MeadWestvaco Sues City Officials Who Change Mind Over New DC

In early August attorneys for MeadWestvaco Corp. (Stamford, Conn.) sued the city of Buena Vista, Va., for $7 million in damages for alleged legal shenanigans in connection with a proposed deal to build a $20 million consolidated distribution center in the city.

MeadWestvaco announced its plans to build a 600,000-sq.-ft. facility in Buena Vista in April 2005. The company planned to consolidate some of its local warehouses into the location, reduce inventory and speed order turnaround.

After the announcement local residents complained about the size of the facility and the heavy truck traffic it would create. They got the attention of the Buena Vista City Council. The lawsuit alleges city officials “changed their mind” about giving the company land in the Rockbridge Regional Industrial Park. The industrial park was a joint venture among Buena Vista, Lexington, Va., and Rockbridge County, which was to be operated by the Rockbridge Regional Industrial Development Authority (IDA). To prevent MeadWestvaco from locating in the industrial park, the city's own industrial development authority purchased the land from the regional IDA.

By buying the property, MeadWestvaco says in its lawsuit that Buena Vista broke an agreement to allow the company to locate in the park and should pay the company for the cost of the plans it developed for the site, costs for site preparation and costs it will pay to find a suitable location somewhere else. MeadWestvaco has since announced plans to build a distribution center near Raphine, Va., according to a company spokesperson.

Below is the full text of the lawsuit, which was filed on August 2, 2006:

COMPLAINT

Comes now MeadWestvaco Virginia Corporation ("MeadWestvaco) and for its Complaints against the City of Buena Vista, Virginia ("Buena Vista" states:

1. MeadWestvaco is a wholly owned subsidiary of MeadWestvaco Corporation, a publicly traded corporation. MeadWestvaco manufactures and distributes packaging materials. MeadWestvaco is a corporation qualified to transact business in the Commonwealth of Virginia.

2. Buena Vista is a Virginia municipal corporation.

3. The Industrial Development Authority of the County of Rockbridge, Virginia and the City of Lexington, Virginia, and Buena Vista ("Regional IDA) is an industrial development authorized created pursuant to Virginia Code Ann. Sec. 15.2-4900 et seq. The Regional IDAs members are Buena Vista, the City of Lexington and the County of Rockbridge.

4. Rockbridge Area Economic Development Commission ("RAEDC") is a joint venture established to promote the economic development of Buena Vista, the City of Lexington and the County of Rockbridge. RAEDC's members are Buena Vista, the City of Lexington and the County of Rockbridge.

5. The Regional IDA and RAEDC operate jointly under the name "the Rockbridge Partnership" and hold out the Rockbridge Partnership as "Engineering the Economic Prosperity of Buena Vista, Lexington and Rockbridge County, Virginia."

6. Under an agreement among Buena Vista, the City of Lexington and the County of Rockbridge and the Regional IDA, real estate in the City of Buena Vista was acquired to be offered for industrial and commercial development and titled in the name of the Regional IDA and known as the Rockbridge Regional Industrial Park - Buena Vista. ("RRIP-BV). The three localities agreed to share the tax revenue generated by the property on the following terms: 55 percent to Rockbridge County, 15 percent to the City of Lexington and 30 percent to Buena Vista. RAEDC's board of directors is composed of two representatives each from the City of Lexington, the City of Buena Vista and Rockbridge County. The Regional IDA board of directors is composed of two representatives each from the City of Lexington, the City of Buena Vista and Rockbridge County who elect a seventh director.

7. Buena Vista owed RAEDC, the Regional IDA and the Rockbridge Partnership fiduciary obligations by virtue of its membership in RAEDC, the Regional IDA and the Rockbridge Partnership. Additionally, Buena Vista's representatives on the boards of directors owed the entities fiduciary obligations to act in the best interests of the entities for which they served as directors.

8. This is an action against Buena Vista for its tortious interference with contractual agreements and a contractual expectancy of MeadWestvaco with the Rockbridge Partnership, include RAEDC and the Regional IDA.

9. Beginning in May 2004, MeadWestvaco began a search for a location in the vicinity of Covington, Virginia, with interstate highway and railroad access for a consolidated distribution center("CDC") for its production where it would consolidate the operations of a number of smaller distribution centers.

10. Upon the invitation of the Rockbridge Partnership and inducement by its constitute members, including Buena Vista, MeadWestvaco identified certain property located in RRIP-BV as a possible site for the CDC. (The real property at issue is referred to herein as the "Property")

11. By letter dated December 15, 2004, from the Rockbridge Partnership, 44.46 acres in the RRIP-BV were made available for the CDC at no cost based upon the representations made by MeadWestvaco and FFI, Inc., a Virginia corporation involved in the project. Additionally, Buena Vista was held out specifically as a very suitable site. The conveyance was conditioned upon entering a performance agreement guaranteeing a certain level of capital investment and employment. This correspondent is attached as Exhibit A.

12. Beginning in January 2005, in reliance on inducements of the Rockbridge Partnership, including Buena Vista, MeadWestvaco expended considerable sums of money in preparing the Property for development. The approximately amount of these costs is $200,000. These costs included real property acquisition costs, site studies, engineering and environmental approvals and the like.

13. MeadWestvaco proposed to construct a 600,000 square foot CDC on the Property. Under this plan, MeadWestvaco would close a 150,000 square foot distribution center currently located in Buena Vista and operated through FFI, Inc., and consolidate those operations along with ten other centers at the 600,000 square foot CDC.

14. Repeatedly in 2005, Buena Vista communicated to MeadWestvaco its desire to complete the CDC project in RRIP-BV and that it would work with MeadWestvaco in order to bring the CDC to RRIP-BV. Communications expressing Buena Vista's excitement and appreciation for MeadWestvaco selecting the Property on April 27, 2005 is attached as Exhibit B.

15. In June 2005, it was discovered that a portion of the Property (approximately 13.5 acres) was zoned residential, despite the fact that it was located in an industrial park and owned by the Regional IDA.

16. In July 2005, the Regional IDA filed a request with Buena Vista to have the zoning of approximately 13.5 acres changed from a residential to an industrial zone.

17. On our about October 10, 2005, the Regional IDA voted to withdraw its request for the re-zoning because it was advised Buena Vista City Council would not approve the rezoning change.

18. On or about October 10, 2005, MeadWestvaco announced plans to construct a 450,000 square foot CDC on the Property. Under this proposal MeadWestvaco would use the 150,000 square foot FFI facility, already located in Buena Vista, for distribution. The 13.5 acres zoned residential would be used as a buffer between the CDC and the surrounding residential neighborhoods and would not need to be rezoned.

19. On November 15, 2005, the Rockbridge Partnership staff recommended that the RAEDC reaffirm its unanimous decision of May 10, 2005 and re-authorize the Regional IDA to enter into the Performance Agreement with MeadWestvaco.

20. On December 19, 2005, the RAEDC once again authorized and directed the Regional IDA to enter into a Performance Agreement for the construction of the CDC with MeadWestvaco. A copy of the minutes were RAEDC directed the Regional IDA to enter into the Performance Agreement, which incudes the terms of the Performance Agreement, is attached as Exhibit C.

21. A meeting of the Regional IDA was duly called to be held on December 22, 2005 to approve the Performance Agreement, a step which MeadWestvaco was not advised in the process was necessary.

22. The December 22, 2005 meeting of the Regional IDA was postponed after receiving notice from the Buena Vista City Attorney that the meeting had been improperly called.

23. On December 28, 2005, at the meeting of the Regional IDA continued from December 22, 2005, Buena Vista requested a change in the agenda, which was approved, and announced a proposal to purchase the Property from the Regional IDA, stating it objected to the Rockbridge Partnership selling the Property to MeadWestvaco. Using undue influence on its partners and joint ventures and in violation of its fiduciary obligations, Buena Vista promised to negotiate with the Regional IDA to purchase the Property and to make a $75,000 non-refundable deposit towards the purchase of the property.

24. At the meeting on December 28, 2005, the Regional IDA, in response to the undue influence of buena Vista, voted to negotiate a price for sale of the Property to Buena Vista and not to transfer the Property to MeadWestvaco.

25. On or about January 3, 2006, counsel for MeadWestvaco sent a letter to, among others, the City Attorney and Mayor of Buena Vista, notifying Buena Vista that MeadWestvaco had suffered substantial damages as a result of the actions of Buena Vista.

26. Following negotiation between the Regional IDA and Buena Vista, the Property was sold to Buena Vista on or about May 30, 2006, and the property was subsequently conveyed to Buena Vista. The Property is currently owned by Buena Vista. On information and belief, Buena Vista is marketing the Property for commercial and industrial development.

27. As a result of the actions of Buena Vista, MeadWestvaco has been forced to negotiate to purchase a site for the CDC that is farther away from Covington. Further, the actions of Buena Vista have caused delay in the CDC project, which has increased operating expenses for MeadWestvaco because its smaller distribution centers remain open. Finally, MeadWestvaco will have to pay increased hauling charges during the life of the new CDC because the prospective site for the new CDC is farther from Covington than the RRIP-BV site.

28. MeadWestvaco has a valid contractual relationship or business expectancy with the Rockbridge Partnership, the Regional IDA, Rockbridge County, the City of Lexington and the City of Buena Vista regarding the Performance Agreement and conveyance of the Property to MeadWestvaco.

29. Buena Vista had knowledge of the contractual relationship among Buena Vista, the City of Lexington, Rockbridge County, the Rockbridge Partnership, the Regional IDA and RAEDC and the business expectancy of MeadWestvaco regarding the Performance Agreement and the transfer of the Property to MeadWestvaco by the Regional IDA.

30. As a result of the unlawful actions of Buena Vista interfering with the contractual obligations of the Rockbridge Partnership and its constituent members and procuring the Property for itself in violation of its fiduciary obligations to the Rockbridge Partnership, the Regional IDA and RAEDC, the Regional IDA refused to transfer the Property to MeadWestvaco and refused to abide by the Performance Agreement and instead agreed to sell the Property to Buena Vista for Buena Vista's sole benefit.

31. Buena Vista, in violation of its own fiduciary obligations, obstructed the efforts of its partners and joint partners to meet the contractual obligation to MeadWestvaco and engaged in self-dealing the assets of the Rockbridge Partnership, the Regional IDA, and RAEDC for its own benefit to the detriment of its partners and joint partners.

32. Buena Vista used its position as a member of the Regional IDA to cause the Regional IDA to refuse to transfer the Property to MeadWestvaco in oder to serve Buena Vista's own pecuniary interests and against the interests of the Regional IDA, the Rockbridge Partnership and RAEDC. Buena Vista was not acting within the scope of its authority as an agent of the Regional IDA in taking these actions but was instead acting outside the scope of that authority for its own pecuniary interest and against the interests of the Regional IDA.

33. Buena Vista caused the contractual relationship and/or business expectancy between the Rockbridge Partnership, RAEDC and the Regional IDA and MeadWestvaco to be terminated through wrongful and improper means of interference. These wrongful and improper means include but are not limited to undue influence, self-dealing, misuse of inside or confidential information, breach of fiduciary duty and breach of duty of loyalty.

34. Buena Vista was acting in a proprietary capacity and not in a governmental capacity when it caused the Regional IDA not to approve the agreement with MeadWestvaco and made its offer to purchase the Property.

35. As a result of the tortious interference by Buena Vista, MeadWestvaco has suffered substantial damages, including expenses incurred in preparing the Property for us, and increased costs and expenses as follows:

1) Site development costs for the RRIP-BV Property of $200,000

2) Costs to purchase a site for the CDC and to prepare the site;

3) Incremental costs of continuing operation of multiple distribution centers caused by the delay in opening the CDC as agreed in Buena Vista for approximately one years in the amount of $4 million;

4) Increased hauling costs to the new CDC site; and

5) Additional incremental expenses caused by the delay in opening a new CDC.

Wherefore, MeadWestvaco respectfully requests that it be awarded damages against the City of Buena Vista in the amount of $7,000,000 ($7 million) plus interest from December 28, 2005, and its costs expended.

TRIAL BY JURY DEMANDED.

James W. Jennings, Jr.

B. Webb King

Woods Rogers PLC

P. O. Box 14125

Roanoke, Va. 24038-4125

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