Cle Elum Lawsuit: $22M Judgment, Garnishments, Chapter 9 Filing

The Cle Elum lawsuit is a contract dispute between the small Washington city of Cle Elum and City Heights Holdings LLC, the developer of a planned 962-home community called Ederra, that ended in a November 2024 arbitration award of $22,230,175 against the city for repeatedly breaching a 2011 development agreement. With interest and legal costs pushing the obligation to roughly $26 million, and a lender garnishing city bank accounts in May 2025, Cle Elum filed for Chapter 9 municipal bankruptcy on June 24, 2025.¹²

What the 2011 Agreement Promised

In November 2011, the Cle Elum City Council annexed about 330 acres of ridgeline land north of downtown, rezoned it for mixed-use development, and signed a 25-year development agreement with the entity that became City Heights Holdings. The project, later branded Ederra, called for up to 962 homes, retail space, trails, parks, and roughly 200 acres of open space.³⁴

The developer agreed to pay roughly $10 million in mitigation for public safety, schools, and infrastructure, with each home contributing about $9,000. In exchange, the city promised a streamlined permitting track, including a 45-day administrative review for subdivision permits, and committed to handling environmental reviews and public hearings upfront so the developer would not face them again phase by phase. The contract required any dispute to go to binding arbitration.¹

How the City Breached the Contract

When Sean Northrop, the Issaquah builder behind City Heights Holdings, sought subdivision permits in late 2019, city planning staff insisted on a full public hearing and environmental review instead of the administrative track the contract described.¹

The arbitrator later found the city:

Imposed a pre-application process and demanded a cost-reimbursement agreement as a condition of review.
Tried to route the permits through a more burdensome track than the contract specified.
Layered on new requirements, including traffic studies, a master park plan, and critical-areas reports that were not part of the original deal.
Actively encouraged state and federal agencies to challenge the development agreement.⁵

Northrop has said the first phase of Ederra slipped by more than two years and the second by more than 18 months. Construction on phase one did not begin until 2022.¹

Three Arbitrations, One Big Number

Because the contract required binding arbitration, the dispute went before retired King County Superior Court Judge Paris Kallas. She ruled for the developer three times.¹

The first, in November 2020, confirmed that the city had to follow the expedited permitting process. The second, in April 2022, again ruled for the developer on process. The third, in November 2024, decided damages. Kallas found the city had “persistently breached” the agreement and awarded $20,340,000 in economic damages plus $1,890,175 in accrued interest, for a total of $22,230,175.⁵

The number came from a “but for” analysis: comparing the profits the developer would have made had the city honored the contract with what actually happened. City Heights argued the delays cost it the chance to sell homes during the pandemic-era housing boom, when regional demand and prices surged. Expert witnesses Neil J. Beaton and Molly Carmichael supported the figure, which the arbitrator accepted as proven with “reasonable certainty.”⁵ With 12% annual interest and attorney’s fees, the obligation grew to roughly $26 million by mid-2025.²

Why Settlement Talks Collapsed

Between the November 2024 award and the June 2025 bankruptcy filing, several attempts to settle failed.

In December 2024, the city offered $4 million: $250,000 up front, then $250,000 annually over 15 years. Northrop rejected it, saying it did not account for the balance remaining after 15 years. According to the developer’s later court filing, the offer arrived as a one-paragraph email from the city’s future bankruptcy attorney and included no funding plan and no commitment to follow the development agreement going forward.⁶

On January 28, 2025, Northrop countered with a proposal built largely around non-cash concessions: a $287,000 cash payment, a waiver of $400,000 in road improvement costs owed by the development, 18 free building permits, a 60-day collections delay, and final approval of the second-phase subdivision permits by mid-February. The council declined to consider it and voted 5-2 to move toward bankruptcy.¹

Formal mediation followed, with Al Smith of Perkins Coie running sessions on March 24, April 17, and June 16, 2025.⁷ The two sides describe what happened next very differently. The developer says a draft settlement with multimillion-dollar reductions and a decades-long payment plan was circulated on June 20, 2025, and the city went silent and filed for bankruptcy four days later.⁸ The city says the developer rejected its final offer at the June 16 session and refused to release garnishments on city bank accounts.⁹

Garnishments Triggered the Chapter 9 Filing

On May 28, 2025, Copper Leaf, a lender for the Ederra project owned by Rodger May, filed writs of garnishment against three of Cle Elum’s bank accounts, freezing roughly $696,000.⁸ City officials warned the seizure threatened payroll for its 29 employees and payments to vendors.¹⁰ City Heights said the collection was being handled by an outside lender and was not directly within the developer’s control.

On June 23, 2025, the council voted 6-0 to authorize Mayor Matthew Lundh to file. The Chapter 9 petition was filed the next day in the U.S. Bankruptcy Court for the Eastern District of Washington, Case No. 25-01128, assigned to Judge Whitman L. Holt.¹¹ The city is represented by John Kaplan of Stoel Rives LLP.¹²

A Town of 2,200 Owes About Five Times Its Budget

Cle Elum has roughly 2,200 residents. Its annual general-fund budget runs between $4.5 million and $5.5 million, and the $26 million obligation is about five times that.¹³⁸ Mayor Lundh has described the city as “insolvent” in the near term, unable to obtain bonds or loans, and focused on making payroll and keeping water and sewer service running. Council member Steve Harper said the city already operates “on a shoestring” with no reserves to cut. A 2020 Pew Center analysis cited by the Seattle Times found that municipal bankruptcies commonly lead to higher taxes, higher fees, reduced worker benefits, and elevated borrowing costs for years afterward.¹⁰

The Developer Is Trying to Kill the Bankruptcy

City Heights Holdings, represented by James Day of Bush Kornfeld and Marc Levinson of Orrick, Herrington & Sutcliffe, has asked the bankruptcy court to dismiss the case.¹⁴ In a 22-page objection filed in March 2026, the developer called Cle Elum the “sole author and exclusive cause of its financial difficulties,” arguing the insolvency stems entirely from the city’s “willful, serial and comprehensive” breach of the development agreement rather than from pension costs, population decline, or economic collapse. The filing characterized the city’s conduct as “defiant and arrogant” and said officials treated the $26 million debt like “Monopoly money.”⁶

The developer also claims Cle Elum received $4.3 million from its insurance pool related to the dispute but spent the money on professional fees, and that City Heights “did not see a penny” of those proceeds. The objection faults the city for not reducing its workforce, cutting wages, or eliminating non-essential programs after the arbitration award.⁶

In a May 2026 pretrial submission, City Heights refined the theory into a “good faith” challenge, arguing the Chapter 9 petition does not meet the good-faith requirement of federal bankruptcy law. The filing listed email correspondence from December 2024 through June 2025 as evidence and named Sean Northrop as a witness.¹⁴

Where the Case Stands

As of mid-2026 the Chapter 9 case is active and unresolved. The bankruptcy court is reviewing City Heights Holdings’ challenge to Cle Elum’s eligibility for Chapter 9 protection, a threshold question that could end the case.¹⁵ The city’s deadline to file a plan of adjustment, its proposal for restructuring the debt, was extended by agreement to May 30, 2026.⁶

Court filings by the city’s attorney outline a plan to generate more than $68 million through 2039 by selling surplus property, seeking new taxing authority, cutting the budget by 5%, reorganizing the police contract, and pursuing revenue from naming rights, electronic billboards, and EV charging stations. The filings also reference assigning professional liability claims against consultants involved in the dispute, potentially adding $5 million toward recovery.¹⁶ A contested eligibility hearing was scheduled for June 22, 2026. No plan of adjustment has been confirmed.¹⁵

1
Cascade PBS. How a $22M Judgment Against Cle Elum Pushed the City to Bankruptcy
2
Spokesman-Review. Cle Elum Declares Bankruptcy Over $26M Debt
3
City of Cle Elum. City Heights Background Information
4
DJC. Trailside Group Builds Ederra in Cle Elum
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City of Cle Elum. Arbitration Letter
6
Daily Record News. City Heights Holdings Files Formal Objection to Cle Elum’s Bankruptcy Case
7
KOMO News. City of Cle Elum Lundh Declaration
8
Cascade PBS. Cle Elum Files for Bankruptcy to Settle $22 Million Judgment
9
PR Newswire. City of Cle Elum Files for Chapter 9 Bankruptcy to Protect Residents and City Services
10
Seattle Times. Cle Elum Declares Bankruptcy Over $26M Debt
11
Stretto. In Re City of Cle Elum Case Page
12
Stoel Rives LLP. John S. Kaplan
13
KOMO News. Cle Elum Declares Chapter 9 Bankruptcy
14
Stretto. CHH Pretrial Submission, Case No. 25-01128
15
Elevenflo. City of Cle Elum Chapter 9 Bankruptcy
16
Stretto. Notice of Errata, Case No. 25-01128