Gilbert Prevails In Development Litigation But Is Still Owed $155K

Gilbert's iconic water tower. [Photo via Town of Gilbert]

By Terri Jo Neff

Development agreements such as the one which required a former Gilbert property owner to pay the town nearly $760,000 toward the cost of public infrastructure improvements such as streets and sidewalks are legally binding contracts and not assessments that expire after a certain period of time, the Arizona Court of Appeals ruled this week.

In a unanimous opinion released Sept. 7, the court of appeals affirmed a 2005 development agreement between the Town of Gilbert and the property owner of an 11-acre parcel on the northwest corner of East Ray Road and South Lindsay Roads. The contract called for the owner -Greater Phoenix Income Properties- to pay “a proportionate share” of public improvements.

Those improvements, which included irrigation measures and relocating utilities, were completed long ago, according to court records.

The agreement also allowed a lien to be placed on the land until full payment was made. There was also a provision in the agreement expressly binding successor owners to the contract.

Fast forward to 2016 when Ray and Lindsay 11 LLC purchased the vacant land. Company officials acknowledged knowing the terms of the development agreement, including the lien provision. Ray and Lindsay 11 sold the still-undeveloped parcel to Richmond American Homes of Arizona in 2019 and paid off the lien in order to provide the new owners with clear title.

But before that, the company sued in Maricopa County Superior Court in an effort to void the development agreement with the Town of Gilbert. The litigation initiated in 2018 has cost the town almost $155,000 in attorney’s fees to defend the agreement.

Ray and Lindsay 11 argued that the agreement’s infrastructure reimbursement requirement was an assessment which under Arizona Revised Statutes 9-243(C) abates or expires after 10 years if the property has not been developed. If the agreement was treated as an assessment, the company could have pursued a refund.

Judge Pamela Gates, however, ruled the contractual development agreements like the one Gilbert utilized are governed by a different statute, ARS 9-500.05, and that there was no assessment against the property.

Gates’ ruling was upheld by the Arizona Court of Appeals, which noted state lawmakers passed ARS 9-500.05 to provide cities and towns the ability to negotiate and enter into broad development agreements as to “the conditions, terms, restrictions and requirements” for public infrastructure as well as the financing of and subsequent reimbursements for the costs “over time.”

The appellate opinion also pointed out a key difference between an assessment and a development agreement – specifically the required mutual assent of the parties.

Gilbert officials have been represented in the case by Charles Wirken of Gust Rosenfeld. Last July, Gates signed an order and judgment against Ray and Lindsay 11 LLC for $123,603 plus interest to cover the town’s attorney fees.

The Arizona Court of Appeals affirmed the lower court award of attorney’s fees. It also awarded the town another $30,342 for Wirken’s fees expended to fight the appeal. That award has not yet been converted into a judgment. Ray and Lindsay 11 has until Sept. 22 to file a petition for review with the Arizona Supreme Court.

The Sept. 7 opinion is not the first time the Arizona Court of Appeals ruled on this case.

In May, the parties received a memorandum decision from the court with the same conclusion. However, Wirken asked the court to consider rewriting the decision as a published opinion which can be cited by other municipalities threatened with litigation over the same type of assessment argument. The court of appeals agreed, hence this week’s opinion.

Gilbert City Councilwoman Aimee Rigler Yentes told AZ Free News she welcomed the news coming out of the Arizona Court of Appeals.

Yentes has lived in Gilbert for 20 years, and is the co-founder of the Gilbert Small Business Alliance. She supports bringing development to the town and is pleased to see the town’s development agreement upheld in this case.

“The Town’s approach to ensure reimbursements were honored to make taxpayers whole was well within their authority, as affirmed by the Court of Appeals,” Yentes said. “When a municipality enters into a development agreement, it is most critical that the private interest benefits do not exceed the public returns.”