CITY COUNCIL APPROVES ASH STREET SETTLEMENT
6-3 vote adopts plan to settle city’s lawsuits over 2 lease agreements
One of the most hotly debated settlement proposals ever presented to the San Diego City Council was approved Tuesday in a split decision, paving the way for the city to drop its claims against two defendants in a costly pair of lawsuits, and for those defendants to collect $132 million.
After a public hearing that stretched over nearly two hours, council members voted 6-3 to adopt Mayor Todd Gloria’s plan to settle the city’s lawsuits over the 101 Ash St. office tower and the nearby Civic Center Plaza.
The decision leaves real estate broker Jason Hughes and several contractors as the remaining defendants in litigation over two lease-to-own agreements that city lawyers called fraudulent.
The vote came hours after a Superior Court judge in a separate lawsuit refused to grant a temporary restraining order that would have barred the city from paying more money for the Ash Street acquisition.
That legal maneuver was put off to next month, when lawyers representing a taxpayer who is already suing the city over the Ash Street lease will request an injunction to prevent the city from spending more money on the building.
The settlement also comes days after the District Attorney’s Office went to court seeking clarity over records seized in October, when agents executed five search warrants at the offices of Cisterra Development, Hughes Marino and Hughes’ home in Rancho Santa Fe.
Cisterra served as the city’s landlord for both leases; Hughes advised the city on the two deals and collected $9.4 million for his work on them from Cisterra.
Both Cisterra and Hughes, who each assert they did nothing improper, say that many of the seized materials are subject to attorney-client privilege and should not be viewed by criminal investigators. A hearing on that issue is scheduled for Aug. 11.
Cisterra attorney Michael Riney said the city majority made the right decision.
“The mayor and his team de
serve credit for stepping up and finding a reasonable solution to a problem that otherwise would have taken years to resolve and likely created hundreds of millions of dollars of liability for the city,” Riney said by email.
The settlement was supported by Council President Sean EloRivera and Councilmembers Stephen Whitburn, Raul Campillo, Jennifer Campbell, Joe LaCava and Chris Cate.
The plan was opposed by Councilmembers Vivian Moreno, Monica Montgomery Steppe and Marni von Wilpert, as well as by City Attorney Mara Elliott, who asked the council ahead of the vote to allow her claims against Cisterra and Hughes to go to trial.
“It’s not lost on me the anger and frustration that the words ‘101 Ash Street’ provoke,” said Cate, the lone elected official remaining from the 2016 council vote to approve the lease-to-own contract.
But “our taxpayers do not deserve to be on the hook for ever-increasing legal costs,” he said.
The settlement proposal announced last month by Gloria calls for paying Cisterra Development and its lender, CGA Capital, a total of $132 million to buy out a pair of lease-to-own agreements the city previously entered in 2015 and 2016.
Supporters said the settlement would give the city legal certainty going forward and give public officials the ability to securely plan their future real estate needs by taking ownership of nearly two square blocks downtown.
Opponents said buying out the leases was a bad deal for taxpayers and would send a message to future litigants that the city is not willing to fight in court when it says it has been wronged.
“This mess was created by the people who ripped us off and stole millions of dollars,” said von Wilpert.
“This is them conspiring to rip off the city,” she said before voting no on the plan.
Elliott last month issued an 11page opinion detailing why she opposed the settlement.
She reiterated those comments ahead of the council vote, saying the leases are void by law under state anti-corruption laws. Even if the city lost in court, damages would be limited to the cost of remediating asbestos, she added.
“Cisterra obviously does not want that case to go to trial,” Elliott told the council. “I do, and you should too.”
The city attorney also advised the council that settling the case would mean the city could not recover its legal costs to date and would wrongly indemnify the two defendants from ongoing and future litigation.
“That becomes entirely our fight, at our expense,” she said.
The two-hour public hearing drew some 15 speakers, with the vast majority urging the City Council not to approve the settlement.
“You are about to bail out those who are being looked into” by prosecutors, the Rev. Shane Harris said. “Please pause this vote for the next few months, allow things to play out and stand on the right side of history.”
San Diego resident Diane Mosely agreed with Harris.
“We are paying $132 million for two buildings — one that’s virtually worthless,” said Mosely, referring to a Gloria administration report finding that the Ash Street property required such extensive repairs that its worth is “virtually zero.”
“The only certainty I can see is that residents like me are going to be paying for this for the next 30 years,” Moseley told the council. “You guys are all going to move on and we’re going to be stuck with it.”
Two people spoke in favor of the deal — one a representative of the San Diego Regional Chamber of Commerce and the other a local union leader.
“You really don’t know what’s going to happen with the judge,” said Brigette Browning, president of Unite Here Local 30. “You are showing real courage by allowing us to move on with our lives.”
Under the agreement, the city will spend just over $86 million to pay off the 101 Ash St. lease approved by the council in 2016 and $46 million to buy out the Civic Center Plaza deal entered into in 2015.
The Ash Street property has been unsafe to occupy since the city closed on the lease in January 2017 due to asbestos and other issues. A city consultant in 2020 said it needs at least $115 million in additional repairs and upgrades before city workers can move into the building.
The Civic Center Plaza, which has housed some 800 city workers for more than 30 years, needs up to $61 million in modernization costs, a different city consultant said earlier this year.
All told, the city will have paid more than $170 million for the two properties — not including repairs and upgrades estimated at up to $176 million.
The Ash Street high-rise was appraised at $67 million before the city agreed to the lease in 2016, and the Civic Center Plaza was valued at $44 million in 2015, when that lease-to-own agreement closed.
Gloria, who withdrew the proposal from the council agenda at the last minute four weeks ago so the public would have more time to review the plan, addressed the council in person on Tuesday to make his case.
“Let’s be clear, continuing this litigation does not serve our city well,” he said. “Before you today is the opportunity to put this civic failure behind us.”
While Gloria blamed the Ash Street deal on former Mayor Kevin Faulconer, several speakers noted in public comments that Gloria had made the motion to approve the lease when he served on the council in 2016.
Mat Wahlstrom, who has unsuccessfully sued Gloria over his campaign finances, was among those who also pointed out that Gloria accepted thousands of dollars in campaign contributions raised by Cisterra lobbyist Christopher Wahl.
“There can be no clearer example of a quid pro quo, and I urge you not to be complicit in a fraud,” he testified.
The settlement does not end the litigation against all defendants.
Hughes is not a party to the agreement and will remain a defendant in both of the city’s lawsuits. A handful of contractors also remain as defendants in the cases.
Lawyer Michael Attanasio, who represents Hughes, said his client informed six separate city officials as early as 2014 that he intended to be paid for his consulting work for the city related to the Ash Street and Civic Center Plaza leases.
Attanasio also cited a letter Hughes wrote to former city real estate chief Cybele Thompson that same year addressing his intent to seek compensation. Thompson accepted and signed the notice.
“Mr. Hughes did nothing wrong, and the city’s ongoing attempt to damage his reputation and to harm the San Diego company that he built should be seen for what it is — a cynical attempt to divert attention from the city’s own failings,” he said.
“Mr. Hughes looks forward to his day in court and a fair review of all the facts.”
It’s not immediately clear what will happen in a third Ash Street-related case brought by San Diego taxpayer John Gordon, whose 2020 lawsuit claimed the Ash Street lease violated the state constitution and must by law be voided.
The Gordon case is scheduled for trial in January, but after a hearing before Judge Joel Wohlfeil earlier Tuesday, the legal team lost a request for a temporary restraining order to block the city settlement.
“The court, after consideration of the papers and arguments of counsel, is not persuaded that plaintiff has satisfied his burden of demonstrating a reasonable probability of prevailing or that the balance of harms weighs in favor of injunctive relief at this time,” Wohlfeil ruled hours before the council vote.
But the judge also said Gordon’s lawyers could seek a separate order later, presumably if the council were to adopt the settlement plan put forward by Gloria.
“If plaintiff wishes to move forward with his Order to Show Cause why a preliminary injunction should not issue, he should contact the calendar clerk and set it as a noticed motion,” the ruling also states.
Gordon attorneys Michael Aguirre and Maria Severson filed the request later in the day. A hearing on that request is now scheduled for Aug. 26.