HomeMy WebLinkAboutA1. Story Mill LitPage 1 of 3
Commission Memorandum
REPORT TO: Honorable Mayor and City Commission FROM: Greg Sullivan, City Attorney
SUBJECT: Authorize the City Attorney to Execute Settlement in Bauer et al v. City of
Bozeman et al, Daenan et al v. City of Bozeman et al, Fischer et al v. City of Bozeman et al, and MMIA v. City of Bozeman et al, regarding the Story Mill Landfill
MEETING DATE: May 9, 2016
AGENDA ITEM TYPE: Action
RECOMMENDATION: Provide an opportunity for public comment and authorize me to
Execute Settlement in Bauer et al v. City of Bozeman et al, Daenan et al v. City of Bozeman et al, Fischer et al v. City of Bozeman et al, and MMIA v. City of Bozeman et al, regarding the Story
Mill Landfill.
RECOMMENDED MOTION: After considering public comment, I move to authorize the City
Attorney to take all steps necessary to execute settlement in Bauer et al v. City of Bozeman et al, Daenan et al v. City of Bozeman et al, Fischer et al v. City of Bozeman et al, and MMIA v. City
of Bozeman et al, regarding the Story Mill Landfill under the terms and conditions as stated in
the City Attorney memorandum to the Commission dated May 9, 2016.
BACKGROUND: Should you adopt the recommended motion you will authorize me to execute settlement in the four primary cases filed against the City of Bozeman regarding the
Story Mill landfill. This action authorizes settlement with the three primary plaintiffs groups and
also authorizes settlement with parties to the insurance coverage dispute.
Settlement in Bauer et al v. City of Bozeman et al, Daenan et al v. City of Bozeman et al, and Fischer et al v. City of Bozeman et al is proposed as follows:
• As discussed below, the City’s contribution to settlement with the plaintiffs in Bauer,
Daenan, and Fischer will be $750,000 ($300,000 of which is in the form of a foregone
liability program credit). As such, the City’s required cash contribution to settlement will be $450,000. Payment by all defendants to the three plaintiffs groups in sum totals $7,500,000 with $2,500,000 to be provided by the other defendants (exclusive of Gallatin
County and the State of Montana) and $5,000,000 (inclusive of the City’s share) to be
provided through settlement of the insurance coverage dispute in MMIA v. City of Bozeman (see below for breakdown of how this amount is provided).
• The parties to these cases will execute a comprehensive, general release of all claims,
patterned on a standard Montana Defense Trial Lawyer’s release form, and will agree to
release all parties and their related entities.
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• The plaintiffs will dismiss the lawsuits with prejudice.
• Each party is responsible for its own attorneys’ fees and costs.
• The City will defend future claims made by other property owners (if any) related to the landfill, and in the event codefendants Morrison & Maierle and Golf Course Partners are
sued, the City will defend them along with defense of the City.
• The parties will agree upon a Notice of Settlement Agreement and Release, which the City will record on plaintiffs’ deeds. This avoids claims from subsequent owners.
• For a period of three years from the date of settlement, the City must, at its sole cost, test
the plaintiffs’ vapor mitigation systems twice a year to determine whether they are
operating properly, and to perform any necessary repairs or maintenance to the systems.
• The City must honor its existing obligations with respect to the remedial measures currently being implemented at the landfill. The plaintiffs agree not to oppose such
remedial measures, and further agree not to seek to have the Montana Department of
Environmental Quality impose other or additional remedies or obligations on the City.
• There will be no admission of liability.
• The settlement of the Fischer litigation includes a release of Gallatin County with no
financial commitment from Gallatin County.
• The State is named a defendant in the Fischer litigation, but as of the date of this memo is not participating in the settlement.
Settlement of the Bauer, Daenan, and Fischer litigation is contingent on settlement of the
coverage dispute in MMIA v. City of Bozeman et al. Likewise, settlement of the coverage dispute in MMIA v. City of Bozeman et al is contingent on settlement of the Bauer, Daenan, and Fischer litigation.
As for the insurance coverage litigation, the City’s insurers agree to contribute $4.55 million of
the total settlement to the Bauer, Daenan, and Fischer plaintiffs in full resolution of their claims, allocated as follows:
• The Montana Municipal Interlocal authority (MMIA) in the amount of $3,000,000, plus
payment in cash of $300,000 of the City’s foregone liability program dividend, $500,000
from its public errors and omission carrier, and $100,000 from one of its reinsurers;
• Alliant Insurance Services, Inc. (the MMIA’s insurance broker) in the amount of $200,000;
• Travelers in the amount of $225,000; and
• XL/Indian Harbor insurance in the amount of $225,000.
In addition, for the coverage litigation:
• The parties will execute a release of all claims (including remediation claims filed by the
City with XL/Indian Harbor regarding the East Gallatin Landfill);
• The City will defend future claims made by other property owners; and
• There will be no admission of liability.
Settlement agreements have not been finalized. Adoption of a motion as suggested herein will authorize me to execute settlement agreements in conformance with the terms listed in this
memorandum once they are prepared.
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FISCAL EFFECTS:
City’s Settlement Costs: The City’s share of the settlement in Bauer, Daenan, and Fischer is,
in sum, $750,000 – 1/10 of the settlement total amount. Of this, $300,000 is being paid by the MMIA using the City’s liability program credit. The City’s payment ($450,000) is due in early
July, 2016 (Fiscal Year 2017), and is incorporated into the FY17 City Manager’s Recommended
Budget. The intent is to pay this amount from the proceeds of the sale of the North Park property.
City’s Total Project Costs: To date, since 2013 the City has incurred approximately $2,560,000 in non-reimbursable expenses related to the landfill. These include costs of
investigation and remediation, legal costs related to remediation, defense, and insurance
coverage, and other site monitoring work. Adding the City’s share of settlement indicates the
City will have spent (to date) approximately $3,310,0001.
The City’s remediation costs have been funded with previous cash-on-hand in the Landfill Post Closure & Monitoring Fund as well as with a 20-year loan from the State of Montana (upon
completion of the remediation system we anticipate the total amount borrowed to be
approximately $1,800,000). Loan repayments are being made through property taxes each year.
Non-reimbursable legal remediation and defense costs and the City’s costs related to the coverage dispute have been paid with cash-on-hand in the Landfill Post Closure & Monitoring
Fund.
Costs of defense incurred by the City prior to the MMIA and other insurers assuming defense of the litigation have been reimbursed by the MMIA. All costs of defense incurred by the City after assumption of defense have been paid by the MMIA.
City’s Costs Going Forward: The City will have ongoing monitoring and maintenance
expenses for the vapor mitigation systems for a period of three years. We anticipate these to not exceed approximately $10,000 per year. The City will also have costs related to regulatory requirements for monitoring the landfill, including monitoring the remediation system currently
being installed at the landfill. The fiscal year 2017 City Manager’s Recommended Budget plans
for these costs to be paid through property taxes. I do not expect to have any future costs related
to the settlement agreement with the insurers. Avoided Costs/Financial Benefits of Settlement: While the majority of costs of defending the
Bauer, Daenan, and Fischer cases have been paid by the MMIA, the City has expended
significant amounts in the insurance coverage dispute. See above. Absent settlement, out of
pocket expenses for the City over the next two fiscal years related to un-reimbursable defense and insurance coverage will likely exceed $1,000,000. Settlement of the Bauer, Daenan, and Fischer litigation will also lead to settlement of the insurance coverage litigation and thus
alleviate the need to budget for expenses related to the coverage dispute.
The uncertainty and magnitude of these disputes cast a large amount of doubt over the strength of the City’s financial position. The City’s bond rating agency, Moody’s, cited this as a point of weakness in the City’s finances. Resolving these disputes through this settlement removes
uncertainty and ends these expensive efforts.
1 Expenses related to legal costs to litigation insurance coverage and costs related to construction of the remediation
system that have not been invoiced to the City are not included in this amount.
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