Around it was 448 acres of barren scrub land. Attempts at development had failed. One prospective builder had gone bankrupt.
But where others saw wasteland, Jeff Burum and Dan Richards saw what would become the Colonies, a master-planned community of upscale homes. Restaurants and a shopping center just a stroll away.
For cash-strapped Upland, it looked like financial salvation. But now, nearly a decade later, that old gravel pit looks increasingly like a nine-figure liability for San Bernardino County.
In 1997, the Colonies project seemed a winning proposition for all parties.
The development's partners would create a community of 1,150 homes and a 1.1 million- square-foot retail center.
Upland would reap the benefits of increased sales and property taxes.
Burum, an Upland developer with regional renown for his nonprofit affordable housing work, met the demands of the land's owner, the San Antonio Water Co. Along with at least 28 other investors, Burum bought the land for $16 million.
And while it couldn't be developed without city approval, Upland was more than eager, despite facing bankruptcy and already forced to lay off public-safety and parks personnel. The Colonies' project would generate as much as $3.5 million in sales tax for the city of 70,000 alone, said Upland's then city manager, G. Michael Milhiser.
"We had desperately - and I mean desperately - tried to get seven other developers to purchase that property," Milhiser said.
By 2002, however, the Colonies project had become the center of a bitter dispute between the developers and the county over who would pay for flood-control improvements necessitated by the Interstate 210 extension.
The developers demanded $25 million to turn the old gravel pit into a state-of-the-art flood basin. But the necessary work, the county said, could be done for as little as $3 million.
Five years and three trials later, the Colonies still wants the county to pay for the basin. But after making significant gains in court, the developer wants a lot more, as much as $300 million in costs, delays, and damages.
Attempts to negotiate a settlement have not only failed but also have fueled conflict among members of the county Board of Supervisors.
"The Colonies issue has been an incredible distraction to the board," said Supervisor Dennis Hansberger, who has opposed settling for anything near what the Colonies is demanding. "It has created a real schism between board members."
ROOTS OF DISPUTE
At the center of the Colonies' land, and at the center of the dispute, is the gravel pit - now a 67-acre flood-control basin.
Homes would be built around the basin, which would be landscaped into a grassy valley with trails, benches and bridges over a winding stream.
A nearby commercial area would provide high-end retail and restaurants, and 20 acres of the development would be set aside for a school, park and fire station.
"We wanted to up the bar," Burum told the Upland Planning Commission in 1998. "We wanted to make this a little more of a community development than had been originally proposed."
The I-210 extension would be a boon to the community, bolstering sales in the commercial center and giving residents easy access to other major freeways.
It also brought complications.
Upland residents successfully petitioned to have the freeway built below ground level through much of the city, forcing state, county and local officials to come up with a plan for rerouting stormwater runoff from the San Gabriel Mountains and from the freeway itself.
The Colonies property had historically served as a buffer against floodwaters. After a series of devastating floods in the 1930s, the county received easements on the property, granting the county Flood Control District limited rights to build and maintain drainage facilities there.
In a Dec. 7, 1999, agreement, the Colonies consented to the placement of the 20th Street Storm Drain on its property in exchange for the county's abdication of its flood-control rights on the development's first phase of about 305 homes.
The county's easements on the project's second phase would be lifted, the agreement stated, as soon as the Flood Control District and Upland signed off on the developer's flood-protection plan and all parties involved "entered into mutually acceptable agreements" about "the disposition of flood waters."
No such agreements were ever reached. But the idea that the county should have to pay for anything related to the drain is farfetched, Hansberger said.
"That was built to accommodate Upland, Caltrans and Sanbag (San Bernardino Associated Governments, the county's transportation authority)," Hansberger said in a recent interview. "The district was simply acting to aid other agencies. If there was a need to ask permission, it would have been Caltrans' duty to do that."
The developers, however, say they expected the county to foot the bill.
"It was definitely understood that the county Flood Control District and the county would have to pay for it," Burum said in a deposition.
`OVER BEFORE IT BEGAN'
Despite the vagaries of the agreement, the respective projects moved forward.
By 2002, the Flood Control District's 20th Street storm drain - a concrete pipe capable of delivering more than 23,000 gallons a second - was complete. Construction on the basin improvements, however, had not even begun.
The Colonies demanded $25 million from the county to cover basin upgrades that included landscaping and aesthetic improvements.
County officials refused, countering that the flood-control facilities could be built for far less, possibly as little as $3 million.
The Colonies developers stood fast, threatening to sue the county for as much as $200 million.
Then-County Supervisor Jon Mikels said at the time that the Colonies' demands were a scam against taxpayers.
Milhiser blames Mikels and his hot temper for the breakdown between the Colonies and the county.
"You can lay this whole thing in Jon Mikels' lap," Milhiser said.
Hansberger disagreed.
"Mr. Mikels never believed it was a public entity's job to subsidize development," he said. "I think it's curious to want to blame the guy who's not here anymore."
In a January 2002 meeting, Burum brandished a book on easements in arguing that the county's rights to Colonies land hinged on the county's willingness to pay for improvements.
Mikels was not impressed, Burum recalls.
"Now you can take that book and shove it. Get it out from in front of my face now," Mikels said, according to Burum.
"I stood up and I said, `I think the meeting's over,"' Burum recalled. "He said, `It was over before it began."'
Two months later, in March 2002, the Colonies sued to have the Flood Control District's easements invalidated.
POLITICAL INFLUENCE
Over the course of the next year, the developers took their battle to the voters, pouring hundreds of thousands of dollars into local elections.
They contributed more than $75,000 to the campaign of Rancho Cucamonga Councilman Paul Biane, who was running against Mikels for his seat on the Board of Supervisors.
"We play pretty heavily in politics," Burum said in a recent interview. "It wasn't that Mikels was rude to me. It was that he was a bad politician."
The developers also gave $255,000 to the San Bernardino County Safety Employees Association, which contributed $144,750 to the election campaigns of Biane and supervisors Gary Ovitt and Bill Postmus.
In addition, the Colonies also invested heavily in City Council races in Upland, giving Mayor John "JP" Pomierski more than $33,000 and three other council members $2,500 each.
After unseating Mikels in November, Biane pushed for a settlement with the Colonies.
His relationship with the developer, however, would eventually sour as attempts at settling the Colonies' lawsuit continued to stall.
"I've always been interested in settling the case based on the merits," Biane said in a recent interview. But not, he added, for "numbers that are out of the stratosphere."
Mikels, who has since moved out of state, declined to comment for this report, although he said he was interested to hear that Biane was now at odds with the Colonies.
"Both those parties are going to learn something," he said before ending the phone call.
DAYS IN COURT
As hopes for an amicable agreement faded, the Colonies turned to the courts.
The developer had already filed a lawsuit against Caltrans seeking to be reimbursed for land used for the I-210 extension and costs associated with additional runoff directed onto Colonies land because of the freeway.
State attorneys turned down the Colonies' pretrial settlement offer of $12 million, arguing that "just compensation" for 38 acres of the Colonies' property was only about $1.25 million.
After several unfriendly preliminary decisions by Superior Court Judge Peter H. Norell, who presided over the case, Caltrans eventually agreed to an $18 million settlement.
Caltrans officials, Burum said, "stepped in and said, `There's no way the land's worth that kind of money.' And they ended up paying for it."
In pursuing their case against Caltrans, Colonies attorneys argued that the state should pay for the basin improvements necessitated by construction of the freeway and the 20th Street storm drain. Included in the bill, the Colonies attorneys argued, should be the costs of containing the flood waters - the flood-control basin and the extra 40 acres of land needed to build it.
"Caltrans required that the drain be built and must pay for damages caused by diverting storm flows onto the Colonies property," attorney George Speir argued in a trial brief.
The settlement holds Caltrans responsible for damage "to the remainder" of the Colonies' property, but does not definitively state whether the floodwaters the project produced should be considered a Caltrans liability.
In a separate letter submitted to the court, Speir asked that the judgment be rewritten to state that San Bernardino County could still be found liable for the storm drain.
Burum claims the $18 million Caltrans paid for the land needed for the freeway and devaluation caused by the freeway's presence, not for the basin improvements.
In its case against the county, Colonies lawyers attacked the county's land rights, arguing that the easements granted in the 1930s were obsolete and that the current project did not fall within their scope.
County officials didn't budge, and on the day the lawsuit went to trial, the Colonies took its original offer - that the county simply pay $25 million for the basin improvements - off the table.
"Because no one stepped up to make any settlement offers, we filed our lawsuits contesting the validity of the easements," Burum said in an early deposition in the case. "And if we win that, you will have to pay us for the land."
In response to the suit, the county challenged the Colonies' grading permits in 2002, effectively halting construction on the development's next phase.
A judge ultimately allowed the Colonies to proceed with construction, but the time spent haggling with the county and its ultimately unsuccessful efforts to stop the development cost the Colonies three years of commercial income and tens of millions of dollars in construction delays, Burum said.
The county should pay for that too, he said.
"They were not acting in a good business sense, a good political sense, or a good Christian sense," he said.
JUDGES WEIGH IN
As the matter progressed through the county's courts, the Colonies built the flood-control improvements needed to accommodate the completed 20th Street storm drain.
In August 2003, the same judge who presided over the Colonies-Caltrans case ruled that the county's easements had been abandoned and that along with the construction of the flood-control basin, the county was liable for the cost of the land upon which the basin had been built.
While the decision did not include a monetary award for the Colonies, it did bolster their case in a second lawsuit against the county in which the developers are seeking unspecified damages that could exceed $300 million.
It also marked a point of no return in the dispute, Burum said.
"I will never settle with you now without getting compensation for our land," Burum told county lawyers in a deposition.
The county appealed Norell's ruling, and an appellate court overturned his decision, finding that the county's easements had not been erased. The appellate judges sent the case back to trial court to determine to what extent the easements covered the current improvements.
County spirits were buoyed, but only briefly.
Superior Court Judge Christopher J. Warner, appointed to the case by Norell when Norell retired, ruled in July that the county had far overreached its easements, to the point of rendering them moot.
In a scathing tentative decision issued in July, Warner blasted the county's handling of the entire matter.
"Defendant has continuously violated and repudiated its obligations to maintain, repair, operate, insure, properly permit, or take ownership of any of the facilities," he wrote of the county.
Because it had shirked its obligations, he wrote, the county had lost all right to the Colonies' land. Citing different reasons than Norell, Warner arrived at a virtually identical result.
The county "constructed and `turned on' the 20th Street drain, and then attempted to `walk away,' from the consequences of those actions," Warner wrote.
Response from county officials ranged from dismay to incredulity.
"Why didn't Judge Warner impose his own thought process on this?" Hansberger said of Warner's ruling. "Why are we hearing what Mr. Burum had to say, which the court of appeal said was entirely incorrect?"
Others faulted the county and their own colleagues.
In a statement released the day after the verdict, Postmus, chairman of the Board of Supervisors, blasted the county Counsel's Office, the county's outside attorneys and the media.
Supervisor Ovitt was more succinct: "We have been spanked pretty badly."
DEAL OR NO DEAL
Between the appellate court's ruling and Warner's decision, county officials came close to settling the case.
In March 2005, Postmus and Biane sat down with Burum and managing co-partner Dan Richards. At the meeting were lawyers from both sides and Jim Brulte, a former state senator who had done consulting work for both sides but said he represented neither in the negotiation.
"I saw my role as trying to help mediate," Brulte said.
According to a memo by county attorneys, the talks were supposed to be preliminary, and for a few hours, the conversation remained general.
But at 3:45 p.m., Postmus and Biane asked the attorneys to leave the room.
Three attorneys waited outside for more than an hour. When they were called back in, Biane informed them that a tentative settlement had been reached.
The county would pay more than $77.5 million for 37 acres of the flood-control basin it valued at $1.5 million an acre. Part of the settlement might include a swap of surplus county land, such as a portion of a 1,137-acre parcel below Deer Canyon north of Rancho Cucamonga.
Brulte later said he thought the deal would work out to both sides' advantage.
"I clearly was wrong," he said. "I thought a great deal of progress had been made, and I expected we were in the end game."
But the supervisors' negotiating methods, the timing of the agreement and its proposed compensation - virtually everything about the deal - had been ill-advised, the attorneys believed.
"We have serious concerns about whether it is in the Flood Control District's best interests," they wrote in a confidential memo.
A judge might later deem the settlement unreasonable, the attorneys suggested, preventing the county from recovering some of the costs from other potentially liable parties, including the city of Upland, Caltrans and Sanbag.
The attorneys also pointed out that the Colonies land in question was worth only "perhaps $1 million."
The deal collapsed.
Within a few months, the county attorneys who wrote the memo were off the case. County officials offered no explanation for their departure.
INTERNAL CONFLICT
While the negotiations went nowhere, the legacy of the confidential attorneys' memo lingered.
County officials ordered an investigation to determine how the memo was leaked to the public. Several board members suspected Hansberger, who had consistently opposed settling with the Colonies.
In a June 2005 Board of Supervisors meeting, Biane challenged his colleagues to take a polygraph test, the results of which he thought he knew.
"Dennis Hansberger broke the law," Biane said. "He should be in jail and shouldn't be a supervisor anymore."
Hansberger denied it, saying, "I have never violated the privilege of closed session, would never violate it."
Within a month, the District Attorney's Office closed its investigation.
"There was no significant chance of solving it," said Deputy District Attorney Frank Vanella.
Relations among the county supervisors remained heated and have only recently begun to cool.
That tension has dissipated, said Biane, who is expected to become chairman of the board next year.
"Every board member needs to be included in this discussion," he said. "Looking back, it might have been a problem on my part to think I could solve (the Colonies dispute) on my own."
STILL BUILDING
Even as the litigation has dragged on, the Colonies have been building.
The Colonies Crossroads shopping center is 60 percent complete and growing, with a supermarket and bank on the way. Ninety percent of the development's 1,100 homes are complete, Burum said.
The developers have not disclosed the financial status of the project, but it appears lucrative:
The Colonies' settlement with Caltrans exceeded the price paid for the land by $2 million.
Taylor-Woodrow homes, one of five builders working with the Colonies, paid $75 million for a 102-acre chunk of the land.
Burum said Upland was hoping for homes in the $300,000 to $400,000 range. But in the heady housing market of recent years, Colonies homes have sold in the $600,000 to $800,000 range.
"Nothing like a hot housing market to make a developer look smart," he said, adding that the Colonies partners haven't made as much money as some have suggested.
Besides, he said, the focus should be on the county's actions, not the Colonies' profits.
"If they had done this to somebody's house, you'd be up in arms about it," Burum said.
BACK TO THE TABLE
The county has filed a response to Warner's ruling, attacking a decision "with rare exception, taken verbatim" from Colonies legal briefs.
But the county has also returned to the bargaining table. After an eight-hour session of negotiations last week, county officials and the Colonies released a joint statement citing "great progress" and promising to return to the table on Nov. 1.
Still, a wide gap remains between the county's last public settlement offer and the Colonies' demands.
After Warner's decision, the Colonies offered to settle for $150 million - and said the number would continue to rise if the county didn't immediately accept.
The county countered with an offer of $77 million, contingent on Upland and Sanbag repaying the county a "significant" portion of the money.
Both the offer and the conditions were unacceptable, Burum said.
Observers in and out of county government say that four years of botched settlements, personal rancor and political intrigue has likely muddied the water to such an extent that a settlement would be impossible.
"I think the county wants to end it, but the cost of ending it now outweighs the price of keeping it going," Brulte said. "They're in a bad relationship, and I don't think they know how to get out."
Yet some county officials have publicly suggested that a settlement might be appropriate on limited grounds. During settlement talks last spring, Postmus said the county should have paid for the basin from the start.
And in a recent interview, Biane said the county's challenges to the Colonies' grading permits had been a mistake the county may have to pay for.
"There are different ways you can get to why you should be settling," he said, noting that he was unconvinced by the Colonies argument that the county's easements aren't valid. "My sense for why we should be engaged in settlement is more the delay and the impediments that the district staff caused."
With retired California Supreme Court Justice Edward Panelli, who mediated last week's negotiations, requiring confidentiality on the Colonies case at least until the next round of talks, there are no indications of whether either side's position has changed.
But before last week's settlement talks, Burum said he expected the county to fight the court until the end.
Though he remained open to a county offer, "I don't have confidence the county is going to settle this," Burum said.
Unless the Colonies accept far less money than they've asked for, that's for the best, Hansberger said in a recent interview.
Settling the case with the Colonies would set a precedent for similar payouts to other developers, he said.
"It deserves a decision by the appellate court or the state Supreme Court because of the long-term impact," Hansberger said.
And county attorneys, both in an outside of the county Counsel's Office, have consistently maintained that the Colonies' suit is trumped up.
"They're not playing their hand like a winner," Hansberger said. "They hire a PR firm to spin the story and hope that political pressure, public opinion, press and so forth will win the day because they don't have the confidence to see it in court."
The Colonies would see the case as far as the county wishes to take it, Burum said.
"When dealing with political issues, there is resentment there," he said. "But you know? We've gone through it."
LAWSUITS ABOUND
March 2002: The Colonies Partners LP files suit against San Bernardino County and the Flood Control District. In this longest-running of the Colonies lawsuits, the developers claim the county has no rights to the Colonies' property for flood-control facilities. A Superior Court judge agrees and rules in 2003 that the county has no rights to the land, but the decision is overturned on appeal.
October 2002: A group of Upland and San Antonio Heights residents challenges the environmental impact report on the Colonies development, saying it failed to consider whether groundwater supplies would be impacted. The lawsuit is settled in 2003 after an additional study found the project would not hurt groundwater recharge as much as previously anticipated.
February 2003: Caltrans and the Colonies settle the eminent domain action the state initiated in 2000 for $17.9 million. Caltrans agrees to settle after a judge rules the state undervalued 38 acres of land taken for the construction of the Interstate 210 extension, but does not hold the state responsible for runoff onto the Colonies' property from a storm drain built beneath the freeway.
2003: After a Superior Court judge rules in their favor in the first lawsuit, the Colonies files another one against the county and Flood Control District, seeking damages for diverting runoff onto their property. The developers claim they are owed as much as $301 million.
November 2004: San Bernardino County files suit against Upland, Caltrans and San Bernardino Associated Governments. The county believes the other three agencies share financial responsibility for runoff from the I-210 extension, which created the need for a more robust flood-control facility on the Colonies property.
POLITICS AND MONEY
Like many developers doing business in the Inland Empire, the team behind the Colonies project and related contributors have contributed its share of cash to various candidates in local elections. Though the flow of campaign cash has slowed significantly in the last year, Colonies developers were not afraid to donate vast amounts of money in previous contests.
Supervisor Paul Biane: Since his first campaign for supervisor four years ago, $27,650 from the Colonies and its four managing partners, and nearly $63,000 from other Colonies investors.
Board of Supervisors Chairman Bill Postmus: $5,990 since 2001, plus $1,250 from another Colonies investor.
Supervisor Gary Ovitt: $30,000 for his campaign in 2004.
Supervisor Josie Gonzales: $5,000 in 2005, after her election to the county board.
Upland Mayor John Pomierski: $33,999 since 2003.
Upland Councilmen Brendan Brandt, Ray Musser and Tom Thomas: $2,500 each in the 2002 election.
Former Assemblyman John Longville, D-Rialto, who ran for supervisor against Josie Gonzales in 2004: $20,000.
The developers have contributed $255,000 to the San Bernardino County Safety Employees' Benefit Association since 2004. SEBA gave a total of $144,750 to the campaigns of Biane, Ovitt and Postmus over the same time period. The association also spent money on ads blasting foes of Biane and Pomierski.
Additionally, the Colonies in 2002 gave $12,453 to a political action committee that produced mailers opposing former Supervisor Jon Mikels and an Upland City Council candidate who opposed the project.
Sources: California Secretary of State, San Bernardino County Registrar of Voters.
BIG MONEY
The Colonies developers say they are owed as much as $301 million by San Bernardino County. Their claim is hotly disputed by county officials, and even the developers don't seem to think they'll get that much (they've offered to settle for half). Nevertheless, they contend, it's justified:
$108 million for property taken for flood-control purposes. That's 72 acres at $1.5 million each.
$75 million to create a nonprofit organization to maintain and operate the flood-control facilities.
$43 million in devaluation of land while the county impeded the developer's ability to sell 457 lots.
$36 million lost due to a three-year delay in opening the Colonies Crossroads shopping center.
$28 million for construction of the flood-control basin and other facilities.
$11 million in higher infrastructure costs.
Source: The Colonies
AT A GLANCE
COLONIES vs. COUNTY
A dispute between the developers of the Colonies in Upland and San Bernardino County could cost taxpayers hundreds of millions of dollars. At issue is responsibility for a 67-acre flood-control basin at the heart of the Colonies development in northeast Upland.
The basin, needed to handle run-off from the San Gabriel Mountains, was expanded with construction of the Interstate 210 extension. Colonies Partners LP, which built the facility, says the county is liable for as much as $301 million for the basin's cost and the partnership's losses due to consistent bungling by county officials.
The county, however, says that amount is absurd. County officials contend their rights to the land allowed them to require that the flood-control facilities be built and that the Colonies' original plan for the basin was too extravagant.
On the issue of land rights, a Superior Court judge has tentatively ruled in favor of the developers, meaning taxpayers could be on the hook for millions. However, settlement talks are under way, and the issue is far from resolved.
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