To avoid a potentially more costly lawsuit, the City Council voted unanimously in favor of a legal settlement where Kalispell will pay a developer $312,000 over a disputed contract related to water line installation on the north side of town.
The tentative settlement allows Kalispell to avoid a lawsuit that could cost as much as a half-million dollars, according to City Attorney Charlie Harball, and by taking on the developer’s obligations, the city may eventually recoup its cost. But some city council members were obviously shocked by the price of the deal.
“I’m really surprised at council’s reaction that we’re not going, ‘What in the heck happened here?’ because an action of the city, or inaction, is now costing us $312,000,” Councilman Tim Kluesner said. “That is costing us some serious money and we need to get a handle on these types of things or it’s going to take us down.”
But Mayor Tammi Fisher, an attorney, said the deal was the only possible outcome, given the risk of a negative outcome in court, and possibly having to pay the attorneys’ fees of the other parties.
“That was not an insignificant number,” Fisher said. “This was the only resolution we could fashion where the city has the opportunity to be made whole.”
At issue was a 2005 “Latecomers Agreement,” between Kalispell and Owl Corporation, which owns West View Estates, where the developer paid the upfront cost for over-sized municipal water and sewer lines that had a “fire flow” rate for hoses of 1,000 gallons per minute, with the understanding that Owl would collect reimbursement from “latecomers” as they eventually developed and linked to the line.
Upon its construction, Glacier High School hooked up to the line, paying a latecomers fee for the excess 500 gallons per minute in fire flow it required. Later, however, city officials advised the Holiday Inn Express and Department of Natural Resources and Conservation’s Tally Lake Ranger District that they were not obligated to pay additional latecomers fees, because they did not require increased fire flow over the 1,500 gallons per minute.
Owl Corporation disagreed.
“Shortly after that we were notified by the developer that they disagreed with our interpretation,” Harball said. “Their interpretation was that DNRC and Holiday Inn needed to pay the fire flow as well.”
“This was a significant sum of money,” Harball added.
In 2008, the city sought a declaratory judgment in Flathead District Court, which establishes the rights and obligations of all parties in a dispute. In this case, the dispute centered on when Owl Corporation was due to be reimbursed for its investment in the water line.
“In response to our request for declaratory judgment action, the Tally Lake District and Holiday Inn were brought in in a cross-fight,” Harball said. “In January, we finally got to the point of having a mediation conference about it.”
The dispute, according to Harball, stemmed from two sentences in the contract, written by Owl engineers on fire flows.
“Owl Corporation looked at it reasonably,” Harball added. “There simply was not a good meeting of the minds.”
As part of the settlement, Kalispell essentially takes Owl Corporation’s place in the Latecomers Agreement, paying the $312,000-balance on the water utility portion in three installments over the next two years, and receiving reimbursement as new developments hook up to the line. The term of the agreement will be extended from 17 years to 30 years.
“We basically bought out the developer,” Fisher said, “verse the risk of going to trial.”
Harball said the $312,000 could come out of water impact fee funds, though the council then must vote to add the over-sizing of the water lines to the capital improvement plan, because impact fees can only be used to pay for projects in the capital improvement plan.
“I see nothing wrong with paying for that with impact fees,” Councilman Bob Hafferman said.
Kluesner, however, wanted to know why the council wasn’t notified when a declaratory judgment was sought.
“The responsibility to inform council most likely lay with the city manager back in 2008 when the order was given to staff to seek a declaratory action,” City Manager Jane Howington said. “That section of the latecomer agreement was very ambiguous and it has since been fixed.” (Myrt Webb was serving as the interim city manager at that time.)
“We fixed all similar agreements so it wouldn’t happen in the future,” she added. “At least we found a way to get that money back in the coffers.”
The council asked for some type of executive session in the future where they could be briefed on other potentially brewing lawsuits against Kalispell.
“As a city council member, not knowing this is even on the radar screen is embarrassing,” Kluesner said.
Councilman Jeff Zauner then asked, given the slow construction climate, how long it could take for the city to get its money back from the settlement.
“It will be years,” Harball replied.