Community Update - December 2023 Court Rulings Re: Flying Horse Metro Districts

To:  Flying Horse Residents
From:  Doug Stimple, CEO Classic Companies
Date: December 22, 2023

As many of you know, on May 2, 2023, after being duly authorized and approved by all of the boards of FHMD 1-3, the El Paso County District Court approved the petition for exclusion of the property to be known as Downtown Flying Horse from the boundaries of FHMD 2 & 3 and included into the boundaries of FHMD 1. On May 26, 2023, the newly elected board of FHMD 3 filed a challenge to the Court’s previous approval of that exclusion. For those of you who attended our open houses, you heard me refer to this proceeding as “baseless”, “without merit or any negative impact to FHMD 2 or 3” and an “utter waste of precious resources”. The action of FHMD 3 led to a three-day hearing in November, which resulted in hundreds of thousands of taxpayer dollars being spent on attorney’s fees. District Court Judge Kane ruled on December 19, 2023 that FHMD 3’s Motion to Revoke the exclusion must be DENIED. A copy of the order is available by following this link.  (Links to the other two orders are also included at the end of this post. )
 
The ruling is clearly a win for the Downtown Flying Horse, FHMD 1, and ultimately, the taxpayers of FHMD 2 & 3. If Downtown Flying Horse were to remain in the boundaries of FHMD 2 & 3, there are doubts if the project could move forward given that the anti-developer and inexperienced Boards of FHMD 2 & 3 would have control over the O&M funds produced and to be used to maintain Downtown Flying Horse. This ruling is a win for the taxpayers of FHMD 2 & 3 because although the Downtown Flying Horse property will now be in the boundaries of FHMD 1, the current and future owners of property in Downtown Flying Horse are not relieved from paying their share of the outstanding bond indebtedness in FHMD 2 & 3. As the estimated $500MM - $1BB mixed use project is eventually built out, the assessed value will increase exponentially and thus the debts of FHMD 2 & 3 may be retired faster.  Given the interest rate and cost environment we currently find ourselves in, there is no definitive start date for the Downtown Flying Horse project, but this ruling certainly removes a difficult obstacle to commencement.
 
Judge Kane’s order confirms the above and his concise findings highlight the fact that this lawsuit was utterly without merit. Additionally, there were some factual findings from Judge Kane’s order which highlight the anti-developer sentiment of the FHMD 2 & 3’s Boards and their management, as well as their collective incompetency. The quotes below are directly from the Judge’s findings:

Anti-Developer Sentiment and Findings:
• “From the time of his election in May 2022, there were significant tensions between [Dan] Mulloy and the other board members of District 2. Mulloy challenged reimbursements to the Developer and despite being provided a significant amount of information by the Districts’ attorney and accounting consultants, was not satisfied with the answers he received. He persisted in objections to the reimbursement of certain items, such as entryway improvements” that the Judge determined were “clearly authorized under the Service Plan.”

• “Mulloy testified at the Hearing. He acknowledged that he has no experience in real estate development. Mulloy rejected the notion that he was anti-developer. The Court finds that Mulloy was not credible. He was evasive on the issues when answering questions. His hostility toward the Developer was clear based on the totality of the evidence and testimony.”

• “Leading up to the May 2023 elections, additional residents began to run for the District 2 and 3 boards. Their animosity toward the Developer was also apparent, with campaign materials making false statements about the Developer, and running on a platform of limiting additional debt.”

• “It was clear to the Developer that the May 2023 election would result in new board majorities for District 2 and 3 that would be hostile to the Developer and resistant to the kind of continued cooperation between the Developer and the Districts that had existed from the start of the Project that allowed it to thrive.”

• “[Wolfersberger] has experience working with metro districts, but he clearly has beliefs about what the law should be that are different from what the law is. He acknowledged that there are a number of significant reforms he believes that the legislature should adopt, and that the legislature has already expressly rejected, in some cases, despite Wolfersberger’s legislative testimony.” 

• “[James] Patchen, a retired police officer and resident of District 3 with no affiliation with the Developer was elected to the District 3 board in May 2022. The Court finds that his testimony at the Hearing was credible. He and Dan Reifschneider, who also had no affiliation with the Developer, voted to approve the [Inclusion/Exclusion] Petitions at the April 28 meeting. He confirmed the adversarial direction Mulloy, and others were taking, which was, in his view, not about advancing the community, but rather was about going after the Developer.”

• “The loss of O&M revenues is irrelevant, as the Service Plan and IGA require that District 3 provides no services, and all O&M revenues must be paid to District 1. Thus, exclusion has no adverse impact on services or costs to be levied on the remaining property in District 3.”
 
Incompetency Findings:
• “The Court finds that the meeting (of FHMD 2 & 3) on May 2nd, 2023, was invalid.” (e.g., the first meeting the newly elected Boards attempted to hold but failed to comply with basic open meeting laws).

• “At the May 5 meeting, the new District 3 board members purported to hire Wolfersberger as manager and accountant, and Rufien as legal counsel. Like the May 4 meeting, this meeting (May 5, 2023) was not validly called, noticed or conducted.”

• “The District 3 board purported to hold another meeting on May 26, 2023, again at the Hampton Inn, and again leaving out board members Patchen and Reifschneider. […] Recognizing that the May 4 and May 5 meetings were not validly held or conducted, the District 3 board voted to ratify the actions taken at those meetings and voted again to engage Wolfersberger and Rufien. Notice of the Agenda was posted on Wolfersberger’s new District 3 website, but he acknowledged that the new website was not the designated location for posting meeting notices until July 2023. The Court finds that the May 26 meeting was also invalid.”
 
In the other lawsuit which was initiated by FHMD 1 to enforce the provisions of the IGA (due to the fact that FHMD 2 & 3 refuse to provide FHMD 1 the full amount of O&M funds in order for FHMD 1 to properly operate and maintain the community, all of which is in violation of the Service Plan and IGA) Judge Kane issued a very simple order. In short, Judge Kane was unwilling to appoint a Receiver to oversee the management of FHMD 2 & 3 funds. Judge Kane did dismiss FHMD 2 & 3’s partial motion to dismiss and stated that FHMD 1 has a “plausible showing of an entitlement to relief” so that means the lawsuit to enforce the validity of the IGA continues to move forward.  Based upon the findings of the Inclusion/Exclusion Order and Judge Kane acknowledging the terms and conditions of the IGA and Service Plan are done in order to avoid duplicative services being incurred, I would hope that FHMD 2 & 3 Board members would work cooperatively with FHMD 1 in order to develop an appropriate budget for 2024. But as we sit here today, they are only willing to remit partial amounts of the required funds, in amounts insufficient to allow FHMD 1 to properly operate our community and instead have proposed something ridiculous like a $500,000 contingency. We can only presume that is to cover additional wasted attorneys fees. 

I hope more of you will continue to pressure FHMD 2 & 3 to act responsibly. There is a logical and relatively painless path forward to homeowner transition of control but we need your help to get FHMD 2 & 3 Board members to engage in constructive dialogue.

Links to downloadable PDFs of Judge Kane's Orders: 

• Findings of Fact - Conclusions of Law and Order (Motion to Revoke Denied)
• Order Re: Receivership Order
• Order Re: Defendants' Partial Motion to Dismiss