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BCC Minutes 09/09/2004 Closed Session (Aquaport Settlement) Aquaport Settlement Page 1 of 1 Patricia L. Morgan From: Patricia L. Morgan Sent: Tuesday, October 19, 2004 10:36 AM To: Pettit, Michael Cc: Weigel, David Subject: RE: Aquaport Settlement <Jfiank,you. I wi[[ get tliose posteá riglit away. J{risli -----Original Message----- From: Pettit, Michael Sent: Tuesday, October 19, 2004 10:35 AM To: Patricia L. Morgan Cc: Weigel, David Subject: RE: Aquaport Settlement -[pettit_m] Yes - the case has been settled and the minutes are open to the public. Mike Pettit. ----Original Message----- From: Patricia L. Morgan [mailto:Patricia.Morgan@clerk.collierJl.us] Sent: Tuesday, October 19, 2004 10:32 AM To: weigeLd; PettitMichael Cc: bradley-n Subject: Aquaport Settlement qood ::Morning, PCease advise me if tliis case lias 6een settCed and I can reCease tlie CCosed Session minutes for pu6fic viewing- I wi[[ need co nfinnation from your office to do tliis. 'Iliankyou, 7'risli ::Morgan ::Minutes eZ Cß,§corcfs 10/19/2004 September 9,2004 TRANSCRIPT OF THE CLOSED SESSION MEETING OF THE BOARD OF COUNTY COMMISSIONERS NAPLES, FL SEPTEMBER 9, 2004 LET IT BE REMEMBERED, that the Board of County Commissioners in and for the County of Collier, and also acting as the Board of Zoning Appeals and as the governing board( s) of such special districts as have been created according to law and having conducted business herein, met on this date at 4:30 p.m. in CLOSED SESSION in Building "F" of the Government Complex, East Naples, Florida, with the following members present: CHAIRMAN: Donna Fiala Fred Coyle Jim Coletta Tom Henning Frank Halas ALSO PRESENT: Ted Tripp, Independent Counsel Mike Pettit, Assistant County Attorney David C. Weigel, County Attorney Page 1 September 9, 2004 CLOSED SESSION REGARDING AQUAPORT (PRIOR TO THE BlllliìEIMEEII.G) COMMISSIONER FIALA: We can begin. MR. WEIGEL: Okay. Well, we will start the closed session brought pursuant to Section 286.011, Subsection 8 of the government and Sunshine Law. And this session has come forth based upon information that we have had relating to the Aquaport case and related cases. The most recent case that we've been dealing with of course has been the Burt Harris case that had a trial of sorts here locally in the Collier Circuit Court, Judge Schoonover. But we're here to also talk about the other cases that have been previously litigated to a type of conclusion in the federal courts relating to federal claims against the Board of County Commissioners as a board and also separate lawsuits against five sitting commissioners at the time of the decision relating to the Aquaport 68-unit hotel project. You have received some information related to this litigation under cover of Mike Pettit and me in the last few days updating you as to certain of the requests, demands and responses from the plaintiffs, Messers Burke and Allen and their attorney, Margaret Cooper. And also additional information response that the county has had in dialogue with our insurer, known as Northland. And Ted Tripp, our outside counsel, has been really involved with these discussions back and forth, including communication directly with the plaintiffs or their representative, Attorney Ms. Cooper. And so Ted, I'd turn it over to you to pick up and walk through where we seem to be right now. MR. TRIPP: All right. To very briefly recap the negotiations to date, which you may recall commenced after our last mediation effort, which occurred approximately two months ago, we had received an Page 2 September 9, 2004 offer most recently from Margaret Cooper of $3,200,000 to resolve both the pending state court case and the pending federal court cases in the appellate court. I use that term advisedly because you'll recall in the federal court the defendants are both Collier County and some individual commissioners, all of whom are being defended under the Northland policy. In response to the $3.2 million offer, we had a conversation at Northland Insurance. They indicated that they would offer -- their final offer, which was $2.5 million. We then spoke individually with the commissioners, because the commission was on hiatus and not able to meet logistically, and in accordance with the Sunshine Law we could not disclose to any commissioners what any other commissioner said. But it was our recommendation at that time that the county consider making a contribution to the settlement effort if the case could be resolved. At the conclusion of my individual conversations with the county commissioners, I represented to Ms. Cooper that while the county commission had not met and could not make an offer until they had a public meeting, that based upon my conversations with you individually, it was my representation to her that I believed in good faith that I could support a recommendation that the county contribute $100,000, that I believed that both the risk manager and the county attorney's office would support that recommendation, and I believed in good faith that at least three county commission members would vote in favor of that recommendation. So on that, with the representation that we would have to have it confirmed at a public meeting, I told her that I thought 2.6, 2.5 from Northland and $100,000 from the county, would be available if that would resolve the litigation. I then had a conversation with Ms. Cooper, who sent me a response to that contingent offer. The response indicated that the plaintiffs would accept $3 million. So we at that point had an Page 3 September 9,2004 announced $400,000 gap. We had further conversation with Northland Insurance in response to that proposal. I spoke with Dennis Sager, who in conjunction with Tom Kilter have taken over the file, the Burt Harris Act claim and the federal court claims on behalf of Northland Insurance. At the conclusion of that conversation, Northland indicated that they would be willing to contribute an additional $75,000 in addition to the $2,500,000 that they had previously offered if the county would agree to match that $75,000 or any increment. In other words, if the county would put in 50, Northland would put in 50. If the county put in 75, they would put in 75. If that contribution were agreeable to both Northland and the county commission, that would bring our offer from 2 million 6 to $2,750,000. The question that I would ask me if I were sitting in your chair is will $2,750,000 settle this case? And the response to that is I honestly do not know. I have received indications from the plaintiffs' side of the table that the $3 million is not a firm number. I keep hearing statements like if we could get close to our number, then the case could resolve. I will tell you that from my conversations with Northland, at least as recently as earlier this week, and I spoke with them on Tuesday, they are not prepared to pay $2,900,000, which together with the $100,000 that I represented I thought the county would be willing to contribute, would in fact settle the case. It is also my opinion that some number south of $3 million will likely settle the case. Can I represent to you in good faith that $2,750,000 will settle the case? The answer is I cannot make that representation to you. I believe that the plaintiffs would be hard pressed to walk away from such an offer. But I cannot sit here and tell you that I have an assurance that that will settle the case. The question in my mind is why would Collier County agree to Page 4 September 9,2004 contribute more than $100,000? I think there are really two answers to that. The first is that Northland is offering to match whatever contribution we make so that we get two dollars for every dollar we put on the table in terms of the problem solving. The second issue, though, is that we have some additional information. We knew this was coming, but we now have it. You may recall, the plaintiffs expert, when we tried the Burt Harris claim, was a lady named Geri Armalavage. Ms. Armalavage is a partner in the firm of Armalavage and Associates. Ms. Armalavage is married to, or was married to, and I'm not clear, Rick Armalavage. Rick Armalavage is now being announced as the expert for the plaintiffs. I believe that that is a reflection of the fact that Ms. Armalavage did not fair particularly well on the stand. I didn't think her testimony was very compelling, and I think Ms. Cooper's intention in advising me that Rick Armalavage is going to be her expert is to signal the county that you'll have a tougher expert witness to face at the damages trial than you did at the liability trial. I would guess that some of you in this room might be familiar with Rick Armalavage. He is a respected and experienced property appraiser and developer expert in Collier County. I think his credentials are certainly more significant than our Geri Armalavage's credentials, and I suspect he would be a more formidable expert than was Ms. Armalavage. The second thing that we knew was coming and has now arrived is an update to the Armalavage appraisal. You'll recall that the Burt Harris Act measures the damages by the diminution and value of the parcel with the permitting in place versus the parcel after the permitting is revoked. When Armalavage first did their appraisal, they did not attribute any contributory value to the parcel by reason of the fact that it not only was a parcel that was capable of being developed, but it had in place a site development plan approval and a building permit. Page 5 September 9, 2004 Their now reconsidered opinion takes into consideration the contributory value of the site development plan approval and the building permit that were revoked on May 22nd of 2001. I will tell you that in the development community, in my experience, there is a contributory value to the site development plan approval and a building permit. A prospective buyer will pay you more for your piece of property if you already have your permitting in place, because developers recognize that the existence of permitting removes the risk and expense of being able to do that which you hoped to do on the piece of property. They have calculated that contributory value at an additional $400,000. We have not had this appraisal long enough for our expert to take a look at whether or not the $400,000 is a realistic number, but I will tell you that in my opinion some incremental value for the permitting being in place is likely to be a persuasive argument to a jury. If the jury accepts the Armalavage appraisal at the damages trial, that means that the diminution in value, as testified to by Rick Armalavage, will likely run not to 2.9 million but about $3.3 million. And again, as we discussed last time, you have to remember that Florida allows for prejudgment interest under certain circumstances. I believe that prejudgment interest will be allowed in a case like this. And we're talking now about prejudgment interest between May of 2001 and the date of the ultimate trial. So that interest factor alone could exceed a million dollars. Why is that significant? It's significant because as we've discussed before, the policy that we have with Northland has what's called a declining value. It is a policy which becomes less available with each dollar that is spent to defend the claims. So the increment between what coverage is available when we go to trial, if the jury makes an award, and the available coverage is likely to be greater six months from now, a year from now, than it is today, because the cost of defense are coming out, because the prejudgment interest continues Page 6 September 9, 2004 to mount, and because as a practical matter your exposure for attorneys fees to the plaintiffs' lawyer will obviously go up with the cost of preparing and trying the damages trial. So that exposure is something that you all have to take into consideration in evaluating whether and to what extent it would be prudent to expend county funds to settle this case. The second issue I want to make sure everybody brings back to the front of your consciousness is that Northland Insurance Company is representing Collier County under what's called a reservation of rights letter. As we sit here today, Northland Insurance is contributing 2.5 or $2.575 million to settle this claim. My concern would be that if a jury were to ultimately render an award that is significant, Northland Insurance may then as a matter of economic necessity want to go back and look at whether or not they can successfully assert a claim that this in fact was not a covered loss. And I think we've chatted about this before. The policy contains what are called intentional acts exceptions, and there are some conversations on the record in the May 22nd meeting in which the county commissioners talked about the fact while we recognize that if we revoke these permits, we may have some liability to these folks, we may have to write them a check. I would imagine that Northland may come back at some point, if they find it's in their economic best interest to take a look at the county and averting that you are not going. So if a coverage defense were asserted or if a coverage defense were successfully established, the county's exposure is not the difference between the available insurance and the award, it is the difference between zero and the award. In that event, you would have significantly greater exposure to county funds. Now, I need to tell you, I do not and I cannot represent the county or give you advice on the coverage defense. Your county attorneys can do that. But I am obviously at this point being paid by Page 7 --,-- September 9, 2004 Northland Insurance. I have an obligation to you, but I also have an obligation to them. And that's a fight which I would not be ethically allowed to participate. I am advised, and county attorney's office and I have discussed this, that at this point the numbers are significant enough that the county should, and I believe will shortly engage a law firm to advise you both on the coverage defense issue and on a potential bad faith claim against Northland Insurance. I make you aware of that only because that effort and that litigation does involve an expenditure of taxpayer money, at least on the front end, which mayor may not enter into your decision-making process. All of which is to say Northland is prepared to go to $2,750,000 as a combined offer, if the county is willing to contribute $175,000 toward that settlement. I have a belief that it would be difficult for the plaintiffs to reject such an offer, but I cannot assure you and am not assuring you that that offer would settle the case. I can assure you that at this point it does not appear that 2.6 would settle the case. And I'm more than happy to answer any questions. CHAIRMAN FIALA: Yes, I have one. I've said it before and I'll say it again, so we're going to reward a conniving underhanded developer -- well, that's the way I feel -- whose permit we revoked, but he built anyway, whether we revoked it or not. In the same time frame he wanted has completely sold the thing out, and now he wants three million extra dollars for being a conniving illegal, as far as I'm concerned, developer. Why are we rewarding him this way? MR. TRIPP: And I would respond, Commissioner, that you cannot and -- CHAIRMAN FIALA: He hasn't suffered anything. Ted, we're rewarding him for suffering a loss. He hasn't suffered a thing. He's done everything he's wanted to do and then some. We're going to give him $3 million for it. COMMISSIONER HENNING: Well, I think the issue here is our rules said he could build it. Our staff said we approved your site Page 8 September 9, 2004 plan, we're going to give you the permit and then because of public pressure that commissioners turned it down. It's not that he made a profit. I think their issue is that he could have made a bigger profit if we wouldn't have jerked that permit from under him. CHAIRMAN FIALA: Didn't he build it anyway? COMMISSIONER COYLE: Not the same thing. COMMISSIONER HENNING: He built something smaller, a residential condo. COMMISSIONER HALAS: He wanted 68, and I don't know how he's going at 68. COMMISSIONER HENNING: It turned out to be a hotel. To stay a hotel but ended up being residential units, so -- MR. TRIPP: Let me follow up, because I want to make sure everybody understands the history of this. Some of you may have been involved or less aware. You're absolutely right, he bought this piece of land at a time when he could only build a condominium on the piece of property. Unfortunately while he owned the piece of property, there was an amendment to the land development code in Collier County which did allow for the construction of a hotel under the appropriate circumstances and a permit and site development plan approval was issued for a 68-room hotel. Now, do I think that was a wise decision on the part of staff? No. Do I think it was a mistake to issue that permit? Yes. Did I talk with the staff at some length to try and get them to recognize the error of their ways? Yes. And the staff to a person told us that they thought a 68-room hotel was perfectly compatible with and appropriate for that piece of property. I could not agree with you more, Commissioner, but the staff did not support that view. So what then happened was, instead of saying to this guy you bought condo land, you should build condos, Collier County, through its staff actions, said we recognize you bought condo Page 9 September 9, 2004 lands, but now we're going to let you build a 68-room hotel. And the testimony at trial was that they expended hundreds of thousands of dollars in developing the plans and the site development plan and the building plans for permitting, not of a condominium, but of a 68-room hotel. So the loss of opportunity that they're resting upon is the opportunity for a 68-room hotel, not a condominium. And let me also say that I could not in good conscience recommend that you reward this developer for this activity. My job, however, is to ask you to consider whether the taxpayers of Collier County would be better off giving $175,000 to somebody who doesn't deserve it or running the risk that they may contribute substantially more than that to somebody who doesn't deserve it. Did I think we should have lost the liability trial? No. No. But the fact is that we are where we are. And sometimes judges and juries, for whatever reason, make decisions that we believe in our heart of hearts to be wrong. And my job is simply to advise you that there can be no guarantee that a jury won't find persuasive the argument that you told us we could build a hotel and you approved the site plan for the hotel, you issued the permit for the hotel; we spent hundreds of thousands of dollars to get the hotel permitted and then you changed the rules of the game on us and said we couldn't do it anymore. And that's the fact pattern that this jury is going to be presented with. And they will have experts to say that a hotel was both appropriate for the site and economically much more valuable than a 15-unit condominium. CHAIRMAN FIALA: Any other commissioners have anything? COMMISSIONER HENNING: Yeah, I had a question. Ifwe settle the insurance company , Northland, are they considered this is closed and are they going to potentially come back at the board? MR. TRIPP: No. A settlement would remove not only the state Burt Harris Act claim and the federal claims, which are still out there, but it would also remove the risk of a policy defense by Northland. In Page 10 September 9,2004 other words, this whole unhappy saga, for better or for worse, would be behind us, we wouldn't have to worry about the policy defenses, the federal court litigation, and we wouldn't have to worry about the Burt Harris Act exposure. MR. WEIGEL: I'll jump in a moment as well. And remember the precept under which the 68-unit hotel was approved was that there had been a land development code amendment, I think misunderstood, which was that floor area ratio amendment, which allowed for lots more rooms, 500 foot -- square foot space in rooms. And so within a certain unit volume of building, for purposes of a hotel, you could have a lot more rooms. Now, ultimately what they built is approximately a nine-story or something over nine-story condominium on that same lot. The footprint isn't much different. The residential use is arguably and legally a less intensive use and therefore less trips in and out by all the factors that we look at with regard to impacts of neighborhood than the 68-unit hotel would have been if it had been constructed. I've mentioned to you individually in the past that with the determinations of Judge Hayes leading up to the trial and I thought a very well presented argument and case by the county through Ted here, I'm very impressed with it. And I would invite any of you, all of you, to hear the closing argument that Ted, as well as Ms. Cooper, made to the judge. And you would be as consternated as I am as to how the judge was not persuaded by both evidence and execution of a development of facts and law to the judge in this case. We think that mistakes were made prior to the trial by Judge Hayes with some earlier rulings we made and that the Judge was wrong to determine liability in the first place. And so yes, in fact whether this board in conjunction with Northland Insurance Company should come up with a figure which is accepted by Burke, Allen and their attorney or not, it can't be forgotten that there is in fact one, a damages trial yet to be held, with the risks and unknowing of what it may turn out to be. It Page 11 September 9, 2004 may be relatively favorable for us. One thing we know, though, is even if they find they should only have made a little bit of money, that is, the jury award may have been a little amount of money, it would still entail the attorney fees leading up to the first phase of trial, liability trial, second, damages trial. But additionally, I want you to know that all is not lost except that if we go on to the appeal aspects that the insurance policy will continue to diminish because we continue to pay for our counsel, and we have two. We have Mr. Hemke as well, who's involved in the federal cases. And we would have that potential risk at some point in time, as Ted has indicated, where Northland may attempt to pull the plug and say no, we're not going to cover you anymore and you'll have to make a judge tell us that we have to pay you coverage and fight that battle on the side. So there are elements of -- it's really the business judgment we have before us right now. Elements of determining if we, the county, taxpayers money -- trustees of taxpayers money for the certainty of ending this thing pay some money or go into some degree the vagaries of going onward. And again, the money that you may offer as an adjunct, as an addition to Northland, may not settle the case less than three million. Altercations to Ted, and he's had discussions with us, would seem to indicate that perhaps something under three million will be the figure. We just don't know exactly what that may be. One other thing I wanted to mention in talking about the board hearing back on May 21 st of 200 1. Now, the board certainly had a lot of public there that were interested in a certain kind of outcome. And the board also had the, call it, the benefit of attorney advice at that time. And my advice was of course that it ultimately was -- the board had the authority to interpret the land development code; after all, you are the creators of that code. And I mentioned and the record will show that this was going to be a high six decision. Because we knew that litigation was not merely a emotional, but it would certainly occur Page 12 September 9, 2004 if the decision were made upon the legal basis of the incompatibility of the sty Ie and size of that building, looking in context of light envisioned corridors and the other aspects that go with a big building on a small piece of parcel. One commissioner, not present here, indicated on the record that something to the effect of that if we have to pay, we will pay. That's on the record. I would suggest, though, looking back to that point in time, that if the board of county commissioners then sitting thought that their risk of absolute payment was in the 400,000 or less category, they probably would have said yes. That's just my opinion as being an observer through the process. And I want you to know, of course, that we have our quote deductible that we the county has paid before the insurance got covering us in the first place. So there was I believe $200,000 that the county has in fact already paid, had to. And then the insurance came into play and has been, you know, working down off that $5 million cap up to this time. But the ultimate point I wanted to make was, and again, it's kind of hypothetical and it's only conjunction on my part. If the board knew then that they could achieve a result, not having a 68-unit hotel there at that time, and thought that their ultimate final cost and therefore risk was in the range of 4,000 or less -- COMMISSIONER HENNING: 400,000. MR. WEIGEL: Pardon me, 400,000 or less, thank you. -- you can come to your own conclusion as to what the board would have done at that point in time with that particular thought, which they didn't have the opportunity to know, but it's something that we now know. COMMISSIONER COYLE: I'll support 2.75 million. COMMISSIONER HENNING: An extra 75,000? MR. WEIGEL: So we're really talking 100 plus 75,000. Because this board has not approved either figure yet. Page 13 September 9, 2004 MR. TRIPP: Yeah. COMMISSIONER COYLE: The risks are just too great. COMMISSIONER HALAS: I reluctantly will support the 175,000. COMMISSIONER COYLE: Can we garnish the wages of the commissioners that did this? COMMISSIONER HENNING: We should go after the residents that -- COMMISSIONER COLETTA: The statutes of limitations are past. MR. PETTIT: I think you've had sufficient discussion. I'll just add that we'll be taking steps beginning tomorrow morning and Jeff Walker and I have already people we will be speaking with concerning bad faith issues, I'll just tell you that, and in the event that we don't resolve this. COMMISSIONER COYLE: Will your discussions about bad faith issues in any way prompt the insurance company to raise the issue about whether or not they have any liability at all? MR. PETTIT: That issue is out there. They're fully aware of that. They've sent us a letter about it a long time ago. I appreciate your question. We've been -- I've been mulling that over. I understand your question. COMMISSIONER COYLE: Is it really wise to antagonize them at this point? I would suggest if we find out if this will work, if 2 795 000 -- , , COMMISSIONER HALAS: Let old dogs lie. MR. PETTIT: I'm not suggesting that. What I want to find out is what the plaintiffs are going to say. MR. WEIGEL: I think Commissioner Coyle is saying precisely that as well. COMMISSIONER COYLE: Yeah, it seems to me that we're getting so close to their figure that we would be foolish to reject it out Page 14 September 9, 2004 of hand. Their logical recourse would be to come back with a counteroffer, and we might very well counteroffer that, if it's another $50,000 or 75 or something of that nature. So I think it at least keeps us in the negotiation game, and I prefer not to complicate this with a threat of a bad faith claim against the insurance company until we find out whether or not this will work. CHAIRMAN FIALA: Okay, any further discussion? (No response.) CHAIRMAN FIALA: Do you have all of your directions and questions answered? MR. WEIGEL: Well, it will be out to the board then as we go out to the full chambers, the regular chambers, to bring it up for an item of discussion right there. And the discussion will be very succinct and that is that the board has determined through its counsel to tender an offer of $175,000 contribution as full and final -- should we not use that language? I think contribution for the county for settlement of all cases related to the Aquaport case. COMMISSIONER COYLE: Do we need to mention that the total of 175, 2 million, 750 or only the contribution by the county? MR. TRIPP: It would be my suggestion that we pose it that the county's willingness was based upon the Northland assurance that they will contribute at least $2,750,000. That way we'll leave the door open for Northland to make the next move. Its contribution as being -- MR. WEIGEL: Then it would seem to me, Ted and Commissioners and Ms. Chairman, that you can indicate that we've had discussion and you were prepared to make a recommendation, perhaps asking Ted to rephrase it for you. CHAIRMAN FIALA: Can we do that at this budget hearing now? MR. WEIGEL: It's actually prior to the budget hearing. Then the budget hearing will be a separate meeting starting immediately thereafter. That meeting will go into this one item, adjourn and then Page 15 September 9, 2004 you'll restart. . CHAIRMAN FIALA: .Okay, so then you would like me to call on Mr. Trip to present; is that correct? MR. WEIGEL: I think so. He will present briefly and -- rather briefly. And then you can pick up on what he says and the board adopt it. CHAIRMAN FIALA: Thank you. ***** There being no further business for the good of the County, the meeting was adjourned by order of the Chair at 4:54 p.m. BOARD OF COUNTY COMMISSIONERS BOARD OF ZONING APPEALS/EX OFFICIO GOVERNING BOARD(S) OF SPECIlIl:~:~d 4.!DER ITS CONTROL. DONNÆ FIALA, Chairman ATTEST: DWIGHT E.,B~QCK, CLERK ~. :,.:-':":~;""'.:::~.'(.,., - . ~J . " . .O.L ~ ~it'.stt~ ¡ to:,,' """s .1~t.",.t~'.l'. ' ',J.," ". These minut¿s approved by the Board on I \-1& - oi-, as presented / or as corrected . TRANSCRIPT PREPARED ON BEHALF OF GREGORY COURT REPORTING SERVICE, INC. BY CHERIE' NOTTINGHAM. Page 16