N-Shea Group, the developer of the Park Place complex on Avenue of the Fountains, has filed a complaint against the Town of Fountain Hills in Maricopa County Superior Court. The complaint alleges the Town has acted in bad faith and breach of contract in its dealing with the developer’s request to extend the time limitation for the start of construction on Phase II and Phase III of the downtown development.

The suit was filed in Superior Court June 15, by Snell & Wilmer attorney Colin Ahler on behalf of N-Shea Group and company principal Bart Shea.

The development agreement (DA) for Park Place was originally approved by the council in June 2016. The deadline set in the agreement for the developer to obtain permits for construction of all phases of the three-phase project was June 16, 2022. Phase I construction was complete in 2018. No discussion occurred regarding the additional phases until late 2021.

According to the complaint, COVID-19 and efforts in obtaining a new joint-venture partner for the project caused delays in moving forward.

There are five counts to the complaint.

Count I is declaratory relief – plaintiff’s compliance with the DA (development agreement) and development schedule.

“By submitting the grading permits application on the forms required by defendant, plaintiffs have complied with all of their obligations under the DA and the development schedule.”

The plaintiff also believes that the Town intentionally worked to “run out the clock” on the DA and terminate the agreement. They cite information received from three members of the Planning and Zoning Commission for this belief.

“Defendant disputes that Plaintiffs have complied with all of their obligations under the DA and development schedule and instead seeks to run out the clock on the DA by failing and refusing to process plaintiff’s grading permits application on or before June 17, 2022.

“Plaintiffs are informed and believe from three P&Z members that defendant wants to run out the clock on the DA. This is further evidenced by many statements of the Town Council expressing animus towards the DA or plaintiffs, or the defendants’ continued efforts over the past several months to impose arbitrary roadblocks to prevent construction from commencing on or before June 17, 2022.”

The complaint names P&Z Chairman Peter Gray, Vice Chair Scott Schlossberg and Commissioner Susan Dempster as the source of those comments.

Count II is for “Anticipatory Breach of Contract.” Arizona recognizes this doctrine as “one party unequivocally indicates he will not perform when the date arrives, an anticipatory breach is committed.”

“Defendant has…unequivocally indicated that it intends to treat the DA as terminated on June 17, 2022.”

This is the case even though plaintiffs have submitted application for at-risk grading permits, which plaintiff was led to believe was adequate to maintain the timeline, according to the complaint.

Count III is breach of contract.

The complaint states, “defendant refused to process plaintiff’s grading permits application, arbitrarily refused to grant plaintiffs any extension of the DA despite the COVID-19 pandemic and plaintiffs’ good faith efforts to comply with the DA and development schedule, and otherwise making it impossible for Plaintiffs to comply with the development schedule.”

Count IV is breach of the implied covenant of good faith and fair dealing.

In taking the position that plaintiff’s submittal of the grading permit application does not satisfy the DA and development schedule, defendant has breached the implied covenant of good faith and fair dealing, according to the complaint.

“Among other things, acting to prevent plaintiffs from commencing construction on or before June 17, 2022, and arbitrarily denying plaintiffs any extension of the DA and development schedule…and efforts to comply with the DA and development schedule.”

Count V is a request for a temporary restraining order/preliminary injunction/permanent injunction.

“Plaintiffs seek a temporary restraining order, preliminary injunction and permanent injunction extending the DA by at least 60 days from the date of this order. Plaintiffs further request that the court’s order require the parties to cooperate in good faith to obtain the approval of all permits and plans required by the DA.”

The complaint is asking the court to find on behalf of the plaintiff and award attorney fees and costs as outlined by the DA and state statute. Also, any further relief as the court may deem just and equitable.

Response

As part of pending litigation, Town officials have declined to comment on the case since the filing of the suit. However, part of the record presented by the plaintiff’s attorney is a letter from Town Attorney Aaron Arnson to Colin Ahler, the attorney representing N-Shea Group. The letter is dated June 7, 2022.

The letter states that in part, “The developer’s assertions are baseless, and the Town declines to reconsider the denial of the request for an extension. You are aware that the DA provides the ‘Developer…the right to implement development of the Property… for a period of six years after the effective date at which time the agreement shall automatically terminate as to the property…’ DA, Section 2.

“The DA further provides that: ‘developer shall perform all of its duties… in accordance with the development schedule…As long as the developer is using commercially reasonable efforts to adhere to the development schedule, the Town shall consider developer’s requests for modification of the development schedule in order to allow developer to construct certain Phases…based on then-existing market conditions and market demands. In no event shall construction on any Phase commence more than six years following the effective date of this agreement. Developer’s failure to timely perform its obligations as set forth…shall constitute a breach of this agreement and shall cause the immediate termination thereof as set forth in (the DA).’”

Arnson further states in the letter, “The developer’s arguments are without basis in fact or law. First, the Developer’s reliance on Section 6.2 of the DA is misplaced. That section provides that the council ‘shall consider’ modifications to the development schedule, assuming the developer is using commercially reasonable efforts to adhere to the development schedule.

“Nothing in that language …compels the council to grant an extension or a modification or the development schedule. The DA says that the council ‘shall consider’ modifications – not ‘shall grant’ modifications. So long as the council ‘considers’ the modification to the development schedule, which it did, the council cannot have violated the DA.”

The letter continues, “The reality is that developer has had the DA in place for nearly six years but failed to exercise its rights thereunder in a timely manner, and it is now blaming the Town for its own inaction.

“Following completion of initial phases in October or November 2018, the Developer waited over two years, until late December 2020 or early January 2021, to even contact staff about proceeding with the remaining phases of the project. The developer chose not to submit its set of plans until November 21, 2021, knowing fully the time limitations on this project.

“Now, the developer is attempting to cast the Town’s actions – which have included countless accommodations to the developer and meeting the developer’s requests to address the council no less than four times in three months – as evidence of bad faith to try to force the council into granting an extension.

“The Town will not be pressured into granting an extension that the council is not legally required to grant and that, frankly, would not be necessary had the developer diligently pursued completion of the project. Unfortunately for the developer, the decision to wait until the last minute has created an urgent situation for which the Town is neither responsible nor liable.

“Your client simply waited too long to submit plans for the final phases of the project. Once it finally did so, it submitted incomplete plans that did not comply with the DA and/or underlying zoning requirements, and, after it ultimately course corrected and secured commission and council approval, realized it could not get the work done in time to commence construction and prevent expiration of the DA.”