Big Box, Big Suit

[April 22nd, 2009]

While Mayor Sam Adams awaits a decision on whether he’ll face any criminal charges in the Beau Breedlove affair, there’s an unrelated but hefty federal lawsuit against the mayor that hits a critical point next week.

The issue underlying the $25 million federal lawsuit naming the mayor and the City of Portland goes back to 2005, when Wal-Mart was eyeing Hayden Island to build a third store in Portland. Adams, then a city commissioner, responded to Wal-Mart’s interest by crafting a moratorium to halt development on Hayden Island.

Adams’ opposition to Wal-Mart scored highly visible political points—an anti-Wal-Mart sign hung in the Southwest 5th Avenue window of his City Hall office for years. And his charge against the retail giant helped him establish pro-labor and populist credentials after a decade as chief of staff to former Mayor Vera Katz, in which he cultivated close ties with real estate developers and the business community.

According to the lawsuit filed by Thunderbird Hotels LLC, Adams’ actions also cost developer Howard Dietrich Jr. $25 million. The city, which has been litigating various aspects of the case since 2006, has moved to throw out the lawsuit. Dietrich’s lawyers are scheduled to reply to that motion April 30.

WHERE’S WAL–MART?: Not on this Hayden Island property.

Paul Diller, an assistant professor at the Willamette University School of Law, says cities have wide latitude in making zone changes even if they affect property values and the Suprieme Court has ruled that temporary moratoria don’t constitute takings. But, says Diller, who has not looked at the specifics of this case, LUBA’s invalidation of the moratorium complicates things. “It’s a novel theory,” says Diller, who teaches property law at Willamette.

Here are the facts before federal magistrate John Jelderks.

Days before Adams took office as commissioner, Dietrich bought the Thunderbird Hotel, which sits on 13 acres just south of the Interstate Bridge, for $21 million. Nine months later, on Sept. 30, 2005, according to the lawsuit, he agreed to sell the property to Wal-Mart, and told the company he “was unaware of any facts concerning the property that would adversely affect Wal-Mart’s ability to develop it as a retail facility.”

The final agreed-upon sale price was $25 million—a tidy profit of nearly 20 percent in less than a year for Dietrich.

But Adams’ campaign against Wal-Mart, a company he said “fails the basic test of ethical capitalism,” accelerated shortly afterward. On July 6, 2006, he said he would submit a City Council resolution adopting a development moratorium on Hayden Island because of the traffic that would result if “Wal-Mart or another big-box retailer builds a store at the old Thunderbird Hotel site.”

Then, on Oct. 4, 2006, the day that Council was to vote on the moratorium, Wal-Mart abruptly canceled plans for the store. The company said in a joint statement with Dietrich that the move was “purely a business decision…and is not a response to Portland Commissioner Sam Adams’ proposed temporary development moratorium.”

Despite those conciliatory words, Dietrich filed an appeal with the state Land Use Board of Appeals, the agency that adjudicates land-use disputes. In June 2007, LUBA ruled that Adams’ development moratorium was “invalid.” Dietrich and the city then took their squabble to the Oregon Court of Appeals, which returned it to LUBA, resulting in litigation that lasted until April 2008 but produced the same result: a finding that the development moratorium was invalid.

Then, last October, Dietrich filed suit in Multnomah County Circuit Court, seeking $25 million in damages, claiming his property was treated differently from others on Hayden Island and that through an invalid moratorium that amounted to a “taking,” “Adams and Portland…have deprived plaintiff and continue to deprive plaintiff of all economically viable use of its property.”

The City successfully requested the matter move to federal court. In its response to Dietrich’s claim, the city argues Dietrich was treated fairly and no differently from other property owners, and at worst temporarily prevented from using his land as permitted.

“Thunderbird’s complaint against defendants Sam Adams and the City of Portland should be dismissed,” deputy city attorney Terence Thatcher wrote in a Jan. 26 response to Dietrich’s claim.

(This isn’t the only lawsuit against the city stemming from an Adams ordinance dealing with business. Last week, as first reported on wweek.com, real estate agents sued the city, claiming an Adams ordinance illegally imposed the city’s business license tax on them.)

One Adams critic says Adams’ development moratorium and the subsequent multimillion-dollar damage claim it spawned reflect a greater concern for cultivating anti-Wal-Mart voters than creating sound public policy.

“I don’t think he cares whether anything is legal or not,” says former Portland Development Commission chairman Bob Ames, a leader of Friends of Urban Renewal, a group battling City Hall over what it considers an illegal use of urban renewal funds. “It’s just a question of whether he can get away with it.”

Dietrich and his attorney, Don Stark, declined to comment on the Wal-Mart case, as did the city attorney’s office and Adams’ spokesman.