Legal Dispute at City Council over Park District

Friday, July 28, 2017, 6:50 am
By: 
Alice Dreger

Above: An old rendering of a building one of Scott Chappelle's companies was supposed to build at the blighted corner. ELi staff can't honestly even remember the date of this one.

A year and a half after Ingham County Judge Joyce Draganchuk ruled that the prior developer of the Park District had no more legal rights to ownership of the properties there, that developer has reappeared to put the City of East Lansing on notice that he might take legal action over the City's management of his long-defunct deal.

Scott Chappelle—who has operated over the years under various company names including Strathmore Development, PDIG, and CADA Investment Group—sent his attorney to East Lansing’s City Council last night with claims that his legal rights are being violated by the City in various ways.

But, faced with arguments from Chappelle’s attorney, East Lansing’s City Council and City Attorney appeared relatively unfazed. Council proceeded with formal actions to move the current redevelopment proposal forward to the next steps under the current owner, DRW, which purchased the properties after Chappelle lost them in a foreclosure action.

The current owner, DRW, is looking to keep moving forward:

As we’ve previously reported, current owner/developer DRW has had its proposal for the Park District fully vetted and approved by East Lansing’s City Council, Downtown Development Authority, and Brownfield Redevelopment Authority. DRW is now looking to go to the state to obtain approval of a $10 million Michigan Business Tax credit Chappelle had hoped to get for his project at the site. DRW’s representatives have said they need this state-level tax credit to get the deal done.

But staff for the Michigan Strategic Fund Board, which must approve the credit, informed the City it had to formally cancel the previous Brownfield Tax Increment Financing (TIF) agreement with Chappelle to proceed. At this time, such cancellation requires thirty-days’ notice and “an opportunity to be heard at a public meeting.” That “opportunity” is what happened last night.

Legal notification about this cancellation to Chappelle set off what development-watchers recognize as Chappelle’s typical response: another round of legal demands and threats. In this case, Chappelle sent Arthur Siegal of the Jaffe law firm, to issue demands and threats to City Council.

Arguments by Chappelle’s attorney gain no traction at Council:

Siegal told City Council last night—as he had told East Lansing’s Downtown Development Authority and Brownfield Redevelopment Authority earlier in the day—that East Lansing’s process had been wrong on several counts and that his client still had a claim.

Siegal said that the notification of the hearing had violated due process, because City staff accidentally referred in the notice to the July 27 date of the Council meeting as a Tuesday, when it was in fact a Thursday. City staff had followed the notification’s error with a letter correcting it about a week later. In response to a question from Mayor Meadows, Siegal seemed to concede the error had not resulted in actual confusion about the date of the hearing.

Siegal also claimed that his client is due $6.1 million in reimbursement from taxes that might eventually be captured from “the project” at the properties. (Brownfield TIF reimburses a developer for expenses that are pre-approved in a TIF plan through capturing taxes generated by new development.)

But David Pierson, attorney for DRW, pointed out that “the project” from which Chappelle was supposed to be reimbursed in captured new taxes is never going to happen because Chappelle no longer owns the property. Pierson noted that any new taxes generated from DRW’s project will go to that developer under its Brownfield agreement with the City.

City Attorney Tom Yeadon agreed with Pierson, saying that Chappelle never built anything, which meant he had no project from which he could obtain captured taxes under an agreement he made with the City years ago.

Siegal also claimed that his client had in fact “commenced” his construction project in April 2012, a point made to try to say that some agreements might still be in play. But Mayor Mark Meadows—smiling and leaning his chin on his hand—read from a letter dated June 26, 2012, in which Chappelle himself notified the City that he wished to terminate his proposal for the area and withdraw it from further consideration. (City Council also voted that same day to terminate the deal with Chappelle.)

Meadows essentially asked why, if Chappelle had personally cancelled the deal with the City, his lawyer was now here saying it was still a live deal? Siegal said he hadn’t seen this 2012 letter and couldn’t speak to it.

Siegal also tried to appeal to various other parts of the process he considered confusing or irregular, but he made no headway with Council on these issues.

Council proceeds forward in favor of DRW:

Ultimately, Siegal told City Council his client wanted to see the Park District project completed “as much as anyone in the city,” but that the City’s obligations to his client had to be taken into account. City Council appeared unmoved by the suggestion that Chappelle wants what is best for the City.

Last night, Council voted formally to terminate Brownfield Plan #11, originally made in 2008 with Chappelle’s company. Council also voted, as a kind of legal formality, to terminate Brownfield Plan #23, which was the deal made with DRW earlier this year, and to replace #23 specifically with (new) Brownfield Plan #26, which exactly matches #23 in all meaningful ways except the dates.

DRW will now move on to the Michigan Strategic Fund Board to try to obtain the $10 million Michigan Business Tax credit. Siegal told Council he doesn’t see how that possible credit can be transferred from Chappelle’s company to DRW, but Pierson (DRW’s lawyer) indicated he sees reasons why it can be.

At City Council, Mayor Pro Tem Ruth Beier asked Pierson to acknowledge that whatever the Strategic Fund Board decides, the vacant, blighted buildings will be demolished shortly thereafter. Pierson did so.

What the lawyers told ELi afterwards:

I asked Pierson after the meeting if he has hopes that DRW’s project will be on the August agenda of the Strategic Fund Board. He said he does.

I asked Siegal to explain to me how he thinks his client is owed $6.1 million in allegedly reimbursable expenses related to the Park District properties. (I had also emailed him this question earlier in the day.) Siegal suggested that his client had conducted lead and asbestos remediation as well as soil clean-up on 303 Abbot Road, a property owned by East Lansing’s Downtown Development Authority.

I explained to Siegal that Chappelle’s company was supposed to have done this environmental clean-up work, but appears never to have done it and instead to have salvaged items of value from the property before rapidly abandoning the work site years ago. I explained to Siegal that, last summer, the City had to pay about $200,000 to do the work Chappelle’s company had never done to remediate and demolish the building. Siegal said he was not completely familiar with these details.

I asked Siegal if he could foresee his client suing the City over this situation. He responded that he could “see it as a real possibility.” He referred to “what transpired” in the City Center II deal between the City and Chappelle as “a long, tortuous history.” He suggested that DRW wants the $10 million credit because it is “a windfall” for the developer.