Palm Coast Moves to Dismiss Town Center Development Lawsuit, Citing ‘Fundamental Misunderstanding’ of Utility Rules

Palm Coast government has filed a motion to dismiss a lawsuit against it by Town Center’s principal landholder and developer, calling the landholder’s claims a “fundamental misunderstanding” of the city’s land-use and utility regulations.

Palm Coast Holdings, the successor to Florida Landmark Communities and a subsidiary of Duluth, Minn.-based Allete Corp., sued the city in Circuit Court on Oct. 23. It claimed the city breached its contract with the developer by not guaranteeing sufficient water and sewer capacity, causing the developer to lose a multimillion-dollar deal to sell its Town Center holdings with two potential buyers. 

At the heart of the dispute is the interpretation of the development order for Town Center that the city issued in 2003. The 1,557-acre mixed use development was to be the city’s future downtown, developed in three phases. 

Palm Coast Holdings invested over $35 million in Town Center infrastructure, completing that work in 2007. Because it did so, it argues in its lawsuit, Palm Coast agreed that all developments within Town Center would be guaranteed city services, including water, sewer, parks and roads. 

The city sees it differently. The development order stated that sufficient capacity was available for Phase 1 of the development, but that “no building permit shall be issued for any subsequent phase of the Town Center DRI until sufficient capacity exists from the water utility to provide potable water meeting the adopted level of service in the City’s Comprehensive Plan.” The same wording applies to sewer capacity. (A DRI is a development of regional impact, the technical term for very large planned developments.)

“The Developer, in relying on the 2003 DO,” meaning the development order, “explicitly accepted that its right to develop beyond Phase 1 was conditional and entirely dependent on whether sufficient capacity existed at the time a permit was sought,” wrote City Attorney Jeremiah Blocher in the motion to dismiss filed late last month. The development order’s wording was restated explicitly in 2022 and 2024 amendments, reasserting that there is no “contractual guarantee of physical utility capacity,” Palm Coast’s motion states. 

The motion implicitly concedes a lack of capacity, noting as well the consent order in effect against the city’s Wastewater Treatment Plant 1 in the Woodlands, which services Town center. Though no such words were ever heard at City Council meetings after the consent order was issued over a year ago, either by council members or city staff, Blocher’s wording states explicitly that the order included “permitting restraints, effluent limitations, and ongoing compliance obligations for its wastewater system.” 

At different points Council member Theresa Pontieri and Mayor Mike Norris had called for a building moratorium in one form or another, only to be strongly rebuffed by fellow council members and the building industry. Pontieri’s call was in response to flooding concerns, not water or sewer capacity. Norris’s call was directly related to wastewater capacity. The Flagler Home Builders Association mobilized against him and helped defeat the motion.  The association sued the city a few weeks before Palm Coast Holdings did, but over a new schedule of development impact fees. 

“More recently, in December 2024, FDEP issued an updated Consent Order requiring the City to complete comprehensive infrastructure improvements and achieve full regulatory compliance by December 28, 2028,” Palm Coast’s motion states, referring to the Florida Department of Environmental Protection. “This Consent Order imposes binding obligations on the City and specifies a remediation timeline within which the City must bring its wastewater infrastructure into full regulatory compliance. The City cannot bypass these regulatory requirements, and any utility planning or capacity allocation decisions must be made consistently with the City’s legal duty to comply with the FDEP Consent orders and permit conditions.”

In effect, the city’s motion is using the consent order as a shield, or a defense, against the lawsuit, but doing so also raises the question Palm Coast Holdings was posing: Why has it come to this? The city spent some of the past year answering it, not always to the benefit of a strong legal defense against a lawsuit like Palm Coast Holdings’.

One of the most recurrent explanations by current council members has been that previous councils had not acted as the current council has—raising rates and borrowing heavily to build new sewer capacity. It’s not an accurate explanation. Successive councils since 2011 have raised water and sewer rates three times substantially, every time to address aging infrastructure. Even the council that, in 2024, refused to raise rates again as its administration strongly recommended, raised development impact fees for water and sewer connections. The council earlier this year did raise rates sharply.

The other recurrent explanation is more favored by the administration and closer to the truth: The city was unexpectedly overwhelmed by a surge in new residents starting before COVID-19 and accelerating during and after the pandemic, after post-recession doldrums. Water capacity was never an issue, but sewer capacity became an issue because of the Woodlands plant’s age. That fix is in the works.

The legal reasoning behind Palm Coast’s motion to dismiss is more technical. Palm Coast Holdings interprets the 2022 and 2024 amendments as enforceable guarantees. The city’s attorney rejects that interpretation because Palm Coast Holdings could not point to a single instance where an actual development was denied a permit. In other words, had Palm Coast Holdings submitted a development application for an apartment complex or a commercial development (as have others, to build both kinds of projects), permits would have been issued.

Rather, the city argues, Palm Coast Holdings is charging breach of contract based on a speculative assumption that permits would be denied, and only because “prospective purchasers” pulled out of a deal. The city rejects the claim that “this alleged ‘refusal’ to guarantee unspecified, hypothetical capacity to a third party constitutes repudiation” of Palm Coast’s contractual obligations.

Either way, the city argues that the development order is not an enforceable contract, but a “regulatory approval,” giving the city more room to enforce within its capacities—in this case, its literal water and sewer capacity. Future guarantees are unauthorized, the motion states, because development orders are “expressly conditional.” And even if Palm Coast Holdings could point to a valid contract, it could not point to a breach by the city, since no permits were denied. The rest is speculation, the motion argues.

Allete, which had owned Florida Water before Palm Coast acquired it 22 years ago, announced on Dec. 15 that it had been acquired by private-equity firms—BlackRock’s Global Infrastructure Partners and a Canadian pension fund—for $6.2 billion.

The first hearing in the case, by Zoom, is scheduled for March 2 at 1:30 p.m. before Circuit Judge Sandra Upchurch.

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