Taxpayers Refloat Riverfront Property

Riverfront development that sank financially now belongs to a city, Plattsmouth.

Navigating not-yet-treaded legal waters was a big factor in the city’s decision to make the offer to buy Castaway Pointe. The purchase settled a federal lawsuit. The attorney hired by the city said he researched previous rulings but couldn’t find a case like the one Castaway Pointe investors filed against the City of Plattsmouth.

Cassgram sat down with Larry Welch, Jr., the city’s legal counsel in the federal case, City Attorney Roger Johnson and City Administrator Erv Portis for 75 minutes after the real estate closing this week to find out more about the rationale behind the decision. Portis was the only individual to speak during a public hearing on the purchase agreement on May 19 and no city council members commented before the 7-0 vote to buy the property for $1.5 million. Another $695,000 for repairs and other costs was included in the bonding package approved by the council which taps economic development funds (LB840 sales tax) as the funding source.

(Cassgram had asked for information or interviews about the pending purchase over the last several weeks but those involved were reluctant to talk since the lawsuit would continue if the deal fell through. Portis voluntarily offered the interview session this week after the closing.)

---One of the major plaintiff points in the Castaway vs. Plattsmouth federal civil lawsuit was inverse condemnation—that the city’s actions in adopting a new FEMA flood map in 2010 kept Castaway from building its development, thus resulting in what amounted to ‘a taking of the property because it could not be used as intended.’ Part of Castaway was placed in the floodway on the new map and no construction is allowed in a floodway.

“The council had no choice” but to adopt the new floodplain map, said Portis. Not doing so would have kept Plattsmouth from receiving federal disaster flood relief and no one in the community would have been eligible for flood insurance, he said.

But, at the time it adopted the flood map ordinance, the city wasn’t concerned about the impact on Castaway because the city had—and still has—in its possession a letter from FEMA stating Castaway was out of the new floodway, said Welch. However, when the final map was presented, the eastern half of the Castaway property was in the floodway.

With the doctrine of sovereign immunity, bringing the federal government into the lawsuit or pressing a case against the federal government is a very difficult and very expensive battle, said Welch. “It would have been a complete donnybrook.”

The city’s insurance carrier said this filing was a coverage exception and did not defend the city, leaving the city to pay its own legal defense.

Even with just Castaway and Plattsmouth in the suit, the city was probably looking at three more years in court and several hundred thousand dollars in costs, said both Portis and Welch, with the minimum at probably $500,000. “And then appeals” since there was no legal precedent, added Johnson.

---Sales were slow at Castaway and there was damage from the record flood of 2011. The future of what once had been touted as a $45 million valuation addition to the county was bleak. $5.7 million in liens had to be cleared to close the deal, said Portis. That meant banks and other investors had to forgive or satisfy debts in other ways so the city could get clear title.

“We were looking at another three years of probably nothing happening at Castaway and the property falling into further disrepair,” said Portis. Foreclosure was a possibility, said Welch.

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