SD City Seems Ready to Buy 101 Ash in Secret Deal with Landlord & Financiers


By Arturo Castañares
Editor-at-Large

A super-majority of the San Diego Council voted behind closed doors on Tuesday to use taxpayer money to buy the controversial 101 Ash St building as a way to resolve pending lawsuits between the City and its landlord over the office tower that was abandoned more than two years ago due to asbestos exposure and non-functioning mechanical systems.

According to sources familiar with the transaction, the deal was championed by the City’s Chief Operating Officer, Jay Goldstone, at the direction of Mayor Todd Gloria, and was approved by six members of the Council, including Councilwoman Dr. Jen Campbell, who had previously been opposed to a settlement deal.

Only Councilmembers Vivian Moreno, Monica Montgomery Steppe, and Marni von Wilpert opposed the deal.

The deal would short-circuit pending litigation that has already turned up damaging details of the controversial deal that led the City into one the worst political and financial scandals in decades.

The City is currently suing its landlord, Cisterra Development, to avoid paying on the existing lease while the building is unusable, and the landlord and its lending are fighting to hold the City accountable. The City is also suing to invalidate the lease after discovering that its former real estate broker participated in backend profit sharing with the landlord on two leases signed by the City.

The City Council did not disclose that any action was taken in the closed session meeting Tuesday.

Inside source say the Council, Mayor, and City Attorney’s office agreed to keep vote secret from the public until after the June 7th election where Councilwoman Campbell is being challenged by former State Assemblyman Lori Saldaña and Dr. Joel Day, a former City policy advisor.

City Attorney Mara Elliott’s Chief of Staff, Gerry Braun, did not respond to a request for comment on the closed door meeting.

Requests for comment or confirmation for this story sent to every Councilmember’s chief of staff were not answered by any of their offices.

CLUES TO A RIDDLE

The deal comes after months of negotiations between lawyers representing the City, its landlord, their financiers, and Jason Hughes, the City’s former real estate broker who pocketed over $9.4 million in previously undisclosed backend profit-sharing fees from Cisterra Development, the City’s landlord at both the 101 Ash building and the Civic Centre Plaza building where the City Attorney’s office is housed.

Some City Hall insiders suspect the deal is part of a much larger transaction that will eventually see the building folding into a recently-proposed “Grand Mobility Hub” that would encompass several square blocks around the current City Hall complex.

A proposal floated last month by San Diego Mayor Todd Gloria and SANDAG, the San Diego Association of Governments that oversees local transit projects, envisions a new City Hall complex that would replace the current Civic Center facility, including demolishing the existing 1960s-era City Hall, the San Diego Civic Theatre, and an adjacent City building known as the City Operations Building.

But the proposal also mentioned adding in the Civic Centre Plaza building and 101 Ash Street, both buildings currently involved in the legal cases connected to Cisterra and Hughes. A rendering released by SANDAG depicts new buildings in place of 101 Ash and CCP, indicating the two buildings would be demolished to make way for the new project.

SANDAG rendering of proposed “Grand Mobility Hub”

“The city has a fair amount of property downtown – we acknowledge that some of it is a little complicated, but that is playing out through litigation, and we’re committed to resolving that. We must,” Mayor Gloria told the Voice of San Diego last month when announcing the new City Hall project, confirming that the two buildings involved in the lawsuits are included in the proposal.

Gloria also suggested the Civic Center complex could be combined with a proposed development project on two adjacent blocks owned by the State of California, saying that redevelopment efforts could work together, but laid the decision off on the state.

“I don’t want to get too far ahead, because again ultimately that’s the state’s call, but you know, it’s not just a City Hall project,” Gloria said. 

The clues point toward a possible deal between the City, SANDAG, and the state were the City purchases the 101 Ash and CCP, then roll them into the proposed Grand Mobility Hub through funding provided by SANDAG and/or the state.

Critics look at the state’s current $95 billion surplus and Gloria‘s close relationship with Governor Gavin Newsom as the final piece to the puzzle that could see the state fund the acquisition of the two controversial buildings as part of the larger project and bail the City out of its current financial and political scandal.

DOCUMENTS REVEALED COVERUP

Last month, the City’s former director of real estate assets, Cybele Thompson, caused a stir when she turned over copies of more than 300 City documents she had in her possession in preparation for a legal deposition in the City’s case against Jason Hughes.

Cybele Thompson

Thompson had lead the City’s Real Estate Assets Department since September 2014 and been instrumental in the negotiations for the lease of 101 Ash, as well as the building’s renovation project, but left the City in August 2020 after staff were evacuated from the tower.

Mayor Kevin Faulconer forced Thompson to resign seemingly as the scapegoat for the City’s failure to conduct proper due diligence, even though she followed orders directly from the Mayor’s office on how to orchestrate the deal.

Among the documents Thompson turned over were dozens of emails between City staffers who had worked on the 101 Ash project, including emails which Thompson did not originally receive by email. None of the documents she provided were considered to be protected under any attorney client privilege or other legal protection.

But when Thompson provided the documents to the City, outside lawyers for the City admitted that there were several documents they had never seen before, even though they have been representing the City on the case, exposing that the City Attorney’s office had failed to provide the documents to attorneys as required by state evidence laws, even to its own lawyers.

When asked by La Prensa San Diego if Thompson’s documents should have been disclosed through previous discover requests in his case, Hughes’ lawyer, white-collar defense attorney Michael Attanasio, responded, “1,000%!”

Attanasio, a San Diego native and Stanford Law School graduate, leads the global litigation department of Cooley, LLP, a leading worldwide law firm.

Michael Attanasio

During Thompson’s deposition, Attanasio asked Thompson how she came into possession of some the emails in which she had not been included on the original message distribution list.

That’s when Thompson revealed something no one at the City seemed to know and no one expected.

Thompson admitted that the City’s then-Chief Operating Officer, Kris Michell, gave her the documents after Thompson had left working for the City.

Excerpt from transcript of Thompson’s deposition

Michell, a long-time City Hall insider, had been the City’s Chief Operating Officer since January 2018 after having previously served as Chief of Staff to both Mayor Jerry Sander and Susan Golding.

“I don’t recall exactly, but I just remember she gave me quite a few documents and said, ‘You might want to keep these with the other ones that you’re holding’,” Thompson said of Michell during her sworn deposition.

Excerpt from transcript of Thompson’s deposition

Michell apparently believed that the documents would help Thompson prove her own innocence if she was blamed for the City’s failures, but the documents also helped reveal how the disastrous building acquisition actually happened.

One of the emails Michell gave to Thompson was between high-ranking officials who discussed the move to use a lease for the 101 Ash building.

“Do you have an understanding that Kris Michell gave this one to you because it appears to be one of the first times the lease‐to‐own structure is discussed and there are several high‐ranking City officials involved?” Attanasio asked Thompson during the deposition.

The former real estate director responded that she and Michell “actually never discussed why she gave me the documents.”

Michell resigned from the City just one month after Thompson’s ouster.

Thompson also testified that she took both paper and electronic copies of emails and documents when she left City, focusing on items that “told the story in writing of how decisions were made, how due diligence occurred, what the timelines were during the process.”

Hughes’s lawyer asked Thompson whether she felt like she was being wrongly blamed for the failures of the project.

“As you were looking for documents to take to fulfill that objective, did you have a feeling that you were being unfairly blamed about 101 Ash?” Attanasio asked Thompson. “Yes”, she replied.

“Did you have a feeling you were being scapegoated?”, Attanasio asked. “Yes”, Thompson again answered.

“Did you have a feeling you were being pushed out of the City because of it unfairly?,” the lawyer asked.

Again Thompson replied with a one word answer. “Yes.”

Then Attanasio asked Thompson who she believed made the decision to blame her for the City’s problems with the building.

“I mean in terms of looking around and going, ‘You know what? They’re looking for a fall person here and they’re trying to make it me.’ Who did you think was doing that?”, Attanasio asked.

“Ultimately, Kevin Faulconer,” Thompson replied.

Excerpt from transcript of Thompson’s deposition

Just two weeks after Thompson’s deposition, Attanasio filed a motion to compel the City to turn over all documents requested through discovery, and he used Thompson’s revelations as proof of the City failed to produce documents he believed are vital to his client’s defense, and “fatal” to the City’s case.

“As with the documents referenced by Ms. Lewis and Mr. Villa during their depositions, (see
Memo. at 7-9), the documents produced by Ms. Thompson are more than relevant—they are
potentially fatal to the City’s case,” Attanasio wrote in his brief. “The documents have existed since the beginning of the case, they are responsive, and they were withheld,” he argued.

THE CONSUMMATE INSIDER

Michell was directly involved in the review of the building deal after employees were evacuated in January 2020; in fact, the letter sent from the City informing employees that they would have to move back out of the building was sent from Michell herself.

At a January 2020 City Council meeting discussing the building, Michell committed that the City would launch an investigation into the project to determine “what went wrong.”

“We are in the process of hiring a forensic consultant on an emergency basis and as a top priority to perform a forensic analysis of what went wrong on this project. Simply, who knew what and when, and who has the obligation to assist us in solving this problem,” Michell said on behalf of Mayor Faulconer during the January 28, 2020 Council meeting.

Michell was the highest-ranking member of Mayor Kevin Faulconer’s administration to speak before the City Council about the issues with the building, and she promised that the forensic report would expose all of the people involved in the deal where “obviously something went wrong.”

Kevin Faulconer

“We are engaging outside help to analyze the larger picture from 2016 through January 2020 to identify those parties who had direct involvement in the situation we are now in,” Michell said.

But sometime after that meeting, the City Attorney’s office took control of the process and handed the work to a law firm that was already retained to help the City fight asbestos-related lawsuits. The law firm of Hugo Parker, LLP, and its principal, James Parker, were already engaged to defend the City months before the issue of a forensic report was first announced.

Six months later, Mayor Faulconer’s office released the Parker report on July 28th as an “independent review” of the controversial purchase of the 19-story office building known by its address at 101 Ash Street in downtown.

At the time, Faulconer claimed the report was “independent” and that he was releasing it as a change from the City’s past “culture” of “sweeping problems under the rug.”

The City Council discussed the Parker report at its August 6, 2020 meeting where Michell presented it as “an unvarnished accounting” of the building project.

Kris Michell during City Council meeting 2020

But, as La Prensa San Diego later reported, an undisclosed earlier version of the Parker report contained two additional pages of observations and conclusions that showed City officials and staff failed to conduct proper due diligence on the building, relied primarily on representations made by the sellers and landlord, and executed a lease that was more expensive than having purchased the building directly.

Before La Prensa San Diego’s reporting, no one at the City had admitted that an original version of the report existed and provided a more damaging assessment of the City’s actions and inactions before and after the purchase of the building, proving that the City Attorney’s office had whitewashed the Parker Report before Michell represented it as the “an unvarnished accounting” of the project.

Several City Hall insiders have long suspected that Michell had been leaking documents related to the failed building project, but they were uncertain of her motives -whether to serve as a whistleblower to reveal the truth or in retaliation to damage Elliott for putting Michell up as the public face of the debacle.

Thompson’s revelation that Michell provided the documents to her proved Michell was leaking documents, but left the open question of why the highest-ranking City official would to it, and who else may have received documents from her.

COUNTER ATTACK

The release of Thompson’s trove of emails also proved that the City Attorney’s office had been withholding documents from opposing lawyers involved in the pending cases.

After Thompson’s documents were sent to opposing counsel, the City Attorney’s office released over 300,000 pages of documents that had not previously been turned over through discovery.

Lawyers now believe no one at the City expected that Thompson -or anyone else outside the City- had copies of certain documents, so City officials purposely failed to release them through discover requests made by opposing lawyers, including Hughes’ attorney, mistakenly expecting that no one else would turn them over.

It seems unlikely that only certain documents, which should have been readily available to City staff searching for relevant documents, could have been inadvertently left out of discovery responses.

The exposure of the failure to provide documents was another blow to the credibility of City Attorney Mara Elliott’s office.

La Prensa San Diego has previously detailed how her office was involved in editing at least three reports on the 101 Ash project, including failing to disclose previous versions of two damaging reports which were later released after being modified to minimize the City Attorney’s in approving the disasterous lease deal.

Two weeks after Thompson revealed Michell’s involvement in preserving documents related to 101 Ash, the City Attorney’s office sent a letter to Michell accusing her of having destroyed documents in her “final days of employment with the City.”

“We recently learned that in the final days of your employment with the City of San Diego you directed City staff in the Information Technology Department to erase from your cell phone(s) and computer public records found in email, text messages, and other chat tools relating to this litigation,” the May 11, 2021 letter reads.

The letter was signed by Travis Phelps, Assistant City Attorney.

“Further, former City employee Cybele Thompson recently testified in deposition that you sent her City records pertaining to this litigation after she left the City and while you were still COO. We would like to understand your actions: which records were shared, for what reason, and were copies or originals of those records maintained by the City?” the letter continues.

At the end of the letter, the City Attorney’s office asked Michell for her help in retrieving documents.

“My Office seeks your cooperation in recovering the records that were destroyed and their return to the City. Please contact me by Monday, May 16, 2022, to begin the process of identifying and recovering all City records,” Phelps wrote.

Michell did not respond to the letter by the deadline.

The letter from the City Attorney’s office does not identify how or when they discovered that Michell may have deleted documents, nor did it provide any proof that any documents are missing.

Additionally, the close of the letter asking Michell for help in recovering destroyed records seems unusual because it’s unclear how Michell, now a former employee, could help the City regain access to deleted or destroyed documents unless they believe she took copies of the documents before she destroyed them.

SECOND THREAT FROM CITY ATTORNEY

The letter is very similar to a letter sent to NBC reporter Dorian Hargrove in 2020 after he published a story exposing a damaging internal legal memo regarding 101 Ash.

Hargrove had been reporting on the building after it was evacuated in January 2020, and he released portions of a leaked legal memo that claimed the City Attorney’s office was not making witnesses available to outside lawyers investigating the building transaction, including former City Councilman Todd Gloria.

Elliott and Gloria, who were both running for office during the 2020 elections, claimed that a footnote in the legal memo was fabricated, although they never disclosed a copy of the original version to prove or disprove the authenticity of the memo.

In response to Hargrove’s coverage, the City Attorney’s office sent him a July 30, 2020, letter titled “Criminal Investigation” indicating they had “initiated a criminal investigation” because the “unauthorized release of confidential documents and information is a criminal violation of the City’s Ethics Ordinance, the Government Code, the Penal Code, and if received or sent via electronic method, a violation of state and federal electronic communications acts.”

The letter was signed by Assistant City Attorney John Hemmerling, the head of the Criminal Division of the City Attorney’s Office which prosecutes misdemeanor criminal cases, demanded that Hargrove “return documents that are the property of the City of San Diego.”

Legal cases have long protected the media’s right to publish classified, privileged, or otherwise protected documents as long as the reporter did not participate in the removal of the documents in the first place, as was made famous by the 2017 movie ‘The Post’ about the 1971 publication of the Pentagon Papers.

The day after Hemmerling’s letter was sent to Hargrove, Elliott retracted the letter and clarified that she has never and will never prosecute a journalist.

“The letter my office sent earlier to an NBC reporter never should have been sent,” Elliott posted on Twitter. “My office has never – and will never – prosecute a journalist or compel them to reveal confidential sources.”

Hargrove confirmed that Elliott called him directly to clarify he was not under investigation. Elliott claimed the Criminal Investigation letter was a “form letter” meant for potential witnesses, but not for reporters.

Hemmerling, a lawyer and former San Diego Police Department officer, is now a candidate for San Diego Sheriff in this year’s election. 

OTHER CITY OFFICIALS ADMIT DELETING TEXTS

The City Attorney’s letter to Michell claims that she deleted text message from her cell phone which would be public records which the letter defines as “information of any kind and in any form, created or received by the City that is evidence of its operations” and that their destruction “violates not only the [San Diego Municipal Code] but also state law.”

The letter does not explain how the City became aware that Michell may have deleted, but, even if true, would be just the latest City official exposed for having deleted text messages related to the City’s operations.

In a recent legal deposition in the 101 Ash litigation, Mayor Kevin Faulconer’s then-Chief of Staff, Steven Puetz, testified under oath that he routinely deleted all of his text messages from his cell phone, regardless of their content.

Puetz did not provide any text messages in the pending legal cases, but real estate broker Jason Hughes provided text messages between them related to the 101 Ash project dating back from 2014. Puetz apparently had deleted those messages.

Stephen Puetz

A few months earlier, the City’s former Deputy Chief Operating Officer, Ronald Villa, testified in a deposition in another case against the City that he deleted his text message every day. Villa went ever further and admitted that he believes the state law requiring the preservation and publication of public records is intrusive.

Ron Villa

And just a two weeks ago, a meeting was held among current City staff who worked on the renovation project at 101 Ash to discuss searching for existing documents related to the project.

At the end of the Zoom call meeting, the staffer who organized the meeting, City Engineer Luis Scharr, told the other staffers that if they had further questions they should text or call, not email him.

Scharr clearly differentiated between emailing and texting in a clear sign that City employees viewed the preservation of text messages differently from emails.

A Memorandum of Law from the City Attorney’s office signed by Elliott may have provided the legal basis for the staff’s treatment of texts as disposable.

The April 4, 2017 memo sent to all City employees was in response to a California Supreme Court decision the previous month which clarified that text messages and emails, even if sent or received on personal devices, were considered public records and must be preserved.

But the memo only suggested that City officials and staff must “search personal devices or accounts to respond to a specific records request” and to “complete an affidavit (or statement of compliance) that sets forth that the officer or employee searched all private devices and accounts for responsive records and provided responsive records to the City.”

The memo did not demand that all employees retain or avoid destroying text messages, just that they must search electronic devices when they receive a specific records request.

Elliott’s legal memo included an earlier memo sent by the City’s Human Resources Department which defined public records but also defined “Nonrecord” as “a record which is not required to be retained in the ordinary course of City business or is a temporary aid,” and included “Electronic mail, instant messages, and voicemail that are not created for the purpose of preserving documentary or informational content for future use by the City.”

Under that definition, nearly all emails and text messages could be deleted if they were not created for future use.

Several City employees have admitted that nearly all staff routinely deleted their text messages so they would not have them when a public records request was received because it was universally understood that text messages were not subject to disclose if they did not exist when a request for public records was received.

It is not clear whether the City Attorney’s office has sent similar letters regarding deleted public documents to Puetz or Villa who admitted under oath to purposely destroying text messages.

5 comments on “SD City Seems Ready to Buy 101 Ash in Secret Deal with Landlord & Financiers

Kevin Swanson

It certainly appears to be clear violations of state laws, at least from a general understanding of law. Sadly from my outside view it appears that there is no desire for criminal prosecution. These Public Officials and City Employees do what they want with zero consequences.

David Moty

During Q&A at a 2016 City Attorney candidates forum, I asked, “how can the City Attorney keep the City from being a patsy in its real estate deals?” I don’t recall Mara Elliott’s answer, but I sure nailed the right question, not that it takes a lot of foresight to envision the City being the patsy in a corrupt real estate deal – yet again.

Geoff Page

Excellent reporting, quite amazing.

gayle powers

Best reporting of our “company town” when it comes to cover up and blame game. Along side Jeff and Kelly’s investigative coverage of the Sheriff’s Dept it appears there is something rotten in the “state” of San Diego County.

For many who have experienced “shoot the messenger” or been made “the fall guy” this “Monopoly by the Sea” is the latest scandal in our county where there is no real accountability. Whether it’s the City Attorney, the DA and Federal Prosecutors withholding discovery;
when it’s all said and done the taxpayers picks up the tab. Those wrongly accused are left trying to restore their reputations and their lives.

T-bone

Follow the money went. Kevin Faulkner Just ran away from the problems and now wants to be governor. He is a jerk for looking the other way and leaving this expensive mess. That original chief operating officer who oversaw the deal should be the one looked at too. How much did he and his friends make off the deal?

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