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Downtown Marriott developer sues city over return of fee waivers

Thursday, September 19, 2013 by Michael Kanin

The developer behind a new Downtown Marriott filed suit in federal court Tuesday against the City of Austin over a set of fee waivers that were awarded to the project and then revoked amid city assertions that the developer did not fulfill its portion of a development agreement. No hearing has yet been scheduled on the matter.


In its petition the developer, Indiana-based White Lodging Services Corporation, argues that city officials engaged in “bait and switch” tactics with regard to the agreement. Armbrust & Brown Attorney J. Bruce Scrafford is seeking an injunction against a revocation of White Lodging’s fee waivers (originally $3.8 million; the city had ordered the firm to return more than $600,000 it has already been awarded), a ruling against what Scrafford describes as a “retroactive change” in Austin’s prevailing wage policy, and an injunction against the city collecting any fees at all associated with the project.


And the suit goes further. In an argument that could have sweeping impact on how the city does business with developers, Scrafford asserts that the mere collection of right-of-way fees is unconstitutional.


“(The City’s) demand of right-of-way use fees from (White Lodging) for temporary construction access and staging violates (White Lodging’s) substantive due process rights under the Fifth and Fourteenth Amendments to the U.S. Constitution,” Scrafford writes.


The city received a fraction over $3 million in right-of-way fees in fiscal year 2012.


White Lodging declined further comment on the suit through a spokesperson.


The City of Austin’s legal department offered the following statement via email: “We are aware of the allegations within the lawsuit and are prepared to defend the City Council’s 2011 ordinance related to prevailing wage requirements and White Lodging.”


Council members approved the White Lodging development agreement on June 29. 2011. As part of those negotiations, Council also agreed to attach a prevailing wage mandate to the agreement.


The lawsuit spells out the facts as have been repeated by White Lodging representatives. However, Scrafford adds emphasis to the idea that the prevailing wage agreement was attached “over (White Lodging’s) objections.”


Scrafford continues on to note that his clients never received a written version of the city’s prevailing wage policy and, barring that document, relied on an email from then-Assistant City Manager Rudy Garza. In the email, a now oft-cited piece of evidence, Garza appears to okay a White Lodging interpretation of prevailing wage calculations – that the firm could more or less average the pay it extends to workers to achieve the mandate.


Work proceeded. Workers Defense Project representatives then lodged complaints after hearing that some of the Marriott workers were not earning a prevailing wage. City officials then, through a series of letters to White Lodging, walked back Garza’s interpretation of prevailing wage. In June, the city pronounced the firm in violation of the agreement.


White Lodging officials asked Council members to step in and clarify their original intent. In August, Council declined to take further action. Staff then demanded the return of more than $600,000 in fee waivers.


Workers Defense Project Business Liaison Gregorio Casar denounced the suit. “White Lodging broke their promise to workers and taxpayers,” he wrote in an email. “Now, White Lodging doesn’t want to face the consequences they brought upon themselves. White Lodging’s property portfolio is worth over $2.5 billion – they can easily afford to pay taxpayers the $3.8 million they owe us, instead of suing our city.”


The judge in the case could elect to issue an injunction on any of White Lodging’s claims for relief but never reach the broader constitutional issue relating to the use of right-of-way.

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