HomeMy WebLinkAbout24. 14-375
AUGUST 13, 2014 14-375 RESOLUTION
(CARRIED__6-0______LOST________LAID OVER________WITHDRAWN________)
PURPOSE: APPROVE PARTIAL ALLOWANCE OF CLAIM AND SETTLEMENT
AGREEMENT AND RELEASE OF CLAIMS/EUGENE E. RUSCH JR,
WILLIAM T. FRIDAY AND TRACY GUNDERSON/ PERTAINING TO
A PROMISSORY NOTE EXECUTED BY THE RDA FOR PROEPRTY
LOCATED AT 362 MICHIGAN STREET (FORMER BOATWORKS
PROPERTY) AND AUTHORIZE TRANSFER OF TIF FUNDS FOR
PURPOSES OF THE SAME
INITIATED BY: LEGAL DEPARTMENT
WHEREAS, Claimants Eugene E. Rusch Jr. and William T. Friday and Betty
Gunderson, the mother of Claimant Tracy Gunderson, are the owners of a Promissory
Note from the Redevelopment Authority of the City of Oshkosh dated June 17, 2005 in the
amount of $225,000.00 (the “Promissory Note”); and
WHEREAS, the Promissory Note was secured by a mortgage on real property
located at 362 Michigan Street, City of Oshkosh, Wisconsin, which was recorded in the
Office of the Register of Deeds for Winnebago County, Wisconsin on July 15, 2005 as
Document Number 1362797; and
WHEREAS, Attorney Charles Hertl served a Notice of Claim on behalf of Claimants
Eugene E. Rusch Jr. and William T. Friday on May 28, 2014 demanding payment of such
Promissory Note; and
WHEREAS, Attorney Charles Hertl now also represents Tracy Gunderson, the sole
heir and successor in interest to Betty Gunderson, the third owner of the Promissory Note;
and
WHEREAS, the Claimants and the City of Oshkosh are desirous of resolving this
issue without the further expense and uncertainty of a trial and to resolve any and all
claims fully and completely.
WHERAS, the property located at 362 Michigan Street is located within TID #20
South Shore Redevelopment Area; and
WHEREAS, TID #20 has not currently generated sufficient funding within the
District to pay this obligation; and
WHEREAS, By Resolution 13-486 adopted on October 22, 2013, the Project Plan
AUGUST 13, 2014 14 -375 RESOLUTION
CONT'D
a donor TID and TID #20 as a recipient TID for the transfer of funds to cover project
costs within the recipient TID; and
WHEREAS, TID funds may be used to fund eligible project costs under Wisconsin
Statutes section 66.1105; and
WHEREAS, the purchase of the property located at 362 Michigan Street within TID
#20 is an eligible cost under section 66.1105 of the Wisconsin Statutes and the Project
Plan for TID #20.
BE IT RESOLVED by the Common Council of the City of Oshkosh that the claim of
Eugene E. Rusch Jr. and William T. Friday are hereby partially allowed as follows and the
attached Settlement Agreement and Mutual Release is hereby approved and the proper
City officials are hereby authorized to execute and deliver the agreement in substantially
the same form as attached hereto, any changes in the execution copy being deemed
approved by their respective signatures, and said City officials are authorized and directed
to take those steps necessary to implement the terms and conditions of the Agreement.
BE IT FURTHER RESOLVED that the proper City officials are hereby authorized
and directed to pay attorney fees as claimed by the claimants in an amount up to $2500.
BE IT FURTHER RESOLVED that money for this purpose-shall be transferred from
TIF #7 Southwest Industrial Park to TID #20 South Shore Redevelopment Area to the
Redevelopment Authority for the City of Oshkosh to pay the amounts authorized
hereunder.
CITY HALL
215 Church Avenue
P.O. Box 1133 Oshkosh
08hkosh5 903 -1r130 City o{ [
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TO: Honorable Mayor and Members of the Common Council and Members of the
Redevelopment Authority for the City of Oshkosh
FROM: Lynn A. Lorenson, City Attorney
DATE: August 7, 2014
RE: Resolution to Approve Settlement Agreement and Release of Claims for
Eugene E. Rusch, Jr., William T. Friday and Tracy Gunderson pertaining to a
Promissory Note executed by the RDA for property located at 362 Michigan
Street (the former Boatworks Property) and authorize the transfer of TIF
Funds for purposes of the same
BACKGROUND
City staff previously discussed settlement options for this claim with Council in a closed
session. After that closed session, I received a phone call from Attorney Hertel
indicating that he met with Mr. Rusch and Mr. Friday on August 5th and was informed by
his clients that the City must pay their attorney fees related to the filing of this claim.
The Note and Mortgage do contain terms providing for the payment of fees if there is
collection action required to collect the amounts due. In addition, Mr. Rusch and Mr.
Friday directed Attorney Hertel to demand that the City pay interest on the amount they
claim is now due from the date of the commencement of work on the Riverwalk.
Attorney Hertel indicated that he told his clients that he believed that the City would not
pay interest on the amounts but that he would request the payment of the attorney fees.
ANALYSIS
While it is not uncommon for a promissory note and mortgage to contain terms including
the payment of attorney and other fees required to collect the debt, because of the
uncertainty over the terms of the agreement and whether the activities on the site
actually trigger the repayment of the note staff had previously maintained that the City
would not pay either interest or attorney fees at this time. This was previously
communicated to Attorney Hertel, was included in the settlement agreement that was
sent to Attorney Hertel and is what was represented to both the RDA and the Council in
the closed sessions related to this matter. It is disappointing that this issue was brought
up at this late date in the process. However, after discussing this matter, staff still
recognizes an advantage to payment of the note at this time through the method
discussed in the attached memorandum dated July 29, 2014.
This additional term was discussed with the RDA at their meeting and the RDA
recommended proceeding with the settlement and authorizing the payment of some
attorney fees to facilitate the settlement. Attorney Hertel indicated that his fees to date
totaled $3251.75. Attorney Hertel has performed work on this matter. The amount of
work performed, and the extent to which the City is willing to reimburse him remain the
questions for the City. In addition to the work already performed there will be some
additional work required of Attorney Hertel to complete the transaction. Based upon the
discussion and recommendation of the RDA, I spoke with Attorney Hertel this morning
and indicated that 1 could recommend payment of attorney fees in an amount up to
$2500. Attorney Hertel agreed to that amount. Based upon this agreement I have
modified the Resolution before the Council to reflect the requested change and cap the
attorney fees at $2500. If the City approves this request, the City would pay up to the
$2500 amount which would include all work performed to date and the additional work
necessary to complete this transaction.
FISCAL IMPACT
The additional amount, if approved, would also be financed through the transfer of funds
from TIF V.
RECOMMENDATION
Based upon the disputed nature of this matter and the recognition that Attorney Hertel
has put significant work into this matter and has drafted some of the documents to
facilitate the transfer of Ms. Gunderson's rights to her daughter and heir and the release
of the mortgage to be recorded in the City's favor; I would recommend that the Council
adopt the Resolution.
Respectfully Submitted,
4yyn A. Loren
City Attorney
Approved:
Mark A. Rohloff
City Manager
CITY HALL
215 Church Avenue
P.O. Bcx 1130 City Oshkosh
Qshkos 5 903 1130 City ®f d s kos
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TO: Honorable Mayor and Members of the Common Council and Members of the
Redevelopment Authority for the City of Oshkosh
FROM: Lynn A. Lorenson, City Attorney
DATE: July 29, 2014
RE: Resolution to Approve Settlement Agreement and Release of Claims for
Eugene E. Rusch, Jr., William T. Friday and Tracy Gunderson pertaining to a
Promissory Note executed by the RDA for property located at 362 Michigan
Street (the former Boatworks Property) and authorize the transfer of TIF
Funds for purposes of the same
BACKGROUND
The City acquired 362 Michigan Street, formerly known as the Boatworks property, in
2005. The City acquired the property through a donation of a portion of the value of the
property and the purchase through promise of a future payment for the remainder of the
property's value.
The City accepted the donation of a portion of the value of the property by Resolution
05 -176 on June 14, 2005. The property was valued at $600,000 at the time of the gift.
The memorandum of gift notes a gift of $375,000.00. The remainder of the property
was purchased through the City's promise to pay $225,000.00 in the future. This
promise was secured by a note from the RDA to Boat Works, Inc.
The $225,000 promissory note was assigned by Mr. Oskar, as the sole shareholder of
Boats Works, Inc. to three former employees. Two of these individuals are to be paid
$100,000 each while the third is entitled to the final $25,000 of the promissory notes
value. The $225,000 note accrues no interest and becomes payable "upon the
occurrence of the earlier of the following described events:
1. The sale of the real property located at 362 Michigan Street, Oshkosh,
Wisconsin by Maker (The RDA) to an outside third party; or
2. At such time as the Redevelopment Authority of the City of Oshkosh or the
City of Oshkosh, through action by the City Council, resolves to develop on its
own the real property located at 362 Michigan Street, Oshkosh, Wisconsin."
From the date of the donation, the City has performed various work on the site,
including the removal of personal property, environmental testing, and the demolition
and removal of buildings in preparation for the eventual development of the site. Most
of the site was cleared and seeded in 2010. While the City's intention when acquiring
this property was to redevelop it, economic conditions and other factors have delayed
these plans. Although the City still hopes to redevelop the site, no plans are now
imminent.
The City has recently begun construction of a portion of the City's Riverwalk along the
water's edge portion of this property and the individuals holding the promissory note
believe that this work on the Riverwalk has triggered the requirement to pay that
$225,000 note. On May 28, 2014, Attorney Chuck Hertel filed a claim with the City
Clerk on behalf of two of the former employees who were assigned the promissory note
by Mr. Oskar. The third employee is now deceased and at the time the claim was filed,
Attorney Herd had not located her heirs. Attorney Hertel has since indicated that he
also represents the heir of the third employee.
ANALYSIS
Up to this point, the City has responded to the various inquiries by the holders of the
promissory note that it remains the intention of the City to market and sell the property
and that the actions taken to date do not constitute development under the terms of the
promissory note. The claimants previously had accepted the City's explanation.
However, with the construction of the portion of the Riverwalk they, through their
attorney, claim that the City has by beginning construction of the Riverwalk and other
activities on the property now commenced the development of the property. It is
uncertain at this point how a court may interpret the promissory note.
It is clear that at some point the City /RDA would be required to pay this obligation. As
this matter was reviewed, an opportunity to currently fund this obligation through the
transfer of TIF funds was identified. The property at 362 Michigan Street is located with
TIF #20 the South Shore Redevelopment Area. TIF #20 has a negative balance
currently, primarily related to the demolition of the Pioneer Inn after the creation of the
TIF and slow development during the early years of this TIF which was created in 2005.
Currently TIF #7 the Southwest Industrial Park has approximately eighteen million
dollars ($18,000,000) in cash deposits. State law allows increment revenue to be
allocated from one TIF district to another to offset the debts of the recipient district. In
2013 the Common Council and Joint Review Board approved an amendment to TIF #7
to allow TIF #7 to share surplus revenue with TID #20 and TID #21. Funds may be
transferred from TID #7 to TID #20 to pay off this obligation at this time. When the
property is ultimately sold, the funds would then be repaid into TID #20.
Fiscal Impact
There is limited fiscal impact to the recommended settlement. The City /RDA is required
to pay this obligation at some time. Funding through a transfer of funds from TIF #7 at
this time, allows the City to pay off that outstanding Promissory Note without incurring
additional General Obligation debt. When the property is sold in the future, the debt to
the claimants will have been paid and all of the money from the sale may be returned to
the T1F district funds at that time.
Recommendation
It is recommended that the Council pass the resolution to settle the claim on behalf of
Eugene E. Rusch, Jr, William T. Friday and Tracy Gunderson and to authorize the
transfer of TIF funds for this purpose.
ly Submit d, Approved:
Lynn Lorensori J Mark A. Rohloff
City Attorney City Manager