Court Rules that Bankrupt Home Developer Is Not Entitled to Refund of School Impact Fees 

Neumann Homes, one of the largest home developers in the Chicagoland area, filed for bankruptcy in 2008 in the midst of the economic downturn.  In an attempt to recover monies back into its bankruptcy estate, Neumann recently unsuccessfully sued a number of school districts (including three of our clients) and a number of municipalities for the refund of certain school impact fees or "permit fees". 

Many school districts collect "impact fees" and/or "developer donation fees" from developers by agreement in order to recover some of the costs attributable to the activity of the developer.  Typically, these fees must be paid before a developer can obtain building permits.   In these cases, Neumann claimed that it was entitled to the refund of such fees, essentially as a matter of fairness, because it had paid such fees for homes that it did not construct or finish constructing.  In all of the school district cases, Neumann paid the fees in order to secure building permits from the various municipalities. 

HLERK attorneys, Vanessa Clohessy and Debra Jacobson, and  bankruptcy co-counsel from another firm, filed motions to dismiss Neumann's lawsuits against our clients, citing Neumann's failure to state a legal basis for its entitlement to a refund in its complaints.  The bankruptcy court agreed, ruling in favor of the school districts on virtually all counts.  The court found  that because Neumann paid the fees voluntarily upfront for the permits (and was not required to buy a certain number of permits), it could not recover the fees simply because of the unforeseen economic downturn.

There are important steps that school districts can take to protect their developer donation and school impact fees in the event a developer files for bankruptcy.  First and foremost, school districts should work with their counsel to try and ensure that the developer agreement clearly states that these fees are non-refundable.  Second, the agreement should reflect that the payment of the fees is necessary to obtain the permits.  Provisions requiring the developer to pay for a certain number of permits should be avoided.   Finally, school districts need to keep copies of all developer agreements, as well as accurate and detailed records of all fees collected,  their corresponding lots, and how those monies were spent, as such records are essential to defending these types of claims.  For more information about these cases or how you can better protect your district, please contact Vanessa Clohessy or Debra Jacobson.