City
violated developer's civil rights
By
Jane Pribek
Wisconsin Law Journal
June
21, 2006
After
a jury found that a city violated the civil rights of a development company, a
federal magistrate judge has ordered it under 42 U.S.C. secs. 1983 and 1988 to
pay the company $804,499, an award that includes $275,000 in legal fees.
It’s
an unusual ruling, say the attorneys for the plaintiffs, Peninsula Properties
Inc., Richard Giesler and Lewis Krueger.
“It’s
fairly rare, because I think the general public and some judges traditionally
associate sec. 1983 claims with police brutality. They don’t normally think
that corporations, as well as individuals, have the right to be treated fairly
by government,” says Joseph A. Ranney, of the Madison office of DeWitt, Ross
& Stevens S.C.
Lead counsel for the plaintiffs, Howard B. Schoenfeld of
DeWitt, Ross & Stevens S.C. in Brookfield, adds, “It is a truly significant
verdict because the jury found that the actions and conduct of the city of Sturgeon
Bay ‘shocked the conscience.’ That was the burden of proof that we had
to meet.”
The
award was made after a six-day trial in January in Milwaukee, before U.S. Magistrate
Judge Aaron E. Goodstein in Eastern District of Wisconsin. The jury awarded the
plaintiffs a total of $529,029 in damages for two separate causes of action against
the defendant city of Sturgeon Bay.
Post-trial,
the defense moved for a new trial asserting a multitude of grounds, and the plaintiffs
moved for fees and costs. Goodstein denied the defense motions and made the plaintiffs
whole with his ruling.
Defense
counsel, Richard J. Carlson of Silton, Seifert, Carlson & Gamble S.C. in Appleton,
has filed a notice of appeal.
“I
disagree that they stated a claim, let alone proved one,” he says. Carlson
plans to appeal the matter “A to Z,” but he will focus primarily on
the contractual aspects of the dispute.
Disagreement
Over Land Development
The
case stemmed from a 1996 agreement between the parties to develop a convention
center and its surrounding area in a blighted area, a tax incremental financing
district, near the Sturgeon Bay Harbor.
According
to Ranney, about a year into the project, the developers’ architect proposed
a new design that would make better use of the waterfront. The developers went
to the city council and city manager to propose the changes, but also said they
would need to revise the agreement.
At
trial, the city disputed that it had agreed to revise the deadlines. Carlson says
that the developers had promised to complete the project within 15 months —
an “onerous” timetable, but that they nonetheless agreed to — and
there is no written record of any modifications.
The
city had given the developers incentives to build where they did, to encourage
other nearby development.
“Our
position was that the city was upset that the project wasn’t moving along
as fast as they wanted and therefore they weren’t getting the tax revenues
that they had expected,” says Ranney.
The
city essentially wanted a neighboring hotel, which was already near completion,
and three condominiums to all be built within a short amount of time, and said
that no building permits would be issued for the condominium buildings unless
the developers could do so. Reluctantly, the developers agreed, and three buildings
went up within a year and a half.
At
the end of that period, 9/11 happened and the real estate market for condominiums
in Door County tanked, says Ranney. They sat empty for several years, and plaintiffs
were left paying the mortgages and property taxes on them for that time.
The
jury agreed with the plaintiffs’ version of the facts, stresses Ranney, “And
the judge basically said, ‘If the jury concludes that the city was using
its building-permit powers to extract concessions that the developers hadn’t
agreed to, then that’s a civil rights violation, an abuse of governmental
powers to deprive the developers of their constitutional rights — the right
not to be deprived of a property interest.’”
The
condominiums were at the heart of the dispute, agrees Carlson. “I think the
jury found that the city was looking a gift horse in the mouth — ‘Why
are you brow-beating these guys on these condominiums when they upped the value
of the convention center by $5 million?’ … But we said it doesn’t
make any difference whether it increases the value of the project, and there was
no agreement to waive the time deadlines.”
Moreover,
it would be counter-intuitive for the city to express an interest in rapid completion
in the project, and simultaneously deny building permits, he says. It also would
have been unreasonable to expect the city to allow the developers to complete
the project at their leisure, many years after the original anticipated date of
completion.
The
other aspect of the case was that the city sold the land to the developers on
an installment plan, which did not require repayments as units were sold. As the
project progressed the city became frustrated, and said it would withhold partial
releases of the mortgage. In doing so, they prevented the condominium sales from
closing, says Ranney. The developer made inquiries as to what they could do to
get these partial releases, but every effort was rebuffed.
Carlson
disagrees with this characterization of the facts. He reminds that the city did
release 65 out of 67 of the commercial mortgages, and seven out of 18 for the
residential properties, but became nervous about releasing the rest after some
of the developers’ financiers filed for bankruptcy in 2002. The city met
with the developers many times to explore solutions.
The
judge held that the jury could consider the plaintiffs’ evidence of “stonewalling”
in the negotiations and decide if it was a violation of procedural due process.
It did.
The factual issues are complicated, concedes Carlson. “I think
the jury took the simple read on this case.”
A
Full Fee Award
On
May 8, Goodstein issued a decision denying the defense’s post-verdict motions
and making the fee award in the entire amount that the plaintiffs requested, nixing
the defense’s suggestion to reduce the sum by 20 percent.
Goodstein
referenced an earlier decision he rendered on motions for summary judgment: “This
court believes the plaintiffs have presented a viable case for a substantive due
process violation. Under the factual scenario raised by the plaintiffs, it is
simply not the refusal of the City to issue building permits, but the city’s
use of its authority in order to impose conditions upon the developers… [The
City] refused to act as a means to coerce a citizen to take unwarranted action.
As alleged in plaintiffs’ version of the facts, this constitutes an abuse
of authority which does shock the conscience.”
With
regard to the partial mortgage releases, the issue centered around whether the
developers had “a meaningful opportunity to be heard” after the city
refused to issue them.
Goodstein
wrote, “Simply rejecting the Developers’ proposals would not be sufficient;
the jury had to be convinced that the city was not really listening, and that
the City did not really provide a forum within which the Developers could be heard.
... The parties argued their contrary positions based on the same evidence, and
the jury accepted the scenario presented by the plaintiffs. End of story.”
As
for the fee award, Ranney and Schoenfeld billed the plaintiffs at a rate of $230
per hour, which the court found reasonable.
Goodstein
complimented their submission. “This Court has rarely seen such a comprehensive
presentation in support of attorney fees.” He also wrote that their time
spent on the case seemed reasonable, and that they split their duties without
duplication of effort.
Ranney
says, “We tried to be very careful not to over-claim. For example, there
was another defendant who settled out of the case early on, and we made sure we
excluded that time, or time on any unrelated things. But out of the $275,000,
about $250,000 was legal time, which is a large attorney fee award, because it
was a big case that took a lot of time to do right.”
“The
city’s actions made life, financially, very difficult for our clients, and
they felt very strongly about the whole situation. They felt that they had been
unfairly treated. They stuck to their guns, and fought the good fight.
“Too
many people think, ‘You can’t fight city hall.’ They wanted to
prove that when you really are being treated unfairly, you should fight city hall,
and sometimes you can actually win.”
The
case is a reminder that municipalities and those who do business with them should
maintain good written records, adds Schoenfeld. In addition, cities should establish
fair procedures for dealing with their citizens, and follow those procedures consistently.
Finally, a lesson for litigators from the case, if a fee award is anticipated,
is to always keep accurate time records and keep reasonableness in mind, knowing
that your efforts will undoubtedly be closely scrutinized when it’s time
to make that request.
Carlson
billed his client close to half of that, $135 per hour. Plaintiffs’ counsel
was “pricey,” he observes, but he does not plan to contest the fee award
in the appeal because he believes that his client will prevail on other grounds.
