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HomeMy WebLinkAbout03/15/2011 10 YAT Board Legal Costs Reimbursement; Property Lease Violations [Yakima Air Terminal] BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. /0 For Meeting Of March 15, 2011 ITEM TITLE: Joint Memorandum from the City and County legal departments introducing two letters from the Yakima Air Terminal Board requesting that the City and County consider reimbursing YAT legal costs accrued in litigation over airport property lease violations; and explaining the relationship, obligations and responsibilities of the City and County as co- owners of the Air Terminal to provide the requested reimbursement. SUBMITTED BY: Jeff Cutter, City Attorney CONTACT PERSON/TELEPHONE: Jeff Cutter - 575 -6030 SUMMARY EXPLANATION: The Yakima Air Terminal Board took legal action against two properties that were not paying the agreed upon rents for the use of Air Terminal property. As a result the Air Terminal has accrued some legal costs explained in two letters attached to the memorandum in this agenda item. The Yakima Air Terminal Board is requesting that the City and County, as co- owners of the airport, provide reimbursement for these costs. Several elected officials of the co- owners asked the legal departments of the City and County to prepare a joint Memorandum explaining the relationship of the City and County to the Airport and what the specific obligations and responsibilities of the City, the County and the Air Terminal Board are with respect to the legal costs that have accrued. The attached memorandum was cooperatively prepared to provide that information for the City Council's and County Commissioner's consideration as they decide a response to the Air Terminal Board's request. Resolution Ordinance Other(Specify) Memorandum Contract Mail to (name and address): Phone: Funding Source APPROVED FOR SUBMITTAL: !=.- City Manager STAFF RECOMMENDATION: This is a Council policy issue. BOARD /COMMISSION /COMMITTEE RECOMMENDATION: The Budget Committee and the Intergovernmental Committee have each reviewed the request and now submit it to the Full Council for consideration and decision. COUNCIL ACTION: MEMORANDUM TO: Honorable Mayor Cawley, City Council Members Yakima County Board of Commissioners FROM: Jeff Cutter, City Attorney Terry Austin, Chief Civil Deputy Prosecutor DATE: March 8, 2011 SUBJ: Yakima Air Terminal request for financial assistance This memorandum is presented to advise the elected officials of the City and County, as co- owners of the Yakima Air Terminal (YAT), of requests from the YAT Board for financial assistance from the co- owners to off -set legal costs the YAT has been billed for legal action undertaken by the YAT Board to resolve lease payment problems generated by two properties located at the Air Terminal. As expressed in two separate letters submitted to the City Council and the County Commissioners, included with this memorandum, the YAT Board is requesting reimbursement of past legal fees in the amount of $80,222.53, together with bills received since the first undated letter was drafted for additional costs totaling $2,280.77. In addition to the request for reimbursement of these existing bills, the YAT Board is requesting the City and County agree to reimburse the future litigation costs associated with the continuing litigation necessary to resolve the issues that have been raised during the course of the initial action. Some of the elected officials of the City and County are aware of and had some level of discussion regarding these requests. A question has been raised regarding whether the City and County are obligated to pay these costs. This memorandum is intended to explain the nature of the relationship between the City and County and the Yakima Air Terminal, as well as what, if any, specific obligations exist on the part of the co- owners to pay these legal costs that have developed as a result of the action taken by the YAT Board to address a continuing problem presented by two properties at the Air Terminal. The YAT is jointly owned by the City and the County and operates through a duly constituted Board under a Joint Operating Agreement. The real and personal property of the airport is owned equally and jointly by the City and County as tenants in common. The City and County are to participate equally, as a joint venture, in the operation of the Air Terminal, contributing equally to the joint venture and sharing equally in all profits and losses thereof. In accord with the term of the Joint Operating Agreement, since July 30, 1982 "all powers, rights and authority held by the parties relating to the ownership and operation of airports and related facilities shall be exercised by the [YAT] Board." These powers • include, but are not limited to, "acquiring property for, establishing, constructing, enlarging, improving, maintaining, equipping, operating and regulating the airport, together with all powers thereto or necessary for performance thereof'. The YAT Board is also authorized to lease space, land area or improvements and grant concessions for aeronautical purposes or other purposes that will not interfere with aeronautical purposes, under conditions and terms compliant with the law and as seem just and proper to the Board. This information describes the relationship of the City and County respecting their joint participation in ownership of the Air Terminal. The co- owners have placed the operational authority in the YAT Board to operate and manage the Air Terminal. This responsibility includes the fiscal responsibility to manage the financial costs of the property. Therefore, the City and County have a clear interest in the sound operation of its property. That said, while it may be in the best interests of the co- owners to agree to participate in the legal costs generated by the past and continuing legal action necessary to address irresponsible tenants of Air Terminal property, it is the legal opinion of council for the City and County that participation is a choice, and not a mandate of ownership. • RECEIVED CITY OF YAKIMA VIP 0 2011 • OF CITY COUNCIL February 28, 2011 Yakima City Council Yakima County Commissioners City Hall, First Floor Yakima County Courthouse 129 North Second Street 128 North Second Street Yakima, Washington 98901 Yakima, Washington 98901 Subj: Reimbursement of Future, Unforecasted Legal Fees RE: (a) YAT ltr (undated -Feb 8, 2011); Subj: Request for Reimbursement of Past Legal Fees (b) YAT Airport Board mtg, Feb 24, 2011; same subj as above Dear Sirs: The letter, reference (a) above, requested reimbursement of past legal fees in the amount of $80,222.53. This is the amount spent by the YAT enterprise fund on legal fees through December, 2010, on behalf of its sponsors and airport owners, the City and County of Yakima. Since this time, the YAT has accumulated another $2,280.77 in legal fees with Mr. Russ Gilbert from January 1, 2011, through February 22n 2011, which also need to be repaid. At its meeting of February 24 2011, the YAT Board made a decision to request not only the repayment of past legal fees but to request that any and all future legal fees in the continuing litigation against MA West Rockies Corporation and Marquis Development, Inc. also be reimbursed. The YAT continues to work with Mr. Gilbert as its attorney, and the YAT continues to make all efforts to resolve both cases. However, the decision on how to proceed legally should not be affected by the YAT's ability to pay for further, unknown legal expenses alone. Consequently, the YAT Airport Board is seeking affirmation that further litigation costs, if and when incurred, will be covered in full. Any legal course of action will, as in the past, be fully discussed with both the City and County ex officio members of the YAT Airport Board and the City Attorney. As in the past, under this continuing process, the YAT Airport Board would not accrue future legal fees without the knowledge and acquiescence of both the City and County. • Future expenditures continue to be unknown at this time, and, as in the past, these expenditures will continue to result in a hardship to the YAT airport budget and its negative cash flow. Thank you for your continuing consideration of this matter. Please feel free to contact me or the YAT Airport Board Chairman, Mr. Bill Wheeler, for additional information at your convenience: Sincerely F f r A i r arl L. Re mel, AAE Airport Manager Cc: File (YAT Airport Board members) Wordlsysonserver /leases /marquis development.ltr- request for future legal fees 2 -28 -11 0 v w ••-.v.-•• . y CITY OF YAK r FEB 1 4 2011 ` .F� , � f (�F ` ( � OFFICE OF CITY COUNCIL ST F FIELD / i V• �� ai:�7 r.._,r.. C • ;;:511H! R�5 '1 'n ... 1, ....,-q .. . c ....,.. ; .... �. ,. '"1.�.i �. � , 'r Yakima City Council Yakima County Commissioners City Hall, First Floor Yakima County Courthouse 129 North Second Street 128 North Second Street Yakima, Washington 98901 Yakima, Washington 98901 Sirs, On March 31, 2010, the Airport filed actions against MA West Rockies Corporation and against Marquis Development, Inc. in Yakima Superior Court. The unlawful detainer actions were based on failure to pay rent. •' Prior to these actions, the Board met with City and County Ex- Officio members and City and County legal staff to determine how to proceed with these actions. It was agreed that neither City nor County legal staff had the resources to provide appropriate legal services to the Airport for these actions. Thus the consensus was to hire Mr. Russ Gilbert to represent the Airport (and its owners). Both cases were heard by Judge Lust who found that both MA West Rockies and Marquis Development were guilty of unlawful detainer based on their failure to pay rent. Judgments against MA West Rockies and Marquis Development and orders for eviction were entered. Following the entry of the judgments and orders, both MA West Rockies and Marquis Development filed motions for reconsideration. All motions for reconsideration were denied by Judge Lust. MA West Rockies filed an appeal to the Court of Appeals which is pending. MA West Rockies' appellate brief was filed on January 31, 2011 and received by Mr. Gilbert on February 7, 2011. Marquis Development has taken no action on its appeal; however, it remains pending. During the course of these proceedings, the Air Terminal Board has conducted review sessions and meetings during its regular airport board sessions with City and County Ex- Officio Members and legal staffs to ensure that they have been properly informed. • • Although we are working with Mr. Gilbert on efforts to wrap up these proceedings and reach final resolution on these cases, it is apparent that MA West Rockies is pursuing its appeal. Since this process has begun, the Yakima Air Terminal has expended $80,222.35 in legal fees. Due to the active appeal by MA West Rockies, the Air Terminal will incur significant additional legal fees in the case. As these expenditures were unbudgeted and have resulted in a hardship to the budget along with a negative cash -flow, the Yakima Air Terminal Board is hereby requesting that these fees be authorized for reimbursement from the Owners to the Yakima Air Terminal. Thank you for your consideration on this matter. Please feel free to contact myself or Lee Remmel (Airport Manager) for additional information. Respectfully submitted, Bill Wheeler, Yakima Air Terminal Board, Chairman • . , . . - . . . - . Nt.... : • ;,,,,, : . , . , • . . . ,,,...14r24.. , .k;;;, .\ s .,..,..cor , . . . . . . .,,Wintiglislimiw; .VN • - . - . • . . , , ,., .. . . . . . - , --, ' ..„; r . ,, K %.• - '2,- ,.. ' :, , f i ',,W '.. • , , w 'Al:* '4 14 04'. 1 ›; ' ' • • ' ' ' ..' - . '. ' • ,. , ••3 . :, • ••••tt , '4,,,,A7,:-12410,04, to,igeAt ^ =,:.'•.: ' 4.• •• : . • - .• ... . . . . , ' 41 '4,, ' 1 ' ;''''' - . ' likl ' VV ' 1, ' , ' ' ' • , ' ' '. ,'"'''-. ' . „ : ' 41.0W .• '' . . . • , . . BOAR :',..OF . 'YA 'P ,,,, 4 - ?.:: i. TY:.. , . , ..., , „, „. ... .,... .: _ , .. .... -. ,,,,,..,.,:-.,,,,,,Lr,',A ,: Vii':'1.:SF ' Z. : : : '::=.. 4r ". ''''''''' 7 ' . . • . .. L . * District Two - • , 10District Three i • • , .. . ,....„ „. „ , ., . *IIVIi6,tinell:1;''1:,eita .'Kevin•-.1.,Biiuchey - •L'Ralltt . . . . , • ' : i':?' 5:;' -', ''...''.'"....'''•'‘,"- . ".., . . . . • , March .14.'2011 . • • : . Yalcinta AirTertturial,Board . . .• Attic ' : • - 2 400 West Washolgto.Avn.0,. • ,' , - • Yakima, washirigton • ... .. ,, . . . . , .. . . Re.February2V20,1t Letter to, Yakima CountkCominisSioners and Yakima' CityCouncil • ' • ,:. ... ... , ' : -. - ,.. , .. •• . ,•.,. • . .,„ • .. • ., . • Mr:.:Beinnict. . . .. , . . TheBoard;:tilYaidtria'County•COpnitsiOnerS foT:.,04ti0iiii f;:jiii#0ii41:::fie,,,,i ,',.. - • . retnibiirseinentOnthe:cOntitinitig,litigatiOn• against :MA: West Rockies and MarqUispevelopmenttX}urreSponsetonly • : , ..: ' - ':- '''' , • Yakitnii:Countyandiathe:CityofYikinia. . . , ,., .... „. „ ••. • • . • ; _ . ,,,,,.. .„.„' ',•!';:;2",,,',',•••‘,' :,:.:••;.,'•:.i::.:,.• `';• , ' . , . We have reViewedryoutreqiiestwith our, legaUcOnnSel, Terry, Austin, and have8erhally jitteitaCte4..'■*itkCiti;COriikirlaw 'Jeff Ctitter: is:tlearto us that neither Yakima tonOW•(COOPA09t•it1#:.clqq,0Y4YR#,I(c any , . . ■• obligation 'at otkiwne'r*Of.th,O4Yakitn,S Air Terminal for legal'expenses4ithniiefOniataireCniene,'. ';',: ''.iii'••••;`..;::: - . . , ,.... .,..1, ., .. . • • F , ,,, ■ $ . . , _ „ .„ . . • ' . . , ,, Thn.YAT BOard(YATB) freely Cheae #91F • • • 4,iih titiiSe'Y'Ati3'404OnSnOifOiinai4c4Osefor, , . • ' YATB deciSion.. , , .. ,..... . „. . However, as co-owners, we understand ourOklig4tions,to: protect 'o0 . • ,•:.•••:::tiheiefore;:YakintiCinintY,is (.:■iiiiii•;•fill'i4604.16;;;ikioul.otecii.iie.ii461.(..itpPritntal:Ofthe toct:iii440'fi*;Olili40iilie::(iiYi§f8*En•*y:'':;ii- , . Itltasr-;i.iSizi:conteCio:.outattetitioa;that,thYAT'exceectedtheir apprciyeci';919:**0 - - , .••:, : .••si4i en;Ciivii0.2400i. •.•.., sOcivacliovikcjeo004,inatio.00-40:iiy,Ya10111d004g0efciie,i*s} are requesting that Yakirna'„CciitntyFitiancui.LSeryicei;PkeCiOr,Craig,:Watfriet • XiitiOirt . i■4iiW‘ge,iii•' i i'.iiiiees wellhiiniOf YAT .. . . .. - • , . .. • :: ,- ..._-2•. , .‘,". in sununary, Lwill'contintie4o offer yATappropriate::capital,fundingopportunitieS(SIE4'.:gr::nylOatiqaniFproniote • • - ffill,,coan eratio owritership, interests. • , .. - • Sincerely, . • . .• - • . . . ,. . . . • • . Board of Yakima 0441v. gortioli$001' ', :. • . - - • — '•'•"- •• , .. .1 ' . - • ' . • ' • -'' • '''.- ,''''''• - . . • . • . . • • • . - . . . . • • . - *iti. :.. a • ':,:Chairinan . •,.- . .. ., . a ir . , , . . . . ' . FA. , , . .. . J. : .' dBiliatt.;:.COttnniSsiciner ' - • , „ . , „ , . . ... , -- i,r. .„---------..;;-- . ' ..L,: ,,,• , 447,1 1 . CroseaL .r. •:, ,';..,":•,., • • .. .„ Michael D. -Lena; iiiiiriiiSSiOneit . . .' ' ' ' • • ' 7 ':■'. . , . . r■CC: . Dick :Zais, Cilk:Manager • ' • .. ... YilOina:City.Council ... . . , .. . • . . . .. . , .. • . . . , . . 128 North Second Street • Yakima, Washington 98901 • 50.9-574,1560 ,.• FAX . ; ' - • ' - • . , . • „ . Cause of Condition The Airport has experienced significant turnover in key financial positions during the - audit period. It has not adequately monitored revenue and expenses to ensure it is operating effectively. Increased operating expenses and insufficient revenue from operations have led to a continuing decline in the Airport's financial condition. Effect of Condition This significant decline in financial position places the Airport at risk of not being able to meet all of its financial obligations. Also, the Airport did not comply with its contractual budgetary requirements. Recommendation We recommend the Airport management and Board closely monitor financial operations and develop and follow a plan to ensure financial health of the Airport. We further recommend the Airport management establish internal controls to ensure expenses do not exceed budgeted appropriations. Airport's Response Yakima Air Terminal Board and staff appreciate the auditor's concems for the financial well being of the Airport. The multiple changes in key staff, unforeseen litigation expenses, and economic downturn have created a definite need for heightened vigilance and diligence in attention to the Airport's economic health. With the stabilization of airport staff, the Airport will continue in its efforts to tightly control any and all expenditures. Internal controls are being reviewed and, where necessary, replaced or revised. Board policies are being created to formalize previously assumed practices, for example, by both policy and procedure, there will be no money used from the Reserves account for any reason without the specific authorization and approval of the YAT Board. Airport management is continuing to monitor budgetary compliance. Unforeseeable occurrences such as litigation expense and departing employee pay -outs have created serious challenges for the Airport in meeting budgetary limits. Management will redouble its efforts to surmount these difficulties and achieve the desired result. Again, Yakima Air Terminal appreciates the helpfulness and professionalism of the auditors during this process. The insight and knowledge the auditors have been able to provide will be of great assistance to the Airport staff in meeting the challenges faced by the Airport. Auditor's Remarks We appreciate the Airport's commitment to resolving the issue. We will follow up on the status during the next audit. Washington State Auditor's Office 6 The Joint Air Terminal Operations Agreement between the city of Yakima and Yakima County, section six (6) states: A budget of anticipated revenue from the Air Terminal operation and proposed expenditures to be made by the Board shall be prepared annually by the Board and submitted to the governing bodies of both the County and the City no later than November 1st of each year; and an annual budget for the ensuing year shall be determined and approved by the parties no later than December 1 of each year, which budget may be amended or supplemented by a joint resolution of the parties during the calendar year for which the original budget was approved. Washington State Auditor's Office 8 Yakima Air Terminal March 14, 2011 Presentation to the Yakima City Council, March 15, 2011, by William Wheeler. Subject, Legal costs, Termination of Lease Agreements Members of the Yakima City Council. The Yakima Air Terminal has been involved in two Lawsuits for approximately one year. Both are for non - payment of lease requirements. I will briefly explain each one. 1. Noland Decoto Flying Service (NDFS) legally known as MA West, sued the airport when their lease was terminated for many months of non or very late payments. In the Yakima Superior Court, judgment was given ruling that the termination was proper. The lease is for ramp areas and access to the runways. NDFS owns the land on which the maintenance building and hangars are located. When the lease was terminated, FAA rules provide that we had to fence NDFS off from access to the ramp and runways. As a result there were approximately 18 aircraft that would no longer have access to the airfield. We would be allowed to let them onto the field but not come back to the hangars. Additionally we had to build a fence to actually fence NDFS out. We immediately contacted the FAA to work out something at least temporarily to allow the aircraft onto the field. With FAA agreement, we have left the fence open since last June and have been collecting $45.00 per month per plane, the same as the tie down charge for parking on Airport property. In addition, if the representative of the plane owners can purchase the land and hangars for these planes we have an' agreement for continuing the "through the fence" arrangement. This agreement however is subject to FAA approval for which we have asked. As for legal cost exposure ahead, NDFS has filed an appeal to the court. 2. The All Seasons building as it is known by the original owners, which is referred to in the lease as "The Marquis" building, was purchased by the same owners as NDFS and is the subject of the other lawsuit. This building was originally built as a maintenance base for Cascade Airways. The Marquis building is on land owned by the Airport and the land was leased. In the lease with the Airport the terms provide that when the lease terminates the improvements (the building) reverts to the Airport. This is one of the requirements of the FAA when the property is part of what was funded by the FAA. Again the reason for the lawsuit was for non- payment of the lease. In the Superior Court, judgment was in favor of the Airport in terminating the lease and therefore the Airport became the owner of the building. The previous owners of the building, All Seasons, had not been advised by Brad Goodspeed, the representative of MA West and who had purchased the building on a mortgage, we presume, that we had foreclosed on the lease. All Seasons had no security in nor was there any lien hold on the property and so the judge awarded the building to the Airport per the terms of the lease. The previous owners of the All Seasons building have filed a suit alleging that they were protected from this action. So far the court ruling stands and the suit has not been settled and the airport owns the building. We have proposed a settlement with the all Seasons attorney and principal which would meet the terms of our grant assurance with the FAA and would result in recouping some of the legal costs already paid on our behalf. To date we have paid $73,300.00 to our attorney, Russ Gilbert of Lyon, Weigand & Guftafson and have approximately $9000.00 outstanding. When the board considered entering into these legal actions, Mike Leita and Dave Edler, non - executive members of the board representing the owners of the Airport, encouraged us to proceed with the lawsuits, build the fence and lock the gates. We filed the law suits, built the fence but did not immediately lock the gate as we were trying to work out a solution that would allow the planes to be used. Undoubtedly, as we are now told, we should have asked for help from the County and City as owners of the Airport before we engaged the attorney. We were advised by the City and County that this was something for which we would not be able to use City or County attorneys. The legal costs so far of about $83,000.00 are not the only costs that were not budgeted. In addition we have lost $30,000.00 in lease payments since June of 2010. We are now requesting that the City and County of Yakima help us by reimbursing the legal costs we have expended in essence on their behalf as owners of the Airport. The payments so far have come out of reserves which have been severely reduced. We have asked the Law firm if we could have payments over time and have been denied. Please let us know if any further information is desire Thank you for your consideration. Sincerely, William A. Wh e r Chairman Yakima Air Terminal Board.