City violated developer's civil rights

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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.