The Texas Development Corporation that previously managed three low-income housing units in Little Rock sued the city’s public housing agency for breach of contract, federal court documents show.
Houston-based ITEX is seeking damages for its allegations that the Metropolitan Housing Alliance breached its master development agreement with the company by terminating their business relationship without providing notice of termination, as required the 2016 deal. The lawsuit alleges the housing authority also forcibly removed ITEX from properties it had managed and cited inaccurate reasons for ending the business relationship.
“Years of investment of time and money by ITEX (and MHA) have now come to naught because of MHA’s material violations of the MDA,” the Feb. 7 court filing reads.
Central Arkansas Housing Corp., the nonprofit arm of the federally-funded Little Rock public housing authority, now owns and operates the three properties, which sued ITEX in December over alleged breaches of a different contract between the two entities.
ITEX managed the Granite Mountain homes and two Madison Heights complexes under a two-year management contract that expired in June. The main development agreement includes a fourth housing estate which is uncontested in the housing authority’s lawsuit against ITEX.
The Metropolitan Housing Alliance’s board of commissioners decided in July not to renew the contract, which stated that ITEX was to “maintain the project in good repair…and in a condition acceptable to the owner at all times, including , but not limited to, cleaning, painting, decorating, plumbing, carpentry, grounds maintenance and any other maintenance and repair work that may be required.”
Housing authority board members have repeatedly said at public meetings that tenants have told them that ITEX has failed to respond to claims for damages caused by the fire, the mold buildup, plumbing issues and other quality of life issues at all three properties. Board members cited these reasons as reasons why they did not renew the management contract with ITEX.
The council also expressed concerns about the then-pending Housing Support Demonstration Agreement between the Housing Authority and ITEX, which the Framework Development Agreement had established.
Under the Federal Rental Assistance Demonstration Program, administered by the U.S. Department of Housing and Urban Development, private companies take over the lease of a public housing building, although housing authorities are still owners of the land. This private ownership enables housing authorities to contract with banks and finance companies – whether through loans, tax credits, grants or a combination – to receive funds for the plumbing, flooring, roofing, electrical and other maintenance work.
Tenants in public housing buildings then receive housing choice vouchers, which allow low-income people to choose their own residence within the jurisdiction of a housing authority.
At the housing authority’s board meeting in April 2021, the commissioners said they had doubts about the multimillion-dollar transaction despite assurances from ITEX management that the housing authority housing and the Central Arkansas Housing Corp. would receive the thousands of dollars promised by the agreement.
Council tabled the three resolutions that would have closed the Rental Assistance Demonstration Agreement, with one resolution for each property, at a special meeting later in April 2021.
ITEX lawsuit, filed in U.S. District Court for the Eastern District of Arkansas, alleges housing authority pressured company to change terms of master development agreement , even though it had been in place for five years, so that ITEX would receive less money from the Rental Assistance Demonstration Agreement than was originally agreed.
The lawsuit alleges that the housing authority terminated the business relationship because ITEX chose not to renegotiate the terms of the agreement. The Master Development Agreement requires at least 30 days written notice of termination if the housing authority seeks to end the agreement, and ITEX says there has been no notice.
“The aforementioned alleged conduct on the part of MHA represents a material breach of Arkansas’ implied covenant of good faith and fair dealing required under the MDA, which caused damage to ITEX,” the court documents state.
Asked about the status of the rental assistance demonstration agreement in October, Commissioner Leta Anthony told the Arkansas Democrat-Gazette the deal was “at an impasse.”
Four housing authority board members, including Anthony, also serve on the Central Arkansas Housing Corp board.
Later in October, lawyers representing the housing authority told ITEX that the US Department of Housing and Urban Development’s procurement authorization had expired, meaning the authority had no reason to continue its relationship with ITEX.
The lawsuit calls it “a brazen effort to conceal the true motivation” of the housing authority abandoning ITEX.
The lawsuit alleges that the housing authority further breached the Master Development Agreement at the end of August when it “caused the physical distancing of ITEX management and otherwise prevented it to manage the four sites and to exercise control over the instruments necessary for the management of the four sites.”
This alleged misconduct cost ITEX more than $75,000, the complaint states.
ITEX’s attorneys are seeking a trial to determine the amount of monetary damages that may be owed to the firm, including attorneys’ fees.
John Keeling Baker, one of ITEX’s attorneys, did not respond to a request for comment. Baker works for Mitchell, Williams, Selig, Gates & Woodyard in Little Rock.
Sylvester Smith of The Firm in Little Rock, which represents Central Arkansas Housing Corp., also did not respond to a request for comment.
Housing authority leaders have not mentioned the lawsuit at monthly council meetings, which include a report from executive director Ericka Benedicto on the status of legal disputes involving the agency.
ITEX and the housing authority have spent much of 2021 disagreeing over the division of responsibilities for properties and what the entities owe each other. In August, ITEX demanded $544,000 in compensation, which the housing authority refused to pay.
The pursuit of properties from Central Arkansas Housing Corp. against ITEX is tentatively scheduled for a jury trial in June 2023, according to court documents.
The Metropolitan Housing Alliance oversees approximately 900 mainstream public housing, 200 affordable housing and 160 market-priced housing. It also administers over 2,000 Section 8 vouchers. It is the largest public housing authority in Arkansas and provides housing assistance to approximately 8,000 low-income people.
In December, Gorman and Co. Inc., a Wisconsin-based development and investment firm, became the new Rental Assistance Demonstration Partner at ITEX-managed properties. Gorman already owns and operates the Fred W. Parris, Cumberland and Jesse Powell towers, three successful rental assistance demonstration conversions in Little Rock.