WALLA WALLA — The city of College Place is demanding $2 million it claims it is owed from a local car dealer for the Commercial Drive project.
The city filed a civil lawsuit this week alleging breach of contract, fraud and misrepresentation on the part of defendants Mark W. and Susan Gilbert, GA Group Properties and Gilbert Imports. Mark Gilbert is the owner of Gilbert Auto Honda and other auto dealerships.
The suit alleges the defendants have failed to make payments promised to the city for construction of Commercial Drive. The road was built in late 2008 to serve Mark Gilbert’s auto dealership and Community Bank, both of which are on commercially zoned property alongside State Route 125. Along with the auto dealership and bank, city officials also hoped the new road would entice other businesses to locate in the area.
The suit was filed Tuesday in Walla Walla County Superior Court.
Calls to Mark Gilbert and his attorney, Kris Hedine, for comment had not been returned as of press time today.
According to documents filed by the city, to finance construction of Commercial Drive, the city entered into a development agreement with GA Group and other landowners in the vicinity. As part of the agreement, the GA group agreed to dedicate a portion of its property for the road and pay the city $150,000 after the City Council approved the development agreement.
At the time the agreement was approved by the city, the Commercial Drive property was subdivided into four lots. The auto dealership was built on one of those lots.
As part of the development agreement, the lawsuit states the GA Group also agreed to pay the city $135,000 per year over the ensuing 15 years, minus the amount of sales tax revenues the city received from the business. “To secure payment of these amounts, defendant GA Group gave the City a deed of trust against Lot 3 and another deed of trust against Lot 4,” the lawsuit states.
According to College Place City Administrator Pat Reay, all of the subdivided property was subject to a deed of trust in favor of Community Bank because the bank had lent the Gilberts money and the property was pledged to secure that loan. In order to aid development of the Commercial Drive project, the bank agreed to release its interest in lot 3. This meant the city would gain possession of the lot if Gilbert defaulted on the development agreement.
The bank also agreed to reduce the amount of its lien indebtedness against lot 4 to $450,000 to afford the city additional security should GA Properties default on its obligations under the development agreement, Reay said.
The suit states GA Group and Gilbert “expressly represented and warranted to the City” in the 2008 development agreement that lots 3 and 4 were free of liens, defects and encumbrances except for the deed of trust in favor of Community Bank, affecting lot 4. Gilbert dedicated the part of his property needed for Commercial Drive and the city relied on those promises to proceed with the project, the suit states. The drive opened for traffic in December 2008.
After the new road opened, the suit alleges Gilbert failed to make the initial payment of $150,000 called for by the development agreement and then failed to follow up with the annual payments of $135,000 due in 2009 and 2010.
On or about April 30, 2010, Community Bank started a foreclosure proceeding against GA Group’s property. The suit states the company then located potential new financing from another investor, but that person was unwilling to provide new financing unless the city would agree to release its interest in lot 3 upon the opening of the Honda dealership, which occurred in the summer of 2011.
Because the chance of the city recouping its investment would be diminished if new financing was not obtained, the city entered into a second development agreement with the GA Group. The agreement required the company make up for failing to pay the initial $150,000 by paying the city $171,512.07 by Oct. 30, 2010, which it did, the suit states.
The modified agreement also moved the start date for the annual $135,000 payments, minus sales tax revenues generated by the business received by the city, to Feb. 15, 2012. In addition, the new agreement mandated “the annual payments are due regardless of whether or not the developer’s business … are open and generating sales tax revenues to the city.” and provided that if the developer defaulted, the payments would be “accelerated” and immediately become due to the city.
The lawsuit charges that the GA Group again failed to make the first $135,000 payment due on Feb. 15, 2012. The city then served the company with a notice of default on April 30, 2012.
At that time, the suit states the city discovered the lot the dealership was located on was not a business of GA Group but was owned by Gilbert Imports. This violated the terms of the agreement between the city and the company, the suit charges.
The suit states that a month later the city also discovered that two years before the 2008 development agreement, Gilbert had pledged the Commercial Drive property as collateral to secure a $1 million obligation to Sallee Chevrolet, an Oregon corporation. If the city had known about this, it would not have entered into the 2008 agreement, because the property was not “free of liens, defects or encumbrances,” other than the Community Bank deed of trust, the suit states.
Total damages being sought by the city amount to $2,025,000 plus interest starting from March 23, 2012, and going forward, less the amount of tax revenues paid to the city from sales generated by Gilbert Auto Honda.
Reay said today the cost of the Commercial Drive project to date is about $3 million. The cost of the project has not been fully realized because access to Myra Road required the city to agree to improvements on Myra as a condition for approval of access to that roadway. Those costs will be part of the proposed Myra Road Lowering Project, which is a joint effort between College Place and Walla Walla.