The Morning Report
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RIVERSIDE – Wednesday, Aug. 2, 2006 | In 1983, the de la Fuente family purchased an expansive swath of Otay Mesa land with the hopes of developing a business park adjacent to two major assets: the U.S.-Mexican border and near a small airport at Brown Field.
Instead, the plot’s shining assets became liabilities. The family claims that the border and the airport were used against them in a deliberate attempt by the city of San Diego to sink the land’s value so the municipality could snatch it up at a lower cost.
The conflict, which could cost the city an estimated $150 million if the de la Fuentes win, has been boiling for nearly 20 years. For half of that time, the dispute has played out at a sluggish pace in the legal system. And in more recent years, it has hung over a cash-strapped city’s head like a potential time bomb.
On Tuesday, the case hit the courtroom live again for the first time in five years. Attorneys on both sides provided oral arguments to a three-judge panel that issued a tentative ruling in June in favor of the city – a ruling that, if upheld, would reverse the bulk of a 2001 jury verdict against the city.
The appellate court is now expected to deliver a final ruling within 90 days of Tuesday’s hearing.
“This is an extremely important case for the financial well-being of San Diego,” City Attorney Mike Aguirre said.
Each side was allowed 15 minutes Tuesday to argue the court’s tentative ruling.
The three presiding appellate judges appeared pensive at Tuesday’s hearing, but did not ask many questions compared to other cases that were heard beforehand. The questions that were asked seemed almost clerical, and the judges largely sat back and listened to attorneys from both sides hash out the court’s 46-page tentative ruling.
“It’s extremely hard to read into the silence from the court into what they’re thinking,” said Barry Levy, an attorney for the city.
In 2001, South Bay developer Roque de la Fuente won his suit on claims the city breached its 1986 development agreement and took his property without compensation, thereby ruining his planned Border Business Park in Otay Mesa. The city claimed de la Fuente was merely the victim of a real estate recession.
The June ruling from the California Court of Appeals would eliminate three jury rulings against the city totaling $94.5 million and would toss another $29.2 million verdict back for a new trial. Taking interest into account, the ruling could save the city more than $150 million, city officials said.
If the court’s tentative ruling is upheld, many of the de la Fuentes’ claims will be thrown out or retried in court. One of those claims is that the city downgraded the property’s value by clogging up the roads in the development, known as the Border Business Park, by diverting the truck route from the Otay Mesa port of entry through the property.
The appellate court tentatively ruled against that claim in June, saying that the property in question must be “singled out for singular and unique treatment” when compared to other landowners possibly affected by the government’s action.
De la Fuente asserts that he was the only developer affected by the city’s rerouting of truck traffic or announcements for an Otay Mesa airport.
Attorney David Casselman, who argued on de la Fuente’s behalf Tuesday, said the court’s read of the law had unintended consequences.
“That literally means that a public entity has an advantage in damaging more than one property in order to decrease its liability,” Casselman said during oral arguments.
The original lawsuit also alleges that the city played up its plans to build an airport on de la Fuente’s land, driving away business park tenants that didn’t want to set up shop there, only to be forced to move in the future. The tentative ruling dismisses those claims.
Additionally, the tentative ruling says that de la Fuente’s argument that the city breached a 1986 development agreement should be retried in Superior Court. The developer says that the city agreed to not change the regulations in the area, but did so anyway. If the appellate court’s provisional judgment remains, de la Fuente will be forced to seek damages from the consequences of the contract breach that occurred after 1995.
The prospects of dodging the damages that were awarded five years ago to de la Fuente would prove a real boon to a city government that has faced a financial crisis in recent years. The city’s gaping $1.4 billion pension deficit has caused the city spend more of its everyday budget on filling that shortfall than on replenishing its depleted cash emergency reserves, which stood at $18.2 million as of June.
A payment to de la Fuente of about $150 million – which has grown from the original $94.5 million judgment because of interest – would drastically damage the city’s fiscal standing.
But as the city winces at the thought of paying de la Fuente what he thinks he is owed, the developer’s attorney, Vincent Bartolotta cringes when he hears about the city’s poor financial state. Bartolotta believes the city is using the “sob story” to get mercy from the court.
The appellate court’s decision should be based on the impacts of city decisions on de la Fuente’s development, he said.
“Until the court thumps the city, the city is going to continue mishandling its residents,” Bartolotta said.
Since filing suit in 1995, de la Fuente has lost the business park to foreclosure. Bartolotta said that it was the city’s plan all along to downgrade the business park’s value, so that when it came time to acquiring the land for the purposes of building an airport, a fair-market purchase would be less expensive for the city.
The frenzy to build a new airport clouded the city’s judgment, Bartolotta said.
“Still, today, it’s the hot button issue. Where will we put an airport?” he said.
De la Fuente has two other companies with lawsuits pending against the city. Those complaints are at a standstill in Superior Court, likely because the resolution of the issues lodged in the Border Business Park case will have an impact on their outcomes, Bartolotta said.
In November, the city offered a “global settlement” for $50 million to resolve all of the de la Fuente cases, but negotiations appeared to fizzle.