Raleigh, N.C. — The lease Gov. Bev Perdue signed allowing Raleigh to build a destination park on the Dorothea Dix property could be challenged and invalidated, a lawyer for the state Department of Justice warned the day before it was signed.
"Finally, and most critically, we strongly advise against the inclusion of the leasehold financing language," lawyer Don Teeter wrote in December to then-Secretary of Administration Moses Carey and others.
Teeter's emails and other communications between lawyers for the state and the city were disclosed under a public records request by WRAL News.
The leasehold language gives the city the right to borrow against the value of its lease on the property in order to finance the construction of the park. Teeter warned that leasehold financing language exceeded the authority that the Council of State gave the governor in early December.
"(I)f this lease were to be adjudged to exceed the Scope of the Council of State approval, the continued validity of the lease is very much more in question," Teeter wrote.
Officials with the department declined to comment Tuesday on the issues raised in the documents.
"These questions may be involved in future litigation against the state, therefore we can’t respond," said Noelle Talley, a spokeswoman for Attorney General Roy Cooper.
Lease may have exceeded outline
The Council of State approved the lease arrangement for Dix on Dec. 4. The council is made up of 10 statewide officials, including the governor and attorney general.
At the time, the council had only an outline of the deal but not the actual lease language. Talley said that this was not unusual, although some critics have raised questions about how they could approve a deal without knowing all its details.
Documents disclosed by the Department of Justice Tuesday detail the negotiations and the discussions among lawyers who were building the lease from the point of the Dec. 4 approval until it was signed. They show that the finer points of the arrangement were still being negotiated on Dec. 21, little more than a week before Perdue and Raleigh Mayor Nancy McFarlane signed the deal.
Teeter essentially warned that the outline approved by the council did not include the leasehold financing language. He says the full lease may have had to return to the council. Failing that, he said, it could be vulnerable to a court challenge.
In response to Teeter's Dec. 19 email, Carey instructed Teeter to finalize the deal with the city and negotiate any last-minute changes with City Attorney Tom McCormick.
At the time, state House and Senate Republicans warned Perdue not to go forward with the deal, saying they would look for ways to undo the contract if she did.
Months later, after Perdue left office and Gov. Pat McCrory was in power, a bill condemning the Dix lease and returning the property to the state's full control cleared the state Senate. A similar bill is pending in the House.
The documents released Tuesday don't speak to the legal issues initially raised by lawmakers, but they add more fuel to their push to undo the deal.
“The correspondence between the state’s attorneys and Gov. Perdue’s administration further supports the Senate’s concern that the Dorothea Dix lease is unlawful," said Sen. Ralph Hise, R-Mitchell, one of the sponsors of the Senate condemnation bill.
Sen. Louis Pate, R-Wayne, also said Tuesday he was concerned about the city being able "to encumber" the property.
However, McCormick said the leasehold financing language is fairly standard, particularly with longer-term leases.
"I don't know why they would be concerned about it," McCormick said.
Discussions continue between Raleigh, state
McCormick confirmed statements by others that negotiations between the city and the state are ongoing.
"There's been a lot of talking," he said.
Rep. Leo Daughtry, R-Johnston, chairman of the House Judiciary Committee, which is handling the bill that would undo the lease, said that Art Pope, a former lawmaker and Pat McCrory's budget director, has taken the lead on negotiations for the state.
Daughtry said he had heard about the leasehold financing concerns but added that he hoped they would be irrelevant by the end of the negotiations.
"The question is, is there a way to resolve the issue," he said. "I would really like them to explore a resolution to the bigger picture. I hope it doesn't become a concern."
Among the documents disclosed by the Department of Justice were multiple versions of the lease proposed by the city and the state.
Several of those documents contemplate what would happen if the state condemned the property, depending on how much of the property is taken back.
Another issue raised in the process was that the state had borrowed money to improve the buildings on the Dix property. An email from the State Treasurer's Office suggested that the final lease would need to ensure those bonds were not affected by the deal. Those concerns seemed to have been resolved by the end of the negotiations.
Some of the communications between the lawyers seemed to express frustration with the principals on both sides of the negotiations and their unwillingness to take legal advice.
In reply to Kevin McLaughlin, a staffer for the governor, Teeter wrote about his work with McCormick. McLaughlin reported that McCormick has made suggestions to McFarlane about how she could speed up negotiations between the state and city.
"Based on his reply, she had ignored good advice that he gave her in that regard last week. I told him that I have had such clients as well; might even have one or two now," Teeter wrote.