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Residents sue, charge Ft. Lincoln New Town developer with fraud

(Published August 12, 2002)

By JOHN DeVAULT

Staff Writer

Residents of Washington’s only planned community last week filed a $60 million civil lawsuit against the community’s longtime developer, charging a 27-year fraud that, they say, robbed them of millions of dollars in intended benefits and killed an ambitious dream for a mixed-income town-within-a-town run substantially by residents themselves.

The suit, filed Aug. 8 in D.C. Superior Court, accuses developer Fort Lincoln New Town Corp. of fraud, breach of contract and unjust enrichment, among other allegations.

The lawsuit alleges knowing failure by the developer to carry out commitments to residents contained in a 1975 agreement, recently discovered by residents, that set out the terms for developing Fort Lincoln New Town in Northeast Washington. The agreement awarded the corporation the sole right to develop, under financially favorable terms, 360 acres of former federal land.

Fort Lincoln New Town, home to 3,500 residents, is a mix of condominiums and rental housing located near Bladensburg Road and South Dakota Avenue in Ward 5, near the Prince George’s County line.

"I’d say fraud summarizes it all," said Roy Pearson, a Fort Lincoln resident and an attorney who heads the Fort Lincoln Civic Association Inc.’s legal affairs committee. The association filed the lawsuit on behalf of residents.

"The developer disenfranchised an entire community for 27 years," he claimed last week, "and they profited royally as a result."

Pearson said he came across a copy of the 402-page Redevelopment Land Agency contract with the Fort Lincoln developer during an inquiry he launched to figure out who had responsibility for cutting the grass in the development’s public areas.

The current president and chief shareholder of Fort Lincoln New Town Corp. is Michele V. Hagans, a prominent figure in local real estate, business, educational and charitable circles. Hagans took over as head of the companies named in the suit after her father, Theodore Hagans, the companies’ founder, died in a 1984 plane crash.

The suit also names Florida resident Barbara A. Jones, Theodore Hagans’ fiancee at the time of his death, who owns a third of the Hagans companies but is not thought to have an active role in running them.

Michele Hagans did not return calls to her home and office asking for comment on the lawsuit. An attorney for Hagans, Frederick E. Cooke Jr., said he had not yet seen the lawsuit.

"Once I talk to my client, we may have plenty to say, but until then, I really can’t comment," he said.

Jones did not respond before press time to messages left at her home and office.

The suit says the benefits that Hagans and her father failed to deliver to residents lie in the 1975 contract between the Hagans’ companies and the Redevelopment Land Agency, the D.C. agency that spearheaded what, residents say, was an ambitious partnership among the District and federal governments, the developer and, at least in intention, Fort Lincoln’s residents to create a self-sufficient urban town-within-a-town whose development would be substantially guided by residents themselves.

In particular, the suit cites clauses in the RLA agreement it says called for the developer to set up a resident-run corporation after residents started to move into Fort Lincoln New Town in 1976, and to give that resident group $250,000 cash, 25 percent stock ownership and profits in the Fort Lincoln realty management company, and other benefits intended to make Fort Lincoln residents substantial players in their community’s development.

The suit charges that losses from those benefits never being realized now total in the millions of dollars, and that their withholding was "willful, malicious and done (with) intentional or reckless disregard for the known rights of" Fort Lincoln residents.

Nora Faison, a complainant in the suit and a Fort Lincoln resident since 1976, said neither Theodore nor Michele Hagans ever informed her or her neighbors of the company’s obligations to residents.

"Neither of them ever told us anything about this agreement," she said.

In fact, Theodore Hagans told condominium owners that if they wanted a resident association, they would have to pay for it themselves, Faison said.

"The developer neglected to reveal that this nonprofit was to be created to serve residents, so we hope to achieve that through our lawsuit," said civic association president Reginald Lyons.

Besides receiving the exclusive right to develop, sell and manage most Fort Lincoln property, the Hagans companies received other lucrative benefits in the RLA agreement, the suit charges.

The development company was not required to buy the entire 360-acre Fort Lincoln plot outright: The deal called for the RLA to hold and maintain the land for the Hagans corporation. The company would pay for a parcel of land only when it was ready to develop it, thus avoiding the need to come up with the whole purchase price, and avoiding taxes and other carrying costs.

In addition, the D.C. and federal governments committed to spending tens of millions of dollars on streets, schools, a large park and other major public investments at Fort Lincoln New Town.

Today the residential component of Fort Lincoln stands only about half built, according to the civic association. The community, which residents say the contract stipulates was to have been fully developed within eight years, also lacks the commercial town center and recreational areas originally committed to by the developer.

A recent drive through the development showed some streets lined by street lights and fire hydrants, but no housing or other development.

"That community was supposed to be an example for the rest of the country, and now they’re fighting for their survival," said Demian Schane, an attorney representing the tenants association.

"Residents have had to fight having a landfill where there was supposed to be a lake," he said.

Schane said that because the D.C. government has consistently failed to enforce the RLA contract’s provisions, future legal action against the city is also a possibility.

"We haven’t ruled it out," he said. "(The civic association) may have some claims of fraud against the city."

Pearson said he and civic association president Lyons met late last year with Deborah Linn, then the National Capital Revitalization Corp. (NCRC) official in charge of RLA matters, including Fort Lincoln business. RLA functions were incorporated into the NCRC when it was created a few years ago.

He said Linn told the pair that though their evidence indicated the 1975 contract’s provisions dealing with resident benefits were still in force, the NCRC did not plan to enforce them – at least partly, she said, because the agency was continuing to work with Michele Hagans on developing a Fort Lincoln shopping center and did not want to complicate those negotiations.

Pearson said the civic association members also sought to enlist the help of their ward councilman, Vincent Orange, and At-Large Councilman Harold Brazil, who heads a council committee with oversight authority, as well as congressional Delegate Eleanor Holmes Norton.

But, he said, none of those officials responded to the civic association’s requests for aid.

"The city government could single-handedly cure the main fraud issues here just by enforcing the contract," Schane said.

In the absence of action by either the developers or the city, Lyons said, the civic association decided to file suit.

"We need to take this step to get the developer to respond," Lyons said. "We hope to finally get a chance to be involved in the planning and development of our community."

Copyright 2002, The Common Denominator