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City could settle Home Builders lawsuit for $495,000

The city could end up paying $495,000 to settle an eight-year-old class-action lawsuit over the cost of building permit fees.

The lawsuit was filed in 2001 by the Home Builders Association of Kitsap County, and three local development companies owned by Andy Mueller, Richard Allen and Philip Werdal.

A preliminary settlement with the plaintiffs has been reached, the city said late Thursday. The settlement includes $165,000 in legal fees. The city council will decide next Wednesday whether to accept the settlement.

"This is a surprise," said council member Barry Peters. "We had discussed it, and I am pleased to hear that we have the opportunity to settle."

The plaintiffs contend that building service fees that were increased in 1999 were used, in part, to support the city's Affordable Housing Trust fund. And since those fees were not used entirely to cover the cost of processing building permits and services, they constituted an illegal tax.

The city initially won the case in 2005, after plaintiffs failed to provide proof of their allegations. However, an appeal filed later that year with the Kitsap County Superior Court, found that the lower court failed to place the burden of proof on the city.

Since that decision the lawsuit had been tied up in the courts, with the plaintiffs reportedly seeking damages that exceeded a million dollars.

Last month, the city and plaintiffs were ordered by the Kitsap County Supreme Court to participate in a settlement conference.

Richard Stephens, the attorney who filed the suit for the HBA, said last week that settlement talks were ongoing, but wouldn't comment further on the case.

Some council members are worried about how to cover the potential settlement costs in light of the city's financial situation.

The city is on track to end the year with roughly $1.8 million in tax supported funds and reserves. But that number depends on a multitude of factors including a stabilization of the economy and the sale of over $800,000 in surplus city land.

"Given our present cash-flow problems, I am very concerned about how we're going to pay for this, and that is the honest truth," said council member Bill Knobloch. "We're either covered or we're not, and I'm not sure that we are on this."

The city is covered by the Washington Cities Insurance Authority (WCIA), and pays premiums into the insurance pool on an annual basis.

In the past, the WCIA has covered some settlement costs, but it is not certain what the WCIA will cover in this particular case.

Lew Leigh, the director of the WCIA said that the organization doesn't usually cover settlements pertaining to fees.

"No one is going to cover a lawsuit that only involves fees, that is not what insurance covers," Leigh said. "I would bet the city knows that, and if the city is settling that doesn't involve insurance."

Peters said his vote on the issue will hinge on whether the insurance pool will cover all, or a portion, of the settlement.

"That's the key question," he said. "Is any of this covered by our risk management pool."

Today is a city staff furlough day, and administration officials were not available to comment on the potential settlement.

The lawsuit is expected to go into a two-week trial beginning on Aug. 3, if the city council doesn't approve the settlement.

The potential settlement also comes at a time when the city is looking to increase building fees.

Earlier this year the council directed the city to raise building service fees to bring them more in line to cover staff overhead relating to processing those services. The city has long contended that it subsidizes building services from the tax-supported general fund.

While the settlement would protect the city from further litigation over building fees leveraged between 2001 and 2007, another increase the building fees could spark a lawsuit down the line.

"If the city went and doubled the fees, that's a new circumstance and it's conceivable that someone could bring a case forward on a different set of facts," Peters said.

This version corrects an earlier version that referred to the "Kitsap County Supreme Court". It is actually the Kitsap County Superior Court.

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