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Business Observer Friday, Apr. 26, 2013 5 years ago

'Long and Costly'

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Two court rulings powerfully rebuke a Pasco County land development ordinance. A federal judge called the county's action an 'abusive and coercive misapplication of governmental power.'
by: Mark Gordon Managing Editor

Gulf Coast real estate developers Mike Kass and George Karpay didn't seek a fight with Pasco County.

But their hesitancy to battle the government, in what's now become a six-year-and-counting legal saga, was trumped only by their sense of right and wrong. Kass, a Tampa-based attorney with the firm Kass Shuler, says Pasco County officials violated his and Karpay's private property rights with a 2005 ordinance called the Right of Way Corridor Preservation. Karpay, a prominent Tampa area developer and homebuilder, who died April 8 at 83 years old, likewise thought the move was illegal.

Two court rulings, the most recent one handed down April 12, agree that Kass and Karpay's constitutional rights have been violated. So much so that Tampa-based U.S. District Court Judge Steven Merryday used language in his ruling that calls the county's action akin to being a bully. In another part of the decision, he calls the ordinance a “prolix, opaque, and overbearing” rule.

“Preferring to avoid the payment of 'just compensation' after acquiring the necessary land by eminent domain, Pasco County has hatched a novel and effective but constitutionally problematic idea, a most uncommon regulatory regime,” Merryday writes on page one of a 52-page ruling.

Merryday concludes with this passage: “This ordinance is an unmistakable, abusive, and coercive misapplication of governmental power, perpetrated to cynically evade the Constitution. The ordinance cannot stand.”

The Pasco County ordinance set up a system where landowners and developers, if and when the county asks for it, would allot — the county calls it donate — some of their property for future roads. Only then would the county approve the development for the unused parts of that particular parcel.

The purpose of the ordinance, county officials say, was to save the county, one of the fastest growing in Florida in the early-2000s, from charging developers high impact fees for new roads. The county also made the ordinance part of its comprehensive plan that supports development through 2025.

Pasco County Administrator John Gallagher referred questions on the lawsuit and the latest ruling to Chief Assistant County Attorney David Goldstein, who only responded to the Business Observer in an email. “Conditioning development approval on the dedication of right of way is constitutional, and has been upheld by the U.S. Supreme Court,” writes Goldstein. “It's a common practice for most local governments in Florida.”

'Constitutionally obnoxious'
Several developers, though, consider the ordinance the epitome of a land-grab.

And to Kass, who co-owns 16 acres off State Road 52 and Old Pasco Road, a few miles west of Interstate 75 in central Pasco County, the right-of-way preservation was an abomination. Kass and Karpay intended to build a 147,000-square-foot, Publix-anchored shopping center on the land — a project under the development entity Hillcrest Property that never moved forward. The initial proposal for the shopping center dates back to 2001, after Kass and Karpay, through Hillcrest, paid about $11 million for the land.

But the project stalled, Hillcrest alleges in the lawsuit, because Pasco County, through the ordinance, required Kass and Karpay to give back between 50 and 140 feet for future road expansion. The Florida Department of Transportation, which isn't a defendant in the Hillcrest suit, later sought another 90 feet of road from the developers.

The ultimate result, Hillcrest contends in court documents, is the ordinance would cut out 4.3 acres of the development, or 28% of the total acreage. That would make the project impossible to build, which is why the land sits empty today.

“Anytime you develop a piece of land, it's always a lot of quid pro quo with the county,” says Kass. “It's always a give and take. But this was just take. They wanted to take the right of way without any compensation and regardless if there was any need for it.”

So Kass and Karpay, led by Tampa attorney David Smolker, sued Pasco County in 2010. The plaintiffs sought two remedies from the court: compensation for the land impacted by the ordinance and a reversal of the ordinance. “I've been practicing in this area since 1982,” says Smolker, well-known in statewide legal circles for his land-use law work, “and I've never seen anything this constitutionally obnoxious.”

The next step in the case will be a hearing in front of Judge Merryday, scheduled for April 25. Attorneys on each side will likely discuss financial damages with the judge. In his April 18 email, Goldstein says it's too early to talk about a possible appeal or even revoking the ordinance because a judgment hasn't been entered yet.

Smolker, however, is hopeful Merryday's ruling will be the force that pushes Pasco County to reverse course. “It's been a long and costly case,” says Smolker. “This (recent decision) is a huge step forward.”

Bittersweet victory
Merryday's ruling, further, is a reaffirmation of a March 9, 2012 decision written by U.S. Magistrate Judge Thomas McCoun. That judge, in reviewing the case before it proceeded to Merryday's courtroom, called it like Kass and Karpay saw it: An end-run around eminent domain laws.

“Hillcrest was required to dedicate a portion of its property fronting State Road 52 to the county free of charge...” writes McCoun. “To avoid such unfairness and injustice the 5th and 14th Amendments (as well as Article X, section 6 of the Florida Constitution) dictate that the government compensate landowners when it confiscates private property for public use under the power of eminent domain and when it regulates private property under its police power in a manner that effectively deprives the owner of the economically viable use of his property.”

Adds McCoun: “Here, the county has purposefully devised a land-use scheme which sanctions, indeed commands, in all instances within its purview and without individualized consideration, the dedication of such private property without compensation as a condition of development approval or permit.”

But the decisions, in at least one sense, are a bittersweet victory because of George Karpay's recent death, says Dale Lewis, a vice president with the Karpay Co. The Tampa-based firm is behind dozens of developments, including retirement homes in Fort Myers and multiple housing communities in Hillsborough and Pasco counties.

Karpay, also well known in the Tampa community for his philanthropy in arts and education, died unexpectedly while on a Mediterranean cruise with his wife. Lewis, who worked closely with Karpay on the Hillcrest project, says the ruling would have meant a lot to him. “He absolutely believed the county was wrong,” says Lewis. “He thought (the ordinance) was totally inappropriate.”

Smolker recalls Karpay's passion on the issue got the best of him one day early on in the lawsuit, during a deposition with Pasco County attorneys. Smolker says Karpay's anger grew with each question from opposing attorneys, until the then 80-year-old developer snapped. He says Karpay took out a pocket-sized U.S. Constitution from his side jacket pocket and slammed it on the table in response to an attorney's question.

“Have you ever read it?” Karpay reportedly asked the attorneys as he admonished them for their entire line of questioning. Karpay continued: “Have you ever even heard of it?'”

Move forward
Despite the outburst, Kass says he and Karpay would have rather avoided the lawsuit entirely.

The developers say they pleaded with county officials, starting in 2006, in a series of meetings, conferences and sessions. The county, at least in the wording of the ordinance, provides several ways to appeal a corridor preservation decision.

But Kass says he and Karpay were met with consistent resistance from county staff and officials. The developers then sought to get out of the project by selling the land. But the combination of the recession and word getting out about the ordinance in the developer community made that effort futile.

So in 2010 the developers decided to move forward with the lawsuit. Kass and Lewis estimate Hillcrest has spent more than $500,000 pursuing the case, including $100,000 in new site plans to comply with the ordinance.

The latest developments, while not the end of the case, represent a sense of vindication for the Hillcrest team. Lewis says the ruling reassures that it pays to do things right.

“We play by all the rules, and we pay our fair share,” says Lewis. “I'm proud we held the county accountable for this.”

The Judge Speaks
Federal Judge Steve Merryday held little back when he handed down a decision April 12 in a lawsuit that pitted developers against Pasco County. At stake was the constitutionality of Pasco County's Right of Way Corridor Preservation: County officials claim it's part of a smart-growth plan, while the developers, Mike Kass and George Karpay, say it's an unconstitutional end-run around eminent domain laws.

Merryday wholeheartedly agreed with the plaintiffs, Kass and Karpay, who are behind Hillcrest Property. Here are experts of Merryday's 52-page ruling:
-The ordinance is “...both coercive and confiscatory in nature and constitutionally offensive in both content and operation.”
-“The Ordinance requires Pasco County to deny the landowner's development permit and to forbid development of the land adjoining the new transportation corridor unless the landowner 'dedicates' (conveys in fee simple) to Pasco County - for free - the land within the new transportation corridor. In other words, to avoid the nettlesome payment of 'just compensation,' the Ordinance empowers Pasco County to purposefully leverage the permitting power to compel a landowner to dedicate land encroached by a transportation corridor. In Pasco County, if there is no free dedication, there is no permit.
-“As the Pasco County Attorney proudly declares, 'The right of way preservation ordinance drafted and defended by this office (which is one of only a few in the state) saves the County millions of dollars each year in right of way acquisition costs, business damages and severance damages.' This bully result is effected by threatening to deny every proposed new use of private land, from medical clinic to beauty parlor, from restaurant to bait shop, and by coercing everyone, great and small, rich and poor, popular and unpopular, unless the landowner completes the mandatory 'voluntary' dedication of real estate.”
-“In sum, the Ordinance discriminates based on economic aspiration. Against the class of landowners who never attempt to develop, Pasco County will acquire land by eminent domain, beginning when and if Pasco County needs the land. A landowner without need of a permit enjoys the protection of condemnation and receives the 'just compensation' guaranteed by the Constitution. A landowner who aspires to develop property and who aspires to a permit for a grocery store, a doctor's office, an apartment building, or the like faces an immediate confiscation of land. For these landowners, a last but forlorn hope for just compensation is in Pasco County's prolix, opaque, and overbearing Ordinance. Further, these landowners' just compensation is an elusive contingency, held for ransom by a committee methodically acquiring property at a steep, aggregate discount.”
-“Pasco County has enacted an ordinance that effects what, in more plain-spoken times, an informed observer would call a 'land grab,' the manifest purpose of which is to evade the constitutional requirement for 'just compensation,' that is, to grab land for free.
“Viewed more microscopically, Pasco County's Ordinance designs to accost a citizen as the citizen approaches the government to apply for a development permit, designs to withhold from a citizen the development permit unless the citizen yields to an extortionate demand to relinquish the constitutional right of 'just compensation,' and designs first and foremost to accumulate - for free - land for which a citizen would otherwise receive just compensation.
“Aware undoubtedly of the brazenness of the Ordinance, Pasco County has garnished the Ordinance, has disguised the Ordinance, has planted in the Ordinance a distraction, using the familiar phrase 'roughly proportional' or 'rough proportionality,' words intended to evoke the soothing reassurance... words intended to deploy aggressively the foggy notion that if the words 'roughly proportional' appear in a scheme to regulate land, the scheme is constitutional. Not so.”

Big Days
U.S. District Court Judge Steven Merryday, who recently handed Pasco County officials a blistering defeat in a land-use lawsuit (read his comments on the case on page 14), has presided over several prominent Gulf Coast cases.

A onetime attorney with Holland & Knight in Tampa, President George H.W. Bush appointed Merryday to his seat on the bench, in U.S. District Court for the Middle District of Florida, in 1992. Cases Merryday has been involved with include:
-An ongoing widespread mortgage fraud and house flipping case that included 20 defendants in the Sarasota-Bradenton region and hundreds of millions of dollars in ill-gotten gains;
-A lengthy legal dispute over the future of the Colony Beach & Tennis Club, a world-renowned resort on Longboat Key that filed for bankruptcy in 2009;
-The 2007 trial and sentencing of Rafael Angel Rondon, dubbed the Band-Aid Bandit because he covered a mole on his face with a bandage when he robbed banks. Authorities contended Rondon robbed nearly 40 banks, from Gainesville to Sarasota, and he was convicted of six of the heists. Merryday sentenced Rondon to 149½ years in prison;
-Parts of the case of Steve and Marlene Aisenberg, Tampa parents charged with concocting a story about how their infant daughter was kidnapped from her crib in the middle of the night. The baby girl, reported missing in 1997, has never been found and charges against the couple were ultimately dropped due to insufficient evidence.

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