Considering that taking a $163,000 loss on the Estey-Simpson reservoir property was better than the risk of losing thousands more, the Craig City Council agreed to settle a lawsuit over the site.
After a 3-year battle over who was the rightful owner of the Estey-Simpson reservoir, the city has agreed to sell Louisiana attorney Glen Stinson the property and pay $60,000 of his legal fees.
Stinson sued for the 500-acre property, attorney fees and additional damages. A set number had not been put on the additional damages, but city officials estimate it could have been in the thousands. Stinson has incurred more than $95,000 in legal fees to date.
The lawsuit was filed Nov. 6, 1997, after the Craig City Council agreed to sell Stinson the property and then withdrew because of public outcry. The property was purchased in 1982 as a water storage site. Residents argued that a vote was needed to sell it because it was purchased as utility property.
Motions on the case have been heard in U.S. District Court and the 10th Circuit Court of Appeals with the city coming out on top of a motion to dismiss the suit and then losing on appeal.
To date, city officials estimate $80,000 has been spent in legal fees, not including the time City Attorney Sherman Romney has spent on the case.
Settlement negotiations have been ongoing, City Manager Jim Ferree said.
"Just about every step of the way, someone's offered something," he said.
The two parties came to terms last week.
The agreement calls for the city to sell Stinson the property at the original contract price of $176,500 and pay a portion of his attorney fees. In exchange, Stinson agreed to drop the claim for additional monetary damages.
"Basically, the City Council determined it would be in the city's best interest to settle the suit rather than go to trial," Romney said.
In doing a risk analysis, officials projected it would cost another $80,000 to defend the city's position. Continuing on to a trial could also set the city up to lose an unknown amount in damages.
"It would cost as much to take the case to trial and win than to settle at this point," Romney said. "We would be at the mercy of a Denver jury to decide the damages."
He estimates going through with the lawsuit could take one to two years.
Councilor Tom Gilchrist was in full support of the decision to settle.
"If you were to lay the economics on the table, the difference between winning and settling was minor, but the risks of taking it to trial are very high," he said.
Other Council members will get the opportunity Tuesday night to agree or disagree. The Council will vote on a resolution to accept the settlement agreement at its regular meeting.
One of the main issues in the lawsuit, and a point of contention from residents, was whether the city could sell the property without a vote. Romney said selling the property is legal and a vote is not needed because of a ruling of the 10th Circuit Court of Appeals. The court ruled that the City Charter provides that property, including that purchased for public utilities, could be sold by motion, ordinance or resolution.
"It was ruled the charter was specific on that issue and that state law didn't apply," Romney said.
The property is located upstream from Elkhead Reservoir, northeast of Craig. The city purchased it for $500,000, a price city officials say was offset by $300,000 in grant funds, making the total cost to the city around $200,000.
"The exposure with local funds was not as great as the public thought it was," Ferree said.
The property was bought so the city could build a dam to ensure future raw water storage for residents. Shortly after its purchase, state requirements on spillway construction changed making it too costly for the city to build a dam.
The area has been leased for grazing and hunting since 1984. The city purchased water rights at Elkhead Reservoir to make up for not being able to build a reservoir on the Estey-Simpson property. According to Romney, a study of the city's water rights has determined storage in Elkhead, in addition to other water rights owned by the city, is adequate to meet the long-term needs of the city.
Included in the risk analysis was a future projection if the city was able to win the lawsuit.
"We would still have property that is no use to Craig," Ferree said. "There's no guarantee we would have ever gotten the assessed value."
The Estey-Simpson property was appraised six months ago and valued at $225,000.
The cost of defending and settling the lawsuit will be borne by the City Water Department. The department will also get the revenue from the sale.
The city has been hesitant to sell any property since the lawsuit was filed. Officials wanted to wait for a judge's decision on the procedure for selling property in a home rule city. Now that decision has been reached, Romney will suggest the Council pass an ordinance clarifying a procedure to sell city-owned property.
"We just needed to get this [lawsuit] out of our hair first," Mayor Dave DeRose said.
If the council passes the resolution, it will be submitted to the court asking for its stamp of approval.
Stinson was not available for comment and had not returned phone calls as of presstime today.
His attorney is out of town this week.