October 22, 2020

Lawyers Suing City Over 101 Ash St. Ask that All Documents Be Released, Support Independent Investigation

By La Prensa San Diego

By Arturo Castañares
Editor-at-Large

Lawyers suing the City of San Diego and developers involved in the 101 Ash St building transaction are now asking for all documents to be released and joined mayoral candidate Barbara Bry and City Attorney candidate Cory Briggs in asking for an independent investigation into the controversial deal.

Attorney Lawrence Shea

Lawrence Shea, one of the lawyers suing to undo the 2016 lease agreement, is demanding the City and the landlord release all documents related to the transaction so the public and investigators can review all aspects of the deal. Shea is teamed with Thomas Girardi, a lawyer that has handled high-profile litigation cases including the PG&E case made famous by the movie, Erin Brockovich.

“Our position is and has always been that all facts, including all source documents or emails pertaining to the 101 Ash Street transaction, should be disclosed immediately by all parties,” Shea told La Prensa San Diego this week.

Shea has joined other lawyers, including former San Diego City Attorney Michael Aguirre, in suing the parties involved in the transaction, including the City, claiming that transaction was fraudulent and a waste of taxpayers’ money.

Aguirre had recently asked the Council to not release documents related to the deal, but the lawyers have now clarified that the limitation of disclosure was only for legal opinions submitted by lawyers, but not the entire documents themselves.

The 2016 agreement entered into by the City for a 20-year lease-to-own deal has ended up in litigation after the building was closed down by county health officials because of exposure to asbestos just two year into the deal.

This week, both Barbara Bry and Cory Briggs asked for independent criminal investigations into the deal after three reports to the City from outside law firms have failed to review all of the details of the transaction.

Shea responded on Twitter to posts by Bry and Briggs, saying that “both have called for an outside criminal investigation. That seems significant.”

“We were the first to call for the City to conduct a thorough investigation regarding the circumstances of the transaction and disclose the results of that investigation to the public,” Shea said.

Attorney Michael Aguirre

“Defendants’ misrepresentations were fraudulent as the condition of the Ash Street building was in such a state of disrepair the city could not use or occupy the building at the time of the execution of the lease-to-own agreement,” the complaint reads.

The lawsuit, filed in August, asked for a court-ordered injunction to force the City to stop making its approximately $545,000 monthly lease payment since the City is not currently able to occupy the building as intended in the lease agreement. The building was closed by county health officials in January of this year after asbestos released during construction work on renovations to the 52 year-old building posed a health risk to employees and workers.

San Diego Mayor Kevin Faulconer then ordered that the lease payments be stopped in September, and so far, two monthly payments have been withheld. Within weeks of the first missed payment, a representative for bond holders that provided the $91.8 million financing for the transaction filed a claim against the City, the first step before a lawsuit can be filed.

On October 6, a stipulation was approved in closed session by the City Council that agrees to withhold lease payments until the City is able to reoccupy the building or the Court resolves the claims. The stipulation was signed on October 9th. [See stipulation]

That agreement, however, has been misrepresented by San Diego City Attorney Mara Elliott as a “settlement” of the case, and incorrectly reported by the San Diego Union-Tribune and other media outlets as a settlement that releases the City from the lawsuit.

During the October 13th Council meeting, Deputy City Attorney Sanna Singer reported to the Council that the agreement authorized “the Mayor and City Attorney to settle the litigation” and “dismissing the City from the matter”.

The agreement does not mention, nor did the lawyers for the plaintiff agree to, a settlement that would have released the City from the lawsuit. In fact, the plaintiff cannot release the City because it would therefore invalidate the entire lawsuit because the plaintiff would lose his standing to sue at all.

City Attorney Mara Elliott

A request for clarification from Elliott’s office was not returned.

The stipulation was leaked by the City on the same day it was signed, and City Attorney Elliott immediately released a statement where she claimed she “inherited” the “mess”.

“Cleaning up the Ash Street mess I inherited is a top priority, and this is an important first step in recovering taxpayer funds,” she said in her statement.

But, as La Prensa San Diego has previously reported, Elliott was the City Attorney when the lease agreement was executed, and she has admitted that she had access to the City Attorney’s office staff and files for five weeks before she approved the lease. She has continued to characterize the deal as having been “approved” before she was in office, choosing to point to the Council’s final vote in November as the “approval” but the agreement was not binding until her office actually signed the document in December, one week after she was sworn-in as the City Attorney. [See agreement signature page]

Elliott has been criticized for not having reviewed the very lopsided deal that included language on its first page that completely shields the landlord from any liability for any known and unknown defects or problems. That language, which several real estate lawyers claim is not legal under state law, is the reason the City may be on the hook for more than $100 million in repairs needed to bring the building back to be operational, in addition to the $128 million in lease payments required by the agreement.

Attorney Cory Briggs, who is challenging Elliott in the upcoming election, charges that Elliott failed to properly review the agreement or alert the City Council to the potential liabilities before it was signed, and that Elliott did not attempt to address any problems with the deal for three years until this year when the building was unusable and the issues became public.

Attorney Cory Briggs

“Mara Elliott was asleep at the wheel and left taxpayers at risk for more than $200 million in costs for a building we can’t even use,” Briggs told La Prensa San Diego this week. “And now Mara Elliott tries to say she had nothing to do with the deal when she could have stopped it before it ever started but, instead, she signed off on it blindly,” Briggs added.

Three outside law firms have been asked to review the building transaction but none have disclosed the most damaging allegations against the City’s political leaders that championed the deal and ultimately approved it. Investigators have had access to all internal documents, many of which have still not been released to the media or the public.

News stories published by the SDUT, the Voice of San Diego, and La Prensa San Diego have relied on partial releases of emails and documents obtained through Public Records Act requests, but many documents have still not been released.

Councilwoman Barbara Bry

Barbara Bry, a candidate for Mayor and a current Councilmember, has called for independent investigations by state and federal authorities after the three lawyer firms have conducted their own investigations but all were under the control of the Mayor and City Attorney. Those investigations have not focused on the behind-the-scenes political maneuvers that led to the approval of the lease deal.

Bry also criticized her opponent in the race for Mayor, Assemblyman Todd Gloria, for his part in championing the lease deal back in 2016.

“If you go back a look at the public testimony, Todd Gloria is enthusiastically supporting this purchase even though he is told at a public hearing that the City is paying $16 million than it needs to, and is paying over the appraised value,” Bry said during an interview on KUSI News this week. “And then we’ve also learned that there’s a missing $14 million dollars, I haven’t seen the closing documents…but it’s clear that this transaction is illegal and that makes it void under state law.” Bry concluded.

Councilman Todd Gloria

Todd Gloria was on the City Council in 2016 when the deal was approved. Gloria spoke in favor of the deal and made the motion to approve it both at a committee hearing and before the full Council.

“This seems to be a very smart financial transaction,” Gloria said during the committee meeting, “partnering with experts in the community and with folks that know how to get things done, everything about this sends a message to taxpayers that we kind of got our stuff together around here,” Gloria said. “I like a lot of what’s going on here and I just thank you very much.” Gloria then made the motion to approve the deal. [Watch video of meeting]

Bry’s reference to “a missing $14 million” is related to part of the $91.8 milion Cisterra received at the close of the transaction. Cisterra paid Manchester and his partner, Sandor “Sandy” Shapery, $72.2 million for the building, but Cisterra has not disclosed to the City who received the rest of the financing proceeds beyond a $4.5 million fee the development company said it would take in the deal.

One person suspected of receiving part of the unaccountable $14 million is Jason Hughes, a real estate broker that has been working as a pro-bono real estate adviser to the City since 2013. Hughes was involved in the negotiations between the City and Cisterra, and also met directly with Faulconer on the deal.

Jason Hughes of Hughes-Marino

Hughes did not have a dual agency agreement to represent both sides, and if he received an undisclosed payment from the seller, may have violated state conflict of interest laws, as well as state requirements for licensed real estate brokers. A violation of conflict of interest laws aimed at preventing political corruption could invalidate the entire agreement and subject Hughes to criminal prosecution.

The CEO of Hughes-Marino, a local real estate firm that promotes itself as exclusively representing tenants, Hughes has not responded to repeated requests for comment to clarify if he received a fee from Cisterra. After repeated messages sent to Hughes via Twitter, his account was deleted.

Cybele Thompson

This week, an article in the San Diego Union-Tribune (SDUT) mentioned previously undisclosed internal City emails where Cybele Thompson, then-Director of City’s Real Estate Assets Department, disagreed with moving forward with the purchase of the building, citing “its age, location and inefficient layout” in a January 2015 email, two years before the final deal was signed.

That article also quotes Mayor Kevin Faulconer’s spokesperson, Craig Gustafson, who implies Thompson later changed her opinion of the building.

Spokesperson Craig Gustafson

“There are dozens of subsequent emails in which Ms. Thompson advocates on behalf of the transaction and actively works to get the project across the finish line,” Gustafson told the Union-Tribune. Gustafson is a former SDUT reporter that worked for the newspaper when it was owned by Manchester.

But what both the SDUT article and the statement from the Mayor’s staff leave out is the details of a meeting that took place in the Mayor’s office on September 6, 2016, where, according to multiple people in the meeting, the Mayor directed staff to only pursue a lease-to-own agreement instead of a purchase.

“The Mayor directed us to pursue a lease instead of a purchase because he didn’t want to be seen as paying Doug Manchester directly,” one of the staff members who attended the meeting told La Prensa San Diego in an exclusive interview, referring to one of Faulconer’s biggest political contributors. “What were we supposed to do when the Mayor directed us to do it,” the staff member added, referring to the City’s Strong Mayor form of government where staff report to the Mayor not the City Council.

Participants in the meeting included Faulconer and Thompson, as well as the Mayor’s then-Chief of Staff, his Land Use staffer, the City’s COO, Assistant COO, a Deputy COO, and the CFO.

La Prensa San Diego first reported the details of that meeting in a September 11, 2020 article. Multiple staff members that attended the meeting allege that Faulconer told staff to use a middleman company, Cisterra Development, so the City would not pay Manchester directly, even after he was advised that lease would cost the City at least $16 million more than a direct purchase.

Manchester received a nearly $25 million payout one day after the close of the transaction.

A request for comment sent to the Mayor’s office before the article was published did not respond to the allegations attributed to staffers, nor did the Mayor’s Chief of Staff or Gustafson object to or deny the allegations.

Since the article first ran, no one that attended the meeting has come forward to dispute the allegations or deny the substance of the story.

22 days after the story ran, Gustafson, who did not attend the meeting, offered his own second-hand denial by claiming that “the premise of your stories are inaccurate and the allegations against the Mayor are false.” The statement was not a denial by the Mayor himself. La Prensa San Diego covered that statement in an October 6, 2020 article.

However, neither Gustafson nor Faulconer have demanded a correction or retraction of the story as provide by state law. No one who attended the meeting  has asked for a correction or retraction. Multiple people in the meeting spoke with La Prensa San Diego to independently confirm the allegations. La Prensa San Diego did not publish their names to protect their employment or careers.