East Lyme - The Board of Selectmen and Board of Finance voted Wednesday for the town to pay $650,000 to settle a lawsuit with New England National, the developer of land near Darrow Pond - bringing to an end a more than decade-long battle in the courts.

Under the settlement, all litigation will be withdrawn with prejudice. New England National also agrees to convey 8 acres of Darrow Pond to the town and release all of the easements it controls on the town's Darrow Pond property, said Attorney Mark Block.

The terms stipulate that New England National can retain or sell the remaining properties it owns in town, but may not develop them.

The company will execute a covenant, enforceable by U.S. District Court, not to develop any further real estate in East Lyme for 20 years, said Block. The exception is a 3-acre property in town, owned by Anne Torrance, which can be developed into three lots, provided it meets land-use approvals, he said.

The matter will next move to a vote at a special town meeting at 7 p.m. Jan. 6 at Town Hall.

Wednesday's vote by the selectmen followed a closed session between the selectmen and the finance board to discuss the terms of the settlement. After the selectmen's vote, the Board of Finance then held a special meeting to also approve the settlement and move it to a town meeting.

Last Friday, some selectmen and finance-board members had gone before a court-appointed mediator for the litigation in U.S. District Court.

More than a decade ago, the company had claimed in bankruptcy court that the town overvalued the assessment of its land. After years contesting claims, the two sides signed a compromise agreement in 2008 in which the town paid the developer $250,000 and both sides agreed to certain terms. But the legal actions continued.

The company claimed in 2010 that the town didn't uphold terms of the compromise agreement and then filed in 2011 a second complaint that the town didn't properly supervise its employees, among other charges.

According to court documents, the court granted a request by the developer to continue the proceedings, with additional claims, in U.S. District Court, after the federal bankruptcy court dismissed most of the claims and closed the case. One part of the litigation was dismissed this month, while another, alleging negligence and breach of contract among other claims, was referred to a special master last Friday in Bridgeport.

The allegations in the complaint heard were filed last March in U.S. District Court by Robert Blatt and the Torrance family trusts, parties to New England National. The complaint continued earlier claims that the town did not properly supervise land-use employees, specifically naming former planning directorMeg Parulis and former town sanitarian,George Calkins, as well as attorneyEdward O'Connell.

"The municipal custom and practice of delaying, impeding and imposing unlawful costs of the land development process in the Town left Plaintiff holding a large number of lots when the real estate market collapsed," the complaint stated.

Among additional issues included in the complaint was the town's decision in 2011 to settle with its own insurance company.

That settlement agreement called for the insurance company, an affiliate of AIG, to pay $275,000 to the town, after which the town would make no further insurance claims in connection with the matter. According to the town's court filings, the town said it paid $100,000 from the settlement to the developer as a term under the 2008 compromise agreement.

In its complaint, New England National claimed that the town's action to settle with the insurance company violated the compromise agreement. The developer said the town was supposed to work with the company to establish insurance coverage for claims by the developer against the employees. The developer said it had at least $1.8 million worth in claims.

The developer said in its complaint that the town settled with its insurance company without consulting the developer and thereby placed the insurance proceeds outside the developer's reach and limited the litigation claims.

In its response filed in court, the town disputed the claims.

The town said New England National breached the compromise agreement, including failing to work with the town in pursuing insurance claims and continuing to file court proceedings against the town.

k.drelich@theday.com

Twitter: @KimberlyDrelich