The owners of an Oracle Road shopping center have filed a lawsuit against Oro Valley, claiming the town broke the terms of a contract.
BP Oracle Crossings Investors, L.L.C., owners of Oracle Crossings shopping center at Magee and Oracle roads, filed the claim in Pima County Superior Court on Dec. 29. Judge Paul Tang will preside over the case.
Lawyers for the plaintiffs say the town violated the terms of an economic development agreement when the town council last January voted to cease payment to its partners in such agreements pending resolution of an Arizona Supreme Court Case. The case challenges the legality of a similar deal in Phoenix.
"We always knew we would have to fight each EDA on its merits, individually," Oro Valley Councilman Bill Garner said.
Garner — along with current council members Salette Latas, Barry Gillaspie, K.C. Carter, Al Kunisch and former member Paula Abbott — voted last January to cease payment to all the town's economic development partners. Mayor Paul Loomis cast the lone dissenting vote.
The town and the previous owners of Oracle Crossings entered into a sales-tax sharing arrangement in April 2004. That contract entitled the owners to 46 percent of the local sales taxes generated at the shopping center up to $6.5 million, or until September 2015.
As of the last payment made in the third quarter of 2008, Oro Valley has remitted to the shopping center owners $490,353.70 over the life of the contract.
In a letter dated July 10, 2009 notifying town officials of their plans to file suit, lawyers for Oracle Crossings said the company would settle its claim out of court for $4.452 million plus attorneys' fees.
Town officials opted to have the issue resolved in the courts.
In its decision to suspend payment on the EDAs, the council cited the case of Turken v. Gordon, filed in protest of a Phoenix-area agreement that would have given the owners of CityNorth, a mixed-use retail and residential center, a tax rebate of nearly $100 million.
"The whole thing hinges on the Supreme Court decision," Garner said.
Lawyers for Oracle Crossings don't disagree that the high court's decision will play an important role in the outcome of the claim against the town.
"We don't expect anything to happen until the Arizona Supreme Court decides," said Richard Rollman, attorney for Oracle Crossings and a partner in the law firm Gabroy, Rollman and Bossé.
In fact, Oro Valley Town Attorney Tobin Rosen and Rollman have agreed to let the case remain on the court's inactive schedule until the Supreme Court rules.
Lawyers with the Phoenix-based think tank The Goldwater Institute filed the Turken v. Gordon complaint in Maricopa County Superior Court. Their clients, a group of nearby business owners, claim the development agreement provides special incentives to CityNorth developers that it doesn't offer to others. They further contend that the agreement violated the gift clause of the state constitution, which forbids governments from offering special concessions that favor one business while not providing discernable benefits to the community.
When a Maricopa judge ruled the CityNorth subsidy created a public benefit, thereby denying the plaintiffs' claim, Goldwater lawyers successfully appealed.
Now in the Supreme Court, all the arguments have been heard. The parties are awaiting a ruling.
Despite opinions in some quarters that a CityNorth ruling could call into question economic incentive deals across the state, Goldwater lawyers suggest the impact would be more refined.
In a synopsis of the potential effects of a Supreme Court ruling upholding the appeals position, Goldwater attorney Clint Bolick said economic development agreements would not be retroactively nullified.
"The CityNorth case emphatically does not affect the widespread practice of infrastructure reimbursement, or tax-increment financing to build public infrastructure," Bolick wrote.
He also noted the case doesn't seek to prevent municipalities from enacting polices considered friendly toward business or to boost economic development. Those policies, however, should apply to all businesses, not single entities that penned agreements with a government.
Oro Valley currently has economic development agreements with developers of four shopping centers and the Hilton el Conquistador. Any earnings due EDA partners have been put into escrow accounts pending the outcome of Turken v. Gordon.
In addition to the suit BP Oracle Crossings Investors filed, the owners of Oro Valley Marketplace and Steam Pump Village have issued letters of claim against the town.
Lawyers for Vestar, owners of the Oro Valley Marketplace, informed the town the company would settle the dispute for $44.8 million. The development deal with Vestar entitles the company to a share of sales taxes generated at the shopping center equal to $23.2 million.
In a letter sent July 9, Vestar's attorneys say the town's decision to halt payments was premature. They further claim the agreement and subsequent development of the shopping center benefit the town.
The public benefits Vestar cites include traffic lights; space dedicated for a police substation; drainage improvements; restoration of the Big Wash riparian area; construction of multi-use trails; and burial of adjacent power lines for aesthetic reasons, even though they did not serve the site, among others.
"It is fundamentally unfair and contrary to law, for the Town to have received and enjoyed the benefits of the Development Agreement, but to renege on the sales tax sharing set forth in the Development Agreement," Vestar attorneys wrote.
Attorneys for Evergreen-Steam Pump, L.L.C., owners of Steam Pump Village, notified the town of willingness to settle for $21,167 in a July 22 letter.
The town and Steam Pump Villages owners have since initiated a tolling agreement that delays the filing of a lawsuit pending the outcome of the CityNorth case even though the statute of limitations would have run out by that time.
The Hilton El Conquistador has not publicly indicated any plans to file suit against the town. The terms of its deal with the town require a split of the bed-tax money that room rentals generate at the resort. The town charges a 6 percent bed tax.
Between 2001 and 2009, the time when the council voted to suspend payment on EDAs, the El Conquistador had received more than $2 million in bed-tax rebates.
Oro Valley has not yet filed an official response to the Oracle Crossings lawsuit.
Incentives in OV
Over the years, the town has entered into five economic development agreements, including:
• Oro Valley Marketplace
Vestar Development Company
45 percent of sales taxes up to $23 million
• Oro Valley Town Centre
Cañada Del Oro Properties
45 percent of sales taxes and one-third of bed taxes up to $12.9 million
(This property has not been developed)
• Steam Pump Village
Evergreen-Steam Pump, L.L.C.
40 percent of sales taxes up to $7.6 million
• Oracle Crossings
BP Oracle Crossings Investors
46 percent of sales taxes up to $6.5 million
• Hilton El Conquistador
Rebate one-third of town's 6 percent bed tax