Three developers, including the Glen-Loma Corporation, owned by Filice family members who are longtime residents and developers in Gilroy, have sued the City of Gilroy for more than $500,000 in relief for “unjustified and excessive development fees” as well as unspecified attorney fees, according to court documents.
The other two plaintiffs are Arcadia Development Corporation of San Jose and Ronan Avenue Investors of Gilroy.
The lawsuit stems from a dispute between the developers and the city which began in 2009. The developers asked for relief from what they believed to be artificially high public facilities impact fees (money that goes toward purchasing land like neighborhood parks), and, while the city acknowledged in 2009 that the fees were inaccurate and based on outdated research from 2004, it took two years to adjust the fees – and after the fees were lowered the city refused to offer reimbursement to developers.
In January 2012, the city reduced the public facilities fees by about $5,000 per home to reflect the current construction market after the housing crash associated with the Great Recession – from $21,586 per home to $16,200 per home.
“The city report acknowledged that assumptions of the 2004 fee study no longer legally justified the fees that were still being imposed on the basis of that study,” the court document reads.
So after the city finally reduced fees that had been inflated for years, there still was one catch: they refused to apply the reduction retroactively for any developers.
Between the years of 2009 and 2012, the three plaintiffs built about 100 homes, and continued to pay the higher fees, for which they now seek restitution – and at more $5,000 per home, the total complaint adds up to more than $500,000.
Glen-Loma, Arcadia Development, and Ronan Avenue Investors claim that the city acted against state law by imposing a fee without significant review or adjustments since 2004, and by holding developers to those illegal fees even after acknowledging in 2009 that they needed to be reduced.
City Administrator Tom Haglund said that city did not act illegally by maintaining fees from 2004, and that changing them in 2012 was their discretion.
“The city maintains that the fee since 2004 was a legal fee, and that even though the city did not need to lower the fee, it chose to do so after careful study,” Haglund said. “Any fees that were required before were legal.”
Plaintiffs have taken their case to San Francisco-based lawyer David Lanferman, who specializes in real-estate law and land development cases.
Tim Filice of Glen-Loma declined to comment, but did release a short letter on Thursday morning.
“We and the other builders deeply regret having to take this action,” the letter read. Filice, who has worked as a local developer for more than 40 years, wrote that he has always had a great working relationship with the city.
Filice said he tried to present his issue to Council during the spring of 2012, but was denied by Mayor Al Pinheiro.
“As in the past, we stand ready to work out a resolution. We had hoped that we could present this matter to the City Council, but we were specifically informed by the City that the process outlined in the Government Code is the only available path. We disagree,” the letter read.
Haglund said it wouldn’t have mattered if the developers did present their case to Council, because there is a state-mandated legal path they must take to challenge developers fees – and that process demands formal legal action, or in other words, a lawsuit.
“The developer needs to file litigation and prove their case. What they are doing, going through the formal process, is what they have to do. I think that there wasn’t a desire (from Council) to short-circuit that process,” Haglund said.
Haglund believed the letter was sent to all Council members, who showed no interest in taking up the issue.
Councilman Dion Bracco, who said the lawsuit “surprised” him, said he never saw or heard about the letter, and if he had, he would have tried to get it on the agenda. But even so, Bracco said the developers should have showed up to make a public comment during a meeting.
“Every meeting we have a public comment, they never showed up to that. And they never called me about it,” he said.
Bracco said he doesn’t know enough about the issue to make a judgment yet, but it doesn’t appear the city should owe the developers anything, because Council already did what they could to please them by lowering the fee.
Don Gage, current Gilroy mayoral candidate and former Gilroy mayor and county supervisor who currently sits on the county water district board of directors, said the Council should have let the developer’s concerns be heard.
“From my perspective, you should try to resolve any lawsuit ahead of time,” Gage said. “There might be a reasonable solution that would cost less than a lawsuit.”
Gage, who is friendly with the Filice family, said personal friend or not, as mayor he would have tried to listen to the developer’s case at Council meetings.
“I don’t know (the city’s) reasons though. Maybe they had a great reason. Maybe their attorney told them not to,” Gage said. “But at minimum, everyone in the Council should have been made aware of this. You don’t want to keep the Council in the dark.”
Pinheiro echoed the comments given by Haglund – that a lawsuit is the only legal route the developers could have taken to present their case.
Regarding the letter the Flice’s sent to Council, Pinheiro said he denied the developer’s request to bring their case before Council because it didn’t follow the “correct procedure.”
“If we thought that talking about it during Council would have done any good, we would have evaluated that,” he said.
Michael McDermott of Ronan Avenue Investors declined to comment, and Brad Durga of Arcadia Development did not return phone calls by press time.
Arcadia Development and Glen-Loma are together responsible for the Rancho Hills Drive development in the northwest quad. Ronan Avenue Investors invests in KB Homes, which built homes in Gilroy during the years 2008 to 2012.
Glen-Loma Corporation also has plans to build 1,700 homes on the west end of Gilroy, known as Glen Loma Ranch, flanking the east side of Santa Teresa Boulevard from the area around Ascencion Solorsano Middle School to Las Animas Elementary School.