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Lawsuit Could Push Upland, Calif. Into Insolvency

LOS ANGELES -- A San Bernardino County, Calif. lawsuit seeking to recoup a portion of a $102 million settlement with a developer could force one of the county’s cities, Upland, into bankruptcy.

So far, legal expenses related to fighting the lawsuit have cost the city of 73,000 40 miles east of Los Angeles roughly $6 million, causing the city’s reserves to dip below $1 million, said Upland City Manager Stephen Dunn.

The county filed a lawsuit in 2004 against Upland, the California Department of Transportation and the regional planning agency, San Bernardino Associated Governments, seeking damages to help defray the costs of a $102 million settlement it reached with developer Colonies Partners LLP.

The county contends that the three entities are partly liable for damages the developer claims the county flood-control district caused to his 434-acre mixed-use development in Upland. When the 210 Freeway was expanded, officials used an easement owned by the city to control flooding from the county’s two dams, filling a basin on the developer’s property, Dunn said.

San Diego Superior Court Judge Ronald Prager dismissed San Bernardino County’s damage claims on Feb. 5, but Upland officials are concerned that the county could appeal the ruling.

The county’s Board of Supervisors have held several closed sessions to discuss the matter and have another one planned for next Tuesday, said David Wert, a county spokesman.

“The county has two new board members and another member who has been on the board a year,” Wert said. “They need to be brought up to speed on a topic that has been going on since 1997.”

The judge dismissed the county’s claims, citing the March 2011 conviction of former Board of Supervisors’ Chair Bill Postmus, who was convicted on a charge that he accepted a bribe to vote in favor of the settlement. Several other county officials and the developer are still awaiting trial on related charges.

During the hearing, Prager questioned the county’s continued push to collect from the defendants on a legal settlement he said was voided in 2011 with Postmus’ guilty plea, according to a report from the Press-Enterprise newspaper.

Wert said he couldn’t comment on whether the county supervisors were discussing rescinding the settlement agreement.

An appraisal made prior to the settlement estimated the value of the developer’s land affected by the flood control issue at north of $300 million, which had county supervisors calling the $102 million settlement a bargain when the deal was struck, Dunn said.

The county issued bonds to pay for the settlement.

The county’s all-in debt, including interest, on bonds issued to pay the settlement will equal $185 million by the time they reach maturity in 2037, Dunn said.

If Upland ended up paying even 10% of that, at $18.5 million, Dunn said it would put the city in dire straits.

“The city couldn’t pay it – even if we could pay it over 10 years, it would put the city in bankruptcy,” Dunn said. “We don’t have room in my budget to make debt service payments.”

If the city can’t afford 10%, it certainly can’t afford to split the cost four ways with the other entities, he said.

The city has $1.2 million in general obligation bonds backed by a $40 million general fund budget for 2012. It is also the successor agency for its dissolved redevelopment agency, which has $57 million in outstanding bonds.

Upland’s attorneys have estimated if the case goes to trial it could cost the city $250,000 to $300,000 a month for a trial estimated to last up to eight weeks.

The case also has been costly for the county, but has not adversely affected the county’s finances, Wert said.

The county thinks it is an important case to see through, Wert said.

“The county does not take any joy in the public money spent on lawyer’s fees,” he said. “There have been many opportunities for SANBAG, Caltrans, and Upland to take responsibility for the freeway they designed and built.”

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