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