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HomeMy WebLinkAbout1976-05-07 Correspondence6 TO: JOHN BALMER, CAROL dePROSSE, L. P. "PAT- FOSTER, JR., MARY NEUHAUSER, DAVE PERRET, MAX.SELZER, ROBERT VEVERA You and each of you are hereby notified that pursuant to the authority vested in the Mayor of the City of Iowa City, Iowa, or under State Law and the Ordinances of the City of Iowa City, Iowa, as Mayor I hereby call a special meeting on May 7, 1976 at 11:00 o'clock A .M., to be held in the Conference Room of the Civic Center of Iowa City, Iowa. The meeting is called for the purpose of discussing litigation,. Eastham vs. the City of Iowa City. 1976. Dated at Iowa City, Iowa, this 6th day of May �—1/IU AAIl. AACIIQlfdIi.�r� Mayor L/ C,t A3y C ity ClerI k ,, • IN THE IOWA DISTRICT COURT IN AND FOR JOHNSON COU14TY CHARLES EASTHAM, HAROLD BECHtOLDT, ) and JEANNE SMITHFIELD, ) Plaintiffs, ) Vs. CITY OF IOWA CITY, IOWA, a Municipal Corporation, Defendant, OLD CAPITOL ASSOCIATES, Intervenor, ( FLO BETH EHNINGER, HENRY W. PIRO, SAMUEL BECKER, RICHARD F. DOLE, JR., KENNETH C. DREUSICKE, MARCIA WEGMAN, KEITH B. KAFER, RALPH L. OXFORD, JIM GALIHER, WILLA J. DICKENS, JOHN B. HARPER, JEANETTE B. MADSEN, ROSALINE M. MOORE, JOSEPH W. HOWE, EARLE F. MURPHY, ERNEST W. LEHMAN, FAYE H. STRAYER, ALLEN H. ARNESON, HENRY W. FOX, HAROLD A. O'KEEFFE, WILLIAM R. WHITEIS, STEPHEN M. STEWART, KEVIN HARTWIG, and MARTY E. SIXT, Intervenors. i Equity No. 43095 MEMORANDUM DECISION (containing findings of fact and conclusions of law) Z:, T M T W n � r J. r This action for injunction was tried to the Cpurt. Evidence was received on April 12, 13, 14, 15, and 19, 1976, and the -issues submitted, subject to the filing of written briefs by the parties. Said briefs have now been duly considered, as has the evidence in the case, and the Court finds and concludes as follows. PRELIMPJARY CONSIDERATIONS Preliminary to reaching the merits of the dispute, the Court must consider issues tendered by the City and the Intervenors as to (a) Plaintiffs' standing; (b) Plaintiffs' motives; and (c) Plaintiffs' delay in initiating this action. Standing The City and Intervenors suggest that as to the matters raised in Division I of the petition (frustration of competitive bidding) only an unsuccessful bidder has legal standing to assert such claims. The decision in Inn Operations, Inc., v. River Hills Motor Inn Comoany, 152 N.w.2d 808 (Iowa 1967), indicates the contrary. Taxpayer status is more nearly essential to invoke such claims than unsuccessful bidder status. Clearly the Plaintiff Harold Bechtoldt has taxpayer status in the City of Iowa�fity J omrn cr, and this makes it unnecessary to pass upon the standing och other plaintiffs. It is necessary to have only one P la Tr with standing to reach the merits of the controversy. s .,,it claims of Division II and III, taxpayer status would appeal torn suffice. In addition, as to the Division III claims, standing to assert such claims may also have been conferred upon "any elector" by former Section 368.39 of the Code of Iowa effective at the time these claims arose but repealed as of July 1, 1975. Suffice it to say that collectively the Plaintiffs have legal - standing to assert all of the claims advanced by them in this litigation. See also Gritton v. City of Des Moines, 73 N.W.2d 813 (Iowa 1955). Plaintiffs' Motives -Tl The City and Intervenors)assail Plaintiffs' motives in f bringing this action. No evidence has been offered to establish any improper motives on Plaintiffs' behalf. The Court does not necessarily accept Plaintiffs' contentions that they are seeking primarily to stamp out illegality in government and believes it more reasona'le to assume their motives are in reality to subvert the urban -renewal project of which they disapprove by any legitimate means available to them. -2- But there is nothing improper 0 in this. Plaintiffs are entitled to their day in court on the merits of the technical legal issues asserted regardless of whether their primary motivation may be based on broader philo- sophical differences with the proposed governmental action. Delay in Bringing Suit The Citv and Intervenors claim that Plaintiffs should be barred by laches from asserting their claims because of their dela;: in bringing suit after they had knowledge of the matters of which they complain. Similar claims were made in the case of Duskin v. San Francisco Redevelopment Agency, 107 Cal.Rptr. 667 (Cal.App. 1973), which, like the present case, pertained rto Es orn Rl of L governmental action taken pursuant to an urban -renewal 22�1. The-�.1 �7-2 a) i Court held that in order to establish laches the City hs show the Plaintiffs were guilty of "Unreasonable or uneg pdti delay." In the instant case the Court feels that the Plaintiffs have clearly demonstrated that their delay in bringing suit was reasonable because of two reasons. First, the possibility of a political solution to the problem as a viable alternative to.� litigation could not totally be discounted at various stages of the relevant proceedings. Second, there was some cause to believe that the Cit_' itself might seek a legal adjudication of at least some of the utters now raised in Plaintiffs' lawsuit. Until these alternatives were clearly seen as unavailable, Plaintiffs understa-dably hoped to avoid the expense and trouble of their own lawsuit. TF E NATURE OF THE CLAIMS ASSERTED Fairly su.-.marized in language somewhat different from that employed by the parties, the following issues are presented for adjudication in this action: 1. Whether the City has permitted amendments to its written agreement with the Intervenor Old Capitol Associates -3- (Old Capitol) which are without adequate consideration under general municipal contract law or statutes enacted with respect to same. Z- Whether the contract with the developer, as amended, even if based on adequate consideration, so substantially changed the standards established in the invitations to bid that the statutory requirements for competitive bidding on the development have therebl been frustrated. 3. Whether the City has conveyed or agreed t o "Veyc; City -owned property, not an integral part of the urban -r" *w Wsi1y. -T1 project, directly to the developer "� o f— P (Old Capitol) for a 1"v' (Tl Shan an adequate consideration.CD T_ fC� The Potential for Encroachment �-" ca Upon the Legislative Function Initially, it should be noted that many of the conten- tions voiced by the Plaintiffs in this action are merely attempts to remake what are essentially prior legislative determinations of the City's local governing body acting as local public agency under the proposdd urban -renewal project. If the Court were to decide in favor of the Plaintiffs on those issues, it would be effecting an unwarranted transfer of power from the appropriate Public officials to the courts. This, of course, should not be permitted whether or not the particular legislative determinations may be viewefl as wise or unwise. It should also be noted that the primary purpose of a redevelopment Project of the type involved in the prese^t controversy is by definition a public purpose, and any benefits which may inure to private individuals as the result thereof are merely incidental to that public purpose. It is believed that application of the foregoing principles to the present controversy requires that the issues numbered (1) and (3) above be resolved adversely to the Plaintiffs. -4- The Addendums Issue Number One (raised in Division II of the petition) concerns the validity of the various addendums to the contract between the City and Old Capitol. With respect to the council action in approving such addendums to the agreement, it is to be noted that Section 403.8 and Section 403.12 of the Code of Iowa (when read in light of purposes of Chapter 403 in its entirety and the definitions set forth in Section 403.17) confer extremely broad powers municipalities acting as local public agencies under 4 Section 1460(h), and their governing bodies to act in of the objectives of a proposed urban -renewal project. z'fi ,.c -r := so conferred are clearly designed to be broader than those traditionally held by municipal governing bodies. c x4ers cD Within the context of the issue now under discussion, which is the consideration to the City for the various addendums to the agreement, it is submitted that consideration cannot be defined in traditional terms. It must be considered in terms of the purposes sought to be achieved and the alternatives' available for achieving such purposes. Under such standards, it is believed that the action of the local governing body, in approving the addendu.-ms in question, must be sustained if carried out in reasonable furtherance of the provisions of the urban -renewal plan and the enabling legislation. See State v. Land Clearance for Redevelopment, 270 S.W.2d 44 (Mo. 1954). In applying this standard the Court finds that all of the challenged addendums were negotiated in good faith and were within the power of the council to ap?rove, except as limited by the requirements for competive bidding. Transfer of Property Not in the Urban -Renewal Project to Old Capitol The Court feels that the consideration to be received -5- 0 n u by the City for the agreement to transfer certain City -owned property not located in the urban -renewal project to Old Capitol was within the discretion of the council to establish incident to its authority to carry out the urban -renewal project. It must be noted that on the record presented Plaintiffs established that the City did not receive fair market value as a result of the celebrated "air -rights swap" for 52,700 square feet of property located in Block 101 plus the Capitol Street right -of. F1 immediatelyto the west of said block. The Court find Pthdt the. �� .T -- City's evidence seeking to establish fair market value :-wcttEi�ba, upon an unrealistic evaluation of the respective barga`k1g, N c� position of the parties in an arm's length transaction. For some unexplained reason the City, almost as soon,as the negotiations on this proposed swap commenced, started bidding against itself. The result was to permit the developer to acquire full utilization of Parcels 83 and 84 for all purposes contemplated by the urban - renewal plan without, in fact, paying the fixed price consideration allocated thereto in the land marketing documents. In spite of the findings just made, the Court, concludes that the transfers challenged in Division III of the petition were Within the power of the council to make for less than fair market value. Clearly if the property had been conveyed directly to the local public agency for utilization in the project, this could have done without consideration. Section 403.12 of the Code of Iowa See Subsections (1) and (4) of while the challenged conveyance was directly to the developer, it was effected in good faith and in furtherance of the City's general purpose to carry out both thy., urban -renewal plan and its established off-street parking policies. See particularly Section 403.12(1)(c) as incorporated by reference in Section 403.12(4). As previously noted, the primary purpose of this entire project was a public Ll • Purpose, and any benefits to the developer as a result are only incidental thereto. Thee Public Biddi'n gRe �� meRtsof nablin Le islatio—,Z The claim made in Division I of Plaintiffs' petition concerns whether or not the contract between the City and Old Capitol, as amended, even if valid under the principles previously discussed, is nonetheless invalid because it frustrates the competitive bidding procedures required by law. The applicable standard is stated in Inn 011perations, Inc v. River Hills Motor Inn 261 Iowa 72, 152 N.W.2d 808, 817 (1967)• o 1;m Q "The municipal authorities should oc S not be permitted to waive any substantial �fa!��• - variance between the conditions under which jE a > ,� ' the bids are invited and the propo.�als m submitted. '� --= 0 If any bidder is relieved from " ^' conforming to the conditions which impose some duty� - upon him, or from strict pose Of the terms of the invitation to bid, is not contracting in fair , such bidder bidders who competition with those An indispensable element to beobound by all conditions. such sale is the existence of a all competitive proposals common standard to which proposals alike relate." This requirement for competitive bidding is statutorily required by the urban renewal enabling legislation. See i Section 403.8 of the Code. The issue raised in Division I of the plaintiffs' petition, unlike tie issues previously considered, does not involve a matter Of the legislative discretion of the council. There is tion to cir no discre- cumvent the competitive bidding requirements of the statute. The issue thus becomes the rather narrow one of whether there was substantial compliance with the statutory mandate. More specifica'_ly as to Plaintiffs' claims the issue becomes whether or not the City, after the deadline for submitting bids, waived a substantial variance between the fixed conditions under which bi(is were invited and the proposal of the successful bidder. -7- 0 U Under the holding in Inn operations Inc., supra, this would invalidate the City's acceptance of the bid. The City, on the project here involved, chose to market the parcels for redevelopment under the fixed price method. Price was fixed and was not an element of competition. All proposals were to be judged on the basis of (a) architectural excellence; (b) compatibility of the proposed improvement with existing structures and lanarP"n uses; tL� G' _n (c) sensitivity to the pedestriano m orientation objectives of the Urban o� L i- -Renewal s:: � rn Plan;p ocrTi tv (d) financial feasibility of the— proposed development; and `o (e) the qualifications and experience of the developer. Plaintiffs do not challenge this method of marketing the parcels. Since price was not an element of competition, the Potential detriment to the City, in the event the competitive bidding requirements were frustrated, would result not from..lower bids but from fewer qualified developers bidding on the project. i While the Plaintiffs assert several variations between the invitations for bids and the final contract, one such variation is found to be so substantial as to be dispositive of the issue. Plaintiffs urge that the Old Capitol proposal and the contract under which the City accepted the proposal varies from the land marketing documents in that it deletes the require- ment of Section 304, Part II, that "the submission of construction Plans and their approval by the agency and the submission of evidence of equity capital and commitments for mortgage financing . . . are conditions precedent to the obligation �E 0 0 of the agency to convey property to the redeveloper."1 Instead of enforcing this condition, the evidence shows the agree- ment entered into between the City and Old Capitol, which consti- tutes the acceptance of the developer's proposal, provides that construction plans could be submitted within ninety days from the date for commencement of improvements. This is a significant variance because in the original contract only six of fifteen parcels had commencement dates prior to the time title to the land was to be conveyed to Old Capitol. Now, as a result �bsequent -7 Com; addendums, only three parcels have commencement dates }S��,S� � 1 to conveyance dates. As to the requirement for evidenc'e?af equip capital and commitments for mortgage financing, the ag_'_j nt''with -" LO old Capitol waives the requirement that such evidence be submitted prior to conveyance of land to the developer for "property upon which construction is scheduled to begin after March 1, 1976. This originally affected nine of fifteen parcels and currently all but three of the parcels. After the project was advertised, the City, through letters drafted by Mr. Klaus, Urban Renewal Director, for the signature of the City Manager, undertook to advise potential bidders in writing as to requested clarification of the land marketing documents. The deadline for submitting bids was October 18, 1973. On August 22, 1973, prospective bidders were advised in writing by the City that with respect to the land marketing documents: 1This deviation is not specifically alleged in Para- graph 6 of Division I of the petition; however, Plaintiffs offered evidence on this issue at the trial without objection and strenuously argue it in their written brief to the Court. Said deviation is the first item of potential variance suggested to the council in the City Attorney's opinion of April 15, 1974. It, therefore, cannot come as a surprise to the City or Intervenors that this was an aree. of contention in this lawsuit, and the Court concludes that the issue was tried by consent of the parties as contemplated by R.C.P. 249. Plaintiffs may amend to conform to the proof. "The provisions of Section 304 are self-explanatory. The intention is of course to make it clear that the City will not convey property until such time as the redeveloper has obtained approval of construction plans and has submitted evidence of financing as called for in the redevelopment agreement." Later on September 19, 1973, prospective bidders who questioned whether the City meant what it said in the August 22 communication were advised: "We can ascertain no conflict between Section 304 and the other provisions of the Contract. Prior to delivery and conveyance ofr� E each parcel by the City, the developer must ;m obtain approval of construction plans and sh&s_'•- _T1 evidence of equity capital and commitments folr'EE r mortgage financing for each specific stage o '. M take-down. lie have conferred with the FederzaE — -o O Department of Housing and Urban Development anLL= this matter, and they have confirmed that this =� rJ is not a negotiable issue in the signing of a -to contract." The evidence clearly shows that these changes were of critical significance. They permitted Old Capitol to bid on a 32 million dollar project with only $500,000.00 available capital and a plan to obtain the rest by "roll-over financing" (selling improvements as they were completed). If the City had not waived the requirements of Section 304, Part II of the land marketing documents, this would not have been feasible. It was the testimony of Mr. Klaus, former Urban Renewal Director for the City, who at the time of trial was an employee of Old Capitol, that no knowledgeable developer would have attem-pted this project had not the Section 304 requirements been waived. The City and Intervenors now seek to avoid the clear legal import of the competitive bidding requirements on the Old Capitol transaction by arguing that any other knowledgeable developer who was interested would have proceeded just. as Old Capitol did and submit a conditional bid requiring waiver of the Section 304 requirements. This requires the conclusion that -10- n U these other knowledgeable developers would not only assume that the conditions of the land marketing documents did not really mean what they said but also that the City did not mean what it said the conditions meant in communications to bidders less than a month before the bidding closed. The Court finds such suggestion to be untenable. The land marketing documents cannot fairly be construed to call for conditional bids on the fixed requirements of Section 3042; the City's position was that the matter was not negotiable, and a bidder was required to make a deposi.l ;.oma than $200,000.00 in order to bid. s o I O y Old Capitol was getting the same advice from 990_�iEy 0 as the other prospective bidders as late as September 1973-a On that date Mr. Klaus wrote to Mr. Jay Oehler, an officer of`o Old Capitol, and enclosed a copy of a letter drafted by special legal counsel for the City. This letter stated, in part: "In addition your attention is called to the fact that the redevelopment contract contained in the bidding documents specifies that as a condition precedent to our obligation to deliver and convey property, the redeveloper must show that he has mortgage financing committed for each specific stage of the takedown. You are referred to the redevelopment contract contained in the bidding documents which requires submission and approval of construction plans prior to conveyance of title along with submission of necessary loan commitments." In spite of this rather clear directive, the offer to purchase submitted by Old Capitol provided: "The Land Marketing Documents seem to indicate that construction plans and financing for each portion of the development are to be submitted and approved prior to the delivery of title. Since it is required that all land be 'taken -down' by March 1, 1976, and the proposed 2Zndeed, it would appear that the acceptance of condi- tional bids on matters that were advertised as fixed bidding standards would be a per se violation of the competitive bidding requirements. -11- 0 0 development plan covers a six-year span, All through 1979, it will not be possible to meet Parto2Ithe requirements of Section 304 of the Contract for Sale of Land for Private Redevelopment.' These requirements Coll, however, be met before construction is ar aenced in any portion of the redevelopment Thus, the situation Presented is clearly one where even Old Capitol recognized in its bid that Section 304 was a requirement Of the land marketingdocuments uments and sought to be relieved of such requirement after the bidding was closed. This the City could not legally do in view of the competitive bidding re the statute and the controlling quirements of case law interpreting a;r!e In a finalattempt to save the EM contract from attack, the Cit ontafs� Y and Intervenors ur a -` =' 4 that since Old the only bidder on the project the Court cannot conclud-`��' -v Other bidders were, in fact t ^� . disadvantaged. This arqumenV is r according to the testimony - untenable both factuall Y and legally'. It is untenable because, . of witnessthe City's and Intervenors' own , Mr. Klaus the requirements of Section 304 were such as to make the development totally � y impracticable for knowledgeable developers. Thus, it can fairly be concluded that the/announced Position of the City that this item was not negotiable would completely stifle bidding on the project. If it deviation so significant were to be upheld simp;y because there was only one bidder, it Would open P the door to complete circumvention of the competitive bidding requirements by public agencies. All a public agency would have to do to avoid such requirements would be to draft the invitation for bids in such a manner as deter bidding buto completely t make it known to a single entity that certain onerous conditions could be waived after the bidding was closed. The purpose of the statutory requirement for competitive bidding is to prevent just such a situation from occurring. The -12- requirement is designed to be prophylactic. It seeks to avoid insider dealing in some cases by removing the opportunity for inside= dealing in all cases. The public is thereby assured of completely arms -length dealing by its elected officials. Consis- tent with this purpose, transactions which circumvent the clear intent of the statute must be voided even if there is no actual impropriety involved. There has been no showing of any intentional impropriety in the present situation, but for all of the reasons heretofore stated it creates an appearance of impropriety. The foregoing discussion is based upon the action of Ea the City in waiving the requirements of Section 304, PzEeTrI �f the land marketing documents after the bidding was conA 'Zl o M This deviation was alone so significant as to require a Knoe CD of the transaction. Plaintiffs do point to several other mwia co tions in the contract from the requirements of the land marketing documents. These have been considered by the Court and, while standing alone they might not require setting aside the trans- action, their cumulative effect, when considered with the changes made in section 304, buttress the finding that the City, in i accepting the Old Capitol proposal, deviated from the.definite common standards to which all competitive bids were required to relate. This finding requires that a decree be entered enjoining and restraining the City from proceeding further under its agree- ment with Old Capitol and, providing that with respect to trans- actions already taken pursuant thereto, that the parties act to restore the status quo. Such a decree will not be entered until expiration of time for filing motions relating to these findings of fact and conclusions of law and, if such motions are filed, until dispositi_n of same by the Court. -13- Dated this fourth day of May, 1976. cc: Washburn Hayek Honohan Hoy Jansen -14- i 0 �= THE 6TH JUDICIAL DISTRICT m crr+t7'l _ z r- -n :T— .i � a a Co