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Item I2 * 1:30 p.m. Closed Session BOARD OF COUNTY COMMISSIONERS AGENDA ITEM SUMMARY Meeting Date: 12/10/14 —MAR Division: County Attorney Bulk Item: Yes No XX Staff Contact: Bob Shillinger, 292-3400 AGENDA ITEM WORDING: An Attorney-Client Closed Session in the matter of Venture Out at Cudjoe Cay, Inc. v. Florida Keys Aqueduct Authority and Monroe County, Case No. 2013-CA-204-K. ITEM BACKGROUND: Per F.S. 286.01 1(8), the subject matter of the meeting shall be confined to settlement negotiations or strategy sessions related to litigation expenditures. Present at the meeting will be the Commissioners, County Administrator Roman Gastesi, County Attorney Bob Shillinger, Assistant County Attorney Cynthia Hall, special outside counsel Mike Burke and a certified court reporter. PREVIOUS RELEVANT BOCC ACTION: 11/18/14 BOCC approved closed session to be held at 1:30 p.m. on 12/10/14 in Marathon, FL or as soon thereafter as may be heard. CONTRACT/AGREEMENT CHANGES: N/A STAFF RECOMMENDATIONS: N/A TOTAL COST: Court Reporter costs INDIRECT COST: BUDGETED: Yes No DIFFERENTIAL OF LOCAL PREFERENCE: COST TO COUNTY: Court Reporter costs SOURCE OF FUNDS: REVENUE PRODUCING: Yes No xx AMOUNT PER MONTH Year APPROVED BY: County Atty X OMB/Purchasing Risk Management DOCUMENTATION: Included Not Required X DISPOSITION: AGENDA ITEM# Revised 2/05 County of Monroe The Florida Keys Robert B. Shillinger, County Attorney" Pedro J. Mercado, Assistant County Attorney ** Cynthia L. Hall, Assistant County Attorney ** Christine Li mbert- Barrows, Assistant County Attorney ** Derek V. Howard, Assistant County Attorney** Steven T. Williams, Assistant County Attorney** Peter H. Morris, Assistant County Attorney Patricia Eables, Assistant County Attorney Chris Ambrosio, Assistant County Attorney ** Board Certified in City, County & Local Govt. Law June 6, 2017 Kevin Madok, Clerk of the Circuit Court Sixteenth Judicial Circuit, State of Florida Monroe County Courthouse 500 Whitehead Street Key West, FL 33040 BOARD OF COUNTY COMMISSIONERS Mayor George Neugent, District 2 Mayor Pro Tern David Rice, District 4 Danny L. Kolhage, District I Heather Carruthers, District 3 Sylvia J. Murphy, District 5 Office of the County Attorney 1111 12`h Street, Suite 408 Key West, FL 33040 (305) 292-3470 — Phone (305) 292-3516 — Fax In Re: Venture Out at Cudjoe Cay, Inc. v. Florida Keys Aqueduct Authority and Monroe County, Case No.: CA-K-13-204 Dear Mr. Madok: Please find enclosed herewith the transcript of the December 10, 2014 closed attorney/client session of the Monroe County Board of County Commissioners regarding the above - referenced matter. Under F.S. 286.011(8), the transcript may be part of the public record because the litigation has concluded. Thank you for your assistance with this matter. Please contact me should you have any questions. Sincerely, eobert B. Shillinger Monroe County Attorney Enclosure CONFIDENTIAL IN ORIGINAL CLOSED SESSION VENTURE OUT AT CUDJOE CAY, INC. VS. FLORIDA KEYS AQUEDUCT AUTHORITY and MONROE COUNTY Case No. 2013-CA-204-K APPEARANCES: Mayor Danny Kolhage Commissioner Heather Carruthers Commissioner Sylvia Murphy Commissioner David Rice Commissioner George Neugent Roman Gastesi, County Administrator Bob Shillinger, County Attorney Cynthia Hall, Assistant County Attorney Michael Burke, Special Counsel Marathon Government Center 2798 Overseas Highway Marathon, FL 33050 Wednesday, December 10, 2014 1:30 p.m. - 1:51 p.m. U.S. LEGAL SUPPORT, INC. 813-876-4722 1 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Beginning of closed session) MAYOR KOLHAGE: Okay. We will now open the closed session. MR. SHILLINGER: Thank you. So the closed session is called to order. For the record, this meeting is being held upon the request of myself, Bob Shillinger, County Attorney, to announce that at a prior BOCC meeting held on November 18th, 2014, that I needed your advice in a matter of Venture Out at Cudjoe Cay, Inc. versus Florida Keys Aqueduct Authority and Monroe County, Case Number 2013-CA-204-K. At the meeting the Board approved holding today's closed session. Public notice was given through the announcement on the 18th of November, the publication of today's agenda on the County's website. For the record and the benefit of the court reporter, each of us will state our name and position, start withing the Commissioners. COMMISSIONER CARRUTHERS: Heather Carruthers, Commissioner, District 3. COMMISSIONER MURPHY: Sylvia Murphy, Commissioner, District 5. COMMISSIONER RICE: Dave Rice, Commissioner, District 4. U.S. LEGAL SUPPORT, INC. 813-876-4722 2 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 COMMISSIONER NEUGENT: George Neugent, County Commissioner, District 2. MAYOR KOLHAGE: Danny Kolhage, County Commissioner, District 1. MR. GASTESI: Roman Gastesi, County Administrator. MR. SHILLINGER: Bob Shillinger, County Attorney. MS. HALL: Cynthia Hall, Assistant County Attorney. MR. BURKE: Michael Burke, Special Counsel. MR. SHILLINGER: Thank you. Just as a reminder, we will only be discussing settlement negotiations and strategy related to litigation expenditures. We cannot take any decisive action. We can't take any decisive actions at this meeting. You can only provide information and direction to the attorneys. Any decisions that this Board makes concerning this case must be done at a meeting open to the public. To start it off, this is the case where Venture Out has sued the County and the Aqueduct potentially for a takings as well as for some other issues. It involves the pending hookup to Venture Out to the Cudjoe Regional Wastewater System and the consequences of that action with U.S. LEGAL SUPPORT, INC. 813-876-4722 3 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 respect to Venture Out's sewage treatment plant. They originally were being represented by Mr. Horan. They've recently changed lawyers to Bart Smith, who submitted a settlement proposal to the County. We're ethically obligated to convey it to you. So we're going to talk about it today. Mr. Burke is here. He is representing the County in the course of litigation through our insurance contract with the Florida League of Cities. He will give you some evaluation to the claim and then we'll make a recommendation. And our recommendation is, just so you know where we're headed, is that we think we have valid and adequate defenses towards the takings claim, so that the settlement offer is something that you are not under an obligation to follow through with. You wouldn't want to follow through with this unless you desire just to buy peace in the matter and be done with it. So having said that, I'll turn it over to Mr. Burke so he can explain the case a little better and give you some idea why we're taking that position. Mike? MR. BURKE: Thanks. Good afternoon. Nice to see you all again. As you may know, the central wastewater system U.S. LEGAL SUPPORT, INC. 813-876-4722 Q CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 is reaching the point of completion whereby, as I understand it, in the February -March time frame -- MR. SHILLINGER: Would you be able to hear him better if he were at the podium? As long as you hear him and the court reporter hears him we're fine. MR. BURKE: This is not being blasted out there. MR. SHILLINGER: No. COMMISSIONER CARRUTHERS: Just out there. Just kidding. MR. BURKE: As I was saying, as you may know, the central wastewater system is reaching a point where, if I understand it correctly from the engineers, in the February -March, maybe a little bit later time frame this property, the Venture Out property, they're on Cudjoe Key, is going to be ready to connect to the central system. Venture Out has a, as you know, a number of folks that live there and they have their own system. They've been operating their own water system and their own wastewater system and they have a package plant to treat the wastewater. They have a collection system that brings it to the package plant and it's treated there. And it is licensed through 2015 through the Florida Department of Environmental Protection. The County, as you know, has an ordinance which requires within 30 days of it becoming available, both U.S. LEGAL SUPPORT, INC. 813-876-4722 5 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 persons who have on -site systems and people who treat through package plants, to connect to the central system. So come in the not too distant future Venture Out and the people that live in that community will be provided the opportunity to connect to the central system. And they have their own collection system which the Florida Keys Aqueduct Authority does not own, of course the County does not own, which will bring the wastewater to a lateral line or stub line, which will then connect to the central system, or it's available to connect. Venture Out maintains that its package plant was renovated and rejuvenated over the last several years and that it has a value now in excess of $2 million. And they assert that if they're required to connect to the -- if their property owners and residents are required to connect to the central system, the package plant will become obsolete and worthless. And the essence of their lawsuit here is they're asking the, or demanding that the Court order the County to purchase, and the Aqueduct Authority, to purchase or acquire this package plant which they contend will be rendered obsolete by the regulations which require their connection. This case has been on hold for a long period of time because there was a bond validation proceeding which U.S. LEGAL SUPPORT, INC. 813-876-4722 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the County prevailed on, Florida Keys Aqueduct Authority prevailed on. And now it has come back and the new attorney, Bart Smith, has submitted a settlement proposal which provides, states, it proposes that Monroe County purchase the existing Venture Out wastewater system which connects and utilizes it -- which they've been utilizing. That would include, as I understand it, the purchase of both the package plant and their collection system within the community. That's the proposal. Venture Out agrees to use the funds from the purchase to install a new water system. Apparently their on -site water system that they have is not -- MR. SHILLINGER: Watertight. MR. BURKE: Yeah, it's not watertight. And including individual meters to each unit owner property. Venture Out's unit owners sign up for individual service for wastewater and water service. Currently now, since the wastewater connects to the package plant and the way the design is set up currently, the Florida Keys Aqueduct Authority will connect to a one line and will bill according to that one -line standard as opposed to what you often times see at many communities where the property owner, itself, would have a meter and the potable water and wastewater will be billed according to that meter at each property owner's address. U.S. LEGAL SUPPORT, INC. 813-876-4722 7 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 This system of course will be done differently because there is a -- they have their own collection system. They collect it and bring it to now the package plant, but would be later then a stub line that would connect to the central system. And so there's a different billing system set up for that. So the essence of what he's saying here is that Florida Keys Aqueduct Authority would generate more money in the future through property owners having their own meters and paying that bill rather than this single system that exists here. And then goes on to say that all persons would release their claims. The question really is, and there is not a Florida case directly on point with this, although there are some cases that speak to many of the issues in this case, that the issue that's framed is when a local government provides a central wastewater system and requires the persons or property owners within that community to connect to that system, which is commonplace and routinely done, if a person has, if a property owner has an on -site system or in this case a package plant for a number of unit property owners which is functioning and otherwise meets environmental standards, is there any requirement for the government that is requiring the connection and now in effect rendering the on -site or U.S. LEGAL SUPPORT, INC. 813-876-4722 CONFIDENTIAL c. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 package plant systems obsolete, is there any requirement that those folks, the property owners, be compensated for the value, residual value of the systems that they're required to in effect dismantle and abandon. There is no case directly on point in Florida, which kind of surprises me, but there are a number of cases from outside of Florida and compensation has routinely been denied by the courts, routinely been denied for several reasons. And I think probably the simplest and easiest one to understand is that when a property owner installs an on -site septic system, or package plant as this case may be, it is by definition a temporary measure which provides for the wastewater services necessary to use the land until urbanization takes place and a central system is created, which then requires everybody to connect. You can't have a leap -frog, or as they call it a tic-tac-toe kind of system. Yes, sir? COMMISSIONER NEUGENT: Michael, and also Bob, I know that the Aqueduct Authority has bought treatment plants here in Monroe County, and my concern is inconsistency -- not really concern. I'm just asking you a question, maybe make me feel more comfortable here. MR. BURKE: Have they bought them and used them? COMMISSIONER NEUGENT: Yes. U.S. LEGAL SUPPORT, INC. 813-876-4722 I CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BURKE: Sure, that would be required. That often times happens. A government, a local government will acquire a private utility's assets and mold -- and bring them into their systems for use in the future and they would certainly be required to pay compensation. They would be required to buy it at fair market value. In this case, as I understand it, the Florida Keys Aqueduct Authority does not seek to purchase this package plant. It doesn't seek to purchase the collection system. Instead what's at issue is that there's a central system that will be available to receive the wastewater, which the community will then provide. COMMISSIONER NEUGENT: Let me go back and rephrase that as best I understand it. The Aqueduct Authority -- are we named in this lawsuit? MR. SHILLINGER: Yes. COMMISSIONER NEUGENT: And if so, why? Isn't this an Aqueduct Authority -- MR. SHILLINGER: Well, it's the County's ordinance that requires the hookup. COMMISSIONER CARRUTHERS: But is it our ordinance or is it a state regulation? MR. SHILLINGER: It is our ordinance that requires the hookup. It is based upon some state regulation. U.S. LEGAL SUPPORT, INC. 813-876-4722 10 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 COMMISSIONER NEUGENT: The Aqueduct Authority had bought an existing system. I think the plans are to Key Haven and tie it into Big Coppitt. So it's a temporary use of that particular plant. So I'm just saying we're not treating anybody differently than by choice. MR. SHILLINGER: And that's the way Bart is trying to position this, is you're taking over our -- you're trying to couch it as if we're taking their utility and making it our own, but as we pointed out that's not what we're doing. COMMISSIONER CARRUTHERS: We don't even want it, do we? COMMISSIONER NEUGENT: I don't think we wanted Key Haven, either. MS. HALL: FKAA was actually approached about this and affirmatively said that they would not want to purchase the package plant because it was actually renovated, the substantial renovation was in 2003. By their own admission, by their own testimony of their general manager, in the bond validation case it is not working well. The impression FKAA has is that it's possible that the collection system is working a little bit better. We're not too sure about that. But everybody agrees the U.S. LEGAL SUPPORT, INC. 813-876-4722 11 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 package plant is not in good shape, contrary to Bart's representations, and FKAA specifically said they didn't want it. COMMISSIONER NEUGENT: But what you just described, that's not our issue, is it? MAYOR KOLHAGE: Yeah. COMMISSIONER RICE: Yeah. MR. BURKE: Well, we don't buy -- as I understand it, the FKAA is the one that makes the operational decisions with respect to how the wastewater will be collected and treated. The only involvement that the County has, as Bob said, is that we have an ordinance to which we are authorized by State law to adopt, which requires property owners upon certain notice to connect to a central system regardless of who owns it, whether it's the FKAA or some other system, some other entity. So the question that we're faced in the lawsuit is whether that regulation, which as you say emanates from State law, although State law generally provides that it does not require the purchase -- it does not require the package plants be taken off line. It's usually set up just for on -site systems. The state statute does not -- in the case of the Florida Keys, because it's an area of critical state concern, the State of Florida adopted a law which authorizes local governments in the Keys to require U.S. LEGAL SUPPORT, INC. 813-876-4722 12 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 not only on -site systems cease to function and that there be a connection, but that package plants as well. So that's Bart's argument, or Bart Smith's argument is going to be that this is something we did not have to do by State law, but did as part of ensuring that all of the properties eventually will have advanced wastewater treatment for their effluent and will provide overall assistance to the water quality of the Florida Keys. COMMISSIONER CARRUTHERS: That was going to be my question. The existing package plant does not meet AWT standards? MR. BURKE: It will not meet it, as I understand it. COMMISSIONER NEUGENT: But it was brought up to AWT standards. MR. SHILLINGER: That's debatable. COMMISSIONER NEUGENT: Well, BAT. MR. BURKE: Right, it meets BAT standards apparently, or did when it was licensed. COMMISSIONER NEUGENT: Right. I don't know where the dividing line is between -- because it's my understanding and I thought we had paid in participating with Key West Resort Utilities, and the requirement was that they came up to AWT standards, but I find out now U.S. LEGAL SUPPORT, INC. 813-876-4722 13 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that they only went to best available technology standards. MR. SHILLINGER: We have to confine our discussion to this one in the closed session. Keep it in that context. COMMISSIONER NEUGENT: It is to some degree, because who decides whether it can be brought up to BAT as opposed to AWT, and that's okay. I still don't know why we're discussing operational stuff, which the Aqueduct Authority ought to be defending, because I also understand that the infrastructure on the properties for wastewater is in good shape. MR. SHILLINGER: It's compliant. COMMISSIONER NEUGENT: Well, okay. MR. SHILLINGER: If it's in good shape, the plant is the concern. COMMISSIONER NEUGENT: In discussions that I've sat in prior to any litigation between Venture Out and the Aqueduct Authority and sitting there as an observer, I was under the impression that the infrastructure in place had been replaced in the not -- you know, somewhat recently. I can't quote the dates. But it was the, that the infrastructure for sewer. What they were after was trying to cut a deal on potable water and seeing if we could come to some kind of U.S. LEGAL SUPPORT, INC. 813-876-4722 14 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 an agreement and everybody would agree and they'd be willing to do that. And at one point in time I thought we were close to some kind of agreement. Then they hired an attorney and everything went to hell in a handbasket. MR. BURKE: I mean the litigation issue from our perspective is, it was said, is we're being sued for our regulation that we had to require as a connection. That regulation requires that package plants as well as on -site systems connect. It's authorized by Florida law. It's been challenged before the Florida Supreme Court and was found to be valid. It basically comes down to this: If you take it out of the Keys for a minute, if somebody is living in an area that doesn't have a central system and their septic tank goes out and they go out and they expend the funds that's required to put in a new system and then within a couple, three years the government comes along and does have the central system available and are required to connect, they have a financial loss of some sort because they've just bought something that is now no longer usable. And what I'm saying is that when that issue has presented itself the courts have not required compensation. You know, and for the reason that, the basic reason is that these kinds of central systems U.S. LEGAL SUPPORT, INC. 813-876-4722 15 CONFIDENTIAL Cm 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 function because everybody provides the effluent to them and you couldn't go house to house to house because people have different circumstances about when they bought their on -site systems. So -- MAYOR KOLHAGE: This is not the only one in the Keys, either, by the way. Anyway. MR. BURKE: It's not the only package plant in the Keys. MAYOR KOLHAGE: Right. COMMISSIONER CARRUTHERS: I guess my other question is, I mean, if suddenly we have to compensate them for this, what about all those people who say that I put in my own on -site -- I can think of a couple on Big Pine right now who would be chomping at the bit. I mean, I think this -- you know what I'm talking about? COMMISSIONER NEUGENT: Well, we have subsidized a lot of those in the past. MAYOR KOLHAGE: Bob, what do you need from the Commission? MR. SHILLINGER: Well, our recommendation is that we defend the suit. If the Board is comfortable with that I just need a head nod to do that. If you want to see us -- MAYOR KOLHAGE: I'm comfortable. MR. SHILLINGER: Okay. U.S. LEGAL SUPPORT, INC. 813-876-4722 16 CONFIDENTIAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MAYOR KOLHAGE: Anybody else? COMMISSIONER MURPHY: Yeah. COMMISSIONER CARRUTHERS: Yeah. COMMISSIONER NEUGENT: I don't think we have any choice, do we? MR. SHILLINGER: You can always buy peace in the matter through a settlement, but then you're setting yourself up for doing it -- COMMISSIONER CARRUTHERS: We don't want to do that. COMMISSIONER MURPHY: No, no, no. MR. SHILLINGER: You have a theoretical choice, but not a practical choice. COMMISSIONER NEUGENT: They had the option to work this out with the Aqueduct Authority, and based on my observation they're the ones that created the impasse. MR. SHILLINGER: Yes, that's my observation as well. All right. We have the direction. MAYOR KOLHAGE: Okay. We're done with that item. MR. BURKE: Thank you. MR. SHILLINGER: Closed session is now terminated. (Closed session concluded at 1:51 p.m.) U.S. LEGAL SUPPORT, INC. 813-876-4722 17 CONFIDENTIAL Im 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 CERTIFICATE STATE OF FLORIDA ) COUNTY OF MONROE ) I, Jennifer D. Belz, CM, RPR, CRR, FPR, do hereby certify that I was authorized and did stenographically report the foregoing proceedings and that this transcript is a true record of the proceedings before the Court. I further certify that I am not a relative, employee, attorney, or counsel for any of the parties, nor am I a relative or employee of any of the parties, attorney or counsel connected with the action, nor am I financially interested in the action. IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day baL-December 2014. U.S. LEGAL SUPPORT, INC. 813-876-4722 CONFIDENTIAL Page 1 A abandon 9:4 able 5:3 acquire6:21 10:3 action 3: 15, 25 18:16,17 actions 3:16 address 7:25 adequate4:14 Administratorl:18 3:6 admission11:20 adopt12:13 adopted12:24 advanced 13:6 advice2:9 affirmatively 11:17 of ternoon 4 : 2 4 agenda2:16 agree 15:1 agreement 15: 1, 3 agrees7:10 11:25 announce 2:8 announcement2:15 anybodyll:5 17:1 Anyway 16:6 apparently 7: 11 13:20 APPEARANCES 1: 15 approached11:16 approved2:13 Aqueduct1:9 2:11 3:22 6:7,20 7:1 7:19 8:8 9:20 10:8,15,18 11:1 14:9,19 17:15 area12:23 15:14 argument 13: 3, 4 asking6:19 9:22 assert 6:14 assets10:3 assistance13:8 Assistant1:19 3:9 attorney 1: 19, 19 2:7 3:8,10 7:3 15:4 18:13,15 attorneys3:18 Authorityl:9 2:11 6:7,20 7:1,20 8:8 9:20 10:8,15 10:18 11:1 14:10 14:19 17:15 authorized12:13 15:9 18:7 authorizes12:25 available 5:25 6:10 10:11 14:1 15:18 AWT 13: 11, 16, 25 14:8 B back7:2 10:13 Bart4:3 7:3 11:7 13:3 Bart's12:1 13:3 based10:24 17:15 basic15:25 basically15:12 BAT 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