[Part 3 in a series exploring all aspects of the 101 Ash St building deal]
By Arturo Castañares
The current San Diego City Attorney and her two immediate predecessors have differing views on who is responsible for the approval of the 101 Ash St building deal, but the City Charter points to only one ultimate legal authority that was empowered to approve the deal: the current City Attorney, Mara Elliott.
The City’s 20-year lease-to-own agreement for the building was signed on December 19, 2016, just seven days after Elliott was sworn in as the new City Attorney, replacing two-term incumbent Jan Goldsmith who was barred from office by term limits. Goldsmith had replaced then-City Attorney Michael Aguirre after defeating him in the 2008 election.
The 2016 approval of the 101 Ash St agreement (see our Part 1 story) only became controversial this year after renovations of the building over the past 3 years exposed encapsulated asbestos and other repairs that could end up costing taxpayers more than $100 million, in addition to the $128 million in rent payments due under the lease.
Finger-pointing by past and current elected officials has confused the issues of why, how, and who approved the deal, with several contradicting explanations being floated and no one clearly taking responsibility for one of the largest financial debacles in San Diego history.
Who Signed the Agreement?
The City Council voted on October 17, 2016, to pass an ordinance that funded the $128 million lease agreement but the ordinance had to go back before the Council for a final vote on November 14, 2016. It passed unanimously on both dates.
Under the City Charter, an ordinance can be challenged by the public and rescinded by the Council within 30 days of its approval, so the lease agreement could not have been signed until that period passed, or at least December 15th.
The lease signed on December 19th.
The last page of the agreement containing the signatures of the parties has two interesting issues: the typed name of Jan Goldsmith is lined out and Mara Elliott’s name is handwritten in; and the agreement is not signed by the City Attorney herself.
The signature on the agreement is that of Debra Bevier, a Deputy City Attorney who oversaw real estate transactions. It is common for Deputy City attorneys to sign documents on behalf of the City Attorney’s office, and Bevier had done so on many occasions.
None of that is unusual and no one has argued that Bevier signed the agreement on behalf of City Attorney Mara Elliott without her consent and without authority. Arguing that could automatically invalidate the entire agreement if an employee acted without legal authority to bind the City to a 20-year lease.
But what has caused some confusion have been statements by Elliott, Goldsmith, and Aguirre as to who actually “approved” the lease, because the process overlapped the tenures of Goldsmith and Elliott, and included Bevier that worked under all three City Attorneys.
The City Council began reviewing a lease-to-buy agreement for 101 Ash St. in September 2016 after Mayor Kevin Faulconer gave explicit direction to the City’s senior-most staffers not to pursue a purchase because he feared the political backlash of directly paying tens of millions of dollars to “Papa” Doug Manchester, one of his biggest campaign donors and also one of the owners of the 101 Ash St. building. (read our Part 2 story)
Through a lease, the City would pay Cisterra Development, and Cisterra would in turn pay the sellers, Manchester and Sandor “Sandy” Shapery.
Although the City’s Chief Financial Officer warned the Mayor that a lease would cost taxpayers at least $17 million more than a direct purchase, the Mayor insisted on trying to shield his connection to Manchester regardless of the additional financing costs. In the end, Manchester would still receive a $25 million payout but not directly from the City.
Staff then quickly pivoted to using the same lease agreement they had used the year before when the City signed a 20-year lease-to-own deal for the Civic Center Plaza (CCP) building where the City Attorney’s office is located. That agreement was also signed with Cisterra, a middleman company that bought the building by leveraging the City lease to secure financing. Although Cisterra was technically the landlord, the City assumed all liability for the building, maintenance, and repairs.
The 101 Ash St. lease also included the same onerous liability waiver language that was in the CCP lease which completely protects the landlord and sellers from any liability for known and unknown defects, language that may not even be legal to include as it shifts unknown exposure of repair costs to the City and taxpayers.
In 2015, when the City was negotiating the CCP lease, the City Attorney’s office released a confidential memo to City Council members outlining the dangerous liability waiver language. The City Council accepted the language anyway, but staff argued that the City had occupied the building for years and knew the true condition of the building.
But during the negotiations in 101 Ash St., the City Attorney’s office did not issue a confidential memo to City Councilmembers about the same language that one year earlier had raised concerns, and the City had never occupied the building, nor did staff conduct thorough independent inspections or commission environmental reports usually required in building purchases.
The staff report on the agreement did not mention the complete release of liability for the landlord, nor did staff mention it during their two public presentations before Councilmembers, nor did the language of the official ordinance passed by the City Council mention the liability waiver.
Unusually, the liability language is moved up to Page 1 of the agreement, and is written in all capital letters, a sign of the language’s importance.
The disclaimer states that the building is “AS IS” AND “WHERE IS”, and “IT BEING AGREED THAT ALL RISKS INCIDENT THERETO, EXCEPT AS OTHERWISE SET FORTH HEREIN, ARE TO BE BORNE BY TENANT”, that “LANDLORD SHALL HAVE NO RESPONSIBILITY OR LIABILITY”, and that it’s “A COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD.”
The language is so important that it required the initials of someone from the City to acknowledge the waiving of California Code of Civil Procedures 1542 which protects buyers from unknown defects.
The 1542 waiver means that the City waived any and all claims to any defects, deficiencies, and other material problems with the building and released the seller/landlord, Cisterra, and therefore the sellers, Shapery and Manchester, from all legal liability for issues, including asbestos, seismic retrofits, fire sprinklers, and other mechanical repairs that have now been discovered.
Council Members that have spoken publicly since the approval of the lease agreement maintain that they were not properly advised as to the serious liability waiver language that left the City completely at risk for all issues with the building.
The Council’s Independent Budget Analyst (IBA) issued its final report on October 12, 2016, just days before the City Council voted on the agreement, and also failed to mention the potential liability and additional costs to the City in releasing the seller/landlord from all future repairs of the building.
City real estate staff that briefed the Councilmembers and presented the agreement at Committee and full Council maintain that the City Attorney’s office was responsible for analyzing and informing the Council as to the legal ramifications of the liability language, but ultimately, no one did.
City Council Approval
The lease agreement language was reviewed by the City Attorney’s office between September 6 and 21 when it was presented at the City Council’s Land Use Committee. Director of Real Estate Assets Department Cyble Thompson and City Deputy Chief Operating Officer Ron Villa presented the deal to four Councilmembers, including Todd Gloria, David Alvarez, Scott Sherman, and Committee Chair Lorie Zapf.
At that meeting, Deputy City Attorney Hilda R. Mendoza spoke about potential legal issues with the purchase option that, she said, led the City to instead pursue a lease, but she did not mention the liability waiver language. The proposal passed unanimously.
The agreement then went before the full City Council on October 14, 2016. Neither the staff, the IBA, nor the City Attorney’s office raised the issue of the liability waiver language to inform and warn the City Councilmembers. At the time, Jan Goldsmith was still City Attorney and Debra Bevier was the Deputy overseeing Real Estate transactions. The Council voted unanimously to approve the deal.
The final vote by the City Council was on November 14, 2016, passing unanimously with no discussion on the deal, and starting the clock on the 30-day waiting period.
New City Attorney Elected
Between the dates of the two City Council votes, Mara Elliott won the election for City Attorney on November 8, 2016. She had been serving as a Chief Deputy City Attorney under Jan Goldsmith since 2009 and was in charge of public contracting.
Earlier this month, Elliott’s office released a statement that “City Attorney Elliott was not in office when this deal was approved, and did not work on it as a Chief Deputy before being elected City Attorney.”
The statement referenced “approved” as meaning when the City Council voted on the ordinance, not when the agreement was signed by the City Attorney’s office, giving the impression that Elliott had no opportunity to review or analyze the language of the lease agreement.
But according to former City Attorney Jan Goldsmith, Elliott was treated as the City Attorney-elect immediately after the election and given full access to the office and staff leading up to her swearing-in on December 12, 2016. Elliott was briefed on all pending issues, including the 101 Ash St lease deal.
During the San Diego Union-Tribune’s endorsement interviews two week ago, Elliott was asked about Goldsmith’s assertion that she had full access to the office and staff for a month before she was officially sworn in. Elliott did not dispute that characterization of her access to the office.
Elliott has not responded to a request for comment from La Prensa San Diego for confirmation.
Debra Bevier remained in her position as Chief Deputy City Attorney when Elliott assumed office and continued to oversee the 101 Ash lease deal.
On December 19th, seven days after Elliott was sworn into office, Debra Bevier was allowed to sign the agreement, making the 20-year lease deal officially approved and in effect.
Goldsmith maintains that, according to the City Charter and state law, the elected City Attorney has the final authority to approve contracts and could refuse to sign off on it.
An email from Mara Elliott’s public information officer to an NBC producer last year stated that “attorneys in the City Attorney’s Office sign off on contracts ‘as to form’, meaning the contract is legally correct and includes required language to limit taxpayer liability and protect against fraud. It is not an occasion to second-guess the Mayor and City Council, unless those decisions violate the law.”
Critics now cite the City Attorney’s failure to alert the City Council about the onerous liability waiver language as the reason taxpayers could be on the hook for more than $100 million in repairs to the building.
During the endorsement interview with the San Diego Union-Tribune Editorial Board earlier this month, Elliott was asked about her involvement in approving the lease agreement one week into her tenure as City Attorney, and her response was to shift blame onto Goldsmith and his administration, of which she was a part.
“My administration did not work on 101 Ash, this is a deal that happened months before I took office,” Elliott said in response to the first question in the nearly two-hour interview session. “I was not told, nor would I have suspected that there were any issues with 101 Ash,” she added.
Former City Attorney Michael Aguirre, who served from 2004 to 2008, recently issued a letter stating that “the lease came before a City Council Committee and the City Council on September 21, 2016, and October 17, 2016, respectively. Ms. Elliott was not the City Attorney at that time.” Aguirre’s comments seem to be to support Elliott’s position that the deal happened before she was in office.
Jan Goldsmith told La Prensa San Diego in an exclusive interview that Elliott “didn’t have to sign it” referring to the lease deal. Goldsmith maintains that Elliott decided to leave Bevier in the position to sign the agreement, accepting full responsibility for the final approval of the deal.
To date, no one has disputed that Debra Bevier signed the agreement on behalf of City Attorney Mara Elliott. Bevier has since left working for the City Attorney’s office.
Michael Aguirre recently filed a lawsuit to force the City to stop making its $545,000 per month lease payment because the City cannot use the building after the exposure of asbestos materials, and raised legal objections to the lease itself. Mayor Faulconer stopped the issuance of this month’s payment, and lawyers representing the financing bond holders have indicated they may file sue to enforce the lease. The City has also received several lawsuits from employees and contractors over exposure to asbestos.
The building currently sits empty, and the City has also cancelled a project management contract that provided private security and maintenance of the building. For now, City staff will oversee the building until decisions on made on the future of its potential use again for City staff or if the lease is modified or terminated.
…to be continued…