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ITEM #23 REDEVELOPMENT AGENCY FOR THE CITY OF COLTON For the City Council and Redevelopment Agency Board Meetings of December 20, 2005 TO: Honorable Mayor and Councilmembers Honorable Chairperson and Boardmembers FROM: Candace E. Cassel, Economic Development Direct r SUBJECT: Consideration and Approval of City Resolution and Agency Resolution No. 850, Approving a Settlement Agreement by and Between the City of Colton, Redevelopment Agency for the City of Colton and Colton Non-Profit Housing, Inc. DATE: December 12, 2005 BACKGROUND Pursuant to a Disposition and Development Agreement (DDA), dated July 18, 1989, between the Redevelopment Agency, Cooperative Services, Inc. (CSI) as the agent, and Colton Nonprofit Senior Housing, Inc. (Colton Non-Profit) as the owner, the Colton Non-Profit entered into a contract with Turner Construction to build the 101-unit Colton Palms Senior Housing which was completed on August 6, 1991. In 1997, the building began to exhibit problems with the exterior cladding or "skin." Given the Agency's relationship to the project and it's obligation at that time to fund any debt service, it agreed to be a party to litigation against the contractor and architect. In 1999, Colton Non- Profit and the Agency initiated litigation against Turner Construction and Valerio Architects. A claim against Valerio Architects was settled and final payment of $247,519.48 was received by the Agency in February 2002. In early 2003 the lawsuit with Turner Construction was settled with payment of $5,500,000 to Colton Non-Profit and the Agency. The Turner Settlement Funds were deposited into an interest bearing client trust account of the law firm of Best Best & Krieger LLP ("BB&K"). On April 5, 2004, the Agency and the City filed an action against Colton Non-Profit in the Superior Court of the State of California, County of San Bernardino (the "Court"), entitled Redevelopment Agency for the City of Colton v. Colton Non-Profit Senior Housing, Inc., Case No. SCV SS114148 (the "Agency's Action") to determine (1) ownership and control of Colton Palms, and (2) ownership of the Turner Settlement Funds and earned interest. On July 13, 2004, the Agency filed an amended complaint (the "Amended Complaint") asserting an additional claim for breach of contract and seeking specific performance of its purported right to purchase Colton Palms pursuant to an option provision in the Disposition and Development Agreement dated July 18, 1989. R:�AdministrationuVleetings�2005 MEETINGS�December 20, 2005\Colton Palms Settlement Agreement Staff Report.doc