Miami-Dade County

Judge rules against Miami, for Flagstone: Developer didn’t default on island project

Flagstone marina on Watson Island, where the developer has a contract to build a $1 billion complex of hotel towers, yacht slips and shops.
Flagstone marina on Watson Island, where the developer has a contract to build a $1 billion complex of hotel towers, yacht slips and shops. emichot@miamiherald.com

The city of Miami has lost a lawsuit against the developer of Flagstone Island Gardens, a controversial and long-delayed development on publicly-owned Watson Island.

In a major blow to city commissioners who last year defiantly declared Flagstone in breach of a contract to develop a resort on the island — a decision made against the advice of the city’s professional staff and attorneys — Miami-Dade circuit Judge William Thomas ruled in favor of the developer on all counts of Flagstone’s lawsuits. The judge found that the city breached the contract by declaring Flagstone in default, and the city did not give the developer time to cure the alleged default before demanding Flagstone vacate Watson Island.

The city could be on the hook for a large sum, though that number won’t be known until later. Flagstone sued for $122 million, but the judge stated that his ruling was only on liability in the case, and damages will be determined in a future hearing. In terms of legal costs, the suit has already cost the city more than $1 million in fees to outside counsel.

The ruling, issued at the conclusion of a seven-day non-jury trial, landed at City Hall in the middle of a daylong commission meeting. As commissioners discussed planning and zoning items, City Attorney Victoria Méndez gave the Miami Herald a brief statement.

“We will evaluate our options,” she said.

Flagstone’s attorney, Eugene Stearns of Stearns Weaver Miller, referred to vehement opposition from a group of residents in a statement after the rulling.

“City leaders were misled by outside forces who turned political opposition into a combat sport,” he said. “We are hopeful that a different light will dawn over city officials who, in reading the court’s thoughtful order entered after all sides were heard, will find ways to help make this important project successful for the city and its residents.”

In May 2017, commissioners unanimously agreed that Flagstone, led by developer Mehmet Bayraktar, violated portions of a contract to build and operate a $1 billion complex of hotel towers, yacht slips and shops on 24 acres of public upland and submerged land. The deal was approved by voters in 2001, but so far, only the marina is complete. Some preliminary excavation work began in May 2017, which the developer said constituted a groundbreaking for the parking garage and retail space mandated under an amended lease with the city.

Fierce opponents to the development include residents along the Venetian Causeway who fear traffic from the development would choke their streets. Locked in litigation with the developer themselves, they saw the commission’s vote to declare Flagstone in default as a welcome change. They felt Miami bureaucrats were bending over backwards to stay in a contractual relationship with a struggling developer who couldn’t get a project off the ground on one of the city’s most valuable pieces of land.

That sentiment was echoed by Mayor Francis Suarez, who as a commissioner voted to declare a breach of contract. His main contention: Flagstone did not demonstrate its financial ability to fund the $31 million parking garage and retail facility required to begin construction under the terms of the contract.

Suarez questioned the deal because Flagstone did not secure a loan for this phase of construction. At the time, Miami’s administrators accepted an affidavit from the developer stating that he and his affiliates had the money to fund the facility, a move Suarez still disputes.

“I think the city failed to do a minimum, modicum of due diligence,” he said.

In Thursday’s ruling, the judge concluded that the city failed to prove that Flagstone lacked the finances to build the project. In his City Hall office, Suarez said he felt the disagreement between the commission and administration weakened the city’s position in the lawsuit.

“The commission did what we thought was right,” he said.

Commissioner Ken Russell called the special meeting where he urged his fellow elected officials to declare default on the grounds that Flagstone had missed the deadline to start construction. On Thursday, he defended the commission’s vote and said the city will fare better on appeal.

“It’s very obvious that we’re dealing with a bad faith partner who never built what was promised to the voters 17 years ago. Anyone who drives across the MacArthur Causeway can see the vacant rubble,” he said in a text message. “At the end of the day, the commission made the right decision and our case is very strong on appeal — the developer was in default and the contract was broken.”

Joey Flechas: 305-376-3602, @joeflech

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