Freeport Wins Small

Thousands and Thousands of Dollars

"They left off some zeroes." That was the reaction of FM Properties attorney Roy Minton immediately after the Wednesday verdict in the company's federal lawsuit against the City of Austin. FM Properties (FMP), a subsidiary of Freeport-McMoRan, filed the suit last October under the Federal Civil Rights Act, claiming that the city had violated their Fifth and 14th Amendment rights through an "arbitrary and capricious" temporary "taking" of their property - some 4,000 acres near Barton Creek, most of it in the Barton Creek watershed, and all of it in the Barton Springs Contributing Zone. FMP sought $75.55 million in damages. After two days of deliberations, a jury decided that the city had indeed been "arbitrary and capricious," but awarded FMP only $113,888 in damages. Judge James Nowlin accepted the verdict and released the jury.

This was the lawsuit that so terrorized the city council that they came within one vote of approving FMP's Barton Creek PUD and granting it city sewer service. Now the council will argue over whether to appeal this almost nominal judgment. City Attorney Andy Martin has recommended an appeal, but Mayor Bruce Todd has already announced his opposition, on fiscal grounds. Councilmember Brigid Shea is leading the pro-appeal forces on the council; a vote on the matter could come as soon as next Thursday (May 25).

Still contested are attorneys' fees, which both sides are asking that the other pay. Nowlin will make that decision. Minton says his firm's bill is in the "high sixes [figures]," while city legal fees will exceed $600,000.

The verdict is a loss for the city, and it could possibly spur other lawsuits, although each plaintiff would have the heavy burden of proving "arbitrary and capricious" behavior. The biggest loser in the trial, however, is probably Jim Bob Moffett, CEO of Freeport-McMoRan. Anything short of council approval for city sewer service, which could have been forced by a larger damages award, was a loss for Moffett. Minton will ask the judge to issue an order saying FMP can develop its current proposals under the 1991 composite, as it has sought, but that does not come near solving Moffett's problems. Moffett admitted during the trial that he needs commercial development to make his residential sections work financially. Those commercial sections need wastewater service (read: a city sewer), and most require zoning approval from the council. One would think Freeport might be greeted with a surly city council if they trot down to request their sewer service now. Also, FMP faces a $74 million debt balloon payment in January, and has warned shareholders that they will likely have to refinance or sell assets to meet the debt.


The Buildup

FMP's specific complaint in the suit was against the city's decision, in November of 1993, to impose the tougher Save Our Springs (SOS) water quality ordinance on The Falls, a 25-acre tract proposed for condo development. City staff determined that the company's site plan for The Falls, filed under terms of the 1991 "composite" watershed ordinance, was incomplete, and that the company failed to meet city deadlines. The staff ruled that any future filings on The Falls would come under the tougher SOS ordinance, passed by citizen initiative and referendum in August, 1992.

FMP claimed that imposing SOS was a violation of Texas House Bill 4 (HB 4), a 1987 bill pushed by Austin suburban development interests, that says a development project stays under the same rules that were in place when it was originally filed. The City of Austin, like several other cities around the state, interprets HB 4 to mean that if a project application expires or is rejected, future filings on that property must comply with rules in place when a new application is filed.

The city argued that The Falls site plan was the only FMP application ever rejected by the city, and the only part of the development to which the city ever tried to apply SOS. FMP's subdivision applications for the rest of their 4,000 acres were approved under terms of the weaker 1991 composite ordinance, as were site plans for a water treatment (not wastewater) plant and a commercial development proposal along Bee Cave Road. FMP, the city has pointed out in court, has yet to file site plans on most of its commercial properties.

The case was elevated to the federal level because FMP claimed that the city violated their constitutional rights through "arbitrary and capricious" behavior, meaning that the act was done "for an improper motive," for "no legitimate reason," and was "lacking in any conceivable rational basis." The jury also had to be convinced that the city's actions "were the legal cause of the plaintiff's damages."

It was a heavy burden of proof, but the city had its own burdens. One was a tradition of losing major lawsuits - often seeming to surrender before they began, but going through the motions anyway and incurring huge legal fees. Examples of this strategy were the disastrous lawsuit against Houston Lighting & Power, managing partner of the South Texas Project nuclear plant, and the more recent debacle of the SOS trial in San Marcos, the Hays County seat. Those trials were also examples of another city legal tradition - getting stomped by Roy Minton. Hometown boy Minton represented both HL&P and several plaintiffs in the SOS suit.

Further complicating matters in this trial was the fact that Minton represented Judge Nowlin a few years ago when he got into trouble for his actions during a redistricing lawsuit in his court. Nowlin was reprimanded by a panel of three fellow federal judges after a Republican state representative from San Antonio was allowed to get on a computer in the judge's office and redraw a voting district.


Pre-Trial

It was against this backdrop that the city headed into court, but this time they hired more aggressive lawyers than usual - specifically, the firm of George, Donaldson & Ford. (The firm, incidentally, also represents The Austin Chronicle and the Austin American-Statesman.) Partners Jim George and David Donaldson shared courtroom duties on the city's behalf. Despite their best efforts, though, the city took a drubbing in pre-trial motions. Nowlin ruled that the city's interpretation of HB 4 was "invalid," citing the ruling of the Hays County Court in the SOS case (which is on appeal). This all but amounted to instructing the jury that the city was guilty, and asking them to determine only whether the city was so guilty that FMP's civil and constitutional rights were intentionally violated.

More in the city's favor, Nowlin ruled that damages, if any occurred, would only accrue from November, 1993, when The Falls site plan was rejected. He turned down a city request, however, that testimony be limited to The Falls. Instead, the judge favored Minton's argument that the jury needed to look at the bigger picture of the entire FMP tract; testimony throughout the trial, therefore, ranged throughout the company's 4,000 acres. Nowlin also ruled against a request for intervener status by the SOS Legal Defense Fund, after Minton argued that the trial only concerned the 25 acres and had nothing to do with SOS. During the trial, however, Minton frequently discussed SOS, as well as the entire 4,000 acres.


Jim Bob Testifies

The trial itself kicked off with jury selection and opening arguments on Monday, May 8. The next day brought the first witness, Freeport-McMoRan CEO Jim Bob Moffett. Entering the courtroom flanked by body guards, it was a warm and friendly Moffett who testified under direct examination from Minton. He invoked his mother and his Southern upbringing, and explained to the jury that he was keeping the microphone at a distance because he didn't want to "boom" them.

Minton led Moffett through virtually the entire plaintiff's case. Moffett seemed to know every detail of his company's operations. Before buying the property, Moffett said, he sent in a "due diligence team" to determine what the city wanted in the area. He hired local development attorney David Armbrust, who advised him to seek a Planned Unit Development (PUD). The company worked closely with city staffers, and did everything asked of them, explained Moffett. It was a two-year, $3 million process that resulted in city management and five city boards and commissions recommending approval of Freeport's PUD.

But, testified Moffett, when the PUD made it to the city council agenda on June 7, 1990, a large crowd of emotional rowdies bullied the council into rejecting the two years of work. The CEO testified that he even met with then-Mayor Lee Cooke at 2pm on the day of the council vote "to make sure everything was as we had discussed for the past two years."

To bolster claims that the council rejected reasoned officialdom in favor of maniacal citizen emotion Minton showed a video of clips from the June 1990 hearing. The video began with Planning Commission chair Scott Roberts urging the council to approve the PUD. He was followed by clips of: a speaker ridiculing developers for wearing neck ties too tight and cutting off circulation to their brains; another comparing developers to Hitler; a "scientific" analysis that "stuff runs downhill;" an unemployed council regular who said he would pass up a job if it meant destroying Barton Springs; a woman who described golf courses as "repulsive" and "the earth whipped into submission for these men;" a man whom Cooke told to watch his language; and a gentleman who led the crowd in the football chant of "hold that line."

Nonetheless, after an all-night hearing, Cooke joined the rest in voting against Moffett's PUD. How did it all make Moffett feel, asked Minton. "I've never been more surprised or disappointed in my life."

After that, testified Moffett, the city dragged him through a torturous series of water quality ordinances which shut down development: the November, 1990, moratorium on development applications in the Barton Creek Watershed; the six-month "interim" ordinance passed in February, 1993, whose interim status kept Moffett shut down "because we didn't know what was coming," the two-month extension of the interim, the October, 1991, passage of the "composite" ordinance under which Moffett's company filed its 13 subdivisions; and finally the SOS ordinance, passed through initiative and referendum by Austinites unhappy with the weaker composite ordinance.

Moffett closed his testimony with a rambling sermon addressed directly to the jury. He concluded with, "I pray that this jury will do the right thing and rule against the city." It wasn't the first time Moffett was allowed to ramble well beyond the normal question-and-answer testimony format, but other than that he maintained his warm and friendly approach to the jury.

Moffett's demeanor changed quickly, however, once the city's lead attorney on the case, Jim George, started asking less-than-loving questions. Moffett frequently lectured George, attempted to belittle the attorney for being unable to "understand," and laced his testimony with comments such as "I'm going to explain it to you again, and I don't want you to make any more mistakes." Moffett even "objected" to questions, a privilege usually reserved for attorneys.

George began by drawing admissions from the CEO that his companies have to deal with changing regulations in their operations around the country, changes in regulations imposed by state legislatures and the United States Congress. Moffett also had to admit that most of FMP's commercial properties don't currently have wastewater service available, and that a potential buyer of one large tract along the Southwest Parkway, Tokyo Electron, withdrew from negotiation in part because of lack of sewer service. Moffett also acknowledged that he was aware of the city's interpretation of HB 4 before buying the property.

Finally George played his ace. Drawing an admission that FMP had negotiated with Richard Rainwater's Crescent Company about a potential sale or partnership relationship on all of FMP's Texas properties, George introduced a letter from Freeport to Crescent. It claimed that "each of the partnership assets are performing well at this time."

"Is that true?" asked George.

Moffett said that the next sentence had to be read to put the matter into "context." He set his own trap. That sentence maintained: "We have endured a lengthy entitlement process [in Austin] which is now behind us."

"Was it behind you?" demanded George.

Moffett vaguely replied that it would be behind him if he had been granted what is in the permits.


Life After Moffett

The trial never again reached the dramatic high points of Moffett's appearance, but in general, there was enough excitement to keep those in the gallery awake. Minton pounded city staff witnesses repeatedly by reading his favorite sections of HB 4 from an enlarged copy of the law: "An application for a permit shall be considered by each regulatory agency solely on the basis of any orders, regulations, ordinances, or other duly adopted requirements in effect at the time the original application for the permit is filed."

City attorneys fought back with arguments that the Legislature couldn't possibly have meant that the laws in effect in 1991 should stay in effect until 2025 (the completion date of the PUD). They argued there were honest differences over the meaning of the word "endeavor" in the law's definition of "project," which was "an endeavor over which a regulatory agency exerts its jurisdiction." The city called a municipal law expert from San Antonio, who testified that cities around the state had similar interpretations. And they argued that even if wrong, the interpretation was not done intentionally to harm anyone - especially not to harm FMP, who weren't even in Austin when the interpretation was first made after HB 4 passed in 1987.

City officials who testified, largely seemed to avoid the horrendous blunders and snares that helped sink the city in the SOS trial in Hays County. Mid-level city Planning Department employees Mapi Vigil and Amalia Sondgeroth seemed particularly effective. Vigil, the case manager on The Falls application, testified that the site plan application was "very incomplete." Vigil said she discussed rejecting it on those grounds with her boss, but it was decided not to do so. Sondgeroth testified that the two final plats in this case were approved in three months, compared to the city's normal processing time of five to six months. Minton declined to cross-examine Vigil and only questioned Sondgeroth briefly.

Mayor Pro Tem Max Nofziger waxed on why it is necessary to protect Barton Springs, but ran into trouble on cross-examination when Minton introduced a letter from Nofziger and former Councilmember Smoot Carl-Mitchell in which they urged support of the 1990 moratorium on development in the Barton Springs area, and bragged that it would force developers to refile site plans without appeal to the Texas Water Commission. "I guess someone could have sued us," Nofziger offered under questioning from Minton.

"Someone has," snapped Minton.

Nofziger also may have hurt the cause when he acknowledged to Minton that no development in the area "would be best." City attorneys did not try to reconstruct this by getting Nofziger to explain that of course he wouldn't try to stop all development because the council doesn't have the legal authority to do so.

The top performer for FMP was probably lawyer/lobbyist David Armbrust, who radiated the sincerity he is famous for at City Hall. Among other things, Armbrust testified to the alcohol on the breath of speakers at the June, 1990, hearing, described his volunteer service on the mayor's task force which helped develop the "non-degradation" composite ordinance, and testified that the SOS campaign was based on inaccuracies.

The worst debacle for the plaintiffs was probably the testimony of FMP's young appraiser, Bo Armstrong. George got Armstong to admit that his appraisals, used to estimate damages, were based solely on income projections from anticipated future activites, and that they "ignore what has gone on" and were "not based on what actually happened." Among other things, Armstrong acknowledged that he did not do a comparision of similar markets (though a very similar one existed at the Lake Austin Country Club), and that he did not include revenues from sale of Freeport property on their Lantana tract, purchased in 1993. According to Armstrong's testimony, FMP has made back half of their $7 million purchase price from selling 75 of the 738 acres, even though the property is subject to SOS and/or the new composite ordinance passed last fall by the council.

Armstrong was followed by Dr. George Berry, who was hampered by the admission that he used Armstrong's numbers to get his damage figures. Those figures were: $75.55 million if it were determined the whole tract were affected; $746,500 for The Falls; and $5 million for the subdivision containing The Falls.

The city later called appraisers who did market studies, and came up with much lower figures. An appraiser testifying for the city also concluded that the entire property had more than doubled in value since an endangered species permit was obtained and road district financial problems were solved.

Finishing out the trial for the city was Councilmember Gus Garcia, who proved to be one of their strongest witnesses. Exuding a dignified air, Garcia described how environmental neglect has led not only to ecological and economic disasters, but also to the loss of human life in the Memorial Day floods of 1981. Minton's approach to cross examination of Garcia was testimony to the councilmember's effectiveness. The attorney pointed out that he and Garcia "go way back," and avoided any direct attacks. He instead pointed out that Garcia was an elected official who had to respond to pressure from his constituents.

Garcia slipped in some information that Minton surely didn't want on the record, and that city attorneys had chosen not to include. Minton, more in the form of a statement than question, said that Moffett has never done anything to hurt the aquifer, has he? Garcia dodged the question, but offered that one thing did concern him: Moffett's 1992 threat to "bankrupt Austin."

Minton scrambled back with an explanation that this statement came after the city council had turned down a development agreement that "everybody, everywhere" said should be approved. When Garcia left the stand, the defense rested. After one more low-key plaintiff's witness, Nowlin sent the jury home for the weekend.


Drawing to a Close

On Monday afternoon, May 15, closing arguments began before a packed gallery. Several times, Minton termed the June, 1990, hearing as a "mob scene," and as "a political outcry based on no evidence at all." The PUD was turned down that night, he said, "for reasons that have nothing to do with protecting the water quality." He invoked the "Smoot-Nofziger" letter again and, slapping the podium, said it stopped development "dead in its tracks." In a mocking voice, Minton then reminded the jury that Nofziger had said no development "would be best." He also went through his favorite parts of HB 4 again, and finished with half an hour left for rebuttal.

In his closing remarks on behalf of the city, George told the jurors that the fate of "democratic government in Austin" was in their hands. Changing rules and regulations, said George, are part of the world in which we live. He reminded the jury that Moffett had threatened to "bankrupt" the city, but said this went beyond that, too. Reminding the jury that to rule in FMP's favor required ruling that the city intentionally violated the company's constitutional rights, George implored, "I ask you who did that? Mr. Nofziger, Gus Garcia?"

He closed by calling Minton "a great lawyer," but entreating the jury, "Each of you must decide in your own heart whether Mr. Moffett will be able to punish us all just because he didn't get his way."

Donaldson followed with a largely technical review of the evidence. Among other things, he summarized the city's defense of its HB 4 interpretation, reminded that FMP turned in an incomplete development application for The Falls, and ended with a plea that cities must be able to use modern environmental methods.

Minton then used his final 30 minutes to basically retry the SOS case in Hays County where, he explained, he had represented "Mom and Pop" landowners affected by SOS, including an 84-year-old woman. He said colleagues tell him he is "crazy" to represent a big corporation, because CEOs like Moffett don't get much sympathy. "Please, please, please, close your eyes," Minton begged the jury, and envision the FMP stockholders - the pensioners. Make things right for them and award them "millions and millions."

But after a day and a half of deliberation, the jury came back with a verdict awarding thousand and thousands.


What Now?

So what's next for Freeport? The company's traditional approach has been to seek a development agreement that includes city sewer service. After they've dragged the city through this process, however, it will be difficult for even the company's most ardent backers on the city council to argue in favor of a development agreement. In the past, agreement initiatives took place with some threat of imminent doom, such as the specter of a huge legal settlement. Now, the only terror left is the Texas Legislature, and even those stalwarts of democracy can't give Freeport the sewer service they need. Nor can the Lege grant commercial zoning changes on their property. Nor can they cover FMP's impending $74 million debt payment.

So Freeport won. Or did they?


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