Commercial Contract Law: A Runaway Train in California

Victorville, CAA commercial contract between the City of Victorville, in California and the developers of a planned hi-speed train has raised the hackles of an investment company that had recently purchased land near the project, with an eye for some development of its own.

Niles LLC has filed a civil suit against Victorville, with the hope of invalidating an agreement that Niles LLC claims is both inappropriate, and illegal.

At issue are 430 acres of vacant land, which Niles LLC purchased along Interstate 15 near Stoddard Wells Road for nearly $20 million. The land straddles Victorville and Apple Valley, and the investment firm was planning to develop the property into various commercial projects.

However, unbeknownst to Niles LLC, the City of Victorville was drafting an agreement with the developers of the much-anticipated DesertXpress hi-speed train. According to reports, in exchange for agreeing to build a terminal for the train in Victorville, a team of three developers was granted exclusive rights via commercial contracts to plan and control 10,000 acres located in Victorville's Northern Triangle.

That agreement, which Niles LLC claims was drafted in a cloak of secrecy without provision for public, or business comment, severely limits—if not completely nixes—Niles' plans for their recently-acquired property, notwithstanding the corresponding, and immediate drop in value.

Niles LLC claims that under the agreement between Victorville, DesertXpress Enterprises, Transit Real Estate Development, and Inland Group, much of the property in question was rezoned for open space and transportation, which Niles claims lowers the value. It is alleged that the City of Victorville also froze development in the area, in an effort to prevent any competing projects that might be viewed as inconsistent with the developers' plans.

The City granted the development triumvirate a 20-year term on the agreement, with the provision for two extensions of five years each, suggesting that the hi-speed train developers could hold sway on the land for a total of 30 years, protected from competition.

Such an agreement, according to Niles LLC, is both illegal and morally reprehensible in that the preferred developers have been granted the opportunity for "very grandiose plans" on land they don't own.

According to court documents, Niles LLC claims that the City of Victorville granted "sweeping (and, in many aspects, illegal) array of benefits, development promises, and protections" to the private developers.

Among those promises that Niles LLC takes issue with are the granting of exclusive rights to any property the city's Redevelopment Agency acquires, with the City vowing to "take all actions permitted under its municipal authority to obtain property." Niles LLC fears this means eminent domain could be in their future.

Victorville also pledged to channel 50 percent of tax revenue back to infrastructure projects for the developers, to fast-track the development by dedicating City planning staff to the project, to limit environmental mitigation, and agreed that if any third parties receive more favorable terms than what the City agreed to, the City has to extend to the developers the same benefits.

On the flip side, such agreements between a municipality and the development community are not unheard of, according to a senior fellow with the Rose Institute of State and Local Government at Claremont McKenna College. However, Steven Frates agrees that some of the promises contained in the agreement between Victorville and its three developers are both controversial, and aggressive.

"Some people question whether it is good public policy to make these kinds of promises," Frates says, "or whether or not it is subsidizing private business."

A spokesperson for the City of Victorville stated he is confident the City will be vindicated in this commercial law case, in court.