The City Attorney pleads inanity

The Merry-Go-Round was looking forward to reading the analysis by City Attorney Janet Kern of the potential claims against the City arising from passage of the initiative re-zoning Neptune Pointe to open space.

When Council assigned the task to Ms. Kern at its June 3 meeting, Councilmen Tony Daysog and Stewart Chen, D.C., heartily endorsed the need (stated by a public commenter well known to us) for Ms. Kern to “dive down and dig deep” into the legal issues raised by the initiative.  “You need a report that’s going to tell you what the facts are” relevant to any potential claims, the speaker urged, as well as “what the likelihood is” of those claims being raised at all and ultimately succeeding if they are raised.

Good idea, Jane.  Unfortunately, that’s not what we got.  The “Potential Legal Impacts of the Initiative and Estimated Costs” section in the report released by the City Thursday – which presumably was prepared by Ms. Kern – falls woefully short of the mark.  It is not so much an analysis of the issues as a recitation of the obvious.  If, unlike Mr. Daysog and Dr. Chen, the Council majority simply wanted a report they could use to alarm rather than inform the voters, they got what they asked for.

Essentially, the City Attorney tells Council and the public that:

  • If the initiative passes, someone could sue the City;
  • If someone sued, the City would have to hire lawyers to defend it;
  • If the City lost the suit, it would be ordered to pay damages.

Duh.

This information is absolutely useless to anyone interested in evaluating the risks of potential litigation.  Any law student who’s taken the first-year property class could say the same thing.  Indeed, you could probably make exactly the same three points about any decision Council might make.

But we suspect that this is exactly the kind of report the Russo/Gilmore administration had in mind.  When the matter comes before Council again on July 1, Mayor Marie Gilmore and Vice Mayor Marilyn Ezzy Ashcraft can shake their heads again at the distasteful prospect of litigation just as they did when Council first was asked to put the initiative on the ballot.  Only this time they’ll be able to add:  And the City Attorney agrees we could get sued!

The report does give the Mayor and Vice Mayor a bit of additional fodder to throw on the bonfire.  Not only would the City have to hire lawyers to defend itself; the legal fees are “likely to amount to hundreds of thousands of dollars.”  (Who’s the City planning to hire?  David Boies?)  And not only would the City have to pay damages if it loses; the damages “could amount to millions of dollars.”

(We have to give staff credit for cleverness.  Not satisfied with basing the fair market value of the parcel on the amount the developer agreed to pay for it, the report offers an alternative damages figure based on the amount at which the City itself would value the property for purposes of imposing a development impact fee.  As it happens, a “study” containing new – much higher – values per acre for use in the DIF computation was released the very day the initiative impact report was made public.  How convenient!)

What’s missing from the report is what a private client engages – and expects – a lawyer to provide:  an analysis.  Who is likely to sue?  On what legal theory?  And most importantly:  How strong is the plaintiff’s case?  What will the defense be?

We know it would upset the Vice Mayor if we presumed to tell the City Attorney how to do her job, but Ms. Ashcraft probably doesn’t read the Merry-Go-Round anyway, so we’ll venture a few things it would have been nice for Ms. Kern to address.

We’ll start with the points we made a few weeks ago.  Regardless of whether a legal basis for a claim exists, there may be political reasons that would deter either the federal General Services Administration or Tim Lewis Communities, the developer, from suing the City in the first place.  For example, does TLC, with two other major projects in the planning stages, really want to become the City’s adversary?  In addition, two appellate courts recently held that personnel decisions made by our City Council constituted conduct protected by the anti-SLAPP statute.  Might not those cases be extended to cover a decision to adopt a zoning ordinance implementing a voter initiative?

We can’t blame Ms. Kern for not addressing these points.  She probably doesn’t read the Merry-Go-Round, either.

It’s harder to excuse her failure to conduct even a rudimentary legal analysis of the potential claims, beginning with:  Who is likely to sue?  According to the report, “the Federal Government or the Developer potentially could bring a lawsuit against the City challenging the Initiative.”  Yeah, those are the two parties to the contract of sale, all right.  But which one of them would have the legal right – i.e., standing – to bring the inverse condemnation suit discussed in the report?

Usually, that’s an easy question to answer:  it’s the owner of the property.  The report states that, “As of the date of this Report, ownership remains with the Federal Government.”  So it’s the feds who would file the inverse condemnation suit, right?

Well, not so fast.  If Ms. Kern were as diligent as Irene Dieter, who submitted a Freedom of Information Act request to the GSA, she’d know that the closing date for the sale (which originally was April 18, 2013) is now June 23, 2014.  That’s right – this Monday.

The documents show that TLC already has requested, and the GSA has granted, multiple extensions of the dates on which payment is due.  (In fact, the GSA began charging an “extension fee” back in August 2012).  But let’s suppose this closing date is firm.  On June 23, TLC will be required to deliver a check to GSA for $2,767,500 in exchange for a quitclaim deed to the property.  If that happens, TLC will become the new owner of the Neptune Pointe parcel.

Why doesn’t Ms. Kern tell us these facts?  Maybe she didn’t bother to investigate the actual status of the transaction.  Maybe she did investigate and knows something the public doesn’t – like a secret deal between the GSA and TLC not reflected in the documents produced to Ms. Dieter.  Or maybe she’d like to keep the threat of a suit by the federal government hanging over the City’s head.  You’ll have to ask her.

Next, on what theory?  According to the report, a “full legal analysis of all the possible legal claims which could be brought with regard to the initiative” wouldn’t be prudent, since it would tip off the City’s potential adversaries.  Apparently, the “highly skilled lawyers” who (the report predicts) would represent the plaintiff couldn’t figure out on their own what potential claims arise from this set of facts, or how the City might respond.  In any event, the report chooses to discuss only one legal theory:  inverse condemnation.

This is itself surprising.  Those who attended or watched the June 3 Council meeting – or who read our subsequent post – know that City Manager John Russo stated publicly during a meeting at the Mastick Senior Center that, if the initiative passed, the City could be sued for tortiously “interfering” with the contract between GSA and TLC.  Strangely, Ms. Kern’s report says not a word about the bogeyman Mr. Russo trotted out in front of the senior citizens.

Why the omission?  Maybe Ms. Kern simply forgot to mention the “tortious interference” theory.  Maybe she realized that it wouldn’t fly in a case like this where the governmental action wouldn’t affect either party’s contractual rights or duties, since (as the documents obtained by Ms. Dieter show) neither GSA’s obligation to transfer title to, nor TLC’s obligation to pay for, the property depends on how it is zoned.  Or maybe she wants to let Mr. Russo keep this threat in his back pocket in case he wants to drag it out again before an audience of non-lawyers.  You’ll have to ask her.

So we’ll stick with the one theory Ms. Kern does choose to discuss:  inverse condemnation.  She helpfully devotes a full page of the report to listing 13 “factors” cited by courts in determining whether a regulatory action results in a compensable “taking.” (It’s interesting that the City Attorney chooses to rely on a California Supreme Court case involving a rent control ordinance for the “factor” list.  The U.S. Supreme Court has managed to whittle down the inquiry in a regulatory taking case to a three-part test.  But why keep it simple for the public?)

If a law firm associate was preparing a memo for review by a partner and transmittal to the client, the next section would get to the heart of the matter:  what arguments each party could make and how persuasive those arguments might be.  No evasion or obfuscation allowed.  We imagine the discussion might go something like this:

If TLC sued for inverse condemnation, it would argue that the passage of the initiative constitutes a “taking” because the re-zoning would make it impossible to use the Neptune Pointe parcel for a residential development and thus would defeat its “investment-backed expectations.”  But the evidence may not justify portraying TLC as a victim of government overreach.  Instead, one could argue that TLC simply made a bet that didn’t turn out as it had hoped.

Consider the following facts, all of which Ms. Kern knows, or would have known if she’d read the documents obtained by Ms. Dieter:

  • At the time TLC bid on the property, the parcel was zoned A-P-G (Administrative-Professional-Governmental);
  • The contract between the GSA and TLC disclaims any promise by the federal government that TLC will be able to use the property for residential development. Indeed, it states that the seller makes “no representations of warranty concerning the title, zoning, character, condition, size, quantity, quality, and state of repair of the Property.”  Likewise, “Verification of the present zoning and determination of permitted uses, along with compliance of the Property for any proposed future use, shall be the responsibility of the bidder; and the Government makes no representation in regard to zoning matters.”
  • Before TLC bid on the property, it obtained a preliminary title report showing that the State of California had granted access and utility easements across McKay Avenue to the federal government but warning that these easements “will expire” when title to the Neptune Pointe property “is not [sic] longer vested” in the federal government.  Having read the report, TLC expressed concern that, without the easements, the Neptune Pointe parcel would be “landlocked.”
  • After the GSA accepted TLC’s bid in October 2011, TLC – twice – sought to re-negotiate the contract to make closing the deal contingent on the GSA being able to “secure” the access and utility easements for TLC.  The feds refused to modify the contract.  “We do not agree to any of the changes in terms that you propose,” the GSA wrote on August 29, 2012.  “[T]he sale remains ‘where is’ and ‘as is.’”

In light of these facts, it would be fair to conclude that, at the time TLC bid on the property, and GSA accepted its bid, TLC knew it was getting land that could be used only for government offices.  Its ability to turn the property into a residential development depended not only on the City re-zoning the property for residential use but also on the State of California agreeing – or being forced – to transfer the access and utility easements to a private developer like TLC.

Perhaps TLC was confident that that it could convince the local politicians to do the former and the state bureaucrats to do the latter.  But it still was taking the risk that they wouldn’t go along (and, in the case of the City, that the voters might overrule them).  If TLC goes ahead and closes the deal, it’ll pay its money and take its chances.  As the California Supreme Court said in the sole case cited by Ms. Kern, “The Constitution does not protect investors from the risks inherent in the marketplace.”  The citizens of Alameda didn’t create the mess TLC finds itself in.  And they have no duty to fix it – or to pay for TLC to get out of it.

Or so a legal memo might conclude after analyzing the evidence in light of the applicable law.  The report prepared by the City Attorney contains nothing like this.  Why?  According to Ms. Kern, “It is beyond the scope of this Report to speculate as to what inventive arguments highly skilled lawyers could make based generally on the above concept.”

But isn’t that the very purpose of the report?  Any law firm associate – even any law student – can pull a list of factors out of the Witkin treatise (or, more likely, find it on Westlaw).  What a client pays a senior lawyer for – and the City paid Ms. Kern $218,683 in salary and benefits in 2012 – is her professional judgment about how a court would apply the law to the facts.  And if the client is a City Council whose leaders are obsessed about litigation risk, its staff counsel ought to be prepared not just to state that a risk exists – it almost always does – but to advise her client how serious that risk truly is.

Of course, every litigator hates to hear the client ask, What are our chances of winning or losing?  But it’s the litigator’s job to offer an answer, however qualified it might be. Why should we expect anything less from our City Attorney?  The Mayor and Vice Mayor already may have made up their minds about the initiative, but the Alamedans whose taxes pay Ms. Kern’s salary deserve better than they got.

Sources:

Initiative impact report: Initiative Impact Report

Preliminary title report: Preliminary Title Report

GSA-TLC communications: June 2, 2011 TLC email to GSA; August 29, 2012 GSA letter to TLC; March 20, 2014 GSA letter to TLC

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in City Council, Development and tagged , , , , , , , , , . Bookmark the permalink.

12 Responses to The City Attorney pleads inanity

  1. Denise Lai says:

    Reblogged this on Raising Hell For Good and commented:
    The Farce. Again. Why does our city council continue to work against we-the-residents?

  2. Serge Wilson says:

    “Why does our city council continue to work against we-the-residents?” I can only offer up a theory. Many if not all of our Alameda politicians want to use our city as a stepping-stone to higher office (county, state, fed). The bigger the race, the more money you have to raise in order to win. The way to do that is to start “making friends” with big money interests by pushing their agendas starting with your first win (our Alameda city government). In this way you have a ready-built set of paymasters for your next level of election. This, of course, runs contrary to the idea and practice of serving the community. Until and unless we start electing local people who care about protecting and sustaining the quality of life in Alameda and are committed to staying in local city government, we are going to get more of the same: modern day carpetbaggers. Change at City Hall will only come with a change in voter consciousness. Articles like this from MGR will help bring that about.

    • Denise Lai says:

      Exactly. Thanks for spelling it out. Alamedans don’t like to think about these things, makes them ‘feel bad’ about their city. I suggest, instead, that they will feel very badly about their city, when they feel the pain and problems the current elected officials are attempting to cause for our future. Better to stop now and think and actively participate in the future of this city, but too many Alamedans just want to feel good today and not think about these ‘negative’ things. Those of us talking about it are real downers apparently. For those that understand cause and effect and don’t like the ‘effects’ we have been and will continue to be subjected to, this is what we are up against with too many residents.

  3. Eugenie Thomson says:

    Bob well done. Thank you.
    And Thank you Irene for doing another public record request from GSA.,
    By the way item 8a of the Preliminary Title Report which warns that the easements may not be vested upon sale of the property was not included in your attachment. Bob, You may want to include this.
    The fact is GSA failed to resolve the easement for the parcel prior to the sale . And the Information to Bid Documents as well as the contract (GSA and TL) missed the easement issue altogether. No mention that the easements need to be obtained from State Parks. It was the Prelim Title Report as you pointed out that Tim Lewis ordered prior to his bid that finally mentioned the easements needed to be obtained and may not be transferrable. (I believe the State originally owned the entire Neptune Beach area and deeded the GSA parcels to the Feds during WW II)
    Tim Lewis bought the parcel knowing he could be landlocked and took the risk that he would be able to get an easement. Neither GSA nor Tim Lewis have been able to get this easement from State Parks as documented in Kamela Harris letter.
    The contract also says Tim Lewis bought it “As is” .
    Page 4 of the Information to Bid Documents (IFB) states the following:
    “The term “As-Is” means that the Government is selling, and the buyer is buying the Property in whatever condition it presently exists, and that the buyer is accepting the Property “with all faults,” whether or not they could be ascertained by an inspection of the Property or view of
    any due diligence material available.”
    So Tim Lewis took the risk and bought it as is with all its faults.
    What is also interesting is recently that the attorney at BCDC said it another way, and that was the sale of the Neptune parcel did not include the McKay easement. That is true based on the fact this was not in the bid documents and not in the Tim Lewis contract.
    And our City attorney also failed to mention that if the the initiative passes, EBRPD will not need to pursue their lawsuit any further and so that would be a HUGE savings in litigation costs.
    I am not surprised the City Attorney failed to mention that the rezoning as per the initiative was in compliance with what citizens voted for via the park measure WW.???
    I suppose many of us are not surprised with the City’s initiative report. And the group can move forward with the next step of the campaign. And let’s hope Tim Lewis or GSA finally get it, this is Alameda and we the people will undo a wrong and get this park as we had voted for back in 2008. Go Friends of Crown Beach.

  4. T says:

    Frontline needs to focus an investigative show on the fair city of Alameda and disclose the corrupt small city government for what it is. It would provide for interesting watching.

  5. marian says:

    Be careful with that language, now. I got called a racist for using the term “carpetbagger” in print 3 years ago. Although I can’t think of a better word for it, either. In order to elect better office-holders, first of all, somebody’s gotta run! As of yet, few worthies have tossed a hat into the ring. I know facing down the public safety unions is a daunting prospect, but I pray that someone will bend over & pick up the gauntlet. Please?

  6. Kevin says:

    Does anyone know if the sales transaction closed on Monday?

    • According to The Alamedan today, the GSA has agreed to extend the closing date to September 2. By my count, this makes the 12th time the closing date — originally April 18, 2013 — has been extended. No mention of the amount of the extension fee; the last time it was $30,000.

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