Loading...
Agenda 05/13/2014 Item #16K4 5/13/2014 16.K.4. EXECUTIVE SUMMARY Recommendation to authorize the County Attorney to file a lawsuit against the Orange Tree Utility Company ("OTU"), Orangetree Associates and any related parties in the Circuit Court of the Twentieth Judicial Circuit, in and for Collier County, Florida, to enforce the County's right to integrate OTU into the Collier County Water-Sewer District and to recover damages. OBJECTIVE: For the Board of County Commissioners, and as Ex-officio the Governing Board of the Collier County Water Sewer District, to authorize the County Attorney and outside counsel Nabors, Giblin & Nickerson, P.A., to file a lawsuit against Orange Tree Utility Company, OrangeTree Associates and any related parties in the Circuit Court of the Twentieth Judicial Circuit, in and for Collier County, Florida, to enforce the County's right to integrate OTU into the Collier County Water-Sewer District and to recover damages, as appropriate. CONSIDERATIONS: On March 26, 2013, the Board of County Commissioners authorized the staff of the Collier County Water-Sewer District ("CCWSD") to pursue the integration into the CCWSD of a privately owned utility, Orange Tree Utility Company ("Utility"). The integration of Utility's water and wastewater facilities (the "Orange Tree System") into CCWSD is to occur pursuant to terms agreed to over the course of several years among the County, the Utility and Utility's affiliated developer, OrangeTree Associates ("Developer"). The terms of the integration originally were set forth in a 1991 agreement, which subsequently was amended. Certain provisions of that agreement also have been incorporated into County ordinances, principally Ordinance 87-13 and Ordinance 12-09 (hereafter the 1991 agreement, the ordinances, and other agreements affecting the proposed integration shall be referred to collectively as the "Development Agreement,"for ease of reference). The Development Agreement gives the County two options with respect to Utility's assets: (1) interconnect CCWSD facilities with the Utility's water and wastewater facilities, in which case the Utility must pay for the abandonment, dismantlement and removal of facilities not needed by CCWSD to continue water and wastewater service; or (2) CCWSD can assume ownership and operation of the Utility's water and wastewater assets. The Development Agreement, as modified by Ordinance 12-09, makes clear that in the event that CCWSD selects this second option, Utility and Developer must convey clean title to all water and wastewater facilities to CCWSD and provide easements to CCWSD for all lands upon which such facilities are located. The Development Agreement does not identify any limitation of time during which CCWSD may continue to operate water and wastewater facilities turned over to it as a result of the election by CCWSD of the second option under the Development Agreement. By letter dated April 16, 2013, CCWSD provided the Utility and Developer the required twelve month notice that the County had elected the second option, the assumption of CCWSD ownership and operation of Utility's facilities. A more detailed history of the proposed integration, including the Development Agreement as well as a brief description of Utility's failed litigation against the County seeking to escape Utility's obligations to convey the water and wastewater facilities to the County under the Development Agreement is provided in Appendix A, hereto. Packet Page-2016- 5/13/2014 16.K.4. COUNTY INTEGRATION EFFORTS SINCE CCWSD ISSUED NOTICE TO UTILITY AND DEVELOPER Collier County has been contemplating the integration of the Orange Tree System into the CCSWD since 1986 when the owner of property in the area currently served by Orange Tree first approached the County for development authority. The County granted development authority and retained for CCWSD certain rights to provide water and wastewater service to the area to be developed, at the County's election. Since the County began purchasing private water and wastewater utilities, the County has recognized that the proliferation of small water and wastewater systems may not be conducive to the most cost effective and efficient provision of water and wastewater service. Where efficient and effective service is not available, the utility owner, customers, and the environment may suffer. Recognizing the benefits and efficiencies of economies of scale as a utility system grows as well as several benefits from governmental ownership of utility systems, on March 26, 2013, the Board authorized County staff to work toward the potential integration of the Orange Tree System into CCWSD. The integration of the Orange Tree System into the CCWSD would represent the completion of Phase 1 of the CCWSD's three phase business plan for the northeast utilities service area, as revised on October 2, 2012. The Orange Tree System currently serves approximately 2,000 water and wastewater connections, primarily in the Twin Eagles, Orange Blossom Ranch, Orange Tree, Valencia Golf and Country Club, Valencia Lakes and Waterways subdivisions. There are future prospects for a doubling of the number of connections in the Orange Tree service area. DUE DILIGENCE CONDUCTED BY THE CCWSD TEAM CCWSD has retained legal and engineering experts skilled in the utility acquisition process to assist the County in the integration process. Tetratech, the engineering experts, have presented the CCWSD with several reports regarding the Orange Tree System. In addition, the Utility recently presented CCWSD with a report regarding the Utility's compliance with local, state and federal laws, ordinances and permits. CCWSD also has obtained from the Utility a Phase I environmental site assessment indicating the absence of environmental concerns. Representatives of CCWSD and Tetra Tech also performed on-site visits to inspect the Orange Tree System. CCWSD has incorporated a substantial portion of the Orange Tree System into its geographical information system ("G.I.S."). As a result of the due diligence efforts of the CCWSD team, several areas of concern regarding the operation of the utility system by Utility and Developer have been identified and communicated by the team to Utility and Developer, among them are the following: 1. Utility has acknowledged that it is providing service through assets to which it previously has refused to take title. 2. Most of the fire hydrants on the Orange Tree System are located in areas to which Utility possesses no property rights. Packet Page -2017- 5/13/2014 16.K.4. 3. Certain wastewater and water facilities owned and operated by Utility are located in areas to which Utility possesses no property rights. 4. Utility and Developer represented that Utility was authorized by verbal agreement with the Valencia Golf& Country Club to dispose of concentrate(industrial waste) produced in the water treatment process into a pond located at the golf course. However, in its most recent communications, Utility has suggested that it has not disposed of concentrate in this manner. There is a concern regarding appropriate disposal of the concentrate and the use of the golf course for alternative disposal. 5. Utility has obtained easements and property interests in recordable form which easements were located by County personnel in boxes in Utility's offices but were never recorded by Utility. Utility has failed to record such documents despite repeated requests from CCWSD that it do so. The CCWSD team has repeatedly brought these concerns to the attention of Utility and Developer and requested that they be remedied, however, each of these concerns remain to this day. There are two other items of note: First, it must be noted that Utility initiated litigation against the County alleging that the County had acted in an unconstitutional manner when it negotiated the Development Agreement with Utility and Developer. The court granted the County summary judgment and Utility was ordered to pay the County's attorney's fees and costs. These fees and costs equal in excess of $300,000, continue to accrue interest, and remain unpaid. Second, Utility leases the water and wastewater treatment plants site (the "Treatment Plants Property") from Developer for a term of ninety-nine (99) years (expiring December 31, 2101). The lease requires Utility to convey ownership of the water and wastewater facilities to Developer upon expiration of the term of the lease, as well as other provisions inconsistent with the obligations of Utility and Developer to the County. Once each of these concerns is addressed by Utility and Developer, if they are addressed, it is expected that the impact and consequences of integrating the Orange Tree System into CCWSD on both ratepayers and landowners will be positive in nature. CCWSD has the ability and constructed capacity to serve the needs of current and future customers, thus removing any impediments to growth. It is anticipated that under County ownership, the northeast service area customers' needs will be served better by providing the same level of service enjoyed by all CCWSD customers. CCWSD TEAM REQUEST FOR AUTHORIZATION TO INITIATE LITIGATION Since the Board initially authorized CCWSD to initiate the integration process described in this Report,the CCWSD team has worked diligently to complete the integration. At least seven drafts of an integration agreement have been provided to Utility and Developer, but no such agreement has been completed to this day. Utility and Developer have presented the CCWSD team on four occasions with three different counsel in attempts by Utility and Developer to deviate from the terms of the Development Agreement. Requests for documents pertinent to utility operations which are standard for transactions such as the contemplated integration have repeatedly been responded to by Utility and Developer with suggestions that the CCWSD team should obtain such documents from other sources. The CCWSD team was unable to obtain many of such Packet Page-2018- 5/13/2014 16.K.4. documents until the team was forced to find them on their own in the Utility's offices. Concerns identified by the CCWSD team were heard by Utility and Developer with repeated promises that they would be attended to, but they were not, and remain concerns to this day. The twelve month notice period has expired, CCWSD has notified Utility and Developer of such expiration, and CCWSD is unable to accommodate the repeated request of Utility and Developer that CCWSD and the County relinquish rights bargained for over a period of many years, as reflected in the Development Agreement. The CCWSD team believes that it is at an impasse with Utility and Developer, and that it is necessary for the County to initiate litigation against Utility and Developer to enforce the County's rights under the Development Agreement. Specifically, it has been recommended that the County seek injunctive relief from the courts such that Utility and Developer will be forced to convey clean title to Utility's water and wastewater facilities once it is established that they are operating in compliance with all applicable local, state and federal laws, ordinances and permits, as well as such other relief to which the County may be entitled as redress for the breach by Utility and Developer of the terms of the Development Agreement. FISCAL IMPACT: The cost to file and serve an action in the Collier County Circuit Court is approximately $500. Funds are available to commence a lawsuit in the Collier County User Fee Funds (412 and 414) in the Northeast Integration Project 70103. LEGAL CONSIDERATIONS: The County Attorney's Office has reviewed this case with the assistance of outside counsel with Nabors, Giblin and Nickerson, P.A., and concur that at this juncture the initiation of litigation is the only recourse to pursue enforcement of the County's right to enforce the terms of the Development Agreement and to recover damages.—SRT GROWTH MANAGEMENT IMPACT: There is no growth management impact associated with this item. RECOMMENDATION: For the Board of County Commissioners, and as Ex-officio the Governing Board of the Collier County Water Sewer District, to authorize the County Attorney, in conjunction with outside counsel Nabors, Giblin and Nickerson, P.A., to file a lawsuit against Orange Tree Utility Company, OrangeTree Associates and any related parties in the Circuit Court of the Twentieth Judicial Circuit in and for Collier County, Florida, to enforce the County's right to integrate OTU into the Collier County Water-Sewer District and to recover damages, as appropriate. Appendix A The County originally was approached by predecessors of the current landowner and utility serving the Orange Tree area (collectively, these entities are referred to as "Developer") who sought authority to develop land currently included in the Orange Tree Planned Unit Development. Original development authority was granted by County Ordinance 87-13. Orange Tree Utility Co. ("Utility") was created to provide water and wastewater service to the Orange Tree area. The utility possesses the right to provide water and wastewater service by authority of Packet Page -2019- 5/13/2014 16.K.4. the Collier County Water and Wastewater Authority ("the "Authority") and remains subject to the jurisdiction of the Authority to this day. Beginning in 1991, the County, Utility and Developer entered agreements to clarify certain rights among them, as prescribed originally in Ordinance 87-13 which, among other things, provide the County sole discretion to assume responsibility for providing water and wastewater service in the Orange Tree area. The County possesses the option to provide such service either by assuming ownership of Utility's facilities, at no cost, or by interconnecting CCWSD facilities to the Utility's facilities (and requiring the Utility to abandon and dismantle its existing facilities). The original agreement is dated May 28, 1991 (the "1991 Agreement"), and was amended on May 13, 1996 and August 4, 1998. The amendments preserved the County's rights to assume service responsibility but established the year in which the County's election to assume such responsibility could be made (initially, 2011 then extended to 2012 by the second amendment). The terms of the 1991 Agreement, as subsequently amended were codified in large part in County Ordinances 87-13 and 12-09. County Ordinance 12-09 includes several provisions which clarify the process for the County to assume responsibility for providing water and wastewater service in the Orange Tree area, as well as the mechanisms to be used for the transfer of ownership of utility assets and other rights of Orange Tree required to provide such service. The 1991 Agreement, other agreements relating to Developer's development rights (such as the 1986 Settlement and Zoning Agreement) and applicable County ordinances are collectively referred to as the Development Agreement. In 2007, the Utility filed a lawsuit challenging•the validity of the Development Agreement. Utility argued that the terms of the Development Agreement violated Utility's constitutional rights in that they constituted a taking without just compensation. Utility further argued that it was coerced into signing the Development Agreement. The Circuit Court issued a summary judgment in favor of the County thereby rejecting the Utility's claims. The County invoked the "prevailing party" clause in the Development Agreement and was awarded attorney's fees in the amounts of $214,223.43 (for travel) and $43,451.51 (for appeal), plus interest. The County has recorded the Court's Final Judgment Awarding Reasonable Attorneys' Fees and Costs Against Plaintiff, Orange Tree Utility. Pursuant to the Development Agreement, as amended, the County is required to provide the Utility twelve months' notice of the County's assumption of ownership. On April 16, 2013, CCWSD sent a notice letter to Roberto Bollt, as President of Orange Tree Utility Company as well as trustee under a land trust agreement owner of significant parcels of land upon which the Utility's assets are located of the County's election to take ownership of the Utility's assets. Mr. Bollt acknowledged receipt of the notice by letter April 26, 2013. Packet Page-2020- 5/13/2014 16.K.4. The CCWSD and experts retained by the County have been attempting to accomplish the transfer of the Utility's assets to CCWSD since such time. On April 15, 2014, the County sent a letter to the Utility demanding that the Utility's systems be conveyed to the County forthwith. Prepared by: Scott Teach, Deputy County Attorney Packet Page-2021- 5/13/2014 16.K.4. COLLIER COUNTY Board of County Commissioners Item Number: 16.16.K.16.K.4. Item Summary: Recommendation to authorize the County Attorney to file a lawsuit against the Orange Tree Utility Company ("OTU"), Orangetree Associates and any related parties in the Circuit Court of the Twentieth Judicial Circuit, in and for Collier County, Florida,to enforce the County"s right to integrate OTU into the Collier County Water-Sewer District and to recover damages. Meeting Date: 5/13/2014 Prepared By Name: BrockMarvJo Title: Executive Secretary to County Manager, County Managers Office 5/7/2014 11:39:52 AM Submitted by Title: Executive Secretary to County Manager, County Managers Office Name: BrockMarvJo 5/7/2014 11:39:53 AM Approved By Name: KlatzkowJeff Title: County Attorney, Date: 5/7/2014 11:57:35 AM Name: TeachScott Title: Deputy County Attorney. County Attorney Date: 5/7/2014 12:02:47 PM Name: OchsLeo Title: County Manager, County Managers Office Date: 5/7/2014 2:09:06 PM Packet Page -2022-