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HomeMy Public PortalAboutAttorney- MOU- McCall GasMOORE & MCFA.DDEN, CHARTERED ATTORNEYS AT LAW ONE CAPITAL CENTER, SUITE 910 999 MAIN STREET, BOISE, ID 83702 TELEPHONE: (208) 331-1800 FAX: (208) 331-1202 DAVID H. BIETER SUSAN E. BUXTON * JOHN J. MCFADDEN *$ MICHAEL C. MOORE $ PAUL A. TURCKE *Also Admitted in Oregon $ Also Admitted in Washington MONA DOBARAN MACK Of Counsel THIS DOCUMENT HAS BEEN EXPRESSLY PREPARED FOR THE USE OF OUR CLIENT, IS CONFIDENTIAL AND DEEMED TO BE SUBJECT TO THE ATTORNEY/CLIENT PRIVILEGE AND THE ATTORNEY WORK PRODUCT PRIVILEGE June 4, 1998 Via facsimile: 208/634-3038 Brian Olson City of McCall P. O. Box 986 McCall, ID 83638 Re: Memorandum of Understanding with cCall Gas Station, Inc. and the Park Land Lease for Marina Purposes Agreement Dear Brian: As we discussed on June 2, 1998, the City would like to explore grounds for at least renegotiation of the Memorandum of Understanding (MOU) with McCall Gas Station, Inc. (MGSI). The City may need grounds for rescission of the agreement, although you would like to preserve some aspects of the agreement while clarifying and renegotiating other parts. This letter will outline the areas of the MOU that warrant renegotiation because McCall lacked the power to so obligate the City. First, as we discussed briefly, the document is entitled a "Memorandum of Understanding." This phrase is not uncommon in local government documents, and although I could find no specific legal precedent interpreting it, such language may signify that the parties did not intend to enter into a binding agreement. In contrast, however, many of the other terms in the body of the agreement show an intent to the bind the City. The title alone may not be enough to invalidate the agreement. We would not advise using a memorandum of Brian Olson June 4, 1998 Page 2 understanding for this or other negotiations. Use of such a phrase leaves room for interpreting whether the document is an enforceable agreement; a city runs the risk on either side — being bound when not intended or unenforceability when seeking to enforce. Second, we have no indication in the documents before us whether the City Council ever formally approved this agreement. On p. 7, par. 17, the agreement states that after signature by MGSI, "the City Manager shall have a reasonable time to seek the approval of this agreement by the City Council, which approval shall constitute an acceptance of such offer binding the City." The Mayor's signature appears on the MOU and may signify City Council approval. (The Mayor may have signed rather than the City Manager as contemplated in par. 17). If there is no evidence in the Council's minutes of formal City Council approval, by the terms of the agreement itself, it would not be binding. Perhaps more important, several terms in the agreement run counter to Article 8, § 3 of the Idaho Constitution. You may be unfamiliar with this section, (although you will probably not be unfamiliar for long) which provides that : No ... city ... of the State, shall incur any indebtedness, or liability, in any manner, for any purpose, exceeding in that year, the income and revenue provided for it for such year, without the assent of two-thirds (2/3) of the qualified electors thereof voting an election to be held for that purpose, ... any indebtedness or liability contrary to this provision shall be void . . . provided, that this section shall not be construed to apply to the ordinary and necessary expenses authorized by the general laws of the State .... Idaho Constitution, Article 8, § 3. As you can see from the quoted language, the Section is quite broad, and perhaps broader and more stringent than similar provisions in other states. Put most simply, the Idaho Constitution prohibits cities from incurring indebtedness or liabilities beyond its present fiscal year. The main exception to the prohibition is for "ordinary and necessary expenses," an exception inapplicable to this agreement. The section itself states that "any indebtedness or liability incurred contrary to this provision shall be void." Cases interpreting the Section have voided contracts which obligate a city's future budgets. Boise Development Co., Ctd. v. Boise City, 26 Idaho 347, 143 P. 531 (1914). In the cited case, the City of Boise successfully defended against a contract by arguing it had no authority to bind future budgets. It may seem odd for the city itself to admit its officers acted without authority. However, since the Constitution voids such contracts, the other party must assume that risk. There is no specific term listed in the agreement. Rather, as we discussed, the first important date, January 25, 1996, triggers the offer from MGSI. Then, McCall is given a "reasonable time" to obtain approval by the City Council, which I am unclear if they ever actually gave. Once the City Council has acted, the agreement continues without a defined Brian Olson June 4, 1998 Page 3 term. There are several City obligations that continue beyond the fiscal year in which the Agreement was signed, the 1995/96 fiscal year. First, the City must quitclaim deed portions of the Kalman deed property to MGSI. MOU, p. 4, par. D.2. There is no specific date mentioned, but unless this was accomplished in the first fiscal year, this would be a "liability" beyond that present fiscal year. Second, the City obligated itself to "pursue with due diligence" the condemnation of whatever interests were obtained by Kalman from UPRR. The price set in the agreement is $200,000. MOU, p. 3, par. 3(ii). Third, the City is to enter a lease/purchase agreement for purchase of bike path property. The City is to pay $200.00 on the anniversary of this agreement by virtue of a lease purchase agreement in which they pay $200.00 on each of the four anniversaries of the agreement, and then $199,200 on the fifth anniversary of the agreement. MOU, p. 7, par. 15. These duties listed above, at the very least, appear to extend beyond the 1995/96 fiscal year and if not fully performed in that year would be void. There may be several other duties that could be unenforceable. While these matters may be too extensive to list, they include paragraphs 12 and 13 of pp. 5 and 6 which arguably obligate the City to purse certain land use decisions and to make improvements to the roadway contemplated under the agreement. Moreover, the MOU does contemplate the duty to "install water and sewer lines according to its then water and sewer master plans to the extent such lines logically would be within the right-of-way of such new roadway." MOU, p. 6, par. 14.b. Such a commitment would likewise be considered a liability beyond the 1995/96 fiscal year as well. All of these problems leave the City enough grounds, should the City so desire, to declare the contract void and unenforceable. Since that is apparently not in the City's interest, our suggestion would be to point out the basic problem with the agreement — it was beyond the City's powers to execute. Then, you could renegotiate, but you could retain the basic framework of the previous agreement. Some of the contingencies contemplated under the MOU have undoubtedly come about since 1995. A new agreement could use those matters as a basis for moving forward. We should take considerable care in redrafting an agreement that stays within the parameters of the law. Our suggestion would be that we hold a meeting with whomever from the City has experience with the MOU or the areas covered by the MOU. We could hold such a meeting in executive session, as this matter could be considered acquiring property or possible litigation. I.C. § 67-2845(c) and (f). Then, we should attempt to arrive at an approach that would stay within the bounds of the law but still move the project forward. If that is not possible, the City may have to take the more aggressive stance of claiming rescission of the MOU; we would reserve such an approach as a last resort. Brian Olson June 4, 1998 Page 4 From the above analysis, it may go without saying that the Park Land Lease Agreement (the Lease) cannot be enforceable. First, the City never signed the Lease; we really need not go further. Nevertheless, you have said MGSI has high expectations of going through with the Lease. The City has the power to enter such a lease, but the City may do so only by resolution. I.C. § 50-1409. We have no evidence that there was ever execution of this agreement, let alone a resolution to that effect. Any obligation to enter the Lease would have to come from the MOU, which we have already seen is unenforceable. The Lease, even more than the MOU, cannot be binding. We await further direction from you. As always, if you have any questions, please contact me. Sincerely, °ORE & McFADDEN, CHARTERED avi. Bieter DHB:de