A lawsuit that could block a massive Old Town project appears to be at a crucial phase.

The aggressive claim of Old Town condo owners is that a “fraudulent inducement” by the city cleared the path for the Museum Square development.

According to sources, a settlement offer has been made. The offer likely will be considered at a Scottsdale City Council “executive session” at 4 p.m. Tuesday, Feb. 22.

According to the agenda for the non-public portion of the meeting, City Council will “discuss and consult with the city’s designated attorneys to consider its position and to instruct its attorneys regarding ongoing litigation in the matter of Gateway at Main St. Plaza Scottsdale Condominium Association v. City of

Scottsdale, et al.”

The meeting closely follows Gateway at Main Street’s Feb. 6 answer to motions by the city and Museum Square developer to dismiss the lawsuit.

The Gateway at Main St. Plaza Scottsdale Condominium Association is suing both the city of Scottsdale and ARC Scottsdale Holdings – an affiliate of Macdonald Development, the Museum Square developer.

In 2019, after years of negotiations with the city and Gateway at Main’s board, Robert Macdonald purchased a 2-acre parking lot at North Marshall Way and East Second Street. The lot is across from Western Spirit: Scottsdale’s Museum of the West.

The most recent plan, according to the Scottsdale architectural firm Swaback, is for a community anchored by a towering hotel surrounded by four residential buildings. “Our focus is on Building 4,” Swaback posted last year, “which includes 92 new apartment units. Designed by Swaback, construction documents are completed, and Building 4 is expected to be the first to start construction.”

The project is at least temporarily on ice, however, as the lawsuit challenges “the viability of the termination and release of ‘covenants and restrictions’ executed on June 18, 2019.”

A key to Museum Square was the Gateway at Main Street condo association signing off on its rights to limit neighboring developments to heights of 60 feet.

“In or around early 2017,” according to the Gateway lawsuit, “Macdonald began discussions with the city to develop a $300 million project called ‘Museum Square’ on approximately 4.5 acres of properties encumbered by the Gateway’s Covenants consisting of four buildings that would be up to 156 feet tall.”

Macdonald plans a hotel as the tallest of a multi-phase development.

 

Flurry of filings

Six months after Gateway at Main filed the suit, a flurry of filings accelerated the case in Maricopa County Superior Court.

On Dec. 30, attorneys for the Museum Square development filed a second request  for the court to dismiss the lawsuit, saying the Gateway HOA claims are “insufficient as a matter of law.”

The motion to dismiss insists the claim is littered with “baseless allegations and innuendo about purportedly improper conduct by the city and ARC.”

On Jan. 16, the city of Scottsdale also asked Maricopa County Superior Court Judge Christopher Coury to toss the Gateway complaint, echoing ARC’s arguments.

Scott Malm of the firm Gust Rosenfeld is representing the city.

“The city of Scottsdale requests an award of attorneys’ fees and costs,” Malm added in his Jan. 16 filing, “… because this dispute arises from the termination of a restrictive covenant, which is a contract.”

Gateway at Main Street’s angry answer to ARC and the city doubles down on claims then-Assistant City Manager Brent Stockwell deliberately misled the board of the condo association.

The Feb. 6 response to the motions to dismiss states Stockwell “presented misleading drawings and models to Gateway” and “convinced Gateway to terminate the Covenants by misrepresenting that they were already void due to racist language …”

The Gateway filing includes an excerpt from a Jan. 18 Progress article: 

“Carol McNulty, who has lived at Gateway since 2008, said for

years she ‘had no idea about the covenants – I didn’t know we

had any control over what was being built around here.’

“She said she rarely misses a board meeting.

“McNulty said she was at the Stockwell-led meetings, but had

no idea about the plan to sign off on covenants …”

Gateway’s response to the motion to dismiss includes the entire article as “Exhibit A.”

The lawsuit alleges Stockwell manipulated board members and “overtly threatened the Gateway with a massive parking garage that the city said they would build immediately south of the Gateway if the Gateway refused to terminate their covenants.”

The suit claims the city tricked an elderly HOA president into signing off on the covenants termination – paving the way for the $28 million sale of city land to a developer.

The sale was approved in 2019 by City Council.

On Oct. 16, 2021, City Council voted 7-0 to approve zoning amendments and a development deal for Museum Square: a 190-room hotel, public plaza, three condo buildings and an apartment building totaling 346 rooms.

In 2022, the Development Review Board approved a 92-unit apartment building – referenced above by Swaback architects.

The plan included underground parking.

Now, a new City Council will decide how to proceed in defense of the Gateway lawsuit – or reach an agreement.

Only two members of the current City Council, Kathy Littlefield and Solange Whitehead, were part of the City Council that approved the Museum Square plan.