Foes lose on State Center deal

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Maryland’s top court has cleared the way for the $1.5 billion State Center redevelopment after finding the project’s opponents waited too long to challenge the procurement process.

The Court of Appeals said Thursday that opponents of the plan, a group of downtown business and property owners funded in part by attorney Peter G. Angelos, “slumbered unreasonably in asserting their claims.”

The decision vacated last year’s ruling by a trial judge, who found the project had not been competitively bid.

Opponents filed their lawsuit in Baltimore City Circuit Court in December 2010 stemming from the selection of the master developer, State Center LLC, which was announced by then-Gov. Robert L. Ehrlich Jr. in 2006.

Judge Glenn T. Harrell Jr., writing for a unanimous Court of Appeals, called the delay “unreasonable and unjustified” and that it caused the state and developers to waste “substantial public funds.”

“Although we recognize a taxpayer’s interest in the State complying with the competitive bidding and other requirements set forth in the Procurement Law, when obliged to do so, the taxpayer cannot delay bringing suit in such a way that would cost the taxpayers even more money if the complaining taxpayer was right,” Harrell wrote near the end of a 161-page opinion.

Caroline G. Moore, CEO of Ekistics LLC, a managing member of State Center LLC, said she was thrilled with Thursday’s decision and is eagerly anticipating starting the first phase of the project.

“We’re just incredibly thankful that the Court of Appeals operated so expeditiously and in our favor,” Moore said. “They could have taken a lot longer time and they didn’t. They ruled quickly and wrote a great opinion and we’re really elated that they came out on our side of the fence.”

The Court of Appeals heard the case in October, bypassing the intermediate Court of Special Appeals.

David E. Johnson, chairman of the Coalition to Save Downtown Baltimore, reiterated in a statement opponents’ belief that the project was never competitively bid.

“To say we should have brought suit even before there was a binding development agreement with the State is difficult to understand,” he said.

Conceived in 2005 as a transit-oriented mixed-use development, State Center was an attempt to revamp 1.5 million square feet of old state office space on the city’s West Side. But a managing member behind State Center LLC, Struever Bros. Eccles & Rouse, withdrew in 2008. Rather than rebid the project, the state replaced the original development team with Ekistics in 2009. Moore had been chief operating officer for public-private partnerships under Struever. The switch prompted opponents to file suit.

Baltimore City Circuit Judge Althea M. Handy ruled in January 2013 that the state violated procurement laws by failing to competitively bid the project.

Lawyers for the state said they had signed a 75-year ground lease for the redevelopment, which made competitive bidding unnecessary.

David Paulson, a spokesman for the Office of the Maryland Attorney General, said the agency was still reviewing the opinion and declined to comment.

The Court of Appeals did not rule on whether the procurement process applied; instead, it held the delay in starting the litigation was the “fatal flaw” of their argument.

The state issued a public request for qualifications to solicit a master developer in 2005, an interim developer agreement was approved in December 2007 and the master development agreement was entered in May 2009, according to the opinion. But at each stage, opponents “continued to bide their time,” Harrell said.

Challenges to the selection of the developer were “justiciable” by no later than March 21, 2006, when Ehrlich announced State Center LLC as the master developer, Harrell said.

“The State was open and transparent with the entire ‘unique’ procurement process,” Harrell wrote. “The local newspapers covered the matter extensively. If the announced process was illegal, Appellees could have — and should have — brought their complaints on that score to court sooner than they did.”

Judge Lynne A. Battaglia joined the opinion in judgment only. Retired Judge John C. Eldridge heard oral arguments but did not participate in the decision or adoption of the opinion.

The plaintiffs, which do not include Angelos, have argued the development would cause a mass exodus of state government jobs and create massive vacancies in the city’s central business district. Alan M. Rifkin of Rifkin, Weiner, Livingston, Levitan & Silver LLC in Annapolis, who represents the State Center opponents, referred to statements from the plaintiffs for comment.

However, Michael J. Edney, a lawyer for State Center LLC, said the ruling is good for Maryland businesses and the state because it provides assurance that a project can move forward confidently with only a finite period of time for the possibility of litigation.

“When you’re challenging details of a contract with the state, you need to bring these claims promptly,” said Edney, a lawyer with Steptoe & Johnson LLP in Washington, D.C.

Moore, the head of the development, said she and her team are ready to pick up with the project where they left off.

“Ever since 2005, when we first started with project, all we wanted to do was take an obsolete, kind of desolate office project, and convert it into a mixed-use vibrant community,” she said.

Kevin Harris, a spokesman for Mayor Stephanie Rawlings-Blake, said the city will continue to work with all parties to move the project forward.

“The State Center development project will transform the area into a tax generating, mixed use, transit oriented development,” he said in a statement.

But Bonnie Scible, owner of The Peanut Shoppe on North Charles Street and a plaintiff in the underlying litigation, said she remains concerned about how the redevelopment will affect her small business, which has been operating for 80 years.

“I honestly have never understood why we need more office and retail space when the vacancy rate is so high in the downtown district,” she said in a statement.

Johnson, of the Coalition to Save Downtown Baltimore, said a vibrant downtown is critical to the city’s future.

“Now the most important thing is for the City and State to commit to programs and policies that reinvigorate the downtown business district,” he said in a prepared statement.

Daily Record business writer Adam Bednar contributed to this story. 

WHAT THE COURT HELD

Case:

State Center LLC, Et Al., v. Lexington Charles Limited Partnership, Et Al. CA No. 12, Sept. Term 2013. Reported. Opinion by Harrell, J. Argued Oct. 3, 2013. Filed March 27, 2013.

Issue:

Do appellees have standing to challenge the state’s procurement process for the State Center project?

Holding:

Yes; appellees have standing but they waited too long to challenge the procurement process.

Counsel:

Julia Doyle Bernhardt and Michael J. Edney for petitioners; Michael D. Berman for respondents

RecordFax # 14-0327-01 (161 pages).