Town Sues Developer for $51 Million

The Grafton Board of Selectmen have filed a seven-count civil complaint against Hilltop Farms Development, LLC and its parent company Pulte Homes of New England, LLC, seeking $51 Million in damages related to a lucrative residential subdivision Pulte built in Grafton under General Laws Chapter 40B, the so-called “comprehensive permit statute.”

Under a contract signed by Hilltop Farms in 2004, the developer agreed to cap its profits at 20% of development costs. Any profits in excess of the 20% profit cap were to be given to the Town’s Affordable Housing Trust Fund for reinvestment in affordable housing in the community.

Hilltop and Pulte initially reported earning a profit of less than 20%, but a two-year investigation launched by the state Office of the Inspector General in 2009 revealed that Hilltop earned approximately $17 Million in “excess profits,” according to the suit.

The IG’s findings, summarized in a 25-page report, were delivered to the Board of Selectmen on Nov. 7. The selectmen filed their complaint in Worcester Superior Court Feb. 17.

The case is now in federal district court.

The town is seeking treble damages of $51 million under the state’s unfair business practices statute, Chapter 93A. In the complaint, the town alleges that Hilltop and Pulte filed a misleading and erroneous “certified cost and income statement” after the project was completed, which concealed profits earned by related parties but carried as project expenses.

The town is claiming that Hilltop also materially inflated its land acquisition cost in the cost statement, claiming a $7.8 million expense despite only paying $900,000 for the land (the IG recorded an adjustment of $6.9 million).

In another instance, the IG discovered through subpoenaed documents that Hilltop had recorded $818,527 in “accrued” expenses with no subsequent cash disbursement, and no subsequent amendment to the cost statement, the suit alleges.

Pulte also “paid” itself $2,540,603 in “administrative and overhead” for the 256-unit project, which grossly exceeds the current cost standards set by the state Department of Housing and Community Development under Chapter 40B, according to the suit.

The town established a municipal Affordable Housing Trust in 2007 to facilitate the production of low cost housing throughout the town. The town is represented in the case attorneys Daniel C. Hill, Jonathan Witten and Barbara Huggins.

The IG’s report can be seen here. http://www.mass.gov/ig/publ/grafton+hilltop+farms+c40b+development.pdf.