Posted by: Patricia Salkin | January 3, 2012

S. D. Supreme Court Holds Developers Remain Liable for Improvements After Sureties Expire But Before City Accepts Ownership

Developers Doyle Estes, Big Sky, LLC, and Dakota Heartland, Inc., were in the process of developing the Big Sky subdivision in Rapid City, South Dakota.  Rapid City Municipal Code required that developers wishing to subdivide land within the City’s jurisdiction, as a condition for obtaining final plat approval, pay for public improvements or sureties promising to make improvements such as streets, curbs, gutters, property markers, sidewalks, street lights, traffic signs, water mains, sanitary sewers, and storm sewers.  The developers had applied for final plat approval on 15 subdivision plats, for which subdivision improvements had either been made or sureties had been posted guaranteeing their completion.  However, before the City had completed final inspections and issued approvals, the sureties expired, leaving a number of improvements in a deficient state such that the City was unwilling to formally accept their ownership and maintenance.  Developers claimed they had informed their sub-contractors of the deficiencies, but that efforts to remedy the deficiencies had either failed or were never undertaken.  While the developers claim they spent $5.16 million to install the public improvements, as well as $77,400 paid to the City for inspection of those improvements, the City had still not accepted ownership responsibility for the improvements. 

 In 2008, the City filed suit seeking to compel developers or satisfy their obligations to build or correct deficiencies in the promised public improvements, requesting either injunctive relief or an order from the court requiring that the developers specifically perform the terms of the agreement.  The state circuit court granted developers motion for summary judgment, agreeing with the developers that the expiration of the sureties had ended the developers’ liability for the improvements.  The City appealed.

 After reviewing the City’s ordinances, which set out the public improvement requirements and the process for obtaining final plat approval, the South Dakota Supreme Court determined that the circuit court had erred in granting summary judgment to the developers, principally on the basis of public policy.  The court noted that holding for the developers would mean endorsing a system in which “any time a surety is posted, a developer can do nothing and hope that the city will let the surety expire.”  Since such a result would thwart the purpose of the regulations, the court held that the developers remained liable for the improvements until the City accepted the improvements by final acceptance letter and agreed to take ownership of them.  The decision of the lower court was reversed and the case was remanded for further proceedings.

 City of Rapid City v. Estes, 2011 WL 5866214 (S.D. 11/16/11)

The opinion can be accessed at: http://statecasefiles.justia.com/documents/south-dakota/supreme-court/25868.pdf?ts=1323966998


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