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Brooksville may pay a high price to make history

Last week, for probably the first time in its history, the city of Brooksville staked a claim to join the likes of Ernesto Miranda and Homer Plessy as a plaintiff before the United States Supreme Court.

No, the issues in the city's petition against Westchester Fire Insurance Co. aren't as momentous as the ones in those landmark civil rights cases. In fact, it's far from certain this case will even be heard. The court, according to its website, receives about 10,000 petitions annually and accepts only about 75.

But there is enough at stake — including a question about the limits of federal power — to make it worthy of the court's consideration, said John Watkins, the Atlanta lawyer who wrote the brief for the city.

Okay. But is it worthy of the money the city will have to spend?

That's the big question for city residents and here are the facts they have to work with:

Levitt & Sons, the developer of the Cascades subdivision on the south edge of Brooksville, secured a $5.3 million performance bond with Westchester to ensure that the second phase of the project would be completed.

Levitt had barely started the work when it declared bankruptcy and abandoned the Cascades. The city asked Westchester to pay off the bond, and in 2008, after Westchester had refused to do so, the city filed a suit in state court to force the company to pay.

The two sides couldn't reach a settlement and the case went to federal District Court in Tampa.

A judge there ruled against the city, a finding the 11th U.S. Circuit Court of Appeals in Atlanta upheld earlier this year.

The big problem, according to Watkins' brief, is how these federal judges decided to let Westchester off the hook.

They didn't rely on state case law because, in Florida, there isn't any authoritative case law covering this subject. And that means, according to bedrock legal opinion established in the 1938 U.S. Supreme Court ruling, Erie vs. Tompkins, this question should have been referred to the Florida Supreme Court.

"Instead of guessing," Watkins said, federal judges are required to "ask the state to make a rule."

So, by filing this suit, the city is standing up to federal overreach. It's also standing up against bonding companies.

Performance bonds are one of the few ways cities and counties can be sure they don't lose as much on failed projects as the developers do. And if courts let these companies off without fulfilling their obligations, then any assurances these bonds provide are meaningless. That's why cities and counties around the state are watching this case closely.

But this isn't just a matter of principle. The city could be awarded a much-needed infusion of cash. So could the Hogan Law Firm, founded by well-connected Brooksville lawyer Tom Hogan, which does most of the city's legal work and which has a contingency agreement that allows it to collect a share of any settlement.

Now, for the downside.

This is not just a long shot, but an expensive long shot.

Watkins, an experienced, distinguished lawyer, charges $420 per hour for his labor.

And this thoroughly researched brief, which runs to more than 100 pages with appendices, clearly took a lot of it. Though Watkins said he doesn't know how much the brief will cost the city, his firm has charge the city $44,000 for its previous work on this case.

If the court declines to take the case, the matter is probably dead.

And what happens if the city gets the best possible outcome and the court not only agrees to consider the case, but decides in its favor?

That just means the question of what circumstances should trigger insurers to pay will go back to the state Supreme Court. And only after that issue is decided will some other court — probably on the federal level — decide whether the city actually deserves all or part of the $5.3 million bond payment.

Look at the federal judge's ruling in Tampa and that seems like even more of a long shot. His "guess," as Watkins put it, seems like a reasonable guess.

The judge wrote that Westchester's contract with the city implied it would pay to finish the work only if it were started.

Levitt built a culvert and did some grading and clearing, but it constructed no sewer lines that need connecting to the city system, no roads that need completing, no homes filled with people demanding city services.

Therefore, there were no damages, the judge ruled.

Westchester "guaranteed that the improvements would be finished if started but did not guarantee that the improvements would be both started and finished," the judge wrote.

Two years ago, I criticized the Hogan firm for the way it pursued another performance bond payment on the city's behalf.

It convinced the city to agree to let it seek the money on a contingency basis, a share of any award rather than an hourly fee.

The facts of that case were similar to the city's long legal battle with Westchester, except that the construction work at Southern Hills Plantation Club clearly had started and the city was burdened with the expense of completing it. And, sure enough, in 2011, the bonding company agreed to settle for $3.5 million, and the firm collected 25 percent, or $867,000.

It seemed like a sweetheart deal.

When the city agreed to allow Hogan to pursue the Westchester bond on contingency, the terms weren't as generous.

Hogan agreed to return $86,000 it had charged the city for its previous work on the case. And it accepted a lower share, 18 percent, of any settlement. To agree to this deal, the lawyers at Hogan must believe they have a chance of winning.

But I'd also point out that if this case proceeds, most of the work will be in federal court, which means that Watkins' firm will do most of the heavy lifting. And that means the city will pay lavishly whether it prevails or not.

To me, it adds up to too much risk for the city and too slim a chance for reward.

Follow Dan DeWitt at Twitter.com@ddewitttimes.

Brooksville may pay a high price to make history 09/20/12 [Last modified: Thursday, September 20, 2012 9:48pm]
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