The Fremont City Council heard findings from an investigative report regarding circumstances surrounding a purchase agreement between the City of Fremont and RTG Medical Inc. during its meeting on Tuesday.
City Attorney Mark Enenbach, of McGrath North Law Firm, provided the report to council after concluding the fact-finding investigation and legal analysis regarding reimbursement of unpaid earnest money/escrow and other expenses and fees resulting from a purchase agreement between the city and RTG. The investigation was authorized by a council vote during its meeting on Dec. 20, 2018.
The original purchase agreement was passed by council on March 13, 2018 and approved the sale of a 5.76-acre city-owned lot (Lot 4) in the Nelson Business Park to RTG for $196,600.
The purchase agreement within that ordinance allowed RTG Medical a total of 120 days to meet conditions prior to closing following signing on March 14 — or earnest money totaling $19,660 would be forfeited by the company.
“That earnest money deposit was never paid into escrow,” Enenbach reported to the council on Tuesday.
Despite escrow money not being deposited after the original agreement, the council approved an amendment to allow RTG Medical to extend the real estate purchase agreement another 120 days in July.
“The real estate purchase entered into between the parties in March on its face seems to be a legally enforceable agreement,” Enenbach said. “The amendment on or about July 10 was not enforceable as it was not executed by RTG—as RTG never executed the amendment it never became effective.”
Enenbach also cited contingencies within the original purchase agreement in-which RTG indicated that in order to make the project viable any purchase from the city would be contingent on being able to acquire an adjoining strip of property from an unnamed third party.
“That is very important from the standpoint of our analysis,” he said. “If this case were to go to trial I don’t think there would be any question that RTG used its best efforts to try and acquire this property and that was always a material part of this deal.”
After RTG was unable to purchase the additional piece of property it chose another location to build its facility. The facility is now planned to be located in the Gallery 23 East development.
“On learning of this development the city administrator sent a demand letter to RTG seeking payment of the $19,660 in earnest money,” Enenbach said. “On receipt of that demand letter, RTG responded that the transaction had always been contingent on it being able to purchase this additional piece of property.”
Enenbach said that issue was then brought to the city attorney (McGrath North Law Firm) which looked at issues including the potential cost of litigation and suggested that a compromise between the two parties should be looked into.
Mayor Scott Getzschman was contacted by representatives of RTG on Aug. 31 and negotiated a settlement in which RTG would pay $10,000 instead of the original $19,660 escrow payment.
“That was confirmed by the city administrator and paid by RTG,” Enenbach said. “The mayor expressed concern in my interview of him about covering the city’s cost related to the transaction and he believed that he had the authority to effectuate the settlement based on superintending control of the affairs of the city.”
According to Enenbach’s legal analysis of the situation, he said the settlement reached between RTG and Getzschman appears to be an enforceable contract under Nebraska law.
“However the city council was not advised of the settlement and it is our opinion that the mayor should have advised the city council of the settlement,” he said.
When council voted to initiate the fact-finding investigation and analysis back in December, many members sought to clarify that the matter was less to do with recovering $9,660 from RTG Medical, and more about determining whether or not actions taken by Getzschman and City Administrator Brian Newtown regarding the matter were done in accordance with state and local statutes.
Those questions centered on whether or not Newton provided the council with complete information regarding the initial collection of escrow after the council amended the original ordinance conveying the sale of city property to RTG Medical, allowing the company an additional 120 days to close the deal — as well as the subsequent deal brokered by Getzschman.
“Staff should have made council aware of the down payment not being made,” Enenbach said on Tuesday. “It is our opinion once again that the city council should have known that because we believe that would have been important in their determination as to where or not it should have approved that amended ordinance.”
In regards to Getzschman’s superintending powers to broker the $10,000 settlement with RTG without council input or approval, Enenbach provided a less definitive analysis.
“There is not much legal authority in the State of Nebraska defining the scope of the mayor’s superintending authority which he relied upon in entering into the compromise,” he said. “What little precedent that is out there, however, states that those powers are rather broad. Without any direct authority on that issue, we cannot define whether the settlement was or was not in violation of the state statute.”
Enenbach concluded his report saying that the $10,000 settlement appears to be fair and reasonable in terms of the amount the city ultimately received.
“The city probably collected more than it would have if litigation was commenced,” he said. “It also does not appear that any individual within the city government personally benefited from the settlement.”
Following Enenbach’s report to council, Getzschman said in negotiating the settlement with RTG he hoped to cover the costs that the city occurred in regards to the purchase agreement as well as to avoid litigation.
“Number one was to collect the dollars to cover the costs that the city incurred,” he said. “Number two was to keep a company in the community that had a great relationship with us—and I didn’t want to get into any legal squabbles over the dollars.”
He added that the situation was something that he hadn’t personally dealt with as mayor beforehand.
“In all the years that I have been mayor and on city council we have not had an issue like this where someone has came up and said you know what we are not going to buy the land,” he said. “I did what I thought was best for the city and the community of Fremont and I apologize for not relaying that information back to the council.”
After raising several questions about the investigative report, Councilmember Brad Yerger ultimately thanked Enenbach for his work investigating the matter.
“I think it sets forth much of what we were suggesting all along—that procedures weren’t followed—that we were probably entitled to collect the initial escrow and we did not—and that shouldn’t have been a unilateral action by the mayor without city council weigh in,” he said. “I think you’ve really confirmed that.”
Councilmember Susan Jacobus, who spearheaded the authorization of the investigation into the matter, said that the report shows a need for proper procedure moving forward.
“The onus is on us to do things properly,” she said. “I would just caution that moving forward we have got to do things right and by the rule book.”
She added the mayor’s superintending powers shouldn’t outweigh ordinances passed by the council.
“Superintending powers doesn’t give authority to write out checks and make decisions without authority of the council,” she said. “We are the governing body--if we adopt an ordinance it has to be followed--if the city administrator and the mayor can’t make that happen then what are we to do to make sure they are enforced?
This is taxpayer money that got left on the table, I appreciate the end but the means to get there were not justified.”