Friday, January 4, 2013

Federal Court rules in favor of Old Cutters

Hailey loses claim to $2.5 million of unpaid annexation fees

Express Staff Writer

As the result of a decision in federal bankruptcy court, the city of Hailey will not be allowed to seek payment of about $2.5 million in unpaid annexation fees from Old Cutters Inc., nor will it be able to require Old Cutters to build 20 affordable housing units in the partly built 108-unit subdivision in east Hailey.

A memorandum of decision issued by the federal bankruptcy court in Boise on Dec. 31 addresses several claims and counterclaims by the city, Old Cutters and Mountain West Bank over payments of fees, loans and the legality of liens on the property.

Federal Judge Jim D. Pappas stated that based on several Idaho court decisions, Hailey’s annexation fee of $3.8 million, contained in a 2006 annexation agreement, was “unquestionably in excess of” that required to compensate the city for actual costs resulting from the annexation.

Old Cutters has paid $1.3 million in annexation fees to the city already, none of which the developer sought to be refunded. 

Pappas cited emails between City Attorney Ned Williamson and City Clerk Heather Dawson that he said indicated “Hailey’s abandonment of any attempt to allocate only direct costs to Old Cutters resulting from an annexation in favor of an approach designed to generate revenue for the city.”

The document details a nearly three-year period in which annexation fees were increased from about $800,000 to $3.8 million, during which time developer John Campbell was trying to sell lots in the subdivision. In December 2011, Campbell sought relief from debts under Chapter 11 in bankruptcy court. 

“There is an unresolved question of fact concerning whether Old Cutters, under these circumstances, agreed to, or was financially compelled to consent, to the excessive annexation fee,” Pappa wrote.

The decision states that in 2008, Old Cutters acquired a $13 million loan from Mountain West Bank to develop lots in the subdivision for eventual sale. That led to Mountain West’s vying with the city in bankruptcy court for a first lien on property at Old Cutters subdivision, to secure payment of debts.

The court ruled that since Old Cutters is no longer required to make payments to Hailey, the city’s lien on property at Old Cutters is moot and invalid.

The court also denied the city any right to enforce a requirement that Old Cutters build affordable housing in the subdivision, on the grounds that there is no state law to support the requirement.

“Just as with the excessive annexation fee, Idaho Code has no express provisions and grants no implied authority to Hailey to require Old Cutters to include community housing in its development as a quid pro quo for its agreement to annex the property,” Pappa wrote.

A phone call to the city of Hailey seeking comment on the decision and on the city’s plans was not returned by press time Thursday.

Tony Evans:


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