Tooele City must pay either $1.6 million or post a security bond for that amount if it wants to avoid making annual payments to a developer while it appeals a $20.7 million judgment, according to the state’s highest court.
In a ruling issued Friday, the Utah Supreme Court denied a request by Tooele City to approve a resolution passed by the Tooele City Council in December 2013, which promises to pay the $20.7 million to Tooele Associates if it loses the appeal. Tooele Associates is the developer of Overlake.
Tooele City asked the court to accept the resolution as sufficient security to comply with a new state law and put payments of the judgment on hold during the appeal.
That law, which was passed by the legislature in 2013, requires municipalities to post security in the form of cash or a bond for the amount of a judgement in excess of $5 million, according to the court’s decision.
“To stay a judgment, Utah Code and Utah Rules of Civil Procedure require a security to be pledged presently by the appealing party. This requirement is not satisfied by a mere promise of future payment,” wrote the court in its decision, which was issued collectively and unanimously.
Bruce Baird, Tooele Associates’ attorney, was pleased by the court’s decision.
“We are satisfied that the Supreme Court recognized the intent of the legislature, and the obvious fact that the city’s resolution did not meet the requirements of the law,” he said. “I am surprised to see that the city did not anticipate this payment in creating their budget for the new fiscal year.”
Friday’s Supreme Court decision is the result of Tooele City’s request that the high court review the city’s request for a stay of judgement after 3rd District Court Judge Randall Skanchy’s denied the same request in January 2014 when he found that the city’s resolution was insufficient to meet the requirement for security.
“We wanted the court to clarify the application of the new law, which they did,” said Tooele City Attorney Roger Baker.
Attorneys for Tooele City argued before the State Supreme Court the city should not be required to post a bond during the appeal process because the legislature added the requirement for municipalities to post security to avoid paying judgments during an appeal in 2013. This was 10 years after Tooele Associates claimed it was damaged by the city, the city’s attorneys said.
The court found, however, the post-2013 law applied in this case because the change in the law was effective prior to the judgment against Tooele City.
The city’s attorneys also asserted that a bond or other monetary based obligation was not necessary to meet the requirement of security as required by the law.
The court disagreed with the city’s argument and found security, as referred to in the law, meant the deposit of money in court, or other security, and the intent or a promise to pay does not qualify as security.
“The judgment already requires the city to pay Tooele Associates, and the city’s promise to pay adds no additional security beyond this existing obligation,” wrote the court.
Tooele City also argued the requirement for the city to post a bond violated various provisions of the Utah constitution.
The court did not rule on the constitutionality of the requirement for municipalities to post security during an appeal, because the city did not directly attack the constitutionality of the pertinent state code or rules of civil procedure, according to the court.
The court did acknowledge its duty to construe a statute to avoid constitutional conflicts, but stated this principle only applies when the statute is ambiguous.
“There is no such ambiguity here,” the court said.
When the appeal of the security requirement was filed in January 2014, Tooele City Mayor Pat Dunlavy told the Transcript-Bulletin the city had the means to pay the required security to the court.
“We have $1.5 million to give the court if we need to,” he said. “This will not stop us. We will proceed with the appeal because it is in the best interest of the citizens of Tooele.”
Friday’s ruling only affects the city’s request have the resolution accepted as satisfactory security to put payments of the judgment on hold during the appeal of the $20.7 million court judgment. The appeal of the $20.7 million judgment is scheduled to be heard by the Utah Supreme Court in September, according to Baird.
The $20.7 million judgment dates back to a lawsuit filed in 2002 by Tooele Associates claiming Tooele City violated the Overlake development agreement by delaying permits, withholding approval of improvements, and enforcing codes and ordinances in the subdivision that were not applied to other developers.
Tooele City filed a countersuit in 2004 claiming Tooele Associates had violated the development agreement.
In 2009 a jury found Tooele City was guilty of breaching agreements with Tooele Associates and awarded the developer $22.5 million in damages. That amount was reduced to $20.7 million because Tooele Associates was ordered to pay the city $1.8 million for its own failure to honor agreements.
A year later, in June 2010, Judge Skanchy, who presided over the trial, declared a mistrial calling the jury verdict “irreconcilably inconsistent.”
On an appeal from Tooele Associates, the Utah Court of Appeals reversed the mistrial ruling in August 2012 and sent the case back to Skanchy for final judgment.
Skanchy denied a motion from Tooele City to invalidate the jury verdict and a request for a new trial. In November 2013 Skanchy entered a judgment against the city for $20.7 million plus post-judgment interest.
Tooele Associates’ attorneys have filed a cross-appeal that asks the court to require Tooele City to pay an additional $9.2 million in legal fees and pre-judgment interest.
Tooele City has a plan to pay the $20.7 million in the event it loses the appeal or reaches an out of court settlement with Tooele Associates, according to Dunlavy.
“I have worked with financial advisors on a plan,” he said. “It won’t be easy, but I believe we can do it with minimal impact to our taxpayers.”
While Dunlavy has not publicly disclosed the plan, the Tooele City Council has reviewed it.
In a debate prior to last fall’s Tooele City election, council members Scott Wardle and Debbie Winn said they had seen and agree with the mayor’s draft plan to pay the amount set by the jury trial.
The Supreme Court will hear oral arguments on Tooele City’s appeal of the $20.7 million judgment in September, along with Tooele Associates’ cross-appeal. The court clerk’s office is expected to have the court’s calendar for September set by late July, according to Baird.
In the meantime, Tooele Associates is expecting payment of $1.6 million by July 1, unless the city posts the required security with the court, Baird said.