$37 million claim against Legislature gets day in court

  • The former Legislative Information Office in Downtown Anchorage is the subject of a $37-million contract claim by the building owners against the Legislature for moving out of the space last year and leading to the default of a $29 million-loan from a Florida bank. (Photo/Elwood Brehmer/AJOC)

The owners of the former Downtown Anchorage Legislative Information Office building contended in a May 19 state Superior Court hearing that legislators did not afford them appropriate recourse on a $37-million contract claim after the Legislature decided to leave the six-story building last year.

Jeffrey Feldman, attorney for 716 West Fourth Avenue LLC, argued to Superior Court Judge Mark Rindner during the nearly two-hour hearing that because then-Legislative Council Chair Sen. Gary Stevens of Kodiak did not hold his own hearing on the matter in which 716 was allowed to present its case, Stevens’ decision to deny 716’s contract claim was based on incomplete evidence and therefore faulty.

Stevens and the full Legislative Council followed “nothing that would seem to reflect our common notion of due process,” Feldman told Rindner, adding that Alaskans denied a Permanent Fund Dividend are entitled to a hearing and thus have more recourse in disputes over much less money.

Legislative Council attorney Kevin Cuddy responded that 716 — the LIO building owner group led by longtime Anchorage developer Mark Pfeffer — provided 50 pages of single-spaced briefings and another 70 exhibits to Legislative Council as evidence and could have provided anything else it wanted for Stevens to base his decision.

“I understand that every plaintiff is going to want another bite at the apple,” Cuddy said.

He argued further that any new facts that could be brought to light in a trial de novo, or evidentiary hearing, would be immaterial because at its core the case is about the contract between 716 and Legislative Council and that contract was followed, just to the detriment of 716.

“716 has received exactly what it could’ve expected based on the terms of the contract,” Cuddy said.

Last October, Stevens denied 716’s claim for $37 million on the basis that it was not in the public’s interest for the Legislature to pay out the purported damages.

When 716 appealed Stevens’ decision to the full Legislative Council, the 14-member committee deferred to Stevens’ ruling and denied the appeal without hearing from 716.

Legislators moved out of the Downtown Anchorage building late last September and into Midtown office space purchased for $11.8 million from Wells Fargo via the state capital budget.

In late 2015, public pressure over the unpopular 10-year $33 million lease pushed the council to start looking for a way out of the building, which was custom-built for the Legislature in 2014.

Before voting to leave the LIO, however, the Legislative Council agreed in principle with 716 to buy the building for $32.5 million. At the time, legislators said it was a way to get out of the lease that would in the long-term save the state money and give it a marketable asset as well, while avoiding the potentially costly legal battle that has since ensued.

That deal evaporated quickly when Gov. Bill Walker said he would veto the capital appropriation to buy the building, saying it would be inappropriate for the state to spend that much on office space when government services — and eventually PFDs — were being significantly to solve a nearly $3 billion budget deficit.

Lacking the Legislature’s monthly lease payments of about $280,000, 716 has since defaulted on its $28.6 million loan on the building with Florida-based EverBank, according to the court appeal document.

The lease, as is common in government contracts, contained a “subject to appropriation” clause, meaning it is only valid if the full Legislature funds it. When the Legislature, at the recommendation of the council, decided not to pay the lease, a termination letter was sent to 716 by Legislative Affairs Agency officials citing the appropriation clause as the reason why.

That should pretty much end the case, according to Cuddy.

However, 716 appealed the administrative rulings to the Superior Court on an estoppel claim — that the developers invested large sums of money and made good on their end of the deal based on assurances that the Legislature would reciprocate.

To that end, Feldman highlighted a May 2016 letter from Cuddy to EverBank, in which Cuddy wrote that a separate Superior Court ruling invalidating the lease would force the Legislature to vacate the offices and find alternative space.

The dueling reasons for leaving indicate legislators could have been disingenuous in why they moved and necessitates discovery of more evidence so Rindner can rule with a complete set of facts, according to Feldman.

During what was a fairly informal oral argument proceeding that could be likened to a discussion between the attorneys and the judge, Feldman told Rindner: “You’re trying to tease out answers from a record that simply doesn’t exist.”

Rindner responded that administrative appeals lacking facts are usually remanded to the administrative officer for further discovery, to which Cuddy agreed.

“I don’t recognize this process,” Feldman said simply.

Rindner also pondered whether potentially subpoenaing legislators’ emails and other documents to allow the court to get to the bottom of why they ultimately walked away from the offices could violate the fundamental separation of powers between branches of government.

Rindner said he would take the arguments under advisement, but did not give a timeline for a ruling.

If the case is remanded to the Legislative Council, Juneau Rep. Sam Kito, who also served on the committee last year, now chairs the council. Kito was often the lone “no” vote against taking steps to leave the Downtown Anchorage LIO, citing legal concerns and a worry that invoking the “subject to appropriation” clause would damage the state’s credibility in future deals.

The Alaska Bankers Association, Alaska Housing Finance Corp. officials and other state finance leaders have said leaving the LIO in the manner the Legislature did could lead to higher interest rates on state debt, fewer contractors and landlords willing to work with state agencies and other financial consequences as well; Feldman repeated those points in his argument.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
05/24/2017 - 12:43pm

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