THE WATCHDOGS: $44 million alley fight drains Cook County taxpayers

It was an alley fight of epic proportions, with taxpayers ending up with a costly fat lip.

Cook County taxpayers ended up being out $44.1 million as the result of a decade-long dispute that began when the county’s sewage-treatment agency blocked access to an alley next to its Near North Side headquarters, using a gate, dumpsters and parked cars to hinder construction of the luxury high-rise condo building next door at Michigan and Erie.

It ended with a fizzle, when the Illinois Supreme Court said last Sept. 24 that it was refusing to hear an appeal from the Metropolitan Water Reclamation District of Greater Chicago, which had been ordered to pay millions of dollars in damages to the condo building’s developers.

The district finally paid up on Oct. 2, writing a $39,495,017 check to the developers, NM Project Company LLC, to cover the cost of construction delays on the Ritz-Carlton Residences caused by the obstacles placed in the alley, newly obtained records show.

The district finished settling up its legal bills in December. Its total legal tab for the alley fight: $4,642,766.

That brought the total cost to taxpayers for the dispute to $44,137,783 — meaning this alley fight cost each of the district’s 5,068,940 residents about $8.70.

Alley between 100 and 118 E. Erie St. just east of Michigan Avenue. | Rich Hein/Sun-Times

“The district’s conduct indisputably cost the taxpayers a great deal of money,” says Robert Clifford, one of the powerhouse lawyers who represented the developers. “This case falls into that category where we say, ‘What were they thinking?’ ”

The fight began in 2005 when the water reclamation district was headed by Terrence J. O’Brien as board president and general superintendent Richard Lanyon, both now retired from the agency.

O’Brien didn’t respond to requests for comment. Lanyon wouldn’t comment.

“It is safe to say the leadership involved believed they were acting in the best interest of the district,” says Allison Fore, spokeswoman for the agency. “Hindsight is 20/20.”

It was a costly fight for the district, which has an annual budget of $1.2 billion. The $44.1 million is more than double the $16.9 million the district made last year by leasing land it owns along the Chicago River and elsewhere to governments and businesses.

“It is disappointing to the district that we did not prevail in this matter,” Fore says. “It is a tragedy that this $40 million cannot be used to mitigate flooding and clean-water issues.”

The water reclamation district owns the alley east of its headquarters at 100 E. Erie. In the 1940s, it granted an easement so the alley could be used by the owners of the building at Erie and Michigan, which later was purchased by the Terra Foundation for American Art.

After the museum’s operators sold the building to the condo developers in 2005, district officials argued that the proposed parking garage for the condo building planned for the site “exceeded the terms of the easements” for the alley, according to court records.

As construction was about to begin in 2006, the district sued Terra and the developers. It then “blocked access to the alley by locking the security gate,” according to court records that say, “The district also had cars parked in the alley in such a manner as to block ingress and egress.”

In 2008, Cook County Judge Kathleen M. Pantle barred the district from “parking cars in the alley, obstructing access with a security gate, interfering with scaffolding placement, denying access to construction workers and interfering with removal of the security gate.”

The district appealed and lost, though the Illinois Appellate Court reduced the damages slightly, to $35.8 million, last June. The agency then appealed unsuccessfully to the Supreme Court.

Those appeals cost taxpayers an extra $4.6 million — $885,000 in appellate legal fees and $3.7 million in interest payments to the developers.

Fore says the agency kept fighting the case in hopes of saving taxpayers money by getting the judgment dismissed.

“Throughout the process, the district believed that the facts supported its legal position and the decision of the trial court would be reversed,” she says. “The judgment is quite high. The district still believes it was prudent to exercise every avenue possible to relieve this burden from our constituents.”

The district is paying the judgment and legal fees out of its cash reserves.

Building at the corner of Michigan and Erie. | Rich Hein/Sun-Times