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April 26, 2007
Mark Rossow, Asst. Program Claims Manager
LMCIT
145 University Avenue West
St. Paul, MN 55103
Re: Trust Member: City of Albertville
Claimants: Gold Key Development, Inc. /TC Homes
Claim Nos. 11056480/11057039
Our File Nos. 100.526/100.535
Dear Mr. Rossow:
Since our last report, we have had taken several depositions and have exchanged
summary judgment memoranda. The following is a summary of the depositions,
summary judgment memoranda, and a break down of the parties’ likelihood of
success on the claims.
DEPOSITION OF DEAN JOHNSON: Mr. Johnson is the secretary of Gold
Key Development. He has a degree in aeronautical engineering as well as on the
job training in the construction trade industry. Mr. Johnson formed Gold Key
Development in 1992 with Bill Dolan, a civil engineer, but Mr. Johnson is the
active partner in the relationship. He is in charge of researching and purchasing
property. He then works the property through the governmental permit process
before selling lots to builders. Mr. Johnson also runs Dean R. Johnson
Construction, a separate development and construction company.
Mr. Johnson was first made aware of the Prairie Run property by Kevin Connelly,
a real estate agent. At the time, Mr. Johnson was aware Pulte Homes had looked
at and researched the property but decided not to build. According to Mr.
Johnson, part of the reason Pulte Homes did not build on the property was
because they sought more density. Mr. Johnson wanted to maximize the density
but he also had to agree to the City’s requirements. In 2002, Gold Key
Development retained Hedlund Engineering to work on a concept plan for the
property. Two or three concept plans were presented to the City before final
acceptance. The concept plans sought to maximize the property while taking into
account the wetlands and ditches. Gold Key then had Hedlund prepare the
grading plans, water control management plans, utility plans and other
preliminary plat documentation. Gold Key Development did not review any
ordinances or any of Hedlund’s documentation prior to submittal. In fact, Mr.
April 26, 2007
Page 2
Johnson indicated he did not read any Albertville ordinances until after final plat
approval was given.
It was Mr. Johnson’s understanding Glen Heubner and Randy Hedlund from
Hedlund Engineering both worked on the preliminary plat documents.
Apparently Mr. Heubner was the initial designer and Mr. Hedlund conducted the
final review. The plans were then submitted to the City for their review. It was
Mr. Johnson’s understanding that SEH would review the documentation and note
any deficiencies. Specifically Mr. Johnson remembers working with SEH
engineers Jim Shultz, Pete Carlson and Bob Moberg. Because SEH had reviewed
all of Gold Key’s documentation, Mr. Johnson was quite surprised when the
project was halted due to building elevations. Mr. Johnson also indicated in his
25-30 years of working in the construction industry, he is not aware of any design
engineers or developers who are required to determine the 100-year flood
elevation. While he admits he was required to follow the City’s ordinances, he
still does not believe this requires him to determine the 100-year flood elevation.
Moreover, he believes the development agreement which allowed for the
determination of building elevations based upon the permanent aquatic vegetation
line relieved him of any duty to determine the 100-year flood elevation. The
development agreement, however, was entered into following preliminary plat
approval. Therefore, it would not be controlling on the preliminary plat
submissions.
Mr. Johnson next went into great detail to explain his alleged damages. First, he
discussed the reduced margin of profit. For example, the profit on a particular
parcel is typically one-third of the sale price. The other two-thirds covers the
original land purchase cost as well as the development costs. Here, he has had to
reduce the cost of the lots because of the City’s refusal to issue building permits
and certificates of occupancy. Moreover, he had one builder completely back out
of an option agreement. Following the City’s refusal to issue building permits
and certificates of occupancy, Legacy Homes backed out of its option agreement
in the fall of 2006. Majestic Homes has also talked to Mr. Johnson about a
reduction of price for the lots and/or the possibility of completely backing out of
the option agreement.
In addition to lost profits, Mr. Johnson is also paying 3 ½% over prime on an
$80,000 loan on the property. This loan, in addition to a letter of credit on the
property, has caused Mr. Johnson severe financial harm. Mr. Johnson has had to
refinance his home to pay these costs. Mr. Johnson also alleged in his Answers to
Interrogatories a loss of future business opportunities of $300,000. In his
deposition, however, Mr. Johnson stated the lost business opportunities were not
for Gold Key Development. Rather, they were funds Gold Key Development was
supposed to filter through Mr. Johnson into Dean R. Johnson Construction.
April 26, 2007
Page 3
Therefore, the loss of business opportunities was actually for Dean R. Johnson
Construction and not Gold Key Development. Overall, Dean Johnson’s testimony
focused on the damage claim. He, however, has not provided a settlement
demand for mediation.
At the end of his deposition, Mr. Johnson highlighted one conversation he had
with current City engineer, Adam Nafstad. Apparently, Mr. Nafstad allegedly
stated, “that SEH and/or the City of Albertville and the City of St. Michael made
a lot of mistakes; that they did not do a flood study and that they should have
done a flood study but they never did.” Mr. Nafstad further allegedly stated that
“the civil engineer of a specific project is not required to figure out the 100-year
flood plain of a pond, and that the LGU is responsible for determining the 100-
year flood elevation.” This last statement is contrary to the City’s ordinances and
Mr. Nafstad’s testimony. It may, however, create a fact dispute which would
preclude summary judgment.
DEPOSITION OF RANDY HEDLUND Mr. Hedlund is the co-owner of
Hedlund Engineering. Hedlund Engineering was hired by Gold Key to conduct
the concept plan, preliminary plat submissions and final plat submissions for the
Prairie Run Development. Mr. Hedlund has worked with Gold Key since its
inception and has worked with Gold Key owner Dean Johnson since 1978.
Hedlund’s scope of services for the Prairie Run project was to take a piece of land
and to “get it done.” This involved reviewing Albertville ordinances, putting
together multiple concept plans and ultimately putting together preliminary plat
documentation. There were several people at Hedlund Engineering who worked
on this project. First, Glenn Heubner put together the concept plans. Mr.
Heubner also reviewed prior surveys by Loucks. Mr. Hedlund then reviewed the
concept plan. Specifically, he reviewed the Loucks survey and viewed the site
prior to submittal of the summary of plat documents. Dan Krocheski next worked
on the hydrology calculations. This involved looking at the topography and
figuring out flow rates so they would meet with the City’s ordinances. Mr.
Hedlund had the final review of the hydrology documents.
During the preparation of the preliminary plat document, Hedlund conducted its
own survey of the parcel including taking various elevations of the ditches which
ran through the property. Mr. Hedlund admitted he became aware there was an
8x12 culvert on the southwest portion of the property; however, he did not believe
it would affect the hydrology of the Prairie Run plat. Rather, he felt it was a cattle
crossing. Mr. Hedlund, however, never contacted the County to learn more about
this culvert or to learn more about the parcel. If he would have done so, he would
have learned there was a plan set for County Road 18 which showed the 100 year
flood elevation for the culvert to be 951.5. This is significantly higher than the
April 26, 2007
Page 4
line of permanent aquatic vegetation (947.5 ft) which Mr. Hedlund used. Mr.
Hedlund indicated he did raise pad elevations to meet a 950.5 mark given to him
by SEH; however, he did not change any of the street or ponding requirements
based upon the 950.5 mark.
Through out his deposition, Mr. Hedlund attempted to defend his work and his
situation. He attempted to put the burden upon the City’s engineer and the City to
catch any mistakes in his preliminary plat submittals. He did, however, admit the
plat does not comply with the City’s ponding and runoff requirements.
Accordingly, we believe there is a strong argument the City properly determined
the plat to be in default because it does not meet all ordinance requirements.
DEPOSITION OF PETE CARLSON Mr. Carlson is the former Albertville
City Engineer and a current employee of SEH. His contract with the City was
from January 1995 through January 2005. In January 2005, he transferred to
SEH’s Colorado office.
As part of his duties as City Engineer, Mr. Carlson attended every City Council
meeting and occasionally he would attend Planning and Zoning meetings. He
would also review and approve plats. It was his typical practice to review all plats
in the City of Albertville. Mr. Carlson, however, admitted he never reviewed the
Prairie Run plat. One of his reasons for this lack of review was his belief the
project would not go forward. Up until the point the neighboring property owners
agreed to be assessed part of the costs of the accesses into Prairie Run (February
2004), Mr. Carlson did not believe the project was going to be viable. Therefore,
he did not want to spend the City’s money on a project he was not confident
would go forward.
After the assessments were agreed upon Mr. Carlson, however, suffered a tragedy
in his family. His son died and he took a leave of absence from SEH. During this
time period, the preliminary plat documents were received by SEH and
incorporated into the construction bid documents for the project. Ultimately, Mr.
Carlson never reviewed grading and drainage documents or any of the hydrology
calculations. He, however, never told the City the plat documents had not been
reviewed.
Overall, Mr. Carlson was a very pleasant witness. He feels very sorry for what
has happened; however, he believes it is the developer who has the duty to make
sure the plat meets all ordinance requirements and to research the parcel. He was
quite surprised to learn Hedlund Engineering had never contacted the county to
learn more about the parcel.
April 26, 2007
Page 5
DEPOSITION OF ROBERT MOBERG Mr. Moberg is a former City Engineer
who over the project after Mr. Carlson left to work in Colorado. He was involved
in the construction phase of the project. This involved reviewing site specific
surveys and comparing them to the Preliminary Plat documents. During his
review, he learned the grading plans had never been reviewed by Mr. Carlson or
anyone else at SEH. Unfortunately, he never told the City.
Mr. Moberg also realized there were flooding problems on the site. He took this
information to the City, Developer and Builder and attempt to come up with a
solution. They looked at possible new set backs, driveway grades or pad
elevations. No solution was achieved and the case ended up in suit.
Mr. Moberg’s personality made for a long and hostile deposition. He appeared
very arrogant and condescending, and if this case goes to a jury, he will not be
liked.
DEPOSITION OF JIM SCHULZ Mr. Schulz was the assistant engineer on the
commercial portion of the Prairie Run project. Initially, he was in charge of
integrating the residential portion into the commercial portion. His duties,
however, increased when Mr. Carlson took his leave of absence in February 2004.
At that point, he was in charge of overseeing both the residential and commercial
portions. He, however, never conducted a review of the preliminary plat
documents. Nor did he ever remember discussing the preliminary plat documents
or any feasibility reports with Mr. Carlson. He also never told the City the
documents had not been reviewed, but rather incorporated the Prairie Run
documents into the construction bid documents.
Mr. Schulz does remember, however, having a conversation with Mr. Hedlund
regarding the Wright County flood study involving the 8x12 culvert. He told Mr.
Hedlund about the culvert risk analysis and the 100 year flood elevation.
Unfortunately, he never followed up with any documentation which indicated the
information was passed on to Mr. Hedlund. Therefore, there is a dispute as to
whether or not Hedlund Engineering actually received this documentation.
Overall, Mr. Schulz makes a very credible witness. It was clear, he was a young
new engineer who was brought in late on the Prairie Run project and did not
know what had been done. He did not know it was his responsibility to review
the preliminary plat documents. Therefore, no one reviewed the preliminary plat
documents and they were adopted by the City with errors.
DEPOSITION OF LARRY KRUSE Mr. Kruse is the Albertville City
Administrator. He was hired after the Prairie Run concept plans were approved,
but prior to preliminary plat approval. As City Administrator, he is part of the
April 26, 2007
Page 6
“development team” who assists with the plats. The development team is
composed of the City Engineer, City Planner and City Attorney. Each of the
independent consultants reviews the documents -the City Engineer is in charge of
reviewing the documents to see if they meet with ordinance requirements and
engineering standards; the City Planner is to review the documents to see if they
meet ordinance and set back requirements; and the City Attorney reviews the
development documents to protect the City’s legal interest.
Mr. Kruse had no idea, until he was advised by counsel, that Peter Carlson had
not reviewed the Prairie Run plat. It was his belief Mr. Carlson had reviewed the
documents and he was quite surprised. Mr. Kruse indicated he did not believe it
was the City’s responsibility to fix the plat, but rather the developer was required
to meet the ordinance requirements and to fix the plat.
DEPOSITION OF JON SUTHERLAND Mr. Sutherland is the building
official/zoning administrator for the City of Albertville. He has worked for the
City for the past five years. Prior to that, he worked for the City of Mound. As
part of Mr. Sutherland’s job duties, he is in charge of enforcing the building code
and also various zoning regulations. Specifically, he deals with the zoning code
as it relates to new construction. He, however, is not directly involved in the
platting process, but he does attend all planning and zoning meetings. Therefore,
he has some input during the public comment portion of the preliminary plat
proceeding.
Mr. Sutherland’s deposition testimony focused on his involvement in
investigating the 2003 rain event and the 2005 rain event. During both rain
events, he toured the City, took photographs and reported back to the City
Engineer and Public Works Director. During the 2003 event, he noticed the
Prairie Run parcel, which was still being used as farm land, had flooded. This
information was not, however, passed on to any other City officials. During the
2005 event, Mr. Sutherland viewed Prairie Run and noticed water in the cul-de-
sac.
Mr. Sutherland also talked about his expectations for the City Engineer. He uses
the City Engineer to review the as-built surveys and the building permit
applications prior to his issuance of a permit. He also expects the Engineer to
review the plat documents before they come to the Planning Commission.
However, this does not always occur and he is not always provided a plat review
memo. Mr. Sutherland believes it is the developer’s engineer and/or the
developer’s responsibility to make sure the plat documents meet all the zoning
requirements.
April 26, 2007
Page 7
At the end of the deposition, Mr. Sutherland was asked whether the City Council
should have caught the errors in the preliminary plat. He stated, “the City doesn’t
expect perfect” and “the City should catch and review it.” This is contrary to case
law which indicates applicants must meet all zoning requirements. We don’t
believe it is the City’s responsibility to catch all the problems; however, plaintiffs
are going to attempt to use this testimony to create a fact dispute at summary
judgment.
DEPOSITION OF MIKE COURI Mr. Couri is the City Attorney and his
deposition was taken pursuant to the Court’s previous discovery order. Only
written questions were allowed, which were asked by the court reporter and
responded to by Mr. Couri. Mr. Couri objected to a substantial number of the
questions on the basis of the attorney-client privilege. Candidly, we did not see
the purpose for this deposition.
SUMMARY JUDGMENT MEMORANDA I have enclosed for your file our
Memorandum of Law in Support of Summary Judgment, Gold Key’s
Memorandum of Law in Support of Summary Judgment, SEH’s Memorandum of
Law in Support of Summary Judgment and the Affidavit of Brian Mundstock.
Mr. Mundstock is Gold Key’s, T/C Homes’ and Hedlund Engineering’s expert
and his affidavit creates a fact dispute which may prevent this case from being
dismissed via summary judgment.
A. City’s Motion for Summary Judgment.
Our Motion for Summary Judgment is based upon the fact the undisputed
evidence, at least prior to the Mundstock Affidavit, showed the Plat was in
violation of the City’s elevation requirements and drainage requirements.
Specifically, the Plat fails to meet:
1) Subdivision Ordinance:
· Section A-600.4(g) in that the lowest proposed opening (window or
door) as shown on the grading plan dated 05/15/04 or as constructed
on the following lots is less than two feet above the highest known
water level (951.47) for these lots: Lots Not Built Upon = 8, 9, 10, 11,
17, 21, 23 and 24, all of Block 2 .
Lots Built Upon = 7, 14, 15, 16, 18 and 19, all of Block 2.
· Section A-600.13(c)(1) in that the post development 100-year storm
peak discharge runoff rate exceeds the pre-development 100-year
storm peak discharge runoff rate.
April 26, 2007
Page 8
· Section A-700.6 in that the surface and underground drainage systems
on the plat do not adequately remove all natural drainage that
accumulates on the developed property, nor do they provide a
permanent solution for the removal of drainage water.
· Section A-700.6 in that the plat discharges at more than one-half of the
pre-development rate of runoff.
2) Zoning Ordinance:
· Section 1000.9(d) in that the lowest floor as shown on the grading plan
dated 05/15/04 or as constructed is less than two feet above the highest
known surface water level (951.47) for adjacent ponds or wetlands for
the following lots:
Lots Not Built Upon = 8, 9, 10, 11, 12, 13, 17 and 24, all of Block 2.
Lot Built Upon = 7, 14, 15, 16, 18 and 19 of Block 2.
· Section 1000.9(d) in that the lowest floor as shown on the grading plan
dated 05/15/04 or as constructed is less than one foot above the 100-
year flood level of 949.9, as determined by the 2006 County Ditch No.
9 Flood Study, for adjacent ponds or wetlands for the following lots:
Lots Not Built Upon = 8, 9, 10, 11, 12 and 13, all of Block 2.
Lots Built Upon = 7 of Block 2.
· Section 5000.4 (a) in that the lowest floor as shown on the grading
plan dated 05/15/04 or as constructed is less than three feet above the
100-year flood elevation of 949.9, as determined by the 2006 County
Ditch No. 9 Flood Study, for the following lots:
Lots Not Built Upon = 8, 9, 10, 11, 12 and 13, all of Block 2.
Additionally, we argued T/C Homes’ mandamus and negligence claims are barred
by the public duty doctrine, immunity and the fact the flood elevation data was
public data available to everyone. Thus, there is no misrepresentation claim. Our
immunity defense is probably our weakest defense because we cannot rely upon
the engineer’s review, since it was never completed.
B. Gold Key’s Motion for Summary Judgment.
Gold Key’s memorandum focuses upon the language of the Development
Agreement and Zoning Ordinances. Specifically, Gold Key claims it was proper
to use the line of permanent aquatic vegetation to determine the Plat elevations. If
this line is used, Gold Key claims it is not in default and the City breached the
Development Agreement by refusing to issue building permits and certificates of
occupancy.
April 26, 2007
Page 9
Moreover, Gold Key raised claims of estoppel and vested rights. These claims
are based upon the City approval of the Preliminary and Final Plat documents and
their reliance upon the approvals. Although these claims were not asserted in
their Complaint or Amended Complaint, we believe the Court will allow them to
assert them based upon the evidence.
C. SEH’s Motion for Summary Judgment.
SEH brought a motion seeking to dismiss the claims assert by Gold Key and T/C
Homes. They did not, however, seek to dismiss our indemnification claim. We
believe there is a strong likelihood the claims against SEH will be dismissed
because there was no contract between SEH and Gold Key or T/C Homes.
Moreover, SEH owed Gold Key and T/C Homes no duty to review their Plat
submissions.
D. Affidavit of Brian Mundstock.
Gold Key submitted the Affidavit of Brian Mundstock in support of their Motion
for Summary Judgment. Mr. Mundstock claims the Prairie Run Plat complies
with the City Ordinance, although he does not indicate how he came to this
conclusion. Unfortunately, this may be enough to create a fact dispute to preclude
our Summary Judgment Motion.
We have asked BMI to review the Mundstock Affidavit to try to determine what
his findings are based upon. At the very least, we will have to retain an expert to
submit an opinion which is consistent with BMI and Hedlund Engineering’s
conclusions.
MEDIATION We still do not have a demand from either Gold Key or T/C
Homes. The latest discovery responses indicate T/C Homes has suffered over $1
million dollars in damages. Gold Key did not have a specific number, but
indicated it was in excess of $1 million dollars.
We have met with the City to come up with possible solutions to the Plat
deficiencies. In all likelihood, Gold Key and T/C Homes are going to reject the
City’s proposals and are going to demand all building permits and certificates of
occupancy be issued and request they be paid part of their damages. At this point,
we do not feel there this is an acceptable resolution because these demands are
unrealistic and excessive. A more reasonable solution would be to work through
the variance process to bring the Plat into compliance.
In any event, I look forward to seeing you at the mediation tomorrow.
April 26, 2007
Page 10
Best regards,
IVERSON REUVERS
Jason J. Kuboushek
JJK:bh
Enclosures
cc: Bridget Miller, City Clerk
Mike Couri, City Attorney
Larry Kruse, City Administrator