Michigan Supreme Court rules in favor of Visteon over bonds

On Friday, the Michigan Supreme Court announced it was denying Van Buren Township’s request to appeal the May 16, 2017 judgment by the Court of Appeals in favor of Visteon.
On Oct. 9, the Supreme Court heard oral arguments on the application for leave to appeal and VBT officials have been waiting ever since for a decision.
The Supreme Court order dated March 8 said arguments were considered and denied, “there being no majority in favor of granting leave to appeal or taking other action.” The vote was 3-3 to approve, so without a majority, it failed.
Chief Justice Pro Tem David Viviano wrote a 12-page statement of dissent on the order, joined by Chief Justice Bridget Mary McCormack, with Justice Richard Bernstein saying he would reverse the judgment of the Court of Appeals.
Voting to deny were Justices Stephen Markman, Brian Zahra, and Elizabeth Clement.
Justice Megan Cavanagh did not participate in the disposition of this case because the Court heard the oral arguments and considered it before she assumed office.
Van Buren Township Supervisor Kevin McNamara said Justice Kurtis Wilder, who was not reelected in November, recused himself from the case before being voted out. McNamara said Wilder was looking at a job with Butzel Long law firm if not reelected and Butzel Long is VBT’s law firm. He said it would be illegal, however, for Wilder to discuss the case with the Butzel Long lawyers on the VBT case.
Supervisor McNamara said it is the township board’s decision whether to refile the case, but he will recommend to the board not to refile.
At issue was whether the claim was not “ripe” because the township had yet to lose any money from the shortfall in tax funds from Visteon to pay the bonds. That shortfall will begin in October.
Both the Circuit Court and Appeals Court agreed that VBT can refile the complaint when a shortfall actually occurs.
In 2002, Visteon Corporation entered into discussions with VBT about the possibility of locating its national headquarters in the township. It was to be built in VBT’s new Local Development Finance Authority District (LDFA).
In 2003, VBT issued over $28 million in bonds to assist in the construction of Visteon’s headquarters, known as “Visteon Village.” VBT projects that property-tax revenue from the LDFA District would cover the costs of bond issuance.
By 2006, tax revenues from the LDFA District were lower than projected, so VBT issued new bonds in order to advance refund a portion of the original bonds. This allowed Visteon more time to pay the principal on the original bonds. As a result, VBT was able to temporarily avoid a shortfall, which was not having sufficient funds to make the bond payments.
Then in 2009, Visteon filed for bankruptcy. VBT filed an unsecured claim to recover unpaid amounts from earlier tax abatement agreements. In 2010, the parties entered into a settlement agreement, which provided that VBT would significantly lower Visteon Village’s assessed taxable value. In exchange, Visteon agreed to pay Visteon’s unsecured claim (which VBT subsequently sold for about $5.7 million).
The settlement agreement also contained the following provision, the meaning of which was now in dispute:
“ Section 3. Bond Payments
“Visteon acknowledges that the Township assisted Visteon in the construction of the Village through the issuance by the Township of certain bonds supported by the full faith and credit of the Township, the proceeds of which were used to help construct the Village. To the extent that the property tax payments made by Visteon to the Township, including payments made by Visteon to the Township pursuant to Section 2.2, are inadequate to permit the Township to meet its payment obligations in respect to that portion of the bonds that were used to help fund the Village, Visteon hereby agrees to negotiate with the Township in good faith to determine the amount of the shortfall with respect to those bonds and make a non-tax payment, payment in-lieu-of-tax, (PILOT) to the Township to assist the Township in making timely payments on the bonds.”
Visteon emerged from bankruptcy later that year.
In 2013, VBT retained Public Financial Management (PFM) to conduct a cash-flow analysis to determine VBT’s ability to pay on the bonds. In its report, PFM predicted that a shortfall ranging from $23.7 million to $36.4 million would occur sometime between 2017 and 2018. (Because VBT used the payments made by Visteon pursuant to the settlement agreement, as well as the funds obtained by the sale of the unsecured claim, to pay a portion of the interest on the bond, the shortfall is now projected to occur in 2019.)
Based on the report, VBT demanded that Visteon enter into negotiations to determine Visteon’s payment obligations under the agreement with respect to the projected shortfall. Visteon met with VBT but argued that it had no obligation to negotiate until VBT experienced an actual shortfall and, even in the event of a shortfall, Visteon argued that it may not owe VBT any amount under the contract.
VBT filed suit, seeking both a declaratory judgment and damages for breach of contract. As to the declaratory judgment claim, VBT asked that the court “adjudicate the Parties’ rights and obligations under the Settlement Agreement” and “enter a declaration that Visteon is responsible for payment of any shortfall…”
As to the breach of contract claim, VBT asserted that Visteon breached the agreement by “(i) refusing to negotiate the amount of the bond debt service shortfall in good faith and (ii) failing to provide – or commit to provide – the Township with funds to pay for any shortfall with the bond debt service payments.”
VBT also claimed “anticipatory repudiation,” pointing to certain statements made by Visteon indicating that Visteon did not believe it owed plaintiff anything under the agreement.
Visteon filed a motion for summary disposition, arguing that VBT’s claims were not ripe. Visteon argued that VBT’s claims rested upon a hypothetical future shortfall, so no actual controversy presently existed. The trial court agreed and granted summary disposition in Visteon’s favor.
The Court of Appeals affirmed the circuit court’s decision and added: “… In fact, defendant is not obligated to perform until after two conditions have been met: (1) a shortfall has occurred, and (2) property taxes paid by defendant are inadequate for plaintiff to pay that portion of the bonds that was used to fund the Village. This second condition cannot be met until after the shortfall has occurred and the parties have determined the amount due.”
Visteon sold its headquarters in 2012 to the New York real estate firm Sovereign Partners LLC for $81.1 million. Visteon had expected to have 4,000 employees on its 263-acre Visteon Village campus. It now is a tenant there with fewer than 1,000 employees.
In 2018, Visteon reported net income of $162 million on revenue of $3 billion.
Kaveh Kashef, the township’s lead attorney on the lawsuit, who moved from the Clark Hill law firm to Butzel Long last year, got a raise effective Aug. 1 from $300 to $375 an hour.
VBT has announced it has put money aside to meet the Visteon bond payments.