By now, many of us have either read in the Dearborn Press & Guide, Dearborn Times Herald or the Detroit News about the City of Dearborn’s lawsuit against developer Burton-Katzman.

Dearborn filed the suit last Friday in Wayne County against the Bingham Farms, Michigan, company for failing to live up to a contract it signed with the city in 2003 to build a new hotel, complete a 48-unit residential condo project and for failing to inform city officials that the very company the city had a signed contract with for the actual development was being dissolved.

Click below for a copy of the lawsuit:

city-of-dearborn-vs-burton-katzman-development-company-inc

In all, Dearborn city leaders are asking a Wayne County Circuit judge to order developer Burton-Katzman to complete its projects and pay the city some $349,000 in unpaid taxes and water bills, along with penalties, as well as damages of $16.4 million to cover the city’s costs for two parking decks.

“The lawsuit was filed only after more than 18 months of pro-active discussions with Burton-Katzman to find suitable alternatives that were reasonable given the changing economic climate,” said Dearborn Mayor John B. O’Reilly, Jr. “But it became apparent a lawsuit was our only avenue. That has become even more clear after we discovered that the parties weren’t honest with us.”

The lawsuit really shouldn’t come as a surprise to anyone considering how long this project has taken to get to where it is today. As a general rule, cities don’t typically like to be in court, but Dearborn officials really didn’t have any remaining options. The 20-page lawsuit, along with a packet of exhibits, including letters exchanged between the two parties, provides some interesting details.

The actual contract signed between Dearborn and Burton-Katzman clearly states that construction on the property between the two parking decks for the hotel was to occur not later than 60 days after “substantial completion” of the retail components, according to the lawsuit. The grand opening of the West Village Commons retail section occurred in June 2006. So Burton-Katzman, the city states, was in default.

Dearborn also is suing Burton-Katzman for failing to inform city leaders that the company the city had entered into a contract agreement for the development was being dissolved even while it tried to renegotiate elements of the contract with Dearborn.

“This misleading information constitutes silent fraud,” the city of Dearborn states in the lawsuit.

In fact, on March 28, 2008, the same date Burton-Katzman filed papers with the state to dissolve its operations, both Peter Burton, president of Burton-Katzman, and Charles DiMaggio, vice president of project management for Burton-Katzman, attended a breakfast meeting with city officials at the Dearborn Inn and neither mentioned what was going to take place, the suit alleges. In as many as five subsequent meetings between Burton-Katzman officials and city leaders, the “dissolution of Burton-Katzman remained concealed,” the suit states.

Whether any circuit judge will order Burton-Katzman to construct a hotel during these tough economic times or finish building the remaining 12 condo units of a promised 48 condo project is anyone’s guess. However, the contract between the city and Burton-Katzman also states that “economic conditions are not recognized as a “Permitted Delay” or an “Unavoidable Delay” that would allow construction to be postponed.”

A judge might order the developer to reimburse the city for lost taxes on the estimated value of the buildings that were never constructed and maybe even the $16.4 million the city paid to build the two parking decks.

In letters to Dearborn city officials, Burton-Katzman did cite economic conditions as among the reasons it could not live up to its contact obligations. Burton-Katzman even tried to sell the parcel of land “without the city’s consent” for a hotel that “would not have met projections and obligations under the Development Agreement,” the lawsuit states.

In one letter, Charles DiMaggio, senior vice president of project management for Burton-Katzman, blames the city for his company’s failure to finish the project.

“ . . . the West Village Commons project experienced nearly 2 years of delay as the City initially chose to work with another development company,” DiMaggio writes in a letter to City Attorney Debra Walling dated July 31, 2007. “Had the City initially selected Burton-Katzman, the time for construction on Parcel C (the land between the two parking decks) would have occurred two years earlier,  that is March 2004 in lieu of March 2006. Since economic conditions in March 2004 were far superior to those encountered today (July 2007), it is reasonable to anticipate the project may have now been completed.

“Second, it will be recalled Burton-Katzman added second floor office space to the West Village Commons project at the urging of the City. Today (July 2007) not a single square foot (37,000 feet in all) has been leased, and as a result the project’s financial drain on Burton-Katzman can be said to rival that of the parking decks on the City.”

In that same July 31, 2007 letter, DiMaggio lists the work Burton-Katzman was doing to get the vacant land between the parking decks developed, none of which materialized. The list of ideas from Burton-Katzman in the letter include:

• “Numerous meetings and discussions have been held with the Fourmidable Group and Hakim Fakhoury. It was understood from the City the group may have a development proposal it wished to pursue on Parcel C (the land between the two parking decks).  Despite our meetings and discussions no proposal has been made to Burton-Katzman or to our knowledge the City, and it would appear any interest this group may have had, has waned . . .” 
• “Options for senior housing have been and continue to be explored. We have presented the site to Sunrise Development . . . Sunrise has indicated independent senior living would not be considered for this site, but assisted living is possible . . . We have also partnered with a development entity from St. Louis, HPD Cambridge, Inc., the purpose of which is to develop moderate sized, 50-60 unit, urban senior projects (www.urbansenior.com) . . .”
• “A third area of residential exploration may be student housing related to University of Michigan-Dearborn . . .” 
• “The property is being presented to a national hotel chain looking for an opportunity to enter the Dearborn market. . .” 

Dearborn Council President Pro-Tem Nancy Hubbard had this to say about the situation the city is faced with: “I’m surprised that they would show bad faith after the City had tried so hard to be patient and find a solution that was best for everyone.”