Decision in Burton-Katzman lawsuit due in November

By J. PATRICK PEPPER
Times-Herald Newspapers

DEARBORN — Wayne County Judge Michael Sapala is expected to issue a verdict Nov. 6 in the city’s lawsuit against Burton-Katzman Development Co. Inc., several of its subsidiaries and company executives, City Attorney Debra Walling said last week.

It now appears that the question facing Sapala is not “if” B-K breached a 2004 development agreement with the city, but “how” the Bingham Farms company should make the city whole.

“(Sapala) will determine whether it is going to be specific performance, damages or some combination of both,” Walling said.

While it’s uncertain what Sapala eventually will decide, the city’s initial complaint requested a series of remedies for B-K’s refusal to complete construction on the West Village Commons development in downtown west Dearborn.

In the case of “specific performance,” which alludes to a provision in the development agreement, the city is seeking the court compel B-K to build two midrise buildings that have a combined taxable value of at least $20.3 million, in addition to 12 condominium units.

The buildings were part of the B-K proposal approved by city officials when the company was chosen to develop the former Jacobson’s department store site on Michigan Avenue, but company officials have said since that the components are not economically viable.

In terms of damages, the city is seeking roughly $16.5 million spent on debt service for two parking decks that were built to support the project. Taxes from the midrise buildings – and usage fees from the tenants – were expected to cover the costs of the parking decks.

But with no buildings or tenants, the city has been forced to cover the shortfall. Additionally, the city is looking to recoup about $350,000 in unpaid taxes and water penalties.

Before Sapala renders his decision, however, Walling said she would file a motion to add additional defendants to the suit. The additions, she said, are due to new information that has emerged as the case has progressed, suggesting a far more convoluted corporate structure than city attorneys had thought initially.

“We’ve found that certain members of the Burton-Katzman family of corporations are capitalized, funded and pay employees. Others are just shells,” Walling said. “We want to name the entities that have funds.”

Some of the more interesting revelations over the course of the suit include that Burton-Katzman Development Co. actually has no assets, despite the fact that B-K officials identified themselves with the entity in their dealings with the city.

City officials say that would seem to be in violation of a provision in the development agreement outlining that the company had sufficient financial capacity to get the financing required for the project.

The company that does pay employees, Burton Share Management Co. Inc., is one of the entities Walling will look to add to the suit.

City attorneys said they also have uncovered increasing evidence that financing for the project was never on the top of the company’s to-do list. Since B-K began stalling on the unfinished West Village Commons components, the company or company subsidiaries have been involved in several significant projects throughout southeast Michigan, suggesting B-K has, in fact, had access to financing.

Among them are the $100 million Allen Park Unity Studios, a 60,000 square-foot medical office complex in Livonia, and coincidentally, the redevelopment of a former Jacobson’s department store in Birmingham. But other projects aren’t the only thing that has led Walling to conclude the company wasn’t serious about the West Village Commons.

When B-K Chief Financial Officer Stephen Bentley was asked in a deposition why he agreed to the financial capacity provision in the developer’s agreement, he said he was never even consulted on the matter, Walling said.

Walling said it also was discovered that B-K never actually applied for financing on the unfinished components of the project, but instead decided that it would not be profitable and thus decided not to even attempt to obtain financing.

“It has been one shocking revelation after another in this discovery (process),” Walling said.

Telephone calls to B-K officials seeking comment for this story were unreturned as of press time.

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