EIJIRO KAWADA; The News Tribune

The developer of a 101-unit housing subdivision on South Hill is suing Puyallup over its power to impose development requirements on projects outside the city limits.

And builders' associations are backing the developer, saying they are concerned statewide about the issue the lawsuit raises.

Puyallup says the suit is about a breach of contract by Federal Way developer Regent-Mahan, and that the building industry is trying to create a buzz around something that has nothing to do with the merits of the case.

"They are committing fraud on taxpayers by signing a voluntary contract, enjoying the benefit and suing the city," said Puyallup City Attorney Gary McLean.

Whatever the outcome, the lawsuit likely will have a ripple effect on how cities deal with developers who want to build houses just outside city borders.

Both sides made their arguments Wednesday in front of Pierce County Superior Court Judge Brian Tollefson. Puyallup had filed for summary judgment, which means it wants the judge to throw the lawsuit out. But time ran out Wednesday, and arguments will continue today.

If Tollefson throws out the case, developers say it would hamper their ability to build affordable houses in Washington.

If Tollefson rules in favor of Regent-Mahan, many cities will be reluctant to sign agreements with developers, McLean said.

At issue are "utility extension agreements" that developers often sign with cities when they build houses in urban growth areas - land outside city limits that is likely to be annexed later into adjacent municipalities.

In such an agreement, a city guarantees utility services, such as sewer, to a developer planning to build houses in its urban growth areas. In return, the developer promises that houses will be built in accordance with city codes, which usually are stricter than counties'.

In Pierce County, developers often benefit from these agreements because they can build more houses with sewer connections than septic systems.

Regent-Mahan signed two utility extension agreements with Puyallup in the summer of 2002 to develop the 23-acre Blackstone housing development.

The developer says he had no other choice but to sign the agreements since Puyallup is the only sewer provider in the area; the city says there are other providers.

Later, Regent-Mahan filed the lawsuit, questioning Puyallup's authority to force the developer to follow the city's codes and claiming $5 million in damages. The lawsuit alleges that the city's development requirements caused costly delays and redesigns of the project, among others damages.

"Our view is that the city can no longer leverage their sewer extension authority," said Carolyn Lake, attorney representing Regent-Mahan. "This is an issue erupting statewide."

The Master Builders Association of King and Snohomish Counties filed a similar lawsuit against the City of Stanwood earlier this month. In the Puyallup case, officers from the Building Industry Association of Washington and Master Builders Associations have filed declarations supporting Regent-Mahan.

McLean said the developer clearly has benefited from the agreement by creating more lots than it would have under septic systems. It then turned around and sued the city.

But Lake said her client didn't benefit from the agreement because he didn't have any choice but to ask for a sewer connection from Puyallup.

The agreements Regent-Mahan signed with Puyallup say that the developer will not sue as a result of the process for obtaining the utility service. But Lake now says that specific clause should be voided because it allows the city to withhold an essential city service over which it has a monopoly.

Several Puyallup officials, along with three City Council members, came to hear the arguments Wednesday. In their declarations to support the city, some said they never would have approved the agreement with Regent-Mahan had they known it would come to this.

"This never happened before," City Attorney McLean said. "What (Regent-Mahan) has done could spoil the apple cart for all developers. Why would cities do this if they think developers are going to sue them later?"

Eijiro Kawada: 253-597-8633
eijiro.kawada@mail.tribnet.com