Ann Arbor wins appeals court ruling in $30M lawsuit over old YMCA site downtown

City Attorney Stephen Postema called the decision a decisive blow to the developer's attempt to obtain an extraordinarily large damage claim against the city.

"This is a major victory for the city of Ann Arbor," Postema said in a statement. "The court found that there was no factual or legal merit in this case, which nevertheless sought $30 million from the city. The court clearly saw through plaintiff's various legal contortions."

The developer, HDC LLC, sought damages of $30 million, claiming the city blocked it from building on the site because the project would have included 100 units of low-income housing, in addition to a hotel and transit center. HDC claimed the city's decision to pull the plug on the project in 2007 was intentional discrimination against the type of people who would live there.

"The Ann Arbor City Council did absolutely nothing wrong," Postema maintained. "They properly exercised their careful oversight on a development project.”

HDC was working with the city to develop the city property at the corner of South Fifth Avenue and East William Street after the city solicited proposals in 2004.

In June 2005, HDC's proposal was chosen by the city over five other applicants. The Ann Arbor City Council passed a resolution accepting HDC's proposal and agreed to a purchase price of $3.5 million for the property, but later in 2007 the City Council denied the developer's request to modify a demolition permit deadline. The city attorney's office then sent notice terminating the option agreement.

HDC filed its appeal with the 6th Circuit Court of Appeals in September 2010. Oral arguments in the case were heard in January of this year, with Postema arguing the city's position to the panel of three judges in Cincinnati.

"The facts alleged in the complaint do not plausibly support a finding that Ann Arbor 'designed' the option agreement to fail by intentionally including a condition it knew or should have known the developers could not meet," the appeals court stated in its opinion. "Plaintiffs in this case are a sophisticated land development firm and associated companies which agreed to the demolition permit condition during the negotiation of the option agreement."

The court further held that the complaint "provides no facts supporting the inference that Ann Arbor did not want the development to take place and instead sought to derail it because it would house handicapped individuals."

It called that claim "particularly implausible in light of the fact that when the option agreement was negotiated, the parties had previously negotiated an option contract that had since expired and, nonetheless, decided to enter into the option agreement containing the demolition permit requirement."

"The developers' vague and conclusory allegations that Ann Arbor acted with 'a discriminatory intent, purpose, and motivation' to prevent handicapped people from living on the property do not transform the developers' otherwise insufficient pleadings into allegations that plausibly support an inference of discriminatory animus," the ruling states.

Postema said the court's opinion completely vindicates the city. He noted the court took an extra step and recommended the case for full text publication, which means it will be binding precedent in the 6th Circuit on the issue of what needs to be pled in this type of discrimination case to survive dismissal of a case on the pleadings.

An attorney for HDC could not be reached for comment.

The property that was the subject of the lawsuit remains a surface parking lot. The City Council last year directed the Downtown Development Authority to go through a master planning process to figure out a better use for not only that site, but other city properties downtown.