Zions First National Bank has filed a $25 million lawsuit against Draper, alleging the municipality mismanaged the 3,600-acre SunCrest development atop Traverse Ridge, leading it to fail financially.
SunCrest filed for Chapter 11 bankruptcy protection in April 2008.
Zions' June 11 3rd District Court lawsuit claims Draper's "interference and wrongful acts" eventually led SunCrest to bankruptcy. As a result, the suit claims SunCrest defaulted on loans to Zions.
The court papers say the bank provided SunCrest with a development loan and line-of-credit loan that together total more than $45 million. The documents don't specify how much, if any, was repaid.
Thursday afternoon, Rob Brough, Zions executive vice president, said the bank filed suit because "it's the only option left" in its efforts to move the project forward.
Draper Assistant City Manager Andy Hall said he could not respond to specific allegations in the suit, but said city officials didn't treat SunCrest developers differently than others. He added, however, that the City Council wants to find a solution to the dispute with the bank.
The legal action, on the other hand, alleges that Draper has been anything but helpful.
The city "appeared to be poorly managed, overwhelmed by the size and scope of the development and repeatedly failed to comply with its obligations to SunCrest."
City officials refused to approve subdivision plats or issue building permits that were required under the SunCrest Master Plan agreements, the suit contends.
In addition, it states Draper officials want practically every road in the development to be reconstructed or repaired.
Most notably, "Draper demanded Zions Bank pay $25 million for the total reconstruction of SunCrest Drive ... [when] if repair was needed, it would cost less than $2 million."
Hall conceded the city refused to dedicate several failing roadways within the troubled development, and that officials identified as inadequate portions of the high-end project's water system.
"We look forward to future development of SunCrest. We view it as a great part of our community with loads of potential," he said. "The City Council has dedicated itself to mitigating" shortcomings within the development's infrastructure.
But Hall added that the council cannot burden taxpayers with substandard roads and water system.
"We hold all developers to the same standard," he said.
About a thousand houses have been constructed at SunCrest. That's only one-third of the project's planned build-out. A December 2007 appraisal had reportedly valued SunCrest's undeveloped acreage at $51.6 million.
In July 2008, amid a slumping housing market, a court approved Zions' $25.3 million bid to buy the project's remaining property.
Zions' suit also alleges that Draper caused potential buyers of SunCrest to withdraw.
"Draper repeatedly sabotaged negotiations with potential developers" to take over the development and "threatened potential buyers with demands and exactions that were illegal and unnecessary."
By contrast, Hall said developers bowed out after realizing the expense of infrastructure upgrades.
