Quartermaine chops award from almost $50 million to about $1.5 million
By consensus this week, the Sarasota City Commission agreed to City Attorney Robert Fournier’s request for a “shade” meeting next month to discuss settlement negotiations and other strategies involving a lawsuit over the development of the Palm Avenue parking garage.
“Shade” refers to the ability of a local government to meet with its attorneys in a private meeting, as provided for, under specific circumstances, in the state’s Sunshine Law.
Fournier’s Aug. 20 comments followed on the heels of an Aug. 16 order from County Judge Erika Quartermaine, who presided over a May trial in the 12thJudicial Circuit Court. She reduced a jury award from $49,782,431 to $1,447,676.33 “with interest since the date of the Verdict” on the issue of lost profits to Buck-Leiter Palm Avenue Development LLC. That was the firm the city initially chose for the Palm Avenue garage project and related construction.
Quartermaine agreed with Buck-Leiter that the city was liable for breaching the city’s Initial Redevelopment Contract (IRA) with the firm. Then-Mayor Lou Ann Palmer executed that document on behalf of the city on Nov. 13, 2007, court records show.
However, Quartermaine denied the company’s motion seeking recovery of its out-of-pocket expenses for the work on the Palm Avenue proposal. Jack Buck of the Buck Co. testified that Buck-Leiter “incurred out-of-pocket expenses in the amount of $1,447,676,33,” Quartermaine wrote. “This includes payments made to the City and outside consultants in the amount of $497,676.33 [and] salaries in the amount of $950,000.”
(John Buck established the Buck Co. in Chicago, which developed several Wacker Drive office towers and the North Bridge retail complex and North Michigan Avenue, Crain’s Chicago Business noted in a March 2012 article.)
Quartermaine ordered the parties to conduct mediation within 45 days of her order, with the expense “to be borne by the City.”
That order was what prompted Fournier’s comments to the commissioners on Aug. 20, he noted.
Both the city and Buck-Leiter will be considering appeals, Fournier told the commissioners.
The case centered on the City Commission’s decision in July 2008 to back away from the initial agreement with Buck-Leiter regarding construction of the Palm Avenue parking garage and a mixed-use project adjacent to the garage. Buck-Leiter had proposed 150 condominium units in an 11-story tower; an eight-story business class hotel with 140 rooms; approximately 24,500 feet of retail space; and the garage, with 400 public spaces and about 300 more for hotel patrons.
That plan came in response to a 2006 Request for Proposals (RFP) from the city, which wanted to develop the 2.25-acre parcel it owned on Palm Avenue, Quartermaine wrote in her Aug. 16 order. At the outset of the RFP process, she explained, the primary objective for the city was to provide 400 parking spaces and management of the parking area; “attainable housing units, ‘exemplary architecture’; and certain financial benefits to the City.”
Among the responses to the city’s RFP was a joint proposal from The Leiter Group and the John Buck Co., Quartermaine noted in her order.
“In an effort to best understand the development proposals,” she continued, “the City hired an independent firm named Economic Research Associates” to prepare a report. Dated Nov. 10, 2006, that ERA report said the firm based its analysis on “information provided by the developers in response to the format and content” it and the city had requested.
That report estimated the Buck-Leiter project would cost $102,696,000, Quartermaine continued, with total revenue for a 10-year period estimated at $149,045,959. That meant the approximate amount of net revenue to Buck-Leiter would be $49,782,431, “(the same amount as the Verdict],” Quartermaine pointed out.
Explaining the lower award of damages
Before the jury in May approved the award of almost $50 million to Buck-Leiter Palm Avenue Development LLC, Morgan Bentley of Bentley & Bruning of Sarasota — the city’s counsel in the case — made a motion for a directed verdict.
Quartermaine wrote in her Aug. 16 order that, based on a 2009 ruling by the Florida 2ndDistrict Court of Appeal, “A directed verdict should be granted ‘when there is no view of the evidence or inferences properly made from the evidence that could support a verdict in favor of [the other] party.’”
In regard to damages in the Buck-Leiter case, she continued, the city argued that “a directed verdict must be entered as to Buck-Leiter’s lost profits analysis because [the firm’s] evidence was speculative.”
Quartermaine cited Florida case law as the basis for her decision to reduce the jury award. “Mr. Buck’s calculations were simply what Buck-Leiter hoped or wished to make and they failed to take into account the myriad of outstanding variables and changing circumstances which existed from the time the parties entered into the [Initial Redevelopment Contract] IRA with the City until the City terminated the Project on July 18, 2008.”
She continued, “Most significantly, as was addressed at the City Commission meetings, after the execution of the IRA, the economy took a significant downturn and real estate values had changed. The fact that Mr. Buck’s calculation [of $55 million for lost profits] was actually slightly higher than the [profits] estimate of the ERA Report ($49.8 million) — a report that was completed in 2006 when the Project was a mere idea and the economy was better — corroborates the conclusion that the realities of the Project and the economy were not taken into account.”
Negotiations never concluded
After the city selected the Buck-Leiter proposal — on March 23, 2007 — staff began negotiations with the firm, Quartermaine explained in her order. IRA provided for construction of the project in two phases. The first would consist of a 453-space parking structure, a 77,000-square-foot hotel, 18,500 of retail space and a paved parking area, she continued. The second phase would include 150 condominium units — 15 of which were to be affordable housing units — an additional 6,000 square feet of retail space and an expansion of the garage.
“The IRA specifically contemplated a second agreement, the Final Redevelopment Agreement,” Quartermaine wrote, “which would include all of the terms of the IRA (absent an agreement to the contrary),” along with other issues such as lease payments from Buck-Leiter to the city.
The city and Buck-Leiter continued to negotiate terms past their Feb. 15, 2008 deadline for entering into the Final Redevelopment Agreement, she pointed out. During special sessions of the City Commission on March 19 and March 21, 2008, she added, the parties still had “a multitude of issues outstanding,” including the decreased value of the real property and the company’s “need to move forward with its lenders and investors.”
Quartermaine further noted that Buck-Leiter was waiting on the city to issue bonds “pursuant to the IRA,” with those bonds setting “the discount rate so that Buck-Leiter could best estimate its costs and move forward with the Project.” Yet, she added, the city never issued the bonds.
One important factor, she noted, was that “the Florida Constitution and case law do not allow communities to subrogate their interests in land for private development purposes, [so] the City would have had to transfer the [Palm Avenue] land to Buck-Leiter. The result of this would have been to ‘weaken the City’s long term security position for lease payments in the future,’” she quoted from a July 17, 2008 staff memo to the City Commission.
Therefore, the city’s Finance Department concluded that the bonds would have to be taxable, Quartermaine continued.
For those reasons and others, she wrote, staff recommended during the July 17, 2008 City Commission meeting that the project was unacceptable. The commission then voted 3-2 to move forward with other alternatives.
Quartermaine wrote in the order that evidence in the record supports Buck-Leiter’s claim that the city “materially breached the IRA by failing to act in food faith.”
She continued, “Finally, the Court notes that what was ultimately built [on Palm Avenue — the garage and the Art Ovation Hotel next to it —] was very similar to what Buck-Leiter had proposed.” She added that the company provided evidence to support its position that both parties ignored the deadline in the IRA and continued to negotiate terms. As a result, of those findings, Quartermaine wrote, the court agreed with Buck-Leiter that the city was liable for breaching the IRA.