Development agreements may be reached prior to public utility commission (MN) decision on permits

by Victoria Heldt

Concerned River Valley Citizens, Inc., et al. v. Chisago County, Lent Township, Sunrise River Energy, LLC
(Minnesota Court of Appeals, December 19, 2011)

Concerned River Valley Citizens, Inc. is a non-profit organization that works to promote the development of the St. Croix River Valley while protecting the environmental interests of the area.  Sunrise River Energy, LLC (SRE) is an affiliate of LS Power Group, a company that develops, manages, and operates power-generation facilities.  In 2008, LS Power voiced its desire to construct a power plant next to an existing one in the area and submitted a request to the Midwest Independent Transmission System Operator.  A power plant may not be constructed without a certificate of need and a site permit from the Minnesota Public Utilities Commission (MPUC).  It preempts all local zoning laws.

Prior to seeking the two documents from the MPUC, LS Power and SRE requested legislation to allow a personal-property-tax exemption for the power plant, which it received.  The statute included the conditions that SRE must receive approval from the county board and the township board.  SRE also submitted a development agreement to the county and township boards, both of which approved the proposal.  The agreement contained language that explicitly stated that the document did not serve as a substitute for the two necessary permits from the MPUC.  Concerned River Valley Citizens argued that the county and the township are prohibited from entering into an agreement with SRE until the two permits from the MPUC are obtained.  The district court dismissed the complaint based on failure to state a claim.

On appeal, Concerned River Valley Citizens argued that, because local zoning laws are not preempted until permits from the MPUC have been granted, the development agreement is unlawful since it violates local zoning laws.  The Court disagreed, finding that statute did not require MPUC permits to be obtained before entering into a development agreement.  It only required MPUC permits to be granted before the actual development of the property.  The Court also stated that the township did not act outside of its authority by entering into the development agreement since the agreement is contingent upon SRE getting the necessary permits.

Concerned River Valley Citizens further alleged that the development agreement violated their due process rights because it may have prejudiced future opinions of the project.  The agreement might have been perceived as governmental endorsement of the development before any permits were obtained.  They also claimed that it prevented the public from having a say in discussions regarding the location of the power plant.  The Court disregarded this claim, finding that Concerned River Valley Citizens’ assertions about the prejudicial effect of the development agreements were simply speculation unsupported by facts.  The Court affirmed the district court’s decision in favor of SRE and LS Power.

Conditions in development agreement not enforceable as contractual promises

by Victoria Heldt

Button Realty, LLC, v. Charter Township of Commerce and Country Hills Development, LLC
(Michigan Court of Appeals, September 22, 2011)

In 2004, Button Realty entered into a purchase agreement with Country Hills Development for the sale of 34 acres of land.  The agreement provided that Country Hills purchase the property in order to build a single-family residential project with pressure sewer and public water.  It stated that Button would enter into a legitimate land contract once Country Hills obtained site approval from the Charter Township of Commerce (the township).   It further stated that Button must agree to the imposition of any special assessments in order to cover costs for installing the water/sewer system.  Country Hills petitioned the Township for the creation of a special assessment district (which included the property) in order to finance the extension of the public water system to the property.  The Township approved.  Subsequent to approval of the site plan, Button and Country Hills executed a land contract in accordance with the terms of the agreement.

Country Hills submitted an application to the township to rezone the property (as it was zoned “undeveloped” at the time) to allow the single-family residence to be constructed.  The Township agreed and entered into a development agreement with Country Hills.  As a condition of the rezoning, Country Hills was required to undertake certain actions (such as the construction of the residences and the installation of a water system) within 15 years of the date of the agreement or else the property would revert back to its original zoning classification.  The Township noted that Country Hills was not required to do these things, but that they were a condition of the rezoning.

Country Hills eventually defaulted on its land contract with Button and the property was transferred back to Button before the public water and sewer lines had been extended throughout the development onto Country Hills’ property.  Button filed an action in district court seeking to have the assessments declared unenforceable on the grounds that they conferred no special benefit to Button.  They also claimed they received no notice of the assessment hearing, so the assessments were invalid.  In addition, Button claimed that Country Hills breached its contract with the Township when they failed to extend the water system to the property.  Button alleged that those contractual obligations conferred a direct benefit to Button, and so Button was a third-party beneficiary of the development agreement.

Country Hills argued that Button was not a third-party beneficiary of the agreement with the township, so therefore Button had no grounds to bring a lawsuit raising the issue that Country Hills was in breach of that contract.  Country Hills further claimed that it had not breached the contract since there was a 15-year limit in which to complete the actions and because the actions were not required.  The district court granted summary judgment in favor of the township and Country Hills on both claims.   Button appealed.

In regards to the question of whether Country Hills breached their development contract with the township, the Court of Appeals ruled they had not.  It noted the distinction between a condition and a promise.  A condition “is distinguished from a promise in that it creates no right or duty in and of itself but is merely a limiting or modifying factor.”  In this case, the actions to be taken by Country Hills were a condition to the rezoning of the property, not a requirement.  The only consequence of not completing the actions was that it would revert back to its previous zoning classification.  Additionally, the Court noted that the agreement allows for a 15 year deadline to complete the actions, and therefore the claim was not yet timely.

Further, the Court agreed with the district court in its decision that Button is not a third-party beneficiary of the development agreement.  A person is a third-party beneficiary of a contract only when the promisor undertakes an obligation “directly” to or for the person.  This means that not just anybody who benefits from a contract can enforce it.  Since Button was not named in the contract, it is not a third-party beneficiary.  The Court of Appeals affirmed the district court’s decision.

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