A flurry of lawsuits could throw McCarran International Airport’s finances into a nose dive and drag down the already ailing tourism industry.
A dozen landowners are suing Clark County for airspace restrictions that they say keep them from building high-rise resorts and, in turn, diminishes the value of their properties.
County leaders are betting the courts will dismiss most of the cases, either because the 15-year statute of limitations ran out or because the developers bought the land after height limits were in place.
But if the courts rule in the landowners’ favor, McCarran could get slapped with high-priced damages. The estimates vary greatly, depending on whom you ask.
The county’s legal counsel say settlements could run from $2 billion to $10 billion. Lawyers representing landowners put the total liability closer to a half-billion dollars.
Landowners’ attorneys say the county got itself into the bind by trying to push height limits on owners without compensating them. County legal staff say they simply believed the law was on their side.
Legal costs would get passed to the airlines in the form of fees for using the airport, said Randy Walker, director of the county’s aviation department.
Carriers could see their operations’ fee of $4.50 per passenger soar to more than $30 if the worst scenario comes true, Walker said. Any substantial rise in fees would push airlines to cut some flights, because they can only raise ticket prices so much in a market that caters more to tourists than business travelers, he said.
“It’s not a great recipe for service,” Walker said.
The airport can’t divert bond money from projects such as the $1.8 billion new terminal to cover big settlements, Walker said, because the work is too far along. Raising airlines’ fees is the only way to drum up the needed money, he said.
Representatives from Southwest Airlines and US Airways wouldn’t reply to questions about how they would deal with higher fees or at what point they would cut flights.
Airlines already are trimming flights in response to a 13 percent drop in travelers flying to Las Vegas in the past year, said Keith Schwer, a regional economist at the University of Nevada, Las Vegas.
Higher fares and fewer flights could erode tourism when the local economy needs it the most, Schwer said. People with modest incomes might choose another destination if a trip to Las Vegas becomes too pricey and hassle-filled, Schwer said.
“Someone in Omaha will say, ‘This is horrible. I’m going to the real Disneyland instead of the fake Disneyland.'”
A pivotal case will come before the state Supreme Court by summer. A lawsuit filed by STT Land against the county will test whether the high court thinks the statute of limitations applies in most of the remaining airspace cases.
The county argues that affected landowners, by law, had 15 years to contest the height limits imposed after runways were expanded in 1990. That is plenty of time to file a lawsuit, said Kirk Lenhard, an attorney representing the airport.
Lenhard said he is confident the high court will agree with the county.
“It would eliminate all but two or three” cases, he said.
That would be the difference between millions and billions of dollars, he added.
But Kermitt Waters, STT’s attorney, contends his client was never properly notified about the height restrictions. The county ran a small newspaper ad, he said, which is grossly inadequate to convey rules giving government the power to seize property rights.
The 15-year time limit didn’t begin until his client learned about the rules, Waters said.
He also accused the county of exaggerating potential damages to scare judges and juries into siding with the airport and avoiding what would seem to be an economic disaster. He called $10 billion a ridiculous overestimate.
If all the cases were settled, they would add up to less than a half-billion dollars, Waters said, which is sizable but not catastrophic.
Lenhard insists that potential lawsuits could put the airport on the hook for as much as $10 billion. That estimate is based on commercial land in areas where planes fly lower than 500 feet and where the owners could build high-rise structures, he said.
Lenhard said he doubts any reasonable judge or jury would buy Waters’ arguments. Ignorance of the law is no excuse, he said, and landowners have the responsibility to research rules that affect them. The county can’t be expected to contact every person buying land within low-fly zones, Lenhard said.
“That’s a third of the valley. There’s got to be common sense in the courtroom.”
Landowners have won three victories that set sturdy precedents for current lawsuits.
In 2003, Steve Sisolak, a regent and commissioner-elect, won a $6.5 million judgment when the airport refused to pay him for height limits imposed on his parcel near Las Vegas Boulevard and Warm Springs Road. The state Supreme Court upheld the verdict in 2006.
All told, Sisolak came away with about $23.5 million after he was reimbursed for legal fees and interest paid on the land, said Laura Fitzsimmons, his attorney on the case.
This year, Urban Land Nevada, a family-owned company, was awarded $110 million for 140 acres that was condemned south of a runway. And two hotel-development companies were awarded a combined $50 million for height limits imposed on 21 acres dubbed Alexis Park, north of the airport.
Fitzsimmons also represented those entities.
County and airport officials have a history of trying to impose their will on landowners without paying a cent, she said. Their hard-nosed “cowboying” is coming back to haunt them, she argued.
Sisolak offered to settle by swapping land, Fitzsimmons said, and county leaders responded with a terse, one-line refusal. They rejected other offers, some of them considerably less than the final judgment, she said.
“The county drew a line in the sand and said, ‘We’re going to war,’ ” Fitzsimmons said.
Sisolak went on to win a hefty sum and set a precedent for future lawsuits, she said, noting that state justices confirmed that a U.S. Supreme Court ruling applied in Nevada. That ruling states that commercial landowners can seek compensation if planes flying below 500 feet hinder their ability to develop high-rise buildings, she said.
Fitzsimmons said she, Waters and two other lawyers tried to give the county a sure way to escape paying out billions of dollars.
Earlier this year, they bundled together a dozen cases, including for STT Land, and made the county a “global offer” to settle them all for $300 million. The offer contained language that would have protected the airport against most future airspace claims, she said.
The county refused.
Now, at least one lawyer is recruiting clients to sue the county over height restrictions, she said.
Although she made tens of millions of dollars from airspace disputes, Fitzsimmons said she won’t accept any more of these cases. She believes a 15-year statute of limitations should apply, and that people should not be allowed to sue the airport indefinitely.
“If there is never an end to this litigation, it will have financial impacts,” she said. “There could be substantial repercussions to the airport. We all have to live here.”
Fitzsimmons and Waters both say the county took a costly shortcut by creating height limits without compensating landowners upfront.
County officials would have spared themselves untold trouble if they had claimed the airspace south of the Strip in the early 1990s, when the area was sparsely developed and the land was worth much less, Fitzsimmons said
The federal government would have chipped in grant money to pay affected landowners, she said.
County officials could have used eminent domain, just as they would when establishing any public right-of-way on private land, Waters said.
Using that method, they would offer owners a fair-market price for restricting heights. If the owners refused, the county would condemn the airspace above a certain altitude, Waters said. A judge then would decide a fair price.
Twelve years ago, the county could have condemned all the south-side airspace for less than $10 million and avoided the mounting legal battles, he said.
“They got cute and tried to sneak it by. Now they’re screaming like a stuck pig.”
IN THE COUNTY’S DEFENSE
Lenhard denies the county was being aggressive or authoritarian. Officials simply believed that enacting an ordinance covered the airport legally, and that they didn’t need to pay landowners for curbing building heights, he said.
“I don’t think the county could’ve anticipated these (recent) rulings in 1990,” Lenhard said.
Four years ago, the Nevada Supreme Court ruled in the county’s favor in a case involving a landowner named Tien Fu Hsu, who was one of the first to go deep into airspace litigation, Lenhard said.
The high court overturned a jury’s decision in 2001 to award Hsu $13 million for loss of property value from height limits. Armed with that win, the county felt safe rejecting all other offers, whether it was for Sisolak or for a global settlement, Lenhard said.
But by the time Sisolak’s case reached the state Supreme Court, the makeup of the bench had changed, he said. The court backed Sisolak, even though his case was similar to Hsu’s.
Last year, the state’s high court changed its original finding against Hsu, and ordered the county to pay a settlement. A jury will decide early next year how much Hsu should get.
Waters said he asked the county years ago for $35 million to resolve the Hsu case and received a cold response. Now the county could pay double that sum, he said.
Waters also grappled with the county over a case involving the Mohler family. The county rejected a chance to settle for $45 million and now faces as much as $100 million in damages, he said.
In a 1985 letter, District Attorney Robert Miller warned commissioners that creating airspace restrictions could open the county to lawsuits. County leaders didn’t heed the warning and continue to roll the dice in court, Waters said.
Commissioner Bruce Woodbury, who was on the board in the mid-1980s, doesn’t remember the letter. But he recalls that airport staff and the county’s legal counsel always advised the commission against settling airspace cases.
“There was always a belief that the county should prevail and not pay damages,” Woodbury said. “And if they started settling, it would open it up for many, many claims by property owners.”
Waters contends the county was like a bull charging ahead stubbornly. “They’ve got their heads down, and they don’t care how much it’s going to cost.”
Contact reporter Scott Wyland at firstname.lastname@example.org or 702-455-4519.