$30 million HDC lawsuit against city of Ann Arbor thrown out of federal court

U.S. District Court Judge Bernard Friedman on Thursday dismissed those claims, citing lack of evidence.

HDC disclosed in February it was seeking compensation for damages of more than $30 million after the city didn't extend an option agreement for the city-owned property three blocks south of city hall.

Three counts of the complaint were brought against the city based on federal Fair Housing Act claims. The remainder of the counts were state law claims.

The court dismissed the federal claims, opining that they lacked factual and legal merit. The court decided the company presented only speculation about the handicapped status of the hypothetical tenants and couldn't make a plausible claim regarding the failed project's impact on handicapped people.

The court decided the city’s decision not to issue an additional extension of the option agreement with HDC didn't demonstrate intentional discrimination.

The court dismissed the remainder of the state law claims for lack of jurisdiction. HDC still could file those claims in state court.

• Click here to read the judge's opinion.

An attorney representing HDC could not be reached for comment.

City Attorney Stephen Postema applauded the federal court's decision to throw out the case because of lack of factual or legal merit.

"We spent a lot of time on this case," Postema said. "And we took the unusual step of having the judge rule on just what they filed. There was no discovery on the case and the judge slam-dunked them. Even taking everything they said as true, the judge decided they don't have a case."

Postema disputed the allegation that the city didn't want mentally disabled people living downtown.

“To bring such a pile of accusations against the city in federal court and disparage a council that worked so hard on this project with groundless claims of discrimination is simply wrong," he said.

HDC and two partner companies with offices in Ann Arbor filed the 26-page lawsuit in U.S. District Court in October, claiming the city intentionally put up roadblocks for two years that caused the developer economic harm.

A surface parking lot exists today on the site at 350 S. Fifth Ave. The city purchased the former YMCA property in 2003 in an attempt to preserve at least 100 units of low-income housing.

In 2004, the city issued a request for proposals to select a developer to construct a low-income housing project. HDC proposed redeveloping the property and the adjoining site owned by the Ann Arbor Transportation Authority.

The project was to include 100 units of affordable housing, four stories of office and retail, market rate housing, an enclosed terminal for the AATA and underground parking. The occupants of the affordable housing units were to be residents with continuing mental or emotional impairment, documented substance abuse problems and chronic homelessness, according to the lawsuit.

In June 2005, HDC's proposal was chosen by the city over five other applicants. The City Council passed a resolution accepting HDC's proposal and agreed to a purchase price of $3.5 million for the property.

Following the city's acceptance, HDC established a company named XY to develop the project. It set up another company, 200 East William, to be the developer and owner of the affordable housing. Both are listed as co-plaintiffs in the lawsuit.

In October 2006, the state awarded the developer more than $18.5 million in tax credits for the project. Soon after, the developer asked the city if it could modify the project to include a hotel and conference center and eliminate the market rate housing and offices included in the previous plans.

The plaintiffs claim the city "provided no formal response," and the issue lagged for months. In January 2007, the plaintiffs claim they advised the city the state required the revised project to be formally adopted by the City Council for it to process a $6 million tax credit.

What followed were several "months of frustration in attempting to secure approvals and agreements from the city," until the City Council finally approved the revised project in March 2007, the lawsuit stated.

Between 2005 and 2007, the plaintiffs spent more than $2 million on architectural and engineering fees, feasibility studies and other expenditures, the lawsuit claimed. In April 2007, the developer was awarded $7.5 million in Brownfield credits, but dealing with the city continued to be a formidable process, the lawsuit claimed.

In October 2007, the city finally agreed to grant the developer an option to purchase the property, but required the developer apply for demolition permits by no later than Oct. 15 — just three days after the execution of the agreement, the lawsuit claimed. The plaintiffs claim when they went to apply for the permits, they were advised by the city they couldn't because the city still owned the property.

In November 2007, the City Council denied the developer's request to modify the demolition permit deadline and sent a notice from the city attorney's office terminating the option agreement, according to the lawsuit.

The court ruled today that HDC's complaint was "devoid of any factual allegations to plausibly demonstrate a discriminatory state of mind" by the city.

The court ruled there was an “obvious alternative explanation” to the allegations of discrimination, which is that the city just made a business decision based on HDC's failure to meet a stated deadline in the option agreement.

"Plaintiffs admit that they did not meet this milestone, and that they admitted this default to the City Council," the opinion reads. "Further demonstrating a lack of discriminatory intent is the fact that the deadline for the milestone at issue was negotiated and agreed to by plaintiffs. Plaintiffs were fully aware of their obligations under the option agreement, and defendant’s decision to enforce the ramifications of non-compliance can plausibly be described as a business decision."