Paradise Lost

A $500-million resort planned for the shorelines of Trenton and Gibraltar was well on its way to being approved until U.S. Rep. John Dingell, key federal regulators, environmental groups, and others drove the development team into bankruptcy.


Published:

In 1996,

 

a group of five Detroit-based developers, all African-Americans, sought to develop 409 acres on the site of a former Chrysler plant, and on a small island called Humbug, into a $500-million master-planned resort that would straddle the shorelines of the Downriver cities of Trenton and Gibraltar. The project, which — according to an independent study — would have generated an economic impact of $900 million when fully built out, was to include 350 single-family homes, a nine-hole golf course, a private bridge, 54 acres of protected wetlands including an area called Humbug Marsh, a marina, and a 25,000-seat amphitheater, along with commercial offerings.

Named Gibraltar Bay, the project, designed to be comparable to higher-end developments in Traverse City or Petoskey’s Bay Harbor, was kicked off with great promise. It received numerous approvals from the two respective communities, along with some branches of state government. But the enthusiasm proved to be illusory.

Here, for the first time in this DBusiness exclusive report, is the developer’s story of how federal and state government leaders took it upon themselves to halt the project dead in its tracks, with apparently no concern that it would hasten a private company to declare bankruptcy.  

What the Detroit-based development team — known as Made In Detroit — didn’t know at the time it acquired the property in 1996 was that it was treading on ground considered sacrosanct by environmental groups and influential allies in key government regulatory positions. And the property was regarded as near-sacred by powerful U.S. Rep. John Dingell (D-Dearborn), who represents the region and made no secret of the fact that he considered it his personal mission to preserve Humbug Marsh and the surrounding area, including the former Chrysler site, as a nature and wildlife refuge.

In most cases, when government seeks to acquire ownership of privately owned land for public use, it commences condemnation proceedings and ultimately must pay fair-market value for the land. In this case, a decade-long struggle and years of regulatory delays drove Made In Detroit into bankruptcy court. Even there, every reorganization option it proposed was rejected — until the property was finally sold out from under the investors to a private conservancy, which then flipped it to the federal government a year later.

Listen to Editor R.J. King discuss the story on The Craig Fahle Show // Click Here

Is this the end of the story? Not for Made In Detroit, which suspected not only the government’s abuse of its regulatory power but also racial animosity. Above all else, the developers were incensed at Dingell’s extensive personal involvement to use seemingly any means necessary to deny the company the required permits until they simply no longer could afford to operate.

There is no evidence that Dingell and his allies sought to condemn the property, which would have necessitated the government to pay fair-market value for Made In Detroit’s land. Rather, Dingell sought to deny or delay regulatory approvals to stymie the project, even demanding that public officials reopen public hearings and take as much time as possible in reviewing procedural issues. 

In mounting a counterattack, the developers did more than fight City Hall. They fought the federal government. They did so in a little-known court called the U.S. Court of Federal Claims, where hardly anyone ever wins — of $73.2 billion claimed in 2010 (FY), just $903 million was awarded, meaning 1.2 percent of claims received a monetary award, according to the latest court data available.

“Like anyone up against what they determine to be an adversarial bully, we weren’t going to take it lying down,” says Bill Merriweather, a longtime developer and a Made In Detroit partner. “We fought back. We used the words, emails, and actions of our adversaries against them. It wasn’t pretty, but we were not to be denied.”

The company’s plan of attack was to lay its hands on an extensive trail of documents that would show collusion between regulators and environmental activists, in the middle of which was Dingell himself, who indicated to staff members — according to documents filed with the federal court — that he had hunted and fished the property as a youth. Court documents show those working with Dingell on the matter understood the land in question to be deeply personal to him.

The congressman’s actions included the recruiting of the Trust for Public Land, a private conservancy that agreed, at his behest, to act as an acquisition agent for the federal government by buying the land out of bankruptcy and conveying it a year later to the federal government.

 

None of this was apparent to the partners of Made In Detroit — who were encouraged by their early meetings with local officials of Trenton and Gibraltar, which created the impression they took a reasonable risk when purchasing the property in 1996. In fact, the mayors of Gibraltar and Trenton — a Republican and a Democrat — joined the Made In Detroit partners for meetings in Lansing to ensure everything was in order with state regulators. To hear Merriweather tell it, the partners had no idea what they were up against. But they found out when they visited Dingell at his office in Dearborn a few months into the approval process.

“I wish I’d had a tape,” Merriweather says. “John told us point blank, ‘I don’t care about jobs. I don’t care about helping the economy of Trenton and Gibraltar. The only thing I care about is the environment. Period.’ And the federal government did everything they could to sabotage this project.”

Dingell’s office has not responded to repeated requests over several weeks for comment on this story.

Merriweather says the Gibraltar Bay project, like similar developments, would have generated considerable economic activity and provided millions of dollars in future tax revenue. In fact, a well-known independent consulting firm commissioned by the development team had conducted a feasibility study and determined the project would have a healthy seven-figure annual revenue stream, including ticket, merchandising, and food and beverages sales from a 25,000-seat amphitheater that could be enclosed and made operational during the winter. Merriweather says the Palace of Auburn Hills had agreed in principle to manage the facility.

While early indications were positive, the opposition was brewing. One of the earliest and most vocal opponents of the plan was John Hartig, who at the time served in the federal position of river navigator for the Greater Detroit American Heritage River Initiative, which was established by presidential order. And Hartig had an important ally on the Trenton Planning Commission: his wife, Patricia Hartig.

Even that allegiance wasn’t enough to stall the project at that stage. “(She) was totally against it, but the planning commission approved the project and the mayor approved it,” Merriweather says. “We went down to the city of Gibraltar and the planning commission approved it there.”

As it stands today, John Hartig serves as refuge manager for the Detroit International Wildlife Refuge, which sits on what would have been the Gibraltar Bay development — the fulfillment of Dingell’s vision for the site. Hartig believes the preservation of the Humbug Marsh site was crucial to the area’s ecosystem. “There are 300-year-old oak trees in the middle of that site that were alive when Cadillac founded Detroit,” Hartig says. “The marsh is a spawning ground for yellow perch.”

With planning commission approvals in hand, along with zoning and site plan approval from each community, the development team was confident they would be able to steer the project through to completion. That was before they realized they were up against more than they had bargained for.

“When we first took control of the property, that was when we saw a very organized, very aggressive opposition start to form,” Merriweather recalls. The partners, he says, heard racial epithets shouted during a public hearing held at Gibraltar High School; they were escorted into and out of the meeting by local police.

 

“They (crowd members) told me to go back to Africa,” Merriweather says. “It was just raucous. You could see there was a lot of racial animosity to African-Americans developing in that area. We subsequently received all kinds of hate mail. We received two death threats, the first one of which we ignored. The second one we turned over to the Detroit Police Department.”

In spite of the death threats — for which no one was prosecuted — the partners moved forward and were determined to get the approvals they needed. That prospect diminished, however, when a Michigan Department of Environmental Quality (MDEQ) official described by Merriweather as “Deep Throat” stopped him and development partner Gerald Johnson in the parking lot before they entered a hearing.

“He told us there was no way the MDEQ was going to give these black developers a permit,” Merriweather says. “He said, ‘The only way you’re going to get around this is if you’ve got some high-level political clout.’ ”

To that end, the partners requested a meeting with then-Gov. John Engler. With the mayors of Trenton and Gibraltar in tow, Merriweather and his partners traveled to Lansing for a meeting with Engler in mid-1998. When Engler asked what he could do to help, Merriweather says he simply asked the governor to direct the MDEQ to evaluate the project on its merits. “He called the head of the MDEQ and requested his immediate presence,” Merriweather recalls. “The guy was redder than a beet. He got his marching orders. And so we actually got a permit (soon afterward) from the state of Michigan to proceed with our development.”

Engler, who is now president of the Business Roundtable, an association of CEOs, said through a spokesman that he does not specifically recall the meeting — which would have been one of thousands he had during his 12 years as governor.

Though in most states wetland permits for such projects require approval by the U.S. Army Corps of Engineers, Michigan is one of two states to which the wetland enforcement authority of the EPA and the Army Corps of Engineers under section 404 of the Clean Water Act has been delegated.  Nonetheless, the Army Corps involved itself, as did other federal agencies.

As subsequent court documents show, the federal government had maintained an interest in acquiring the property in Gibraltar and Trenton as early as 1995. The U.S. Fish and Wildlife Service was the lead agency, and it had a strong ally in Bruce Manny, a key regulatory official within the U.S. Geological Service.

Ron Reynolds, a partner with Vercruysse Murray and Calzone in Bingham Farms, who represented Made In Detroit in its litigation against the federal government, filed a series of documents with the U.S. Court of Federal Claims that showed a lengthy trail of emails between Dingell’s office, Manny, and conservation activists engaged in strategic discussions focused on how to stop the Gibraltar Bay project.

At the same time, according to court filings, Manny was serving as a resource to the Army Corps of Engineers, which, by law, must undertake an objective review of the facts when considering a developer’s wetland protection application. In one instance, Manny wrote to an official at the Fish and Wildlife Service that the Army Corps “will need all the biological ammunition (it) can lay its hands on to deny the Made In Detroit permit.”

Further, in a Dec. 29, 1997 email to Bruce Jones, a Grosse Ile-based conservation activist who co-founded the Grosse Ile Nature and Land Conservancy, Manny revealed he had briefed William McCort, a representative of the Nature Conservancy, on how to “stop” Made In Detroit from developing Gibraltar Bay. “(McCort) is aware that Made In Detroit can be stopped by purchasing the easement, the development option, and the … property,” Manny wrote.

 

Copies of Manny’s emails were among the documents attorney Reynolds submitted to the court.

At the same time, Reynolds filed documents showing that Dingell had personally written at least seven letters to regulatory officials opposing the Gibraltar Bay project, and even wrote one to Made In Detroit’s lender, then Standard Federal Bank in Troy, as part of the effort to bring the property under federal control.

On May 28, 1998, Dingell wrote a letter to the leaders of four different federal agencies and MDEQ, urging them to give the project a thorough review for any and all regulatory issues, and encouraging them not to worry about how long the effort might take. Dingell even acknowledged in the letters that the agencies may not have authority to deal in every aspect of the matter, but urged them to do so anyway: “I realize that your agencies do not have or share responsibility for each of these issues I am raising in this letter,” Dingell wrote. “However, given the uniqueness of the habitat in question, I believe it is imperative that your staffs conduct a coordinated and thorough inquiry into the various regulatory questions which will lead to the best decisions for the shoreline properties.”

And with that, Dingell proceeded to list a litany of issues he wanted the regulators to explore, including a controversial conservation easement, a spawning ground for walleye and other fish, staging areas for migratory ducks, and the potential environmental impact of dredging in connection with the development.

Overzealous exercise of governmental authority complicated the issue. For example, the U.S. Army Corps of Engineers typically does not have authority over the development of bridges, as that oversight belongs to the Coast Guard. Nevertheless, the Army Corps informed Made In Detroit that it would hold up the development over a proposed bridge from the mainland to the island, where 25 luxury homes were to be built.

Dingell followed up three months later with another letter reiterating his concerns about the environmental issues and instructing all the agency heads to keep him informed about progress on the matter, as well as any forums planned for public comment.

Dingell even took a personal interest in the details. When the Army Corps of Engineers announced the expiration of a public comment period, Dingell wrote to demand that the period be extended. When MDEQ began considering the developer’s wetland permit, Dingell sent a letter demanding the answers to 14 questions, including details about drainage and the locations of possible wetland mitigation. He also challenged the MDEQ’s authority, demanding of then-director Russ Harding: “Please explain to me where the department derives its regulatory authority.”

Nor was Dingell shy about broadcasting his agenda. On March 24, 2002, he told the Monroe Evening News he was trying to block the Gibraltar Bay development as part of a larger effort to help the federal government acquire the property for the establishment of a wildlife refuge. “We have blocked development of this resource ...” Dingell told the newspaper. “Ultimately, we need to buy that marsh and make it part of the refuge.”

Despite approval of a wetland permit from the state of Michigan, the Army Corps of Engineers threatened to sue Made In Detroit to seek the imposition of $70,000 a day in fines if the company proceeded with the development.

Realizing the issue might invite further delays, Merriweather and his team made a more expensive choice to bridge over the wetlands so that a permit wasn’t needed. “We went back to the court for a declaratory judgment to proceed forward, but the court told us it didn’t have jurisdiction because, until the Army Corps of Engineers sticks you in jail or fines you $70,000 a day, you don’t have a case,” Merriweather says. “In other words, come back when they shoot you.”

As several years passed and all the necessary permits were still not in hand, Made In Detroit began to fall behind on its bills, and the project’s financial stability began to weaken. Entering bankruptcy court in 2002, Made In Detroit attempted a financial restructuring that depended on financing from a so-called hard moneylender based in New York. That wasn’t Made In Detroit’s preferred strategy, but there were no better options. The bankruptcy court rejected the restructuring proposal — an outcome Johnson believes was pre-ordained.

 

“It was like a kangaroo court,” Johnson says. “Because we were dealing with the federal court system — John Dingell, of course, being extremely powerful — the federal court system, from Michigan’s standpoint, had to almost defer to him because, to become a federal judge, you had to go through Dingell to at least have him weigh in on the decision.”

While Made In Detroit pursued its failed effort to win bankruptcy court approval, Dingell helped to recruit an organization that would act as a middleman to acquire the property, with the court’s permission, and convey it to the federal government. The organization turned out to be a private conservancy called the Trust for Public Land, which had indicated at a meeting on Oct. 13, 1999, that it had interest in serving as the “acquisition agent” for the federal government.

Dingell led an effort in Congress to appropriate the majority of the money needed to acquire the property in 2003. An email from Dingell staff member Lori Elbing to environmentalists announcing the appropriation was titled, “Dingell is a god.” He also personally appealed to the Mott Foundation to provide an additional $1 million contribution so the Trust for Public Land could make the purchase.

In September 2003, the Trust acquired the land upon approval of the bankruptcy court, after which Made In Detroit received $4.8 million in compensation as debtor in possession. A year later, following a period of appeals, the Trust sold Made In Detroit’s land to the federal government.

Despite the setback, Merriweather and his team refused to go quietly into the night. “My clients were relentless FOIA (Freedom of Information Act) requesters,” Reynolds says, explaining that Made In Detroit was convinced it had been the victim of collusion between environmental activists and regulators — all with the urging of one of the most powerful congressmen in the nation.

As Made In Detroit mounted its next move, it gathered emails and letters that showed not only strategic collusion involving supposedly objective federal regulators, but also that the pressure from Dingell was relentless on the regulatory agencies that were in a position to slow down or complicate matters for the project.

Following the bankruptcy judgment, in June 2006, the developers filed a complaint with the U.S. Court of Federal Claims in Washington, D.C. As part of the discovery process, the company had an appraisal showing the property was valued at $20.7 million (a government appraisal had it at $15.1 million).

 

The court, which dates back to 1855, today consists of 16 judges nominated by the president and confirmed by the U.S. Senate. Serving 15-year terms, the judges hear monetary claims against the federal government. Following procedure, the Made In Detroit case, presided over by then-Chief Judge Edward J. Damich, was referred to alternative dispute resolution, or mediation.

Over two days of mediation hearings in early February 2009 at the Federal Claims Courthouse, and faced with the scope of the documents filed by Made In Detroit, the government offered a settlement of $5 million. As might be imagined, the proposed award was not initially well-received by Made In Detroit’s board. Still, Merriweather had to admit his research into such cases argued for accepting the deal.

“We were very confident we would win this case, even though there is always a problem in litigation,” says Merriweather, who, with the development team, is planning to renovate a former industrial building near Grand River Avenue and the Lodge Freeway in Detroit into residential lofts.

“If we had prosecuted this case and we had prevailed to our satisfaction, all of the damages in the case would have been $23 million (with costs, fees, and interest added). But I told our board we had $5 million on the table (in addition to $4.8 million from the bankruptcy court). I wanted each of the members to tell me how long they wanted to wait for $23 million. And the longest was three years. Then I pulled out a case called Rose Acre Farms, which was similar to our case. They were in their 13th year and still litigating.”

The board unanimously decided to take the $5 million — a small victory in the face of everything that had happened, but a victory nonetheless. “It’s no good if you’re not here to use it or enjoy it,” Merriweather says. db

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