Photo credit: Zoë Meyers/inewsource
Pictured: Councilmembers Barbara Bry, Jen Campbell, Chris Ward, Monica Montgomery Steppe,
Mark Kersey, Chris Cate, Scott Sherman, Vivian Moreno in 2019
By Arturo Castañares
San Diego City Attorney Mara Elliott’s office has now admitted that a “forensic analysis” presented to the public last year as an independent report on the 101 Ash Street building was actually an internal document edited to withhold potentially damaging information about the ill-fated office tower, but Elliott lays the blame on Mayor Faulconer and the 2020 City Council for misleading the public about details removed from the report.
The report was conducted after then-Mayor Kevin Faulconer promised in January 2020 that an independent review of the $128 million lease/purchase deal would be made public to reveal how the City purchased the building and what led to it having been evacuated due to asbestos exposure.
“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,” Kris Michell, the City’s Chief Operating Officer, said on behalf of Mayor Faulconer during a 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.”
“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.
REPORT MADE PUBLIC
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.”
“I called for this independent review because City Hall has a very long and troubled history with managing its property and sweeping problems under the rug, and I didn’t want that culture to persist,” Faulconer’s comment included. “This report could have been put on a shelf or delayed so other people would have to deal with it, but it is my responsibility to share information with the public and propose corrective actions that get to the root of the problem.”
But, La Prensa San Diego revealed last week that 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 last week, 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.
CITY COUNCIL PRESENTATION WAS A FARCE
The City Council discussed the Parker report at its August 6, 2020 meeting where COO Kris Michell presented it as “an unvarnished accounting” of the building project.
“This project has been fraught with challenges over the past four years, and given the taxpayer dollars involvement [sic], the public expects and deserves an unvarnished accounting of how we got here,” Michell said during the meeting. “Mayor Faulconer called for an independent review of the Ash Street project to determine what happened and this January you authorized Hugo Parker and other firms to investigate any and all aspects of the project for a full public accounting,” Michell said.
During the presentation, City Attorney Mara Elliott sat behind Michell and did not offer any clarifications or additional details. Elliott did not address the Council during the presentation regarding the report.
“One thing is clear; when bringing any matter of business to you for your consideration, it is our responsibility to make sure you have all the information,” Michell declared. “And I don’t mean all the information that we think you should have, I mean all the information, period. Clearly that did not happen when this transaction was presented to you,” Michell added.
It was not clear what information Michell was referring to in her comments. Faulconer was the Mayor back in 2016 when the deal was originally negotiated and approved.
“Thanks to the outside reports, we have a much better understanding of what went wrong,” Michell said. “This afternoon, close to this evening, we are bringing you the information we have to date,” Michell concluded.
James Parker, of the Hugo Parker law firm, then presented a slide show detailing his “forensic review” reflected in his report.
The Council’s Independent Budget Analyst (IBA) also gave a presentation summarizing the status of the building and mentioned that Parker was “first hired (January 2020) to conduct a forensic investigation.”
None of the presenters mentioned that the Council had already received a more detailed report and presentation in a closed session meeting nine days earlier.
The presentation at the public meeting was clearly not to fully inform the Councilmembers – who had already received the complete report- but, instead, seems to have been held to present the public version of the Parker report as a definitive investigation into the failed deal.
Faulconer, Elliott, and the entire City Council at the time knowingly discussed the report in public as the independent report promised in January when, in fact, they knew it was an edited and revised version that withheld information from the public. Not one Councilmember objected to the public report during the council meeting.
Four of the current Councilmembers were in office at the time the report was released: Jen Campbell, Monica Montgomery Steppe, Chris Cate, and Vivian Moreno.
Five current Councilmembers were elected last year after the report was made public: Joe LaCava, Stephen Whitburn, Marni von Wilpert, Raul Campillo, and Sean Elo-Rivera.
ADMISSIONS BY CITY ATTORNEY POINT FINGER AT MAYOR AND COUNCIL
The City Attorney’s office responded earlier this month to media questions about the original report and admitted new information that had never been disclosed, including details of the closed session meeting between City Council members, Mayor Faulconer’s office, and the City Attorney’s office.
In response to questions about the newly-discovered original version of the Parker report, Elliott’s Communications Director, Hilary Nemchik admitted in an email that James Parker of Hugo Parker, LLP, was not hired to do an independent investigation.
“Jim Parker was hired by the City as outside counsel to represent the City in litigation. He was not hired to do an independent investigation,” Nemchik admitted, directly contradicting the statements of both Michell and Parker during the August 6, 2020 presentation at City Council.
“Mr. Parker wrote and delivered a confidential ‘Preliminary Report on 101 Ash Street’ to the Mayor and City Council,” Nemchik wrote. “Subsequently, the Mayor and City Council asked Mr. Parker to prepare a public version of the report, excluding any information that would reveal or harm the City’s litigation strategy for recovering costs for taxpayers.”
Nemchik stated that the City Council “voted” to release the revised version; a fact not previously known publicly.
“Mr. Parker prepared the public report, which the Mayor and City Council reviewed in Closed Session and the Council voted to make public,” Nemchik added.
The City Attorney’s Communications Director also confirmed that the Councilmembers received all of the information contained within both versions of the report.
“To assert that the City Council was not provided all information included in both the confidential and public report is patently false,” Nemchik wrote.
The admissions by the City Attorney’s office now raise questions about the process of compiling the Parker report and whether the City Council properly reported its vote in closed session to the public.
Nemchik asserted that Parker first prepared and delivered a “confidential” version of the report, the Mayor and Council “subsequently” asked for a public version, then the Mayor and Council reviewed the public version and the Council voted to make that version public.
The sequence of events presented by the City Attorney’s office make it appear as though the process occurred over a period of time, when, if fact, only one closed session meeting was held when all three steps could have taken place. The original Parker report is dated July 25; a closed session meeting was held three days later on the 28th and the first public version was released later the same day.
Two sources told La Prensa San Diego this week that Parker and the City Attorney had already prepared the original and public versions before the closed session meetings, and that the City Attorney argued that certain details were withheld to protect the City in pending and potential lawsuits. Both persons with direct knowledge of the process dispute the City Attorney’s description that the City Council directed which changes to make to the report before releasing it to the public.
DID THE COUNCIL VOTE TO RELEASE THE REPORT?
The closed session meeting on July 28, 2020 only included one agenda item related to 101 Ash Street and listed James Parker as attending. The minutes show “Nothing to report” and do not include any reference to a vote related to that item.
In another item also involving Parker, the minutes report that the Council voted 7-2 to “initiate or intervene in litigation.” Neither items showed a vote to release a report or to waive the City’s attorney-client privilege.
Had the City Council voted to approve the release of a report, or any other action related to an agenda item, state law requires that the vote be reported out to the public, including a listing of the vote outcome, as well as the roll call listing of how each member voted on the action.
Either a vote was taken by the Council without properly reporting it in the official minutes of the meeting to inform the public, or no vote was taken, and the Parker report was released without the approval of the Council.
By not reporting out a vote, if one took place, the public would not have known that a report was presented to the Mayor and Council by Parker and Elliott and released later that day. No one outside of the meeting would have received any indication that two versions of the report existed and that a revised version was released.
Additionally, if the original report was prepared as a “confidential” document and the public version released includes the vast majority of the contents of the original, the Council then waived its attorney-client privilege to the document by its disclosure.
Only the City Council can waive the attorney-client privilege, and it must do so by a vote of the Councilmembers, but the attorney-client privilege can also be automatically waived when a protected document is released to anyone outside of the City and its employees.
MORE QUESTIONS THAN ANSWERS
The new admissions by the City Attorney’s office also raise the question of whether Nemchik violated state and city laws that prohibit disclosing confidential information from a closed session meeting.
State laws under the Brown Act, as well as City Municipal Code, make it a misdemeanor to disclose information from a closed session meeting. Discussing the Council received two reports and that the Council discussed them and voted on releasing a report is all information that had not previously been discussed in public.
The admissions are even more concerning because the City Attorney and Councilmembers quarreled about access to documents in closed sessions meetings within days of the July 28 meeting. After a reporter confirmed he had copies of documents related to the closed session meeting, Elliott threatened to prosecute the reporter for holding the confidential documents, but quickly retracted the threat.
But Elliott then restricted Councilmembers’ access to confidential documents by requiring that they view them in a controlled room or access them online without the ability to print or take screenshots of them. Several Councilmembers boycotted a closed session meeting on Aug 4th over the dispute.
In 2017, Councilman Chris Cate was fined $5,000 by the City’s Ethics Commission for releasing a document prepared by the City Attorney office and presented to Council Members in closed session. Elliot was in favor of prosecuting Cate for the leak, but referred the case to the State Attorney General who ultimately declined to press charges.
Legal experts also question why the City Attorney’s office is answering questions and providing information as to what the Mayor and City Council may or may not have done in closed session, given that the City Attorney represents the City as its chief legal advisor. Divulging confidential or privileged information about the City Attorney’s clients seems to undercut the Council’s position and expose potentially damaging information, seemingly in an effort to defend the actions of the City Attorney herself.
Regardless, the admissions by the City Attorney’s office now make clear that Faulconer and his staff, Mara Elliott, and the entire City Council knowingly deceived the public by continuing to present the report as the independent report promised in January when, in fact, it was an edited and revised internal document, and they then held a City Council meeting to present the report seemingly as a conspiracy to perpetuate a fraud upon the public.
OPTIONS PRESENTED AT COUNCIL MEETING
During the August 6, 2020 meeting, the Council was also given five options as to what it could decide to do with the building.
Option 1 was presented as “Stay the Course” and included paying for additional tenant improvements needed to make the building functional. The total cost to the City would be over $182 million.
Option 2 was presented as “Sell at Loss” and included buying out the lease agreement and selling the building at a loss. The total cost to the City would be over $405 million.
Option 3 was presented as “Sale Leaseback” and included repairing the building and leasing it to another user. The total cost to the City would be over $$316 million.
Option 4 was presented as “Renegotiation” and Option 5 was called “Walk Away”, neither of which included any financial projections and would both require additional legal analysis, according to the presentation.
The building was evacuated on January 17, 2020 after the San Diego County Air Pollution Control District deemed the building to be a “Public Nuisance” due to continued exposure of asbestos, and the office tower remains vacant. Anyone entering the building must wear a protective mask and other hazardous materials equipment and follow strict procedures.
The City remains obligated to a $545,000 monthly lease payment, but since September 2020, has been withholding the payments and placing them into an escrow account pending the outcome of lawsuits. To date, the City has made more than $27 million in lease payments for the building and is also paying for utility and maintenance expenses while the building remains vacant.
LEGAL TROUBLES ABOUND
Several lawsuits are currently pending relating to the building.
One lawsuit filed by John Gordon, a local resident, is challenging the constitutionality of the lease since the City is not receiving any benefit or use from the lease payments. The lawsuit seeks to void the entire agreement.
Another lawsuit, filed by the City against the financiers, is seeking a suspension of lease payments while the building is vacant. The City, even if successful in the case, would still be required to continue with the 20-year lease deal. The City stopped sending its monthly payment of $545,000 to the financers in September 2020.
The financiers have filed a counter-lawsuit against the City demanding all monthly lease payments, claiming any inability to use the building was caused by the City’s unapproved tenant modifications.
Other pending lawsuits include claims by employees and contractors over exposure to asbestos while working in the building, as well as two retaliation claims filed against the City by two whistleblowers that first reported the asbestos and fire system failures in the high-rise.