Contending that it had complied with state law and that an agreement entered into voluntarily should be enforced, the city of Hailey will appeal a U.S. District Court decision barring it from collecting $2.5 million in remaining annexation fees from Old Cutters LLC.
The City Council unanimously voted on Monday to file a petition with the federal 9th Circuit Court of Appeals. The council’s decision followed a ruling by U.S. District Court Judge Edward Lodge on March 31 that reaffirmed a federal bankruptcy court ruling made in 2012.
In 2006, the city and Old Cutters negotiated an annexation agreement that included a fee of $3.8 million, to be paid in installments. Developer John Campbell also agreed to build 20 affordable-housing units in the east Hailey subdivision.
The city has already received $1.3 million from Old Cutters.
However, the bankruptcy court ruled that Hailey’s annexation fee was “unquestionably in excess of” that required to compensate the city for actual costs resulting from the annexation. The bankruptcy court also ruled that the city lacked authority to enforce an affordable-housing requirement.
In a news release issued Tuesday, the city stated that it was going ahead with the appeal because “the federal court incorrectly applied state law and did not give appropriate weight to the annexation agreement that the developer had negotiated and signed.” The city stated that it would not have approved the annexation if it had thought that the developer would not follow through on the agreement.
“The court’s decision, if not reversed,
will have significant impact on past and future annexations.”
City of Hailey
“State law sets forth a procedure for annexation. We feel we complied with that,” City Attorney Ned Williamson said in an interview.
Williamson said the city “fulfilled its promise and provided services to the Cutters project.”
Contending that the annexation negotiations were rigorous, Williamson said “the developer and the city came to a consensus on many, many points.”
Six years later, however, Campbell filed for Chapter 11 bankruptcy and challenged the legality of the annexation fee.
Williamson contended that based on the legal doctrine of estoppel, which prevents someone from making a claim inconsistent with a previous position, Old Cutters should be prohibited from challenging the fees.
However, Campbell said “a deal is not a deal if one party is acting illegally,” or has no authority to make the deal.
“Since the annexation fees and community-housing clauses of the agreement between Old Cutters and Hailey are illegal, they are unenforceable,” he said.
Campbell said he was “shocked and perplexed” by the decision to file a second appeal.
“Both judicial opinions are clear in stating it makes no difference that Old Cutters agreed to these demands,” he said. “Continuing to argue an indefensible case, while spending significant sums of taxpayer dollars, does not constitute responsible leadership. City residents will suffer financially, and justifiably be upset with city leadership for appealing yet again.”
The city news release suggests that the case sets a disquieting precedent.
“The court’s decision, if not reversed, will have significant impact on past and future annexations in Hailey and throughout the state of Idaho,” the release states.
Williamson said the appeals court could take as long as two years to make a decision.
The news release states that the city proposed to end all litigation by offering to reimburse Old Cutters for $110,000 in attorney fees in return for Old Cutters’ agreement not to proceed with a suit seeking a waiver of water- and sewer-connection fees and development-impact fees. However, the release states, Old Cutters rejected the proposal.
Williamson said the fee waiver is worth $816,000. Despite the city’s offer, he said, the city believes Old Cutters is not entitled to the waivers since it agreed that those fees would not be included in the annexation fee.
Campbell vehemently disagreed.
“The language in the annexation fee agreement almost exactly matches the development-impact fee ordinance,” he said.
Campbell said he would still prefer to negotiate those fees with the city.
“I don’t want to file a suit,” he said. “I believe that if two reasonable parties sit down at a table, they can work out just about anything.”
In the meantime, he said, “it’s dumb to waste city dollars on an appeal that you have no chance of winning just because you can’t exact another promise.”