Key Points

  • The Intermediate Court of Appeals of West Virginia affirmed dismissal of Fountain Place LLC's suit seeking continued payments of 57% of B&O taxes from the Fountain Place Mall under a 1997 Development Agreement.
  • The court held that W. Va. Code § 7-12-8 bars any indebtedness of a development authority, read broadly to include the tax-sharing obligation, from becoming the debt of the municipality that created it.
  • The court held that W. Va. Code § 7-12-13 transfers only a dissolved authority's assets, not its liabilities, to the creating city, contrasting statutes for other districts that expressly transfer obligations.
  • The court held the City of Logan was not estopped by payments made through May 2021 because it acted in a governmental capacity, and found no protected property interest supporting a takings or due process claim.
  • The court declined to decide whether the agreement violated the debt limit in Article X, Section 8 of the West Virginia Constitution and remanded for resolution of the city's pending counterclaims.

The City of Logan, West Virginia, does not have to keep paying a shopping-center developer 57% of the business taxes its mall generates, a state appeals court ruled Friday, holding that the promise belonged to a city-created development authority that dissolved around 2013 and that its debts never became the city's.

Judge White, writing for the Intermediate Court of Appeals of West Virginia, affirmed a Logan County judge's dismissal of the breach-of-contract and declaratory-judgment suit brought by Fountain Place LLC, which acquired the property and finished building the Fountain Place Mall. The city stopped the payments in May 2021, six years before the renewed agreement was set to expire in July 2027.

The decision turns on two provisions of the state law governing development authorities. The court read the first to bar any debt of an authority from becoming the city's debt, and the second to send only an authority's assets, not its obligations, back to the city on dissolution. The court also held that the city's later payments did not bind it under estoppel because the city had acted as a government rather than as a business.

The dispute began with a 1997 Development Agreement among the city, the development authority it established and Monterra, the original developer of a shopping center planned for an unincorporated area of Logan County. Monterra agreed not to object to the city annexing the property. In exchange, the city and the authority agreed to remit 57% of the annual revenue from business and occupancy taxes, known as B&O taxes, collected from businesses at the center for 20 years, with a 10-year renewal option. The opinion notes that "neither Monterra nor Fountain Place have paid any B&O taxes related to the shopping mall property."

Monterra declared bankruptcy in 1999, which the opinion attributes "in part to the immense cost of the project, which involved considerable excavation," and a federal bankruptcy court assigned its rights under the agreement to Fountain Place, which finished the mall. By 2013 the authority was no longer active. The record does not show whether the city dissolved it or "it simply withered away"; according to the city, one member may have died and others moved away.

The city kept paying Fountain Place directly, did not object when the company renewed the agreement in June 2016, and continued payments through May 2021, "when the City decided that it was not legally obligated to do so." Fountain Place sued in August 2023. Circuit Judge Joshua Butcher dismissed the case in July 2025, finding that the agreement created debt barred by Article X, Section 8 of the state constitution, which requires a three-fifths popular vote before a municipality contracts debt, and that the city was immune from the authority's liabilities by statute. The State of West Virginia filed an amicus brief supporting the city.

The appeals court declined to reach the constitutional question, deciding the case on the statutes and estoppel law instead. The development-authority statute provides that no "indebtedness of any nature of the authority shall constitute an indebtedness of the governing body of the municipality" and that creditors' rights "shall be solely against the authority as a corporate body."

Fountain Place argued that its right to a share of tax receipts was not "indebtedness" at all. The court disagreed, adopting a broad definition the state Supreme Court of Appeals had used in constitutional debt cases dating to 1891. Under that definition, Judge White wrote, "we have no trouble concluding that the Development Authority's obligation to pay Fountain Place a portion of B&O tax receipts" was a form of debt.

The court also rejected the company's argument that liabilities should follow assets to the city on dissolution. The dissolution provision "is silent concerning liabilities, and we are not at liberty to rewrite the statute by adding language which the Legislature did not include," the opinion said. Judge White contrasted laws governing municipal economic opportunity development districts and business improvement districts, which provide that a district's obligations are "transferred to and assumed by the municipality" when it is abolished.

The court likewise rejected Fountain Place's claim that relieving the city of the obligation amounted to an unconstitutional taking without due process, finding no protected property interest. The agreement itself acknowledged that enforcement could be limited by "similar laws affecting creditor's rights," the court noted. "Parties who contract with government entities are presumed to know the law, and to assume the risk that their agreement may not be enforceable if a government entity acts outside its authority," Judge White wrote.

On estoppel, the court held that the doctrine "cannot be used to compel a municipality to exercise powers which have not been granted to it," and that the city "was not required to continue making payments after it realized, perhaps somewhat belatedly, that it was not authorized to do so."

The court further held that estoppel does not run against a government acting in its governmental capacity. Creating the authority, annexing the land, collecting and abating taxes, zoning the site and allocating public funds are things "only a governmental entity can" do, Judge White wrote. Distinguishing older cases involving a city park and a waterworks, the court noted that Logan "did not own, build, operate, or derive profit or rent from the Fountain Place shopping complex."

Fountain Place argued that refusing estoppel would violate public policy. The court answered with a 1953 state Supreme Court of Appeals decision warning that allowing estoppel "on the basis of mistake or ill advised action by a former municipal authority would hinder and hamper governmental functions."

Lawyers for Fountain Place included Kent J. George of Robinson & McElwee PLLC and Karen T. McElhinny of Shuman McCuskey Slicer PLLC. The city and the development authority were represented by Paul D. Ellis of Ellis Law Offices PLLC, and Joseph A. Ford of Spilman Thomas & Battle PLLC represented respondents Fountain Place Realty LLC and Namdar DG Realty LLC. Attorney General John B. McCuskey appeared for the state as amicus.

The appeals court sent the case back to the circuit court for further proceedings, including the city's pending counterclaims against Fountain Place, which the opinion does not describe. The court said it had jurisdiction despite those open claims because the lower court's order disposed of every claim against the city and the authority.