Westfall, Pennsylvania Files For Bankruptcy Protection
WESTFALL, Pa. — A decade ago, this small Pennsylvania town was found to have engaged in racketeering to thwart a condo development. Then years later it was found to have wronged the developer yet again.
Now, with a $20 million judgment hanging over it _ an amount 20 times its annual budget _ this community finds itself desperately looking for a way out of its financial predicament.
As a last resort, it has taken the rare step of filing for bankruptcy protection, and a federal judge in Wilkes-Barre is scheduled to hear the case Wednesday.
Westfall sits where Pennsylvania, New York and New Jersey meet at the Delaware River. Cows no longer stop traffic on the main road out of town, and a large home-improvement store now sits on what used to be a cornfield, but the wooded, mountainous land bought by developer David Katz more than 20 years ago remains largely undisturbed.
The ongoing legal battle has left Westfall's 2,500 residents facing the prospect of soaring tax bills even if the town gains bankruptcy protection, something experts say is unlikely.
"I don't see how we're not going to get hurt by this," said John Dalton, a retired postal worker who has lived here for five years. "Things may have been mishandled in the early days, and now it's going to affect everything, especially the sale and resale of homes. Who's going to want to buy property here?"
Katz, who now lives in Florida, has opposed Westfall's bankruptcy filing and said he could not comment further while the case was unresolved.
Municipal bankruptcy filings are not common. Attorneys in the Westfall case said Pennsylvania has never had one, and New Jersey has had only one since the Depression, by Camden in the late 1990s. Nationwide, 15 towns sought bankruptcy protection from 2006 to 2008, according to the Virginia-based American Bankruptcy Institute.
It would be extremely unusual for a federal court to grant bankruptcy to a town, according to Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois-Chicago and an expert in municipal bankruptcies.
In lieu of bankruptcy protection, a state often will assume fiscal control of a town or city, Pagano said. That happened in Camden and in Cleveland in the late 1970s and in Bridgeport, Conn., in the 1990s.
Attorneys involved in the Westfall bankruptcy filing did not want to comment directly on the case, but Pagano said that even if bankruptcy is granted, residents are likely to take a hit.
"Just because it's under bankruptcy protection doesn't mean there wouldn't be an adjustment to fees and taxes to pay this debt," he said.
For longtime resident Bernard Swartwood, the director of communications for Pike County, the economic uncertainty has forced some difficult choices.
"I got my parents out," he said. "I can survive, but you can't stay in Westfall Township and survive on a fixed income. I had to tell my father, who was born and raised there, that he had to move."
Fifteen years' worth of court filings paint a picture of a dispute that turned ugly in the mid-1980s after Katz bought about 730 acres of mostly undeveloped land in a mountainous area next to Interstate 84, part of which was to be used for a condo development.
According to a 1994 lawsuit filed by Katz, a group of residents who lived nearby and had made an unsuccessful bid to buy the property embarked on a campaign to block him by gaining seats on the town's board of supervisors and using that power to delay approvals and permits.
They effectively blacklisted him and rezoned the area specifically to prevent him from developing the property, he claimed. The zoning changes were made in private meetings without public participation or knowledge, in violation of state law, according to the suit.
None of the board members named in the original lawsuit still serve on the board. An attorney representing the current board did not return phone messages seeking comment.
The lawsuit also described repeated harassment, including an incident in which a resident threatened Katz with a gun and others in which property was vandalized, a truck was set on fire and explosives were placed in machinery. Anti-Semitic slurs were used on a number of occasions, the suit alleged.
The township denied Katz's claims, but in 1999 a federal jury found Westfall guilty of violating Katz's civil rights and awarded the developer about $10 million.
Katz later agreed to accept less money in return for the town providing water and sewer lines to the planned development. But he later sued for breach of contract and a federal appeals court upheld a $14 million judgment in 2005. With interest, that figure has ballooned to more than $20 million.
Swartwood said he believes what was done to Katz was "totally wrong" _ even though like others, he didn't want to see Katz turn land used for hunting and other recreation into a condominium complex.
"But things change, and unfortunately there wasn't anything legally that could be done to stop it," he said. "But apparently some people felt differently."
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DAVID PORTER | June 16, 2009 05:24 PM EST |
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