Lawsuit Settlement Highlights Incentive Pitfalls

by J.Emerson
lawsuit settlement highlights incentive pitfalls

A long-running lawsuit over the value of the land on which Hyundai’s Montgomery, Alabama plant is located has been settled. The Montgomery Industrial Development Board will pay former landowners $3.45 million to settle their claims. The particulars of the case illustrate the potential hazards faced by advocacy groups when they attempt to incentivize industrial development.

According to the story in the Montgomery Advertiser, the nearly decade-long lawsuit came to a head last November, when a jury awarded the plaintiffs $4.87 million in damages. The plaintiffs are a group of landowners whose acres were purchased by the Industrial Development Board (IDB) for the development of the Hyundai plant. The IDB is a quasi-public body whose members are appointed by the Montgomery City Council. In Alabama, these development boards are the bodies through which industrial incentive money is typically disbursed.

The landowners initially agreed to accept a price of $4,500 an acre for their land after negotiations with the IDB. This price was structured as part of an “option” deal: the land would only be purchased if it was found to be absolutely necessary to construct the plant. A conflict arose when a lone holdout, realizing the value of their position, negotiated a price of $12,000 an acre. This triggered a lawsuit by the other landowners, who had a clause in their contracts forbidding any one owner to receive more compensation than another. After a lengthy procession through the courts, the IDB has agreed to a settlement rather than prolonging the case. It’s still unclear where the money to pay for the settlement will come from. The Board’s website lists land sales, member fees, and certificates of deposit as some of the ways that it raises revenue; it’s also empowered to issue bonds, under the terms of state law.

There’s no question that Hyundai’s arrival has been a major boon to Montgomery, and to Alabama in general. The state and local government incentives offered to the company were instrumental in getting the new plant built. Even so, this lawsuit attests to the fact that incentive packages often carry hidden costs, especially in the legal arena. Caught between the promises made to Hyundai and the need to fairly compensate landowners, the Board got stuck in a bad negotiating position. Now it will have to cough up much more money than originally planned.

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  • Jonathan H. Jonathan H. on May 08, 2014

    My hometown, Glendale, KY, was one of the finalists competing for this plant when Hyundai decided to build in the US. Our state government had a site picked out and was busily trying to secure all the land(all family farms) required to woo the Koreans to the Kentucky. This is in addition to all the favorable tax incentives, footing the bill for interstate spurs and utilities, etc. The state was able to buy all the land they wanted except for one small farm on the outskirts of the "Future Home of Hyundai Motor Manufacturing" as they optimistically put it. That farm happens to be owned by some members of my family. My aunt and her son, who had farmed the land for decades, held out because the money they were being offered per acre wasn't enough to replace the livelihood they had in running the farm. The state continued to incrementally up the offer but the automaker chose Montgomery before a deal could be hammered out. Because of this, my family was pilloried by locals who wanted the plant at any cost as well as the governor himself who held up my aunt as the reason Kentucky lost out. The reality is that the politicians didn't have all their ducks in a row to tie into the interstate or get the right-of-ways further out in the county for the utilities. Plus, Alabama just offered more cash on the barrel head then Kentucky did. The state continued with the land grab despite not having anything to put on it and hundreds of acres still sit vacant as they keep trying to snare another manufacturing facility to occupy that spot. If my family had worked out a deal and Hyundai decided to build in Kentucky I'm sure this same type of suit would be happening as well due to the differences paid for different acreage.

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