San Benito claims VARCO failed to comply with contract

SAN BENITO — Two days after a real estate company filed a $1 million lawsuit against the San Benito Economic Development Corporation, city officials are claiming the developer of the area’s first resaca-side commercial center failed to comply with agreements setting the project’s completion date.

In the lawsuit filed Monday, VARCO Real Estate San Benito LLC. claims the EDC breached the parties’ contracts surrounding the development of Resaca Village, failing to “honor its obligations” under an agreement.

In a statement released Wednesday, city officials said they would take on the Resaca Village project to complete its development.

“To date, the terms of the agreement have not been fulfilled and city leaders took the necessary action to ensure that taxpayers would not be in a position to return the funds or suffer any penalties,” officials said in the statement. “City leaders want to ensure that the development is completed, successful and provides quality-of-life opportunities within federal guidelines, even if that means completing the project ourselves or through other qualified partners.”

Part of the city’s action stems from its use of $900,000 from a $1.2 million federal grant earmarked to buy the 9.8-acre tract on which VARCO has been developing Resaca Village.

“A few years ago, the United States Department of Commerce’s (Economic Development Administration) granted federal funds to San Benito to acquire and develop a commercial plaza,” officials said in the statement. “The grant had restrictions as far as how the funds could be used, the type of project and deadlines for completion. All parties, including VARCO, signed a written agreement that they would comply with federal restrictions.”

In 2018, the EDC leased VARCO the 9.8-acre resaca-side tract off Business 77.

Under the parties’ original contract, VARCO agreed to pay the EDC 10% of the development’s property taxes for 15 years, at which time the agreement would give the developer the option of buying the property for $1.

In the city’s statement, officials said VARCO had not served them with its lawsuit, adding “we are unaware of the details or what basis anyone would have to sue San Benito.”

In the lawsuit filed Monday in Cameron County’s 107th state District court, VARCO accused the EDC of pulling “a blatantly corrupt ploy to seize control” of the $8 million Resaca Village project.

VARCO, a Brownsville-based real estate company, argues the EDC failed to honor a performance agreement extending its construction timeline while claiming its amendments “void” because city commissioners had not approved them.

After launching construction of Resaca Village in 2019, in March 2020 the coronavirus pandemic’s outbreak spurred a national economic downturn slowing the plaza’s leasing while material costs soared, leading VARCO and the EDC to enter into performance agreements extending the four-phase project’s original completion date of December 2022, the lawsuit states.

“In each of these amendments, SBEDC represented that it had full authority to enter into the amendment and that the amendment itself was a valid, enforceable agreement between the parties,” the lawsuit states. “Critically, SBEDC also repeatedly represented to VARCO that the amendments had been approved by the city commission of San Benito. In fact, city commissioners actively participated in negotiations for the amendments and were fully aware of the agreements and the extensions SBEDC granted to VARCO. Relying on these representations, VARCO continued to invest millions of dollars into the construction of Resaca Village.”

In March, VARCO claims, the EDC declared the company in breach of contract.

“In support of its claim that it could outright ignore the amendments it had signed, SBEDC did an about-face from its earlier representations and stated that the amendments had not been approved by the city commission and were thus void,” the company claims.

“SBEDC purported to terminate the performance agreement and the lease agreement and demanded that VARCO cease construction and turn over operations of Resaca Village,” the lawsuit claims. “It made no attempt to reimburse VARCO for the over $8 million that VARCO poured into the construction and operation of Resaca Village. Instead, it wrongfully demanded VARCO pay an additional $1.8 million.”

“At bottom, instead of honoring its obligations under the performance agreement, SBEDC made a blatantly corrupt ploy to seize control of the nearly completed Resaca Village project at VARCO’s expense,” the company claims. “In March 2024 — despite years of representations to the contrary, its own acquiescence, and the parties’ course of performance — SBEDC declared that VARCO was in breach of the performance agreement for falling behind the original construction schedule set out in the agreement.”

In the lawsuit, VARCO argues the company “has not defaulted or otherwise violated the performance agreement.”

“The amendments to the performance agreement are valid and enforceable agreements between the parties,” the company argues. “SBEDC waived its rights or remedies under the performance agreement related to the subject matter of the amendments. VARCO was excused from performance, as applicable, based on the provisions set out in … the performance agreement. VARCO retains its right to complete the construction and operation of the Resaca Village project and SBEDC wrongfully attempted to terminate the performance agreement and the ground lease.”

In its lawsuit, VARCO claims the EDC breached its contracts.

“The performance agreement constitutes a valid and enforceable contract between VARCO and SBEDC,” the lawsuit states. “Likewise, the ground lease constitutes a valid and enforceable contract between VARCO and SBEDC. In the alternative, SBEDC breached both contracts by wrongfully terminating both the performance agreement and the ground lease, among other wrongful squeeze-out tactics and misconduct. SBEDC’s breaches have caused VARCO substantial harm, including but not limited to actual damages and lost profits.”

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VARCO files $1M lawsuit against San Benito EDC over Resaca Village