Blaine will pay $400,000 to settle developer’s lawsuit after council rejects apartments

Blaine will pay $400,000 to settle a lawsuit with a property owner who sued after the city denied a rezoning request to build apartments near Northtown Mall.

Wayzata-based Blaine/Atlantic Funding filed the federal lawsuit in 2023, arguing that the city violated the property owner’s equal protection rights by rejecting a 196-unit apartment complex at the site of a former Rainbow Foods grocery store. The owner argued the council did not have valid reasons to turn down the project, which drew protests from concerned neighbors.

“The City Council’s denial was a naked byproduct of neighborhood opposition,” Bryan Huntington, an attorney for the property owner, said in a 2022 letter to the council. He added that the decision was founded in “baseless assertions to nebulous risks of crime and traffic.”

The city argued it did not violate the property owner’s constitutional rights and pushed for the dispute to be dismissed. A judge in October denied requests for summary judgment filed by both the property owner and the city.

After a settlement conference in late February, the City Council at its Monday evening meeting approved the $400,000 agreement, with officials saying it was down from the roughly $1.4 million the owner originally sought.

“The City maintains, as it has throughout the legal process, that its decisions on the plaintiff’s project and other projects were legally sound and fully conformed with planning and zoning regulations,” Blaine city spokesman Ben Hayle said in a statement. “However, the Mayor and City Council recognize there is always some risk in allowing judges and juries to decide.”

He said the city decided resolving the suit “for significantly less than plaintiff had been seeking through litigation, was the best course of action at this time.”

After being unable to attract commercial tenants, the owner proposed a four-story apartment complex.

The property sits within the city’s Northtown Plan, which was created to guide redevelopment of the mall and surrounding area, with a mix of commercial, residential and public uses.

The owner argued the apartment proposal matched the vision in the Northtown Plan. It asked the city to rezone the site from commercial to high-density residential and approve a conditional use permit.

Residents quickly came out to oppose the project, citing concerns about traffic, air quality, aesthetics and crime. But the city’s planning commission still approved the request in the fall of 2022.

The City Council needed five “yes” votes to pass the zoning change, but fell short by one. Council members denied the request, saying the project was not consistent with the surrounding area, that the building was too large, and that it would increase traffic and harm the neighborhood.

Blaine Community Development Director Erik Thorvig told the council that if the apartments had been approved, the owner had a purchase agreement with a developer for about $4 million. The owner ended up selling the property for about $1 million less than that.

The property owner sued to recover the money potentially lost in the sale and other development costs. It argued the council had treated the owner differently after approving similar apartment projects.

The city denied that claim, saying other projects cited in the lawsuit were not comparable. The city also said it was following its comprehensive plan, which would need to be amended to allow high-density housing on the site near Northtown.

At the City Council meeting on Monday, Council Member Chris Massoglia said the settlement agreement was a “risk mitigation” decision that he supports, although he felt the city had a strong case.

Council Member Leslie Larson said the case was “angering” and disagreed with taxpayer dollars going toward settling it. She argued the city should “have stuck to our guns” and “protected the money of taxpayers.”

Thorvig said the city so far has spent about $70,000 on legal fees for the suit. After insurance deductibles, he said the cost to the city would total roughly $150,000.