East Lyme - A $2.3 million proposal before the Board of Selectmen that would preserve 218 acres in town for open space is the latest installment in the history of Darrow Pond, a property that has been attracting developers and preservationists for decades.

The proposal is tempting because it would allegedly untangle access issues that prevent the public from using the pond on part of the town's 301-acre property and give the town additional acreage, both nearby and elsewhere, for open space. But it is also daunting because of the cost, and because it involves many layers as well as public and private players who are at times at odds.

Key to the decision, which would ultimately go before voters if the selectmen and the finance board approve, is how much townspeople value access to Darrow Pond, a picturesque body of water surrounded by woods, and the acquisition of additional acreage nearby. The same question will apply to the separate 166-acre Gurley Brook Preserve near the headwaters of the Niantic River, which is also part of the proposal.

Businessman John C. Ellis of the Woodsmen Land Trust is proposing an offer with multiple prongs: The trust would purchase roughly 52 acres near the 301 acres at Darrow Pond that the town already owns, as well as the option on the Gurley Brook Preserve, from New England National, a development company with several subdivisions near Darrow Pond. Ellis has told the selectmen the total value of the land and easements is about $4 million.

New England National would release several easements it holds on the town-owned acreage on Mostowy Road in the vicinity of the pond. The trust would then assign or option the land rights to the town, Ellis has said.

The deal is time-sensitive. Ellis has said his contract with New England National expires at the end of the year. He received a $500,000 matching grant last December from the state toward acquiring the Gurley Brook Preserve.

The selectmen have held two executive sessions on the proposal and sent a list of questions to the Woodsmen Land Trust. First Selectman Paul Formica said in an interview last week that the questions include how and when the land would be transferred and the easements relinquished. He said the selectmen are also seeking information on the possibility of settling litigation against the town by New England National.

Formica said the proposal needs to be taken a little at a time and the board is taking the necessary steps before voting. If the selectmen approve the proposal, it would then need approval from the Board of Finance and a vote from residents.

Easements and uses

In 2011, the town purchased, with the help of the Trust for Public Land, the 301-acre Darrow Pond land parcel on Mostowy Road near Route 161. It paid Webster Bank $4.16 million for the foreclosed property.

Under the agreement, about 200 acres will remain permanently dedicated to open space and passive recreation. The 100 acres not subject to the conservation easement are for town use. An Open Space Committee has been working for more than a year on recommended uses for the open space area.

A nature center and water tank are proposed for the town-use portion of the site, which connects to 3,000 acres of trails in the neighboring Yale-owned property and Nehantic State Forest and holds several town wells, said Formica.

A holding tank for the regional interconnection project between New London and the town, intended to alleviate the town's summer water shortage, was originally expected to be placed there. The tank was ultimately placed in Montville at the recommendation of the engineer. But Formica said another tank will likely be placed at the Darrow Pond property in about five to eight years, especially with a growing water demand from new developments, such as the commercial Gateway Commons project near Interstate 95.

Several permanent restrictions placed by the property's former owners remain on the town's land. One easement restricts the public from using the pond and dates back to 2004, said Robert Blatt, managing member of New England National. New England National and Niantic Real Estate LLC each owned portions of the pond and granted each other private access rights. Blatt is also currently listed as the managing member of Niantic Real Estate. Another easement allows the two companies to access and connect to roads on each other's property.

The parcel, with the pond on its northern boundary, went into foreclosure in 2008. Before then, developers had proposed various ideas for the area, which once housed a J.C. Penney warehouse, but each time, the plans fell through.

Blatt, who is from Larchmont, N.Y., and Jeffrey Torrance of East Lyme received zoning approval from the town in 1998 to build a golf course on Mostowy Road under the name New England National, according to news reports at the time. Plans for a previous golf course at the site had dissolved in legal and financial troubles.

In 2004, Virginia-based Darrow Pond LLC, financially backed by L.M. Sandler & Sons, took ownership of the property. In 2006, Vespera Investments received approval from the town to build a 600-unit community for adults aged 55 and older, but those plans also fell through. Webster Bank then foreclosed on the property in 2008 from Sandler, which had taken over the property in 2007 after backing Vespera.

Other acreage

The Gurley Brook Preserve owner is KSK Associates, a limited liability company of which Steve Harney, who serves on the East Lyme Board of Finance, is the principal. The property has been in foreclosure proceedings initiated by RBS Citizens Bank, but Harney said last week that KSK is refinancing and the foreclosure will not go forward. The option on that land, currently held by New England National, is part of Ellis' proposal.

The other acreage proposed for acquisition by the Woodsmen Land Trust includes 7 acres of Darrow Pond itself owned by Niantic Real Estate LLC and about 45 acres on Upper Pattagansett Road that New England National owns. The Zoning Commission approved a 58-unit plan to develop affordable housing - called Evergreen Ridge - on part of that acreage on Upper Pattagansett Road in 2011, but nothing has been built.

Blatt said Ellis came to New England National with his current proposal, and the developers thought it was a good idea and would benefit the town by freeing up easements.

"We were happy to cooperate," he said.

Ellis said he is eager to bring his offer, which gives the town properties called for in its Plan of Conservation, to a public vote. He said he has a $500,000 grant from a private donor for Gurley Brook Preserve and the town could apply for additional grants and raise private donations. Financial details are among the information the town wants to clarify.

On its website, the Woodsmen Land Trust states that, among other initiatives, it helps "develop easements wherein the landowners limit development and use their land for the preservation of hunting, fishing and forestry." The question remains whether the trust would ultimately request to allow hunting on the land proposed for open space.

Litigation

In response to an interview question, Formica said the last figure available estimated that the town has spent $560,000 over the years, including settlement dollars and legal fees, on matters related to litigation with New England National.

Blatt disagreed with the concept that the newly proposed deal might include settlement of pending litigation. He said any settlement of the two cases in U.S. District Court in New Haven would not be through the Woodsmen Land Trust, but rather in an action the town would have to initiate.

"We're always open to offers," he said. "Obviously, this is long going. The town has spent a fortune on this."

Five years ago, the town settled a lawsuit with New England National and Darrow's Ridge LLC, another company managed by Blatt, for $250,000 and signed a compromise agreement that called for certain conditions.

New England National had filed for bankruptcy in 2002 and sued the town thereafter, citing among other claims that the town assessed its 600-acre property for more than its worth, according to court documents. The lawsuit from the developers had sought $1.6 million from the town but they accepted $250,000 from the town to settle.

But in May 2010, New England National filed a complaint in connection with its bankruptcy case, alleging that the town breached the compromise agreement. The company's claims included that the town continued to consult with a law firm named in the suit on property matters after agreeing not to do so and failed to resolve a permitting issue with the Army Corps of Engineers.

In 2011, New England National filed a second complaint saying the town failed to supervise certain employees, among other claims, according to the adversary proceedings filed in court.

Last March, the federal bankruptcy court dismissed the 2010 adversary proceeding, saying it lacked jurisdiction over the matter. The court granted in part a motion to dismiss the second adversary proceeding. The development company is now appealing those dismissals in U.S. District Court in New Haven.

It's not clear whether the town could meet the end-of-year deadline set by Ellis, given the need for a vote by the finance board and town residents for the project to move forward. The next regular meeting of the Board of Selectmen is scheduled for Nov. 6.

k.drelich@theday.com