PEABODY — The city of Peabody is suing a commercial real estate appraiser it hired back in 2015 to assess the value of the O'Shea Mansion before the city took it by eminent domain in 2016 to prevent it from being demolished.
The suit accuses Gregory Story of AM Appraisals of acting in bad faith when he allegedly failed to disclose that in April 2018 he had been placed on a period of probation by the state board regulating real estate appraisers — until he was asked about it by lawyers for former owner Michael Corsetti of Empire Design and Development at a deposition in 2018.
The suit was filed late last week in Salem Superior Court by Peabody city attorney Donald Conn.
It seeks damages of at least $732,587 — the $7,587 the city paid Story for his work on the appraisal and for his participation in subsequent legal proceedings, and $725,000.
The lawsuit says the city had no option but to settle the Empire lawsuit because after the existence of the consent agreement, six-month probationary term and $2,000 fine became known as a result of the deposition, in July 2018, Story said he was no longer willing to testify.
Because a court-imposed deadline for disclosure of expert witness testimony in the Empire lawsuit had passed, the city had no expert to testify in the upcoming trial, the lawsuit says.
Shortly after that, the city reached a settlement with Empire that required it to pay the former owner an additional $825,000 — on top of the original payment of $425,000. City officials said at the time that funds to pay the settlement came from insurance and a bridge loan that would be repaid with the proceeds of a future sale of the property.
Bettencourt referred questions about the lawsuit to the city solicitor on Monday.
Asked about the three-year wait to file suit, Conn said, "It seemed like it was the time."
The complaint says Story was told back in 2018 that the city would be pursuing litigation. There is a three-year statute of limitations in most civil lawsuits.
Story did not respond to requests for comment on Monday and Tuesday.
An October 2015 letter from Story, responding to the city's request for proposals, offered a flat fee of $3,750 for the appraisal on 2 Washington St., and said that if he were to be required to testify in any subsequent litigation, his rate would be $200 an hour. He was hired two weeks later, according to an engagement letter from Bettencourt.
The city is seeking damages for breach of contract, violation of the state's consumer protection law, breach of good faith and fair dealing, and negligence.
Corsetti had purchased the 19th century building out of foreclosure for $325,000. The city said it became concerned that the historic structure and a tree would be taken down and pursued a taking by eminent domain.
The lawsuit is the first time anyone within the city has publicly revealed that the settlement may have been based on more than simply a concern to avoid the cost of taking the case to trial or to generate interest. At the time, Bettencourt told a Salem News reporter that he'd heard from parties who were interested in the property but who had reservations about purchasing it while the litigation was ongoing.
In a joint press release issued after the City Council voted 9-1 to approve the settlement, the parties stated: "Mr. Corsetti learned that there was no evidence of wrongdoing by city officials as they took steps necessary to protect the property from demolition and/or development inconsistent with its historic statute. Similarly the city was shown how its good faith decisions could be perceived by an out-of-town developer as an improper attempt to thwart development."
The matter for which Story entered the consent agreement with the state involved his handling of an appraisal on a pair of Tremont Street properties that were the subject of Probate Court proceedings involving the three daughters of the owner after he died.
A subsequent lawsuit alleged that Story undervalued the properties by thousands of dollars so that when one sister "bought out" the other two sisters, they were paid much less than they should have been.
That lawsuit was settled for undisclosed terms in April, according to Salem Superior Court records. Conn said that case had no bearing on the city's decision to move ahead with the suit against Story now.
Courts reporter Julie Manganis can be reached at 978-338-2521, by email at email@example.com or on Twitter at @SNJulieManganis.