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End of a long road; Rushford approves legal settlement

By Kirsten Zoellner

Fri, Jan 31st, 2014
Posted in Rushford Government

Ending a nearly 6-year saga that began in 2009, the city of Rushford has approved a settlement with F&L Management & Development, Inc. (Tom Serie) and Guardian Inn of Rushford, LLC. The matter has been in arbitration since November 2011, following termination of a development agreement in July 2011. In conference with attorney Robert Aslop via speakerphone, of Kennedy & Graven, the city council listened to a summation of Aslop’s background information regarding the issue and recommendation for settlement.

The dispute of three agreements, signed in November 2009, includes a site development agreement of a community center, a development agreement for a motel, and a lease agreement, including construction and operation. As previously stated in the Journal, by June of 2010, the projects had slowed considerably, but had came to a halt as Serie notified the council that he would put no more than the $593,000 of expected FEMA funding into the community center until he could secure funding for the motel portion of the project. “For the 18 months, the city worked with the parties to get projects completed,” noted Aslop. “The documents themselves were incomplete to certain terms. Financial incentives were contemplated, but were not spelled out in the agreement and were subject to negotiation.”

According to Aslop, claimants, including Roger Zeug, Peter Breyfogle, and former mayor Les Ladewig, initially sought over $2.7 million in damages arising from the city’s purported wrongful termination of two development agreements executed between the city and claimants for the construction and operation of a community center and motel in the Himlie Business Park. Site development and motel development claims against the city dismissed out of arbitration, following a three-day hearing in May 2013. Aslop noted that the arbitration was stayed for a number of months in attempt to allow good faith negotiations, but the parties were not able to settle the matter at that time.

“In an interim award on December 6, 2013, the arbitrator concluded that the city had appropriately terminated the agreements by ‘abandoning’ the projects under the Site Development and Motel Development Agreements, but ordered the city to pay claimants for services performed under the agreements up to the termination date.”

“Discovery has confirmed that F&L Management cannot establish any damages for services performed under the Site Development Agreement and therefore will recover no damages from the city in the pending arbitration. Guardian Inn and its investors, however, claim to have incurred over $200,000 for services provided to the city between November 2009 and July of 2011 under the Motel Development Agreement,” state a city press release. A hearing to determine the amount owing to Guardian Inn for services performed under the Motel Development Agreement was scheduled for February 5-7.

A civil “summons and complaint” was filed December 10 in Fillmore County. In it, Guardian Inn and its investors sought compensation for services provided, in regards to the lease agreement, claiming wrongful termination of the agreement and seeking over $500,000 in damages related to alleged lost profits for community center. No discovery had yet been conducted in that case.

City council held closed meetings prior to the January 13 and 27 regular council meetings to allow for discussion with city attorney Terry Chiglo and attorney Robert Aslop of Kennedy & Graven, regarding the arbitration and upcoming damages hearing with F&L Management & Development, Inc. and Guardian Inn of Rushford, LLC. Aslop was authorized to conduct negotiations for settlement.

“Although the city stands by its decision to terminate the Lease Agreement in July of 2011, the outcome of the case cannot be predicted with absolute certainty and will undoubtedly require the city to incur considerable defense costs and expend significant city staff time to defend the case,” noted the press release. “After careful consideration and deliberation, the city council considers the payment of $150,000 to Guardian Inn to be a reasonable settlement of all claims between the parties and also in the best interest of the citizens of Rushford.”

Factors contributing to the recommendation included ongoing defense costs, unnecessary expenditure of significant staff time to defend the disputes, the risk associated with any ongoing litigation, the potential negative impact that litigation poses for overall business development and the community, the amount of damages for which the city could ultimately be liable, and the contribution of $25,000 for a portion of the settlement from the insurance trust.

“This provides resolution and certainty, the best economic action when weighing costs and risks to city,” added Aslop.

According to City Clerk Kathy Zacher, the city has paid roughly $10,000.00 to date on local legal fees and we will be billed from the League of Minnesota Cities for a certain percentage of the costs associated with Kennedy & Graven, as well as half the arbitrator costs.

“With the resolution of all outstanding disputes with claimants, the city council looks forward to the future development of the Himlie Addition as well as the completion and the full utilization of the community center.”

In other news, the city has formally denied a grievance filed by AFSCME (American Federation of State County and Municipal Employees) Local 1944 on behalf of Curt Courrier, whose employment by the city was terminated as of December 31, 2013 following more than nine months of discussion over the need for an additional full-time position within the Rushford’s Public Works Department. The grievance states that the city of Rushford has violated articles II, IV, IX, and XXI.“The city of Rushford did not negotiate with union about the effect of layoff, employee was disciplined and discharged for exercising his union rights, city improperly laid off employee, contrary to contract.” The union is asking that all references of termination are removed from Courrier’s employee personnel file, that he is reinstated, being made whole, and that the city cease and desist from violating valid labor agreement.

“Where do we go from here?” asked union representative Jim Dahling. “We ask you to reconsider actions that have been taken. This was an improper layoff, primarily. We urge you to put him back to work. He works with pride for the city.” Dahling continued noting the process of mediation, then arbitration should the city not reinstate Courrier, citing additional costs, including retention of legal counsel.

“The grievance has several factual inaccuracies,” responded City Attorney Terry Chiglo. “The city is exercising its rights and feels it hasn’t violated the collective bargaining agreement. Would you agree that the city has full and restricted rights granted to them?”

“Within limits of agreements,” noted Dahling. “They are part of it, but one part does not make a whole.”

Chiglo continued an additional four times, noting the need to correct factual inaccuracies. “We’re asking you to support it factually. How can we respond without it? Give us facts. We’re not aware of any reports or violations. Either limit the violations or correct the inaccuracies.” Dahling stated that if the issue goes before arbitration, the union would show supportive facts. Mayor Chris Hallum suggested that the city was looking for how or why terms were violated.

“We’ve asked you for factual support. If it gets to arbitration and you then show support, we will ask for fees and costs. We reserve the right. It’s not unreasonable.”

“I’m in full support of the city attorney on this,” noted Hallum. The council denied the grievance. The matter will now proceed to mediation.

The city also continues to see some glitches in the collective bargaining agreement in relation to a Request for Proposal regarding mowing and trimming of 113 of the cities’ 136 currently maintained acres. Per the agreement, the city must show savings of at least 10 percent in using outside contracted services that is currently done by public works. Under recommendation by Administrator Sarvi, Dave Lombard, representing public works, presented a breakdown of costs associated with the work.

According to Lombard’s documentation, the actual cost of the work in 2013 was $23,754.36. His estimated cost using public works in 2014 is $2,058.00 per time, with twelve occurrences, or $24,696 per season. The bid by Meyer Lawn Service stated $1895.00 “per event mowing and weed whipping” or $22,740 per season. Following the 10 percent limitation, the bid savings are $163 per occurrence, falling short of the requirement by $42.80 per occurrence

In an explanation of why to leave the work with public works, Lombard noted control over mowing timing and frequency, city property borders, efficiency and safety, future budgeting, no administrative costs, and no supervisory time. “That’s $22,740 out of general fund tax levy that’s not in the general budget. Where are the savings?”

“While I appreciate your work, a complete work plan needs to be structured and presented to the council,” said Councilor Vern Bunke. It was recommended that the work be looked at per line, eliminating the wages of Courrier, who was on staff for the 2013 figures, increase the numbers to reflect increase to 2014 wages, including the hourly rate of seasonal part-time employees in public works, and then numbers be rerun.

“We’ve been trying to tell you, it won’t work in the public works environment,” stated Lombard.

“It will, I can guarantee it,” responded Bunke. “I suggest we table this and give public works the opportunity to create structure for mowing using actual seasonal cost. Let’s take a look at what we can create to establish accurate cost in 2014.” The motion passed 3 to 1 with Mayor Hallum opposed. Councilor Honsey was absent.

The next regularly scheduled council meeting is Monday, February 10, at 6:30pm, at city hall. The public is encouraged to attend.

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