AGENDA MEMORANDUM

 

 

Meeting Date:           February 9, 2009

 

From:                          Fred Morrison, City Attorney

 

Subject:                      Resolution authorizing a settlement with Jay Mar Holdings, LLC and

                                    Jason Baas

 

 

Staff Recommendation:

Staff recommends approval of the settlement agreement reached at mediation with Jay Mar Holdings, LLC and Jason Baas on January 16, 2009.

 

Analysis:

In 2005, land clearing on the property of Jay Mar Holdings, LLC and Jason Baas, located just south of the intersection of State Road 44 and U.S. Highway 27 (South Street/Dixie Avenue and 14th Street) led to the rupture of a natural gas main. The City incurred approximately $170,000.00 in expense as a result of the rupture. At the time the City believed it could recover those losses from the property owners because they failed to call for utility locates prior to the land clearing activity. The Florida Statutes specify that a property owner who damages an “underground facility” in the course of “excavation” is presumed to be negligent and therefore responsible for the expense of repairing the underground facility.

 

After negotiations with the owners proved fruitless, they filed suit against the City for inverse condemnation. Investigation during the negotiations revealed that the City did not have an easement or right of way for the gas main, nor for two wastewater lines which were also installed in the same general path. All of the department heads involved at the time the lines were installed are no longer with the City, but as best the facts could be ascertained the wastewater lines were installed many years before the gas main, and those who elected to place the gas main there apparently assumed there was already an easement for the wastewater lines, and they simply followed the same path.

 

Although it would have been impossible for the work on either the wastewater lines or the gas main to have been done without the knowledge of those who owned the property at the time, Jay Mar and Mr. Baas were not the owners when any of the lines were constructed, they purchased the property later. Even if the City obtained verbal permission from the owners at the time the lines were installed, the verbal permission is not binding on Jay Mar and Mr. Baas as the current owners.


The  important  point is  that these were  underground  lines  with  absolutely no  markings or other indications above ground to alert anyone to their presence. Had there been signs marking the gas main, or manholes for the wastewater lines, or some other visible indication of the lines, the situation may have been different, but there was nothing on the surface to alert Jay Mar or Mr. Baas that the property they were acquiring had underground utilities beneath it.

 

Ultimately the City’s claim for reimbursement of its expenses proved to be weak because of the statutory definitions involved. An “underground facility” is defined as a utility line or other underground installation for which there is an easement or right of way. Since the City had no easement or right of way, the gas main did not meet the statutory definition. Additionally, “excavation” is defined as altering the surface of the earth. The property owners claimed they were only pushing over trees, and a root caught the gas main and caused the rupture. Thus there was also a factual question about whether the owners were even engaging in “excavation” as defined by the applicable statute.

 

At the same time, it could not be disputed that the City’s facilities were placed on the property without a proper, written easement. This made the inverse condemnation claim virtual locked winner for the owners, the only real question being the amount of damages the City would have to pay them. The City obtained an appraisal in 2006 which estimated the total damages payable at $202,273.96. The owners obtained an appraisal in 2006 as well, estimating total damages at $328,722.72. The primary difference was in the calculation of “severance damages” which is a legal term for the degree to which a taking causes damage to the property the owner still owns after the taking. The City’s appraiser valued severance damages based only on the area outside the easement which would have been isolated at the rear of the tracts, while the owners’ appraiser viewed the natural gas main as a noxious influence on the value of the entire remaining property.

 

The owners also presented an appraisal from 2008, prepared not for this litigation but rather for the divorce of one of the owners, to value the property for settlement purposes in that divorce case. Utilizing the methodology of the owners’ appraiser from 2006, the value of the taking based on the 2008 appraisal would be $424,782.00. In addition, under Florida law in a condemnation or inverse condemnation case, the condemning authority (in this case the City) must pay the costs and attorneys’ fees of the property owners. The attorneys’ fees are based on a statutory percentage which in round numbers is about 1/3 of the damages awarded to the owners for the taking itself. Thus if you add probable witness and appraisal fees, and attorney’s fees, to the various estimates of damage, the numbers get quite high. Also working against the City’s interest is the fact that damages are computed by a jury, which would be hostile to the City at the outset because the City placed its utilities on someone else’s property without obtaining an easement as it should have.

 

The case was referred to mediation, which Jay Evans and I attended. The mediator was able to assist the parties in reaching a proposed settlement under which the owners would grant the necessary easements to leave the lines in place, and dismiss their claims, in return for payment of $275,000.00 which covers the taking, all costs and attorneys’ fees due the owners. That is the settlement the City Commission is being asked to consider.

 

Staff did not accept this settlement without exploring alternatives. The possibility of relocating the lines off the Jay Mar and Baas property was considered. The City’s estimate for doing so was roughly $228,000.00 but the amount could have been higher. Even if the lines were taken off the Jay Mar and Baas property, they could still seek damages for a temporary taking for the period during which they were the owners of the property. Additionally, the estimated cost for relocation did not include the fees which would be paid to appraisers on both sides to testify at trial if the parties were unable to agree on the amount to be paid for the temporary taking. The appraisal fees alone could have added another $35,000.00 or more to the total, bringing the cost close to or above the agreed upon settlement amount.

 

The bottom line is that the City was in a very poor legal position for having installed the lines without an easement, and in the overall context the $275,000.00 the City will have to pay to resolve the case is almost certainly less, probably far less, than the cost if the City proceeded to trial. Therefore the City Manager and I recommend approval of the settlement agreement.

 

Options:        

1.      Approval the proposed settlement agreement, or

2.      Instruct staff to proceed to trial on the litigation.

 

Fiscal Impact

The settlement will obligate the City to pay the owners $275,000.00 within 7 days of Commission approval. Adequate reserves are available in the Gas Department to cover this outlay.  If the settlement is approved a budget abjustment appropriating Fund Balance will be presented for consideration with the second quarter budget adjustments.

 

 

Submission Date and Time:    2/5/09 9:45 AM____

 

Department:  City Attorney

Prepared by:  Fred Morrison

Attachments:  Yes____   No ___X___

Advertised:   ____Not Required ______                     

Dates:   __________________________                     

Newspapers:

_________________________________                                                    

_________________________________           

 

 

Reviewed by: Dept. Head ________

 

Finance  Dept. ___________JB_____                                     

                              

Deputy C.M. ___________________                                                                         

Submitted by:

City Manager ___________________

 

Account No. _________________

 

Project No. ___________________

 

WF No. ______________________

 

Budget  ______________________

 

Available _____________________

 


 

 

 

 

RESOLUTION NO.                       

 

A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA, AUTHORIZING AND DIRECTING THE MAYOR AND CITY CLERK TO EXECUTE A MEDIATED SETTLEMENT AGREEMENT BETWEEN THE CITY OF LEESBURG AND JAY-MAR HOLDINGS, LLC AND JASON BAAS FOR THE PURPOSE OF RESOLVING THE INVERSE CONDEMNATION CASE FILED BY THEM AGAINST THE CITY OF LEESBURG, AND PROVIDING AN EFFECTIVE DATE.

 

BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF LEESBURG, FLORIDA:

 

            THAT the Mayor and City Clerk are hereby authorized and directed to execute a Mediated Settlement Agreement between the City of Leesburg and Jay - Mar Holdings, LLC and Jason Baas, for the purpose of resolving the inverse condemnation case brought against the City by them for installation of wastewater lines and a natural gas main over property now owned by them, without a written easement.

 

            THIS RESOLUTION shall take effect upon its passage and adoption according to law.

 

            PASSED AND ADOPTED at the regular meeting of the City Commission of the City of Leesburg, Florida, held on the 9th day of February, 2009.

 

                                                                                    THE CITY OF LEESBURG, FLORIDA

 

 

 

                                                                                    BY:                                                                 

                                                                                                MAYOR

 

 

Attest:                                                                        

            CITY CLERK