Last spring, the state's largest daily newspaper launched an expensive legal challenge to force the federal Resolution Trust Corporation to unseal hundreds of pages of documents filed in its $217 million lawsuit against Governor J. Fife Symington III and other officials of the failed Southwest Savings and Loan.

Over the summer, the Arizona Republic won several key rulings that forced the RTC in August to release reams of documents. The unsealed federal court documents dispel any doubt that Symington was given the keys to the Southwest Savings safe for his disastrous Camelback Esplanade project.

Previously unreleased Southwest Savings board minutes show that Southwest officials quickly lost control of expenditures on the Esplanade. Minutes show that $11 million of the $13 million in predevelopment costs charged to the thrift by Symington's company was never authorized by Southwest Savings officials.

The documents also show Symington's team deceived the Phoenix City Council over the terms of an agreement with the Ritz-Carlton hotel as the council was preparing to vote on the project's zoning.

Curiously, the Republic has not reported on these and other revelations contained in the three-foot-high stack of documents unsealed because of its legal challenge. Here is what the documents show:

In July 1983, Symington, sitting as chairman of the Southwest Savings compensation committee, approved an 11 percent salary increase for Myron Snow, the thrift's executive vice president for real estate projects. Two months later, Snow gave a detailed presentation to the Southwest board of directors on Symington's request that Southwest invest $30 million to buy the land for the Esplanade project. Also strongly backing Symington's proposal was thrift president Donald Lewis, who recommended the board invest in the project despite board chairman James Needham's concerns that Symington had a conflict of interest.

The board not only approved Symington's Esplanade project on September 23, 1983, it also voted to invest in two other Symington projects--Scottsdale Centre and a development at Third Street and Fairmount. All three projects eventually proved to be financial sinkholes.

Twelve days later, compensation committee chairman Symington once again convened his panel. This time, the committee approved a 33 percent salary boost for Lewis, raising his annual compensation to $160,000. Snow, who had received a pay hike three months earlier, received an additional 25 percent increase, boosting his salary to $75,000.

Symington's Esplanade project was off and running. But records show it immediately ran into problems. In a letter that had been released prior to the Republic's lawsuit, Symington's partner, I. Jerome Hirsch, expressed serious concern over whether Symington could pull off the project. The October 3, 1983, letter prophetically warned that "if the development process does not change drastically and immediately, Southwest may wind up with the most expensive white elephant in the world."

The newly unsealed documents indicate that Symington tried to ease his partner's concerns with a note the following day telling Hirsch that he "overreacted to the situation."

But Hirsch's concerns were well-founded.
On March 30, 1984, the Symington Company submitted its first budget related to a development agreement signed on November 1, 1983, between Symington's partnership and Southwest Savings. The agreement committing Southwest Savings funds to the Esplanade was signed before the thrift received permission from federal regulators to invest in a fellow director's project--a violation of federal banking regulations.

The budget called for $3.1 million in outlays by Southwest Savings to fund predevelopment costs for the Esplanade, including $700,000 in developer's fees for the Symington Company. Two years later, the predevelopment budget had ballooned to $12.8 million, with fees to the Symington Company increasing to $2.1 million. Court records show that the increase had not been authorized by the Southwest Savings board.

Hirsch stepped up his pressure on Symington in May 1984, noting that Symington had hired "more consultants and prospective consultants than I can count."

A month later, Hirsch lowered the boom. On June 21, 1984, Hirsch's lawyers notified the thrift that Hirsch believed Symington had violated the development agreement with Southwest Savings. Hirsch demanded that Symington be removed as developer of the project, a move that probably would have required Southwest to sell the property.

Hirsch said he was "seriously concerned that [the Symington Company's] failure to discharge its responsibilities under the Development Agreement already may have caused irreparable damage to the project." Hirsch threatened to sue Southwest and Symington for $12 million in damages unless changes were made.

Hirsch's warning raised concerns at the thrift, but records indicate that Southwest was in a jam because of the structure of the deal Symington had negotiated with the former owner of the Esplanade land, the Friedman Family Trust. That agreement required Southwest to pay the trust $6.8 million if the land was sold prior to completion of the development--a stipulation designed to prevent property speculation.

The project proceeded, with Symington launching an expensive public relations campaign to convince residents near 24th Street and Camelback that his plans to build eight 15-story buildings would have no impact on traffic and would not wreck the skyline.

By early 1985, the Esplanade zoning case was ready to go before a city council headed by former mayor Terry Goddard, who wanted Symington's massive project drastically scaled back.

Newly released court records show that Hirsch accused Symington of lying to the council. In late February 1985, shortly before the city council zoning meeting, Hirsch says he was pressured by Symington's development team to sign an operating agreement that would bring the Ritz-Carlton hotel to the Esplanade. Hirsch objected to the operating agreement for a number of reasons, including the lack of a feasibility study and, most important, a commitment to build the hotel before proper zoning had been obtained.

In a February 21, 1985, letter from Hirsch to Symington development team member Drew M. Brown, Hirsch expressed amazement that Symington would be willing to sign an operating agreement with the Ritz-Carlton before the zoning case was approved. Hirsch says the Symington strategy all along had been to tell the council that unless it approved a massive development, there would be no Ritz.

Hirsch says in his letter that he told the Symington team that the council would want details of any agreement with the Ritz, removing any leverage the developers had to convince the council to approve the massive project. "The response to my concern about the disclosure . . . was that the hearing would be carefully orchestrated to avoid the disclosure of that fact. That tactic cannot work unless someone is prepared to, in substance, misrepresent the deal," Hirsch wrote to Brown.

The letter goes on to say that the Symington team had informed Hirsch that it was prepared to do just that. Hirsch wanted no part of such deception.

"I have too much of an investment in my own business reputation to be a party to any attempt, by clever semantic artifice or outright deceptions, to deceive the Council and the public to believe that the hotel will be built only if the pending zoning application is approved," Hirsch wrote.

But Symington went ahead with the ploy. The day before the March 6, 1985, zoning meeting, Symington held a press conference to announce that the Ritz would come to the Esplanade, but only if it was assured of at least a ten-story hotel.

The next morning, Hirsch fired off another letter to Brown saying he was "shocked" at Symington's "substantially misleading" statements.

Hirsch asked that Symington "cease from any misrepresentations regarding our project" and correct "the wrong impression . . . that [a] 10-story height is written into the deal with the Ritz."

The city council declined to approve zoning for the Esplanade as proposed, insisting that the project be scaled back. Symington came back a month later with a smaller version, and another carrot to dangle in front of the council.

Symington's incentive this time was in the form of a $1.5 million commitment for public art at the Esplanade. It was the first time the city council had been able to persuade a developer to voluntarily contribute 1 percent of construction costs to art. The council bit.

The problem with Symington's gesture, according to Hirsch, was that no one gave Symington the approval to spend the money, which would come from Southwest Savings.

"This incident is but one more example of Southwest abdicating its responsibility to maintain control of this project on behalf of all interests," Hirsch wrote to Southwest Savings on April 19, 1985.

"We foresee nothing but further frittering away of those equity interests by the Symington Company to the point of extinguishment with no real control by Southwest."

Rather than facing Hirsch in court, Symington reached an agreement to buy out most of Hirsch's share in the project in mid-1986 for $600,000 in cash plus a $6 million note. The note is still due.

Southwest continued to invest in the Esplanade, eventually losing more than $40 million on the deal, according to the RTC lawsuit. The RTC reached an agreement last May to settle the case with Symington and other Southwest Savings directors, with Symington admitting no wrongdoing or paying any penalties.

A federal grand jury has convened to investigate Symington's role in Southwest Savings' failure and his other business dealings.

KEEP PHOENIX NEW TIMES FREE... Since we started Phoenix New Times, it has been defined as the free, independent voice of Phoenix, and we'd like to keep it that way. With local media under siege, it's more important than ever for us to rally support behind funding our local journalism. You can help by participating in our "I Support" program, allowing us to keep offering readers access to our incisive coverage of local news, food and culture with no paywalls.
John Dougherty
Contact: John Dougherty