A Scottsdale shopping mall developer filed a $112 million claim against Tucson for breach of contract after the city tried to sell nearby land for commercial development, despite restrictions against it.
Barclay Group filed the claim, which is a precursor to a lawsuit, in mid-August after the city solicited bids to develop a city-owned property at Interstate 19 and West Irvington Road, despite an agreement with Barclay prohibiting any retail development on the site until 2017.
The city was negotiating with a different developer, Irvington Interstate Partners LLC, to build a Sam's Club on the 22 acres north of Irvington, across the street from the Tucson Spectrum, Home Depot and Target on the south side - which was built by Barclay. The Sam's Club deal ground to a halt after Barclay warned the city it couldn't sell the land for commercial development.
Tucson tried to sell the land to help ease its chronic budget shortfall, and the Sam's Club deal would have brought in $4 million to help the city balance its books. The city would have also benefited from sales tax generated from the property for years.
But a 2004 agreement with Barclay contains a clause excluding retail development of the 22-acre property on the north side of the street until 2017. The clause was negotiated to help protect Barclay's investment in an area of town that at the time was seen as less than desirable. The restriction was an enticement for the developer to risk building there.
The City Council unanimously approved the agreement in December 2004, but the restriction on competing retail development on the adjacent piece of city property was never recorded.
In its claim, Barclay said it was not aware the city had put out a request for proposals (RFP) - a way to solicit bids - to develop the restricted 22 acres, until after it had been issued.
Barclay's claim said its agreement with the city required Tucson to put the restriction on the parcel.
"By letter dated June 14, 2011, the claimants (Barclay) gave notice to the city that it objected to the RFP as a repudiation of the agreement," the claim states. "In response, the city stated that it had failed to take formal action to record the restriction … and, therefore, claimants could not enforce it."
The city is liable for breach of contract, breach of covenant of good faith and fair dealing and for unjust enrichment, the claim states. In addition, the claim states that one party cannot benefit from its failure to perform its contractual obligation.
Bob Austin, senior vice president of Barclay, said the $112 million represents the "equity in the Tucson Spectrum that would be lost if we lose tenants over a period of time due to competition across the street." Austin said the restriction was put on the parcel for that reason - to protect Barclay's investment.
Barclay is negotiating with the city to find a solution, but Austin said the developer had to file the claim by a certain date under the law to protect its investment.
"It's obviously a step Barclay Group is taking based on what we believe is our rights," Austin said. "We are in negotiations with the city and we hope a resolution is forthcoming."
City Manager Mike Letcher said he couldn't provide any information on the claim and said he couldn't talk about a potential lawsuit, referring questions to City Attorney Mike Rankin.
Rankin said he will talk to the City Council in executive session on Sept. 13 about both the claim and the Sam's Club deal. When asked if Sam's Club could also sue the city, Rankin said anyone can potentially sue the city.
The executive session discussion will address potential real-estate issues with the Sam's Club deal as well, Rankin said. In closed session, the council will discuss ways to address the different issues with the 22-acre site and what the legal risk is of pursuing the different options are, he said.
Barclay was up against a deadline to file the claim, Rankin said. "They needed to file it order not to run out of time and preserve their claim," Rankin said.
He said he agreed with Barclay's assertion that the two sides are trying to work things out.
City Real Estate Director Hector Martinez did not return calls for comment Thursday, but said previously that he wasn't aware of the restriction until after the city offered the property for sale.
Property restrictions are recorded with the Pima County Recorder's Office. Martinez said a title search showed no restriction on the use of the property and therefore the city solicited bids to develop the 22 acres.
Councilman Steve Kozachik said the city needs to honor its contract with Barclay because if it didn't, that would be "nothing less than bad faith." He said the city has shut down the Sam's Club purchase and conceded that it issued the request for bids in error.
"I don't want to hear about yet another city contract that has been so poorly managed that we are getting sued over it," Kozachik said.
Contact reporter Rob O'Dell at 573-4346 or firstname.lastname@example.org