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