A 3rd District judge has dismissed a $9 million lawsuit against the state brought by the former owners of Foothill Financial.

Local developers Richard Prows and Robert Wood filed the claim against the state in 1987 after their industrial loan company collapsed under a run by depositors. The pair was forced to sell the thrift at a loss.In an attempt to recover the loss, Prows and Wood sued the state, claiming Utah's Department of Financial Institutions failed to inform them that the private insurance fund backing Foothill's deposits was insolvent and unable to cover the statutory $15,000 limit per deposit.

The insurance fund, the Industrial Loan Guaranty Corp., was declared insolvent on July 31, 1986, and its member institutions taken over by state regulators. But, Foothill was allowed to continue operating and try to qualify for federal deposit insurance.

However, a television news report that Foothill was operating without effective deposit insurance sparked a run by depositors, Prows and Wood say, and the pair quickly sold their crippled enterprise to Zions First National Bank.

As part of the sale, Prows and Wood had to guaranty Zions against any losses. The losses of their personal investment and honoring the guaranty have totaled about $9 million.

But the state argued that it was immune from liability and owed no special duty to Prows and Wood to cover their financial loss, a statement from the attorney general's office said.

"At oral argument, we felt confident that our position would be supported," assistant attorney general Steve Sorensen said. "I am delighted with the results of the hearing."

The plaintiff's counsel was "obviously disappointed" in the ruling.

"There is a likelihood it will be appealed," said attorney Dennis Poole, who represents Prows and Wood.

The pair have also filed a $5 million suit against KSL television, which aired the story on Foothill's deficient deposit insurance.

Poole said that case is still in its discovery stage.