The company building the Seven Oaks development in Odenton has warned that it could go bankrupt if the county follows through on its threat and cashes in a $2 million letter of credit to pay for a new school.
Stephen N. Fleischman, vice president of the Halle companies, testified in county Circuit Court yesterday that Sovran Bank could put his company on a bad credit list and could call in $25 million in other loans.
He also said that in the event of Halle's default on the school agreement, the county could suspend all building and occupancy permits for the 4,700-unit development off Route 175, stopping construction and preventing homeowners from moving in.
The Silver Spring-based developer is seeking a court injunction to stop the county from sending in the $2 million letter of credit, a written guarantee from Halle to pay the second installment on a $4.7 million school in Seven Oaks.
Halle defaulted on the $2.1 million payment on July 1, saying the county reneged on an agreement to expand the Patuxent Waste Water Treatment Plant.
Without the expansion, Fleischman says his company can build only a portion of the proposed development, making a new school unnecessary.
"We were asked to pay for schools for 4,700 units," Fleischman testified. "Now, we can only build 2,900. That was not the original agreement. We were working in good faith that the agreement would happen."
Halle is suing the county for $18 million, asking for the return of some money it has already paid toward road improvements and recreation areas.
Halle has to convince Judge Eugene Lerner that county officials guaranteed the sewage system improvements -- despite needing County Council approval -- and that the sewer agreement was linked to the school agreement, despite not being spelled out in the signed documents.
"Everybody knew," Fleischman testified, "that to have a school without having sewers didn't make sense. Without houses, you don't have kids to go to school."
The county maintains Halle was never promised the treatment plant expansion and that the school and sewer agreements were never linked, either in writing or orally. Therefore, the county contends, Halle is responsible for the school regardless of the size of the development.
The county is scheduled to present its case today.
The County Council unanimously approved a master plan for wastewater treatment facilities in May, including an amendment prohibiting expansion of the Patuxent plant. Public pressure from Crofton residents, who feared the expansion would lead to more development, killed the proposal. Halle would have paid for 100 percent of the expansion.
Fleischman said he only learned part-way into the negotiating process that he needed County Council approval for the expansion. He said even then, he was told by county officials -- including County Executive O.
James Lighthizer -- that the council vote was just a formality.
"You know you can't rely on elected officials," Lerner said.
"We had assurance that it was done before, done all the time," Fleischman answered. "If it came down from the county executive, it would happen."
Fleischman said he started construction of Seven Oaks, anticipating the entire 4,700 homes could be built, so he scattered them throughout the development. He said he paid $12 million for building roads and water lines, about half of which may not be needed anymore.
He said if the judge allows the county to revoke building and occupancy permits, about 90 people will not be able to move into their new homes.
"They will be out on the street," Fleischman said.
Halle's attorney, Walter Childs, questioned county officials and Halle consultants, many of whom said it was obvious that the sewer and school agreements were linked.
Bill Gerald Jr., a self-employed real estate investor and Halle consultant, testified that he told county planning officials that Halle considered the money for the school linked to the sewer agreement.
Thomas Neel, director of the county Department of Utilities, which negotiated the sewer agreement, testified that "a reasonable man" would assume the sewer proposal "was a signed agreement."
"Did you ever say, 'It is a done deal, all it needs is to be inked?' " Childs asked him.
"Not to my recollection," Neel answered.