The company behind a defunct redevelopment project in the Bayside neighborhood of Portland is suing the city for its decision to seize part of the site by eminent domain without offering what it says would be a fair payment.

Federated Cos., which the city chose in 2011 to develop 3.25 acres of city land on Somerset Street, filed suit Thursday in U.S. District Court in Portland. The suit alleges the city violated both Maine and federal law with its decision to seize by eminent domain the “Lot 6” parcel at 59 Somerset St. and to pay just $10 each to three limited liability companies for the property.

The city’s actions “reflect a flagrant, willful, intentional, and wanton disregard for the Plaintiffs’ rights under the United States Constitution and the Constitution and laws of the State of Maine,” says the suit, which also includes Redwood Development Consulting as a plaintiff. It accuses the city of two counts of “taking without payment of just compensation” under Maine and federal law.

“The city believes the new suit is meritless, as the city complied in all respects with the law governing eminent domain in taking the Somerset Street lot for a longstanding and legitimate public purpose,” city spokeswoman Jessica Grondin said in an email Monday. “The taking was consistent also with the city’s vision and planning for the Bayside area, planning that has not changed and that dates as far back as the 2000 Bayside Vision documents.”

The suit comes as a federal judge also moved to dismiss a related lawsuit in which Federated accused the city in 2019 of breach of contract for a “years-long pattern of imprudence and obstruction” around the $85 million project.

Grondin said both parties agreed to drop the earlier suit to focus on the eminent domain issue and the development of the Somerset lot without the distraction of the earlier claims, including claims against former City Manager Jon Jennings, which were dismissed by the court with prejudice.

“The city’s decision to take our property without compensation is tantamount to theft,” Patrick Venne, an attorney for Federated and Redwood Development, said in a statement. “This blatant attempt to avoid performance under our various agreements by taking possession of the underlying land, while the matter was subject to active litigation, will ultimately be seen as the abuse of power that it is.

“These actions substantially expand our claims against the parties involved, and our decision to withdraw the previously filed complaint was, in part, driven by the city’s recent actions. Additional litigation is forthcoming, and these recent events have dramatically simplified the presentation of our arguments as well as our path to a full and complete recovery of our extensive damages.”

The city originally chose Federated to develop 3.25 acres of city land on Somerset Street in 2011. Its initial site plan, which included about 800 units of housing in four 165-foot towers, was approved in January 2014, but challenged in court by a group called Keep Portland Livable.

Federated scaled down the project to settle the lawsuit and received its site plan approvals in March 2015 to build three four-story apartment buildings and a parking garage at 59 Somerset St. The developer closed on the property in June 2016, paying the city $2.2 million, and had three years from receiving its site plan approvals to apply for and obtain building permits before that approval expired.

That deadline passed in March 2018, a month after the city said it denied Federated a building permit application because Federated had failed to pay more than $80,000 in traffic mitigation and other costs and did not post a required performance guarantee.

In its August 2019 suit, Federated said it invested millions of dollars in the mixed-use development project – but as the project shrunk in size, so did city support, ultimately leading to contractual failures, expirations of project approvals and denial of the building permit application.

The City Council in September voted unanimously to approve the seizure of the Lot 6, 59 Somerset St. parcel and to pay $10 to each of the limited liability companies for the land, citing an appraisal that said the lot had a “negative fair market value.”

The city had received a loan from the U.S. Department of Housing and Urban Development as part of the original project to help build a public parking garage on the site, a factor that was cited by councilors in their decision. Although the project approvals have expired, Portland taxpayers have continued to pay interest on the $8.2 million federal loan. As of July, the city had paid more than $784,000 in interest, including nearly $633,000 in interest toward the garage, according to the city’s finance director.

“This isn’t something we do a lot,” Mayor Kate Snyder said at the September meeting. “There was a commitment (for a parking garage) made to the community, whether you were on the council or not. I look forward to making good on that commitment.”

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