Massive fraud allegation ends with a $400 fine
The San Diego case is seen by some as a missed opportunity to deter other criminals.
SAN DIEGO — Back in 2021, when an investigator for Dist. Atty. Summer Stephan was seeking criminal warrants to search Jason Hughes’ home and office, among other places, he minced few words.
In his affidavit to Judge Kenneth So, investigator David Iorillo described a far-reaching conspiracy to swindle San Diego taxpayers out of millions and millions of dollars through two separate real estate deals.
“Based upon the facts of this case, I believe Jason Hughes of Hughes Marino, Steven L. Black of Cisterra Development and Jason Wood of Cisterra Development and other co-conspirators worked together to defraud the city of San Diego and taxpayers of tens of millions of dollars,” Iorillo wrote.
Nearly two years later, Hughes pleaded guilty to a single misdemeanor charge, the only defendant in a criminal probe that had earlier implicated some of the most powerful elected officials and political donors in the city.
The punishment: a $400 fine and one year of summary probation. Hughes also had to repay the $9.4 million he made from the 101 Ash St. and Civic Center Plaza leases.
But as the most serious corruption allegations to envelop the city of San Diego in years ended with a fizzle, legal experts and pundits are debating what drove judges to push for settlements in the criminal and civil cases — and why San Diego officials agreed to them.
Judge Timothy Taylor, who presided over the city’s civil lawsuit against Hughes, Cisterra and others, “unexpectedly” ordered San Diego and Hughes into settlement talks on March 14 with So, according to City Atty. Mara Elliott.
The order affected only the city and Hughes — not the other defendants in the lawsuits filed by Elliott.
Experts disagree over how unusual it is for a judge in a civil case to order litigants into settlement talks before a judge overseeing a related criminal proceeding.
Neither Taylor nor So would discuss their decisions related to the Ash Street settlement, citing the ongoing civil cases the city is pursuing against a handful of contractors.
“Under the California canons of judicial ethics, judges are not permitted to comment on pending cases, and the 101 Ash case remains pending,” Taylor told the San Diego Union-Tribune through his court clerk.
In her staff report to the City Council last month before the vote to approve the civil settlement with Hughes, Elliott acknowledged that Taylor’s order to attend a settlement talk in So’s courtroom came as a surprise.
“Taylor unexpectedly issued two orders pertaining to the city’s lawsuits,” Elliott told the council. “As ordered, legal counsel for the city and the Hughes defendants appeared at 1:30 p.m. on March 14, 2023, before Judge So.”
In her statement announcing the resolution of her criminal investigation, Stephan also made it clear the action was driven by judicial discretion.
“The plea agreement comes after Superior Court Judge Kenneth So, who was presiding over the criminal investigation aspects of this case, in the last few days made the decision to move the case forward through mediation with all parties,” the district attorney’s announcement said.
The rush of Ash Streetrelated developments in the last three weeks pushed the city its closest yet to ending one of the ugliest chapters in San Diego history.
But the choices made by key decision-makers — former Mayor Kevin Faulconer and his successor, Mayor Todd Gloria, as well as current and former City Council members and city attorneys, the district attorney and judges — are likely to be debated for years to come.
So too will the costs to San Diego taxpayers, as the city grapples with legal fees of up to $3 million and more than $125 million in new debt it must repay over the next three decades.
Lobbying, fundraising
Hughes publicly acknowledged collecting $9.4 million in fees from the Ash Street and Civic Center Plaza leases in June 2021, years after both transactions closed.
The former informal real estate advisor to Faulconer and Gloria disclosed accepting the payments after a secret agreement he reached with Cisterra in 2014 came to light as part of the city’s lawsuit.
The announcement drew the immediate ire of Gloria and Elliott, who issued a statement calling the payments a “massive betrayal of the public trust” and vowing to recoup $44 million in tax dollars and even collect punitive damages.
“From the beginning, the public and the members of the then-City Council, including myself, were deceived,” the statement quoted Gloria, who made the initial motion to approve the Ash Street lease in 2016 when he served on the council. “We are seeking justice to void this transaction, hold those bad actors accountable, and recoup taxpayer dollars,” he said.
Behind the scenes, however, top aides to both Gloria and Elliott were meeting privately with Cisterra lobbyist Chris Wahl in an effort to resolve the Ash Street lawsuits, the Union-Tribune reported later in 2021.
When asked about the meetings, which began months before Hughes acknowledged his seven-figure payments and continued for months afterward, city officials framed the discussions as mediation efforts, not lobbying sessions.
“It is entirely appropriate for the city to meet with representatives of parties against which it is litigating,” a spokesperson for Elliott said at the time.
The closed-door meetings came as Wahl and others at his firm, Southwest Strategies, raised tens of thousands of dollars in political contributions for the mayor, city attorney and a majority of City Council members, records show.
Wahl said he disclosed the meetings as lobbying on required city disclosures out of an abundance of caution. “Southwest Strategies frequently represents clients in complex public policy issues,” he said then.
By June 2022, the efforts had helped prompt a settlement proposal Gloria recommended to the City Council.
The deal called for buying out the disputed leases for $132 million, on top of the $43 million the city had paid in rent up to then. It also called for indemnifying Cisterra and its lender from current and future litigation.
Gloria said the deal was the best result the city could reach, given the uncertainties of a jury trial. The council approved the settlement on a split vote in July, against Elliott’s legal advice.
Late last month, when Stephan faced a bank of television news cameras minutes after Hughes’ guilty plea, she said the mayor’s and council’s decision to settle with the subjects and buy out the leases was “a complication” for her criminal case.
Some voters were unconvinced.
David Lundin is the Balboa Park Heritage Assn. president who led the public outcry over the city’s failed Balboa Park centennial celebration nearly a decade ago. He suggested the deals to resolve the Ash Street criminal and civil cases in a matter of days after years of litigation, unflattering depositions and a nagging criminal probe was more about changing the subject.
“Jason Hughes should have received some jail time, but the politicians wanted to put all of this behind them and out of the press,” he said in a comment posted to a report on the guilty plea.
‘Following directions’
After two-plus years of litigation that included dozens of depositions and court hearings over what might be allowed at trial, the Ash Street lawsuits all but washed away in a handful of weeks.
In January, just ahead of trial, Judge Joel Wohlfeil dismissed the last defendants from a civil lawsuit brought by taxpayer John Gordon, five months after saying he had a “reasonable probability” of prevailing at trial.
By late March, days after Judge Taylor ordered the city and Hughes into So’s court to discuss a settlement, San Diego officials settled virtually all business related to Ash Street in one remarkable week.
On Monday, March 20, the council agreed to borrow more than $125 million to complete the lease buyouts they approved last summer. Those bonds are expected to cost $7.4 million a year for the next three decades — almost $220 million.
The next day, Council President Sean Elo-Rivera announced a civil settlement with Hughes that would return $9.4 million to the city treasury and scheduled a special meeting Wednesday for a public vote.
At the outset of that special meeting, Elo-Rivera noted the atypical circumstances of the occasion.
“There was an order — or strong suggestion — to have this done by 9 a.m. on Thursday,” he said from the dais. He did not offer specifics. “We were following directions provided to us.”
As long ago as September, city lawyers were arguing in court that it was “time to move on” from the Ash Street dilemma.
Minutes after the council approved its latest civil settlement, this time with the blessing of its city attorney, Stephan announced that Hughes had agreed to close the criminal case by pleading guilty to a misdemeanor conflict-of-interest violation. No criminal charges had yet been filed.
The next morning in court, Hughes was handed a $400 fine, ordered to serve one year of summary probation and told to return his millions in profits within 10 days. San Diego received its money March 28, the city attorney’s office said.
With that, the most explosive scandal in San Diego since the FBI raided City Hall in 2003 in a suspected bribery case was all but shelved.
A small number of contractors remain as defendants in the Ash Street-related lawsuits. The city also is confronting a parade of legal claims from workers alleging they were wrongly exposed to asbestos while renovating the office tower in 2020.
Crime and punishment
University of San Diego law professor Shaun Martin said the ruling from Taylor late last month ordering settlement talks under So is not typical in civil litigation.
“It’s allowed, but extremely unusual,” he said. “Civil judges usually order settlement discussions in front of other civil judges, not criminal judges. I don’t know of any other case in which a civil judge has ordered settlement discussions overseen by a criminal judge.”
Other experts disagreed. “I see nothing odd about a judge ordering a settlement conference on the judge’s own initiative,” UC Davis law professor Gabriel Chin said.
“Who knows what the judges knew and when, but if a defendant is pleading guilty and being ordered to pay restitution of the full amount in controversy, it makes little sense to have a civil trial on the same issue,” he said.
But Chin did raise concerns over the outcome of the criminal plea.
“It appears to be a remarkable scam,” he said. “A $400 fine, summary probation and paying back wrongfully obtained money seems like light punishment.”
Jason Forge, a former federal prosecutor who now works in private practice in San Diego, also said the punishment Hughes received for his crime may not match his deeds.
“The No. 1 focus in our criminal justice system is to deter crimes, and high-profile cases are your best opportunity,” he said. “But it can also be a high-profile missed opportunity — and that’s counterproductive.”
Robert Fellmeth, who runs the Centers for Public Interest Law at the University of San Diego, said it was unusual for a judge in a civil case to order only some of the litigants into settlement discussions.
“[I] do not understand why the other parties in the case would not be a part of it,” Fellmeth said. “What is their explanation for that?”
San Diego attorney Traci Lagasse, who represents one of the remaining defendants in the Ash Street lawsuit, said she and her client were not told in advance about the settlement discussion ordered by Taylor.
“I don’t have any insight on that hearing,” she said by email. “We weren’t even involved in what happened with Judge Taylor, so I have no comment.”
Part of the reason for closing the Ash Street criminal case and most of the civil dispute may lie with So, who announced in February that he planned to retire from the bench on March 26.
The next day, the mediation firm Signature Resolution announced that So had joined the company.
At her news conference following the Hughes plea, Stephan said other government agencies such as the U.S. Department of Justice or the state Department of Real Estate may yet choose to take up the case.
She said her office could reopen the investigation if more information comes to light, but there was not enough evidence to convict anyone but Hughes.
“In many cases, conflictof-interest cases result in only civil or administrative remedies,” Stephan said. “But in this egregious case, it was important to attain a measure of criminal liability.”