Monday, February 7, 2022

Is a Palisades Settlement or Lawsuit Brewing?

 On February 7, 2022, the agenda of the Richardson City Council lists an executive session on the following topic:

In compliance with Section 551.071 (1) and (2) of the Texas Government Code, Council will convene into a
closed session to discuss the following:
• Consultation with City Attorney regarding JP – KBS Holdings, LLC Payment Request

What is JP - KBS Holdings? That is a holding company that now owns and manages the Palisades development. You know, Palisades, that stalled development that got former Mayor Laura Maczka twice convicted of federal charges surrounding corruption. Oh yes and along with that there was/is a potential $47 million economic development agreement.


As Mark Steger and the Dallas Observer point out, along with that vastly unpopular zoning change, the City agreed to development incentives of up to $47 million. The way the incentive works is that it would pay back an amount of no more than 50% of property taxes per year "in excess of the base year" of the 2014 tax value. In other words, as the value increases, the developer can receive up to 50% of that value increase back for certain items completed.

It should be pointed out that Mark Jordan is no longer the managing partner if I understand the results of a recent lawsuit correctly. Pacific Oak SOR Richardson, part of KBS, removed JP-Richardson as managing partner. Jordan went to arbitration and lost. He appealed and lost.

Before you completely lose it, there is no way they are asking for $47 million. That is for two reasons. There is not enough value there to warrant it if you consider the payment rule above. Second, those payments are contingent on certain things being performed. What things? Here is a handy table straight from the economic development agreement. Well, all of these things have not been performed.

Exhibit D - Development and Economic Development Agreement

The big elephant in our proverbial room is the illegalities committed by both sides of the agreement. That is, former Mayor Maczka of the City side and Mark Jordan on the development side have both been convicted twice albeit the appeals of the second convictions are still working their way through courts. Is the agreement voidable and/or unenforceable because of those behaviors? I am not an attorney so I do not know. (By twice-convicted understand the first conviction was tossed out.)

That brings up an interesting question. What exactly is the council going to discuss in the executive session? Executive Session for those that do not know is the ability for the City Council to meet in private on certain matters. The Texas Open Meetings Act governs a narrow set of exceptions to "the Act" that allow this to occur. To meet in private a condition or set of conditions have to be met. These are often interpreted narrowly so a government body cannot just find any excuse to go into a closed session. The reason must meet one of the criteria of the Open Meetings Act although there seems to be some wiggle room where attorney consultations are concerned. It should be noted that the agenda items mentions "Payment Request" which on its face means the City was specific in its drafting of the agenda announcement. That, to me at least, indicates clear intention to comply with the Act as far as that goes.

Here is the text of the Attorney Consultation part of the Texas Open Meetings Act:

Sec. 551.071.  CONSULTATION WITH ATTORNEY;  CLOSED MEETING.  A governmental body may not conduct a private consultation with its attorney except:
(1)  when the governmental body seeks the advice of its attorney about:
(A)  pending or contemplated litigation;  or
(B)  a settlement offer;  or
(2)  on a matter in which the duty of the attorney to the governmental body under the Texas Disciplinary Rules of Professional Conduct of the State Bar of Texas clearly conflicts with this chapter.

So the City Council cannot just chat with an attorney over any old thing they want to chat about. What then are they discussing? Paragraph 2? Maybe. The Texas Open Meetings Handbook says:

 A  governmental  body  may,  for  example,  consult  with  its  attorney in executive session about the legal issues raised in connection with awarding a contract, but it may not discuss the merits of a proposed contract, financial considerations, or other  on legal matters in an executive session held under section 551.071 of the Government Code.

 What about the others?

Settlement Offer? Who knows? Maybe the City will agree to pay them a portion of what is asked for and ask them to go away by holding the illegalities over their heads. Maybe KBS senses this and they proactively asked for less than the letter of the contract? This is speculation of course.

Pending Litigation? Nothing is pending that we are aware of so that is not it. Contemplated Litigation? Who is doing the contemplating? Could the city be contemplating suing to void the agreement because of the illegal behaviors? Could the city just be saying, "No" and the "Contemplated Litigation" is a potential future lawsuit against the City by KBS? Again these are speculative guesses. Who Knows?

So ultimately we don't know and may not ever know precisely.

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