MOORHEAD - The City of Moorhead has gotten an important victory in the lawsuit between it and the developers of the Holiday Mall.
A judge issued a partial summary judgement, saying the city was right in ending a special tax increment finance district that had been used to pay environmental cleanup costs for redeveloping the site.
The ruling is a blow to Moorhead Holiday Associates and developer Richard Jordahl.
An attorney for the developers said the ending of the Hazardous Substance Subdistrict could cost his clients more than $1 million. The HSS was ended in 2018 when city officials determined all of the remediation bonds and a loan were paid off.
In early September, Seventh Judicial District Court Judge Jade Rosenfeldt granted the partial summary judgment to the city after taking about three months to weigh the issues in the case.
City Manager Dan Mahli said the ruling proves that the city acted legally and honorably.
“What it says to me is that the city of Moorhead followed the law and our agreements and the court agrees,” Mahli said Tuesday, Sept. 21.
“It’s an affirmation that Moorhead kept its word, as we do with all of our development partners, so, we’re pleased,” Mahli said. “We look forward to putting this behind us.”
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Mahli said all the debt associated with environmental remediation on the Holiday Mall has been retired and no costs remain outstanding.
“That project was closed out properly. It’s done,” Mahli said.
Igor Lenzner, attorney for Holiday Mall Associates and Jordahl, said he and another attorney are assessing the ruling and legal options.
“Obviously, we weren’t happy with the decision. It wasn’t what we were looking for. It is a partial summary judgment, so it doesn’t dispose of the entire case,” Lenzner said. “What we’re doing now is reviewing where we stand in terms of this case going forward.”
Lenzner said a partial summary judgment is generally not appealable until the case is resolved in full. If the ruling stands, Lenzner said it could cost his clients more than $1 million in lost revenue.
Rosenfeldt has scheduled a conference on Oct. 5 for the case.
“I figure at that time we’ll have a discussion with the court” about the remaining issues,” Lenzner said. “Right now, it’s a little bit up in the air in that regard; where everything fits.”
The primary tax increment financing district remains in place and will end in the late 2020s, Lenzner said.
According to court documents:
In 2001, the city established a general tax increment financing (TIF) district to help develop the aging mall area on the northeast quadrant of the intersection of Eighth Street South and Interstate 94. The redevelopment included tearing down blighted buildings, installing new infrastructure, and then developing a hotel and conference center, a big box retail store and an office park.
In addition, the city set up an HSS to help cover the costs of cleaning up contamination on the project site.
To finance the up-front costs of the project, nearly $10.2 million in general obligation bonds were issued; a $1 million interfund loan added in 2003 by the city from the general fund; and the EDA provided $2 million in pay-as-you-go financing.
About $1.6 million of the bonds were designated for the HHS, and the loan funds also went toward remediation.
By 2009, the two parties were in a dispute, with the developers taking issue with the amount of money generated by the TIF district and applied to the project’s debt. Meanwhile, the city and EDA contended the developer hadn’t done enough to redevelop the site.
As part of a 2009 deal, the city refunded two bond series, which included the HHS bonds. The refunding generated savings that were applied to the debt on the project, and provided an immediate payment of $1,125,000 to the developer.
Both parties agreed that further tax increment monies would be applied first to the annual debt service on the bonds, then the loan, and finally the project debt.
In 2018, when the final payments were made on the HSS and the interfund loans, the HSS was ended by the city. The plaintiffs called it a breach of contract, while the city and EDA said the HSS was ended properly.
The judge’s ruling pointed out that under Minnesota law, HSS tax increments cannot be applied to remaining general development costs. It also said that HSS bonds were directly linked to the contamination costs related to the development action response plan. And that the financial aid and costs were agreed upon in the contract.
A 2003 agreement that added the interfund loan to help pay remediation costs also indicated that both parties acknowledged that overruns in development costs “are fully and only the responsibility of the developer.”
“This Court cannot find one scintilla of language from the contracts between the parties that would suggest this was a breach of contract,” Rosenfeldt wrote.
The judge also discounted other assertions by the plaintiffs.
“Under the plain language of the Agreement (and Minnesota statues) the HSS was lawfully terminated, as the environmental remediation costs were recovered. The City and EDA acted in accordance with the Agreement and Minnesota law," court documents said.