Paul McKee’s lender, the Bank of Washington, sued two ÃÛÑ¿´«Ã½ economic development offices Friday in the first volley of the brewing legal battle between the city and developer.
The lawsuit filed Friday in Franklin County Circuit Court accuses the city’s Land Clearance for Redevelopment Authority and an affiliated branch of fraud, negligent misrepresentation and unjust enrichment. The bank is represented by the same lawyers who represent McKee: Stone, Leyton & Gershman.
Litigation was expected after the city accused the controversial developer last month of defaulting under a 2009 agreement granting his NorthSide Regeneration development rights to a 1,500-acre swath of north ÃÛÑ¿´«Ã½. The city argued that it was time to allow other developers a shot at developing the area. McKee’s attorneys say the city wants to hand it over to “favored†developers now that the future $1.7 billion campus of the National Geospatial-Intelligence Agency — a development McKee helped attract — is planned there.
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A month after details came out regarding questionable tax credit transactions, the city is accusing the developer of breaching his development agreement.Â
At issue in the lawsuit is whether the city has complied with agreements executed by the LCRA and its director, Otis Williams, as the city haggled in 2015 with McKee’s NorthSide Regeneration company for land to assemble the 99-acre NGA site.
The documents, known as the “Future Assurances Agreement,†committed the city to hold off on declaring default under the development agreement — a threat during the NGA land negotiations — and to give the developer more time to commence construction. In exchange, McKee agreed to deed over land for the NGA site and the Bank of Washington agreed to release its liens on the property. They also agreed to assign future revenue from a tax increment financing district, or TIF, to pay for the NGA site preparation.
The NorthSide Regeneration developer accused the city of violating a seperate agreement negotiated during the effort to land a $1.7 billion federal facility.Â
With the commencement of construction on a $20 million convenience store and grocery north of downtown this year, McKee’s attorneys say the developer has met his new development thresholds under the future assurances agreement.
Since the future assurances agreement among the bank, McKee and LCRA, the two sides were supposed to negotiate a new development agreement, which would have been approved by the Board of Aldermen and mayor, but a new deal was never reached.
The bank, in its lawsuit, said the city falsely represented that it would agree to a second development agreement similar to the future assurances agreement and submit it to the Board of Aldermen. It also said the city falsely claimed it wouldn’t declare default if McKee met his new development thresholds under the agreement.
It accuses the LCRA of falsely acting as if it had authority to negotiate the Future Assurances Agreement and says the city is now taking the position that it is not bound by those agreements.
The Bank of Washington says in the lawsuit that the city’s false representations tricked it into agreeing to release its liens on the NGA property and allowing NorthSide to transfer the TIF revenues to support the project.
The bank asks the court to rescind the future assurances agreement and restore the bank’s liens and interest in the TIF revenue. It offers to return what it received from the city — $5.3 million for the NorthSide land and liens on it from other McKee lenders the city acquired for $7 million.
If the court decides that the LCRA couldn’t bind the city to the promises in the Future Assurances Agreement, Bank of Washington says the court should return its liens and interest in the TIF revenue.
Williams, the LCRA chief, said in an email that the city had received the lawsuit and “will thoroughly review and respond appropriately.â€