Judge denies request for more evidence in $37 million LIO claim

  • A Superior Court judge denied a request to gather more evidence in the $37 million contract claim filed against the state Legislature by the owners of the six-story Downtown Anchorage building that was briefly home to the Legislative Information Office. (Photo/Elwood Brehmer/AJOC)

A judge’s decision in the case of a $37 million claim against the Legislature for abandoning its former Downtown Anchorage offices means the final ruling will likely be based on the existing public record.

Alaska Superior Court Judge Mark Rindner denied a motion by the owners of the former Anchorage Legislative Information Office building on Fourth Avenue for a hearing de novo, or a hearing to submit supplemental evidence, because there are still unanswered legal questions in the case.

However, he declined to detail what outstanding legal matters are still up in the air in his brief, three-page order.

Rindner expressed concern during a May 19 court hearing on the matter that subpoenaing legislative records and communications between lawmakers could violate the separation of powers between the branches of government.

Attorneys for 716 West Fourth Avenue LLC, the management firm that, for now, owns the six-story building, argued the 14-member Legislative Council then led by Kodiak Republican Sen. Gary Stevens denied the developers a fair hearing on their claim as no public hearings were held on the matter.

Further, 716 contends Stevens did not appropriately weigh all of the evidence when he denied the $37 million claim last October. Stevens’ denial led to 716’s appeal to Superior Court.

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 and completed in 2014.

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.

EverBank is also pushing to foreclose on the property as 716 has not paid on the loan — with $28.8 million in outstanding principal and interest payments — since November.

The lender is also seeking a deficiency judgment against 716, which could put the developers on the hook for the difference between the foreclosure sale price and the loan balance, according to documents in a separate state Superior Court proceeding.

716 is seeking just more than $37 million from the Legislature to cover the cost of the loan and the developers’ $9 million in equity in the $44.5 million redevelopment project. Beyond rent payments, the Legislature also put up $7.5 million of state funds for improvements to the building it occupied for less than two years.

The Legislative Affairs Agency, which executes business matters for the Legislative Council, told EverBank in a letter that lawmakers would be forced to leave the building because a Superior Court judge in yet a different case invalidated the Legislature’s lease on the property, determining it violated state procurement code.

However, the LAA subsequently informed 716 in July 2016 the building would be vacated by invoking the “subject to appropriation” clause common in government contracts that voids the deal if the Legislature decides not to fund it, which is what eventually happened.

At one point in April 2016, the state capital budget included $32.5 million to buy the building outright from 716, but Gov. Bill Walker said he’d veto the money if approved by the Legislature.

Legislative attorneys have emphasized in court that using the subject to appropriation clause leaves 716 with little recourse and basically ends the case.

716 attorneys argued to Judge Rindner that the differing rationale for leaving the space indicates legislators did not act in good faith regarding the deal, which necessitates adding new evidence to the record to expose the real reason behind their leaving.

Rindner said during the May hearing and wrote in his order that if new evidence were brought to light it would likely mean remanding the case back to the Legislative Council for another ruling on the claim.

Juneau Democrat Rep. Sam Kito, a regular member of the committee when Stevens led it, now chairs the council. Kito often stood alone against leaving the building in votes on the matter, citing a worry subsequent court cases would put the state on the hook financially for the council’s actions.

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

Updated: 
07/26/2017 - 12:32pm

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