Loveland hires outside counsel to take on McWhinney lawsuit

LOVELAND — In a special meeting called in response to a developer’s lawsuit against the city of Loveland, the City Council on Wednesday hired an outside attorney despite some council members’ concern that that lawyer might soon represent another developer in litigation against the city.

On a motion introduced by Troy Krenning, the only lawyer on the panel, the council voted 7-2, with councilmembers Dana Foley and Steve Olson dissenting, to hire attorney Michael D. Plachy of Denver-based Lewis Roca Rothgerber Christie LLP to defend the city against a breach-of-contract lawsuit by developer McWhinney Real Estate Services Inc. The developer on Tuesday followed through on its threat to sue the city over its Nov. 21 decision to rescind a previous city council’s approval of an urban renewal plan and master finance agreement for McWhinney’s proposed Centerra South mixed-use development on Loveland’s eastern edge.

“Frankly, this is a fight that exceeds the capacity of our city attorney’s office, not because of competence or education or skill,” Krenning said. “The McWhinneys are bringing an army to the battlefield, and we need to be prepared to do the same.” His motion directed City Attorney Moses Garcia to retain Plachy’s firm “to provide legal counsel to this body regarding strategy, options and concerns it may have with the city’s position.”

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However, Foley and others said the fact that Plachy also represents developer Martin Lind, president of Windsor-based Water Valley Land Co. and owner of the Discovery Air complex at Northern Colorado Regional Airport, which is jointly owned by the cities of Loveland and Fort Collins, could create a conflict of interest because Lind has threatened legal action against the cities.

Lind in April had delivered to airport commissioners a seven-page letter from Plachy in which Plachy contended that the airport is in violation of federal law because, “as a past and prospective recipient of federal funding, it is prohibited from granting preferential treatment or special rights to any airport user, including any fixed-base operator. The airport violates these prohibitions by granting preferential treatment and exclusive rights to jetCenters of Colorado.” Plachy wrote that “such disparate treatment gives a windfall to jetCenters” at the expense of its competition including Lind’s Discovery Air.

“On one side you’re biting the hand that feeds you on the other hand,” Foley said of Plachy and his firm. “The more insulated we can be for our representation, I think that is the better approach to go. You reduce any potential conflicts of interest, given that they represent one of our leading developers in the city of Loveland as well.”

Garcia acknowledged that “Discovery Air has threatened litigation against the city, and they seem prepared to enter into litigation. I’m not sure it’s helpful for the city to have the firm suing the city on one side on behalf of a defendant while representing the city on another matter.” However, he added, “if you’re comfortable with that, we can certainly waive that and you can keep that separation between defense and plaintiff.”

“I don’t really like that this same firm is potentially going to bring litigation against us and also will be representing us,” said Councilmember Andrea Samson, “but it is a very large firm and so I think they can probably compartmentalize. And legally you have to be able to do so.”

Krenning responded that “attorneys have very specific rules regarding conflicts of interest, and so I am certain that this firm, should we hire this firm, will not accept engagement with us if they believe there’s a conflict. Discovery Air and the airport have had a little friction, but I don’t see it as a conflict with the city of Loveland.”

Krenning, who was elected to the council on Nov. 7, said he wanted to know whether or not rescinding the agreements with McWhinney was legal, but hadn’t called Garcia’s office because he felt the city attorney’s office is “all in” with McWhinney. Krenning plans to make a motion at the council’s next regular meeting on Dec. 5 that Garcia be fired.

“When I watched the presentation of Mr. Junglas, in talk about Centerra,” Krenning said, “I thought, ‘Well, the city attorney’s office would be conflicted to give me the kind of advice that I would want personally.”

Vincent Junglas, Loveland’s deputy city attorney who was speaking in his role as principal negotiator for the Loveland Urban Renewal Authority, had delivered a forceful presentation in support of the tax-increment plan for Centerra South at a city council meeting in April, praising the proposed development as “a gold project” and “a project of significant magnitude with state-of-the-art world-class structures,” “an attractive pillar of Loveland’s entryway” and “a home-run deal” for the Thompson school district. His effusive language had rankled Mayor Jacki Marsh, who labeled it “propaganda.”

“Watching the Centerra South process unfold, it raised my eyebrows,” Krenning said Wednesday. “I thought this is being pushed a little too fast, a little too hard. We’re trying to get across the finish line a little bit ahead of the skis.”

Krenning said he had “received a number of legal opinions” about rescinding the agreements. “Some say you can’t do it, some say you can do it. That’s why controversies develop, and that’s why we put these things in a courtroom, because somebody’s right and somebody’s wrong. Or somebody might be partially right and somebody might be partially wrong. So, frankly, I’m glad it’s in court. That’s where it probably should have been last year when all of the controversy was unfolding.

“I’m a little dismayed about councilors who take the podium and, from this dais, are blurting out that the city has breached the contract. Not a single person on this dais, myself included, would be qualified to make an assessment whether or not there’s been a breach of a contract, because I’m not sure if anybody at this dais, myself included, truly understands whether or not a contract was ever legally formed. That’s the root question, because if the contract was never legally formed, there can be no breach of contract. I think that ought to be the discussion point.”

Marsh has contended the agreements were invalid because they were violations of state law and that the meeting where they were approved was held without proper public notice. 

Krenning and Garcia stressed the importance of prompt council action to obtain representation.

“We do need to act very quickly,” Garcia said. “We’re expecting that they will be seeking a hearing in the next day or so, so I would encourage council to hire legal counsel tonight. We are looking at pretty interesting and serious claims that I think we need to have handled by top-notch firms.”

“Now that we have a lawsuit, time becomes very crucial because the plaintiffs in this case are seeking injunctive relief,” Krenning added. “It gets onto a ‘rocket docket’ and we’re going to find ourselves in court sooner rather than later. We need to be prepared and we need to be ready to respond.” Referring to Denver-based Brownstein Hyatt Farber Schreck LLP, he said “the McWhinney real estate firm has hired a very credible, very reputable, a very capable law firm with national prominence, and it would be a disservice of this council to do anything less.”

Plachy has “successfully tried ‎complex commercial matters, real estate dispute cases, construction, product ‎liability and class action cases,” his firm’s website states.

Before Wednesday’s meeting, Garcia had handed out profiles of several attorneys before the meeting, including some recommended by the nonprofit Colorado Intergovernmental Risk Sharing Agency (CIRSA), which bills itself as a “municipal self-insurance pool dedicated to providing Colorado public entities with proactive risk management guidance and the best possible coverage and service.”

One of the attorneys he recommended was Thomas W. Snyder of Denver-based Kutak Rock LLP, who has represented Loveland in the past and has experience with breach-of-contract issues. Snyder successfully defended the city of Aurora in several legal challenges seeking to enjoin the financing of the Gaylord of the Rockies Convention Center and Hotel, and represents that city in a challenge to statewide methodology used in tax incremental financing calculations.

Garcia said paying for outside legal counsel typically “will start with the city attorney’s budget. I expect this will be far beyond what the budget will be able to handle, so we would rely on the general fund, which our budget comes from. The rates I’ve seen range somewhere between $300 and $700 an hour. I don’t have an estimate about what it would take to complete this.”

Krenning reminded the council that “CIRSA is an insurance carrier. CIRSA funds the attorneys that do represent the city. What people don’t understand, I don’t think, is that every time we ring CIRSA’s doorbell and ask for representation, we’re on the hook for a deductible. The last time I checked, that hook is $250,000 per incident. Every time we get an attorney appointed to us or referred to us by CIRSA, we are encumbered $250,000.”

Foley, however, called that figure “chump change.”

“My concern coming out of the liability and claims side of things, and my professional ability being in risk management and loss control,” Foley said, “is that it’s probably best to distance any perceived relation to the city or to members of council. And this one’s pretty close. My recommendation is that the best thing to do is back out and be quiet because there’s a potential that you can continue to create more liabilities.”

Councilmember Patrick McFall said “we should have done this much slower, earlier.” He accused the council majority of “ramrodding” Plachy’s hiring through, adding that “I feel that what you are doing is an injustice to this city.”

Krenning said the city’s legal stance does deserve careful consideration.

“CIRSA should take some time and review this claim and give an informed decision back to us whether or not it’s even a coverable claim,” he said. “Because if it is, it is smart for us to engage CIRSA because that means we have insurance to cover subsequent damages and we have reinsurance to cover subsequent damages that exceed the CIRSA policy. We could make that decision down the road if we wanted to.”