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Courts: County wasn’t negligent in handling infrastructure funds

By Charles Swenson
Coastal Observer

County officials didn’t follow the letter of the law in reducing financial guarantees for a now-bankrupt developer, but a Circuit Court judge ruled this week that didn’t matter because of a disclaimer in the county development ordinance. Judge Ben Culberton issued a directed verdict in the county’s favor at the end of a day-and-a-half long jury trial.

The case is one of several brought by property owners in the Harmony development south of Georgetown that claim the county was negligent when it reduced the amount of a letter of credit that the developer posted to ensure infrastructure was completed. The developer, Harmony Holdings, filed for bankruptcy in 2008. The infrastructure is incomplete and the plaintiffs say their lots are unbuildable.

Three similar claims have been settled with the terms made confidential by court order. Seven other suits are pending.

“I will have to assess those on their merit, but it’s obviously favorable to the county,” attorney David Mills, who represented the county, said after the ruling.

Plaintiffs have asked that the county reimburse them for the cost of the lots along with fees and taxes. Attorneys have estimated that claims from potential plaintiffs could add up to millions of dollars. But that was before any of the cases actually came to trial.

During this week’s trial, Bill Moody, attorney for David Repko, who owns two lots in an unfinished section of Harmony known as West Stewart, tried to establish that the letter of credit was in place to protect the property owners. Testimony from the county planning director, Boyd Johnson, and the chief planner, Holly Richardson, showed that the county violated its own rules by allowing the developer to reduce the amount covered by the letter of credit three times in less than six months. A reduction is only allowed once every six months.

And Moody showed that while the amount of the guarantee was reduced, the cost to build the infrastructure was unchanged. The county ordinance requires that the guarantee cover 125 percent of the cost of the infrastructure.

Correspondence between the county and the developer showed the $1.3 million letter of credit was reduced to $156,000 between May 2006 and April 2007. An estimate of infrastructure costs submitted by the Earthworks Group, the engineer for Harmony, to the county in December 2006 put the infrastructure cost at $1.2 million.

Moody said there was no evidence that the county received updates on the cost to complete the infrastructure even as it agreed to allow the developer to reduce the amount of the guarantee. “I haven’t seen it,” he said.

Under questioning from David Mills, who represents the county, Johnson and Richardson testified that they relied on the certifications by the Earthworks Group that the infrastructure work had been completed before the letter of credit was reduced. Mills also produced a letter from an engineer at Georgetown County Water and Sewer District stating that the utility work was done.

“Did you have any reason to question that?” Mills asked.

“No, sir,” Richardson said.

Johnson also testified that the reductions in the letter of credit, though frequent, met the intent of the ordinance. “How to?” Moody asked.

The six-month limit was created to reduce the workload for county staff.

By 2006, the economy was already slowing down and staff had time to process the Harmony requests, he said. “We don’t like to hold people’s money,” Johnson told Moody.

The county still has $140,000, which Johnson said was delivered by check from Tim Casey, the former Harmony developer.

“How long is the county going to sit on this money?” Moody asked the county attorney, Wesley Bryant.

“Until the developer comes up with a financial plan,” Bryant said.

He also said he assumes that the money isn’t sufficient to complete the infrastructure.

Repko was the final witness. He is a financial planner who lives in Baltimore. He testified that in 2006 he bought two lots for $155,000 in the West Stewart neighborhood from a college friend, Matthew Almony, who worked for Harmony. He and Almony bought another lot elsewhere in Harmony for $95,000.

Repko testified that he bought the lot before the infrastructure was installed because he thought the price was better, but also because he knew there was a financial guarantee in place. “Developers, sometimes they don’t handle money properly,” he said.

Under questioning from Moody, he said the lots in West Stewart are worthless. And since all the lots have been sold, there is no incentive for the developer to complete the infrastructure.

Mills attempted to show that Repko was speculating in real estate and the suit was an effort to mitigate losses. His pointed questioning of Repko was followed closely by the eight women and four men in the jury box. Repko testified he wrote a $150,000 check for lots that he had never seen and never been to until last weekend.

“You still own the dirt,” Mills said. “If your property has gone down in value, some portion is attributable to the fact that you own dirt in a development that went bankrupt.”

Mills asked if the economy was better in 2006 or 2012, when he filed suit.

“I’m not qualified to say,” Repko replied. He said he doesn’t follow the local real estate market. “I come down to enjoy myself – except on this trip.”

With the jury out of the room, Mills moved for a directed verdict. While Moody frequently referred to the section of the county ordinance that limits reductions in letters of credit to one every six months, Mills said another section of the ordinance states the acceptance of a letter of credit creates no obligation on behalf of the county.

The ordinance “creates no duty,” he said.

Moody argued that the county was negligent in how it administered the ordinance. “The county is not immune from this lawsuit,” he said.

What about the disclaimer? Culbertson asked.

If that is enforced, counties could put disclaimers in all their ordinances, Moody said.

“Are you saying you can only enforce part of the ordinance? Culbertson asked.

No, Moody said.

“You have an ordinance here that was not followed,” Culbertson said in making his ruling from the bench, but that doesn’t provide the grounds for a lawsuit.

The ruling was not a total victory for the county. Mills argued that the state’s two-year statute of limitations for bringing suit against a local government had expired when Repko filed suit because Repko sought and received a reduction in his property taxes in 2007 and 2008 because the lots were unbuildable. The same issue was raised unsuccessfully in pre-trial motions.

Moody argued that it was only after the bankruptcy was settled in 2012 that Repko became aware of the county’s failure to secure sufficient funds to complete the infrastructure.

Culbertson said his ruling was based on the disclaimer, not the statute of limitations.

Stephen Goldfinch represents the owners of seven other lots. He is also a state representative for House District 108, which includes Harmony. He watched this week’s proceeding from the back row in Courtroom 3A of the Georgetown County Judicial Center taking notes on a legal pad.

“It gives us a road map going forward,” he said after hearing Culbertson’s decision. “We’ll find work-arounds for this judge’s objections.”

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