Diesel power plant sale closes; verdict in lawsuit now expected by Labor Day
In a driving rain last Thursday, a trio of pick-up trucks pulled up to the rear of the historic Diesel Power Plant. Judge John Galluzzo, a visiting circuit judge from the small city of Oviedo, in Seminole County, wanted to see the inside of the building that prompted an epic dispute over its stalled redevelopment.
Galluzzo will now digest everything he saw and heard during five long days of testimony in the non-jury trial just ended, plus what he’s read in the voluminous pleadings and what he will read in the summations and case law that attorneys will submit over the next month. He’s expected to rule by Labor Day.
Meanwhile, responsibility for renovating the property shifted to an out-of-town developer, Michael Rechter, who over the past decade has been investing millions in commercial real estate here. The 1920s-era diesel plant is his latest purchase at $500,000. He plans to turn it into a craft brewery and gastropub. He and the City of Vero Beach closed on the property last Thursday.
That was the easy part. Divested of its albatross, the city was now in court arguing it should not have to reimburse three Vero developers who signed on to transform the plant in the midst of the real estate bubble.
Those developers, Phil Barth, David Croom and David’s son Charles Croom, were having to defend themselves as well. The city was counter-suing for back rent totaling around $130,000.
The trial had started with a comment by John W. Frost, a highly respected trial lawyer hired by the city. He called the case “a pretty vanilla breach-of-contract suit,” a remark belied by briefcases the size of cinderblocks walling in the attorneys’ tables.
The professorial, soft-spoken Frost burnished the city’s panel of lawyers. But it was Eugene O’Neill who headed the team, along with John Mickley. O’Neill has spent his entire career at Gould Cooksey Fennel; he has a civil engineering degree, and specializes in construction law. O’Neill’s stern-faced monotone plowed forcefully through the claims made by the folksier Louis B. “Buck” Vocelle, lead attorney for the developers who, at one point, wheeled around in his chair to give his clients a happy thumbs up.
The suit and countersuit were filed in late 2013, but the case goes back to 2001, when developer Phil Barth and architect Charlie Block decided to rent the 9,000-square-foot brick shell of a plant from the city. The 45-year lease had its start date left blank, to be entered when the city provided proof that all environmental cleanup, needed after decades of toxic diesel emissions, was complete.
The timeline the city gave developers: two years, and with luck, only one.
But the all-clear designation was not made until 2013, eight years later, when results from all monitoring wells reached target levels.
According to the city, despite the delay in final cleanup certification, developers had free rein to do their work, but for some very small restrictions.
The developers and their lawyers argued the opposite.
Vocelle and his team, Alexandra McGee and Paul Berg, stressed that not having the all-clear on the site was a significant impediment to the “horizontal” development of the project – parking lots, landscaping, retention ponds, utility lines – everything but the plant itself.
So arduous were those restrictions, so onerous over time, that the developers were not able to complete their site development, they claimed.
O’Neill countered it was a collapsing economy that derailed the developers’ plans. The Great Recession and real estate collapse made tenants scarce and the developers never found one, the city said.
In the beginning everyone was anxious to get the project going. The real estate market was hot and property values were rising.
The downtown, just west of the diesel plant, was finally getting its act together. Galleries were beginning to open on 14th Avenue, and restaurateurs started going into old shoe repair shops and insurance agencies as rents on the beach went through the roof. Beachside’s Blue Starfish owner Kitty Wagner had opened Undertow in full view of the plant; right behind it, Black Pearl’s Ian Greenwood had opened French Quarter; nearby, Roger Lenzi opened Avanzare.
When Barth hired Croom Construction to rehab the diesel plant, with David’s son Charles Croom as project manager, the Crooms became one-third partners with Block and Barth. (Block would exit six years later after some legal troubles, and the Crooms and Barth became 50-50 partners.)
A start date of Nov. 5, 2005, was eventually filled in on the lease and, with that in effect, the developers went to the bank in summer of ’07. With the leasehold as collateral, valued at $2.4 million, they got a $1.5 million line of credit from Marine Bank, where David Croom is a director.
Part of that loan process required signing a form that swore the borrowers had not “received any notice or had any knowledge that any government authority has determined that or suspected that there is any unlawful hazardous or toxic substances at the premises.”
That was a key point in the city’s case.
“Barring any misrepresentation to the bank, they didn’t believe there were any issues,” said O’Neill. “They could develop, and there was no reason to flag or tell the bank.”
Over the next two years, passers-by heading east through downtown saw the diesel plant get a serious makeover. A new roof was installed. Missing pieces of stucco cornice were replaced and painted. Bricks that matched the building’s historical style were tracked down and used to fill in various holes. And the whole south wall of the building that had been chain link fence – one wide pigeon perch – was filled in with metal. All was done under the supervision of a historical architect hired by the developers to preserve the handsome structure’s place on the national historic registry.
While all that was going, Vocelle asked Barth whether, during 2008 and 2009, the state of the economy impacted the developers’ commitment to go forward.
“No.” Barth replied, as if unfazed.
By the summer of 2010, for whatever reason, both sides were getting antsy about the plant. In five years since the lease began to run, developers had sunk $1 million into the brick shell; in the same five years, the city hadn’t collected a dime of rent.
And in the same five years, the city would later maintain, the statute of limitations on any breach of contract was running, too.
Eventually, passers-by stopped rubbernecking. Nothing was happening with the diesel plant.
That was above ground. Below ground, not much was happening either. Pressed for an update by developers, the city provided a written summery of conditions “affecting development” at the diesel plant. Conditions included the same residual contamination in the ground, except that “the area impacted for petroleum contaminants of concern has decreased in size due to natural attenuation.”
That area formed a triangle along the railroad easement, from midway down the building to the rear property line. That zone was now the only zone where digging required testing. Any water production wells affecting that area were also banned; from the start, developers knew irrigation wells were not allowed.
With contamination still present, the developers claimed to have had enough. They couldn’t possibly rent out a chronically dirty site, the court was told.
Croom wrote a letter dated August 2010 demanding that the lease start date be amended and a month later took informational packets to City Hall with documentation of ongoing contamination at the site.
Croom testified he hand-delivered demand packets to the city clerk for each of the city council members.
“Later that day, I got a call from [City Manager] Jim Gabbard,” Croom testified. “The very first question Jim asked me is, are we going to sue the city? I said it wasn’t our intent to sue the city. It was our intent to let the city know what our issues were and maybe we could work them out.”
Croom said that later the same day, he got the documents back from the city clerk “so they would not be a part of the public record.”
That, according to Vocelle, was when the city’s breach of contract occurred. The city couldn’t ask developers to perform on a contract that the city itself had breached, Vocelle said.
“After acting in good faith, trying to comply with what the city wanted, in September 2010 . . . [the developers demanded] a certificate of compliance and they never received it; that’s when the breach occurred,” said Vocelle, knowing the 2010 date is within the timeframe for legal action allowed by the statute of limitations.
But, O’Neill pointed out on Barth’s cross-examination, the developers had already eliminated site work from Croom Construction’s contract more than a year earlier.
“At the end of ’08, a conscious decision was made to remove the site work from the protocol,” said O’Neill. “This was when the economy was tanking and you had not found a tenant.”
“I don’t know if that had anything to do with the economy tanking,” testified Barth.
“Why did you take it out?” O’Neill persisted.
“I don’t remember,” said Barth.
O’Neill then took Barth back to the 2005 lease start date. “Did you complain to anyone prior to commencement date of the lease in ’05? Did you put anything in writing, ‘Hey, I don’t have a certification delivered to me’” that clean-up is complete?
“No,” responded Barth.
“If the breach is a failure to have a certificate of completion and compliance – if there was a breach, that’s when it occurred . . . in 2005,” O’Neill said.