits in an amount sufficient to pay the scheduled principal and interest payments due with respect to the Bonds, and the failure of the County to cause all Project Revenues to be paid directly to UMB constitutes defaults of the PFC’s obligations under the Indenture.”

The complaint further alleges that UMB, N.A. has demanded Maverick County and the Maverick County Public Facility Corporation to pay UMB all Project Revenues that are currently being held or will be received from any third parties, including the U.S. Marshal’s Service, but they have failed to make any such payments or assurances that they will pay said funds to UMB.

UMB, N.A. contends that “because the Bonds are essentially non-recourse in nature, Project Revenues are the only source of repayment of the Bonds other than a foreclosure of the Project.”

UMB, N.A. alleges that “the value of the Project (Maverick County Detention Center)-which is the sole security for the repayment of the Bonds other than Project Revenues-is significantly less than the outstanding principal amount of the Bonds.  Moreover, because the County no longer houses detainees in the Project and because there is no current expectation that another agency will soon house detainees in the Project, the value of the Project has been reduced even more.”

The lawsuit alleges that Maverick County notified the Maverick County Public Facility Corporation that it will cease operations at the Maverick County Detention Center on or about August 21, 2015, and the PFC has notified UMB of this fact.  “Ceasing operations at the Project would constitute a breach of the Lease in that there would no longer be any Project Revenues generated from the Project to pay the  Rentall Payments,”  alleges UMB.

UMB, N.A. is suing the Maverick County Public Facility Corporation for the sum of $1,019,939.67 plus reasonable attorney’s fees, court costs, and expenses.

The Maverick County Public Facility Corporation Board of Directors include County Commissioner Roberto Ruiz as President, Sheriff Tom Schmerber as Vice-President, County Human Resources Director Jesus Sanchez as Treasurer, County Commissioner Rosy Cantu as Secretary, County Judge David R. Saucedo, County Commissioner Gerardo “Jerry” Morales, and County Commissioner Jose Luis Rosales.

Maverick County Sheriff’s Department took over management of the controversial Maverick County Detention Center on November 1, 2013 after negotiations between Maverick County and former operator, The Geo Group, Inc., failed to negotiate a new Lease agreement.  

Maverick County Commissioners Court will hold a special meeting on Monday, August 24, 2015, at 5 P.M. at Commissioners Courtroom, 500 Quarry Street, Eagle Pass, Texas to consult with their legal counsel regarding this lawsuit in Executive Session and later come out into Open Session to take possible action.  The Commissioners Court meeting is open to the public.

UPDATE:  Maverick County Commissioners Court unannimously approved that legal counsel represent and defend Maverick County Public Facility Corporation and Maverick County in the federal lawsuit filed by UMB Bank, N.A. as well as file any legal claims which Maverick County Public Facility Corporation may have at their special meeting held on August 24, 2015.