Facing mounting criticism over their SoccerCity initiative, FS Investors came up with a plan to settle fears and win over Mayor Kevin Faulconer.
In May 2017, they sent Faulconer a letter outlining additional commitments they were willing to make if voters approved their plan to turn the former Chargers Stadium property into a dense urban development built around a river park and a Major League Soccer stadium.
The letter really sweetened the deal. If you’re inclined to vote for the initiative, chances are you’re enticed by some or all its terms.
FS Investors, the group behind SoccerCity, which is on the ballot as Measure E, committed to make additional annual payments on the land, to walk away from the deal if they couldn’t lure an MLS team to town, to build the river park under all circumstances and to build a total of 60 acres of parks on the property.
Most importantly, they appeared to offer San Diego State University a chance to settle its concerns over the initiative. They said they’d build a stadium that could accommodate the football team’s long-term ambitions and would sell the university some land to facilitate a campus expansion.
FS Investors hoped the letter would give SoccerCity the political lift it needed. Now, two weeks before the election, it’s become just another complicated dispute in a campaign filled with them.
That’s because opponents of SoccerCity and supporters of a competing plan – Measure G, which would allow the city to sell the entire property to SDSU – argue the letter isn’t legally binding in any way. “It’s wallpaper,” is the recurring argument on the campaign trail.
City Attorney Mara Elliott agrees – she’s said the letter is in no way a legal commitment.
Other municipal lawyers echoed Elliott’s interpretation that the letter is a political promise, not a legal contract.
But one prominent California municipal attorney said a court would “probably” hold FS Investors to the letter’s commitments if it tried to back out of them after winning the election.
“I say probably because you can never be sure what someone in a black dress and a hammer is going to do,” said Michael Colantuono, an attorney with Colantuono Highsmith Whatley, who has worked for the city in the past but has not been retained on this issue.
Voters are being asked to decide if Measure E is a good deal for the city. The most important terms of that deal are outlined in FS Investors’ letter to Faulconer. Can voters count on it?
What’s in the Letter
If voters approve Measure E, the next step would be for the group behind the initiative and Faulconer to agree to the lease terms that would finalize everything in the initiative. The letter outlined a handful of additional commitments that weren’t included in the initiative.
For instance, the initiative calls for a 34-acre river park, along with 12 acres of sports fields and nine acres of neighborhood parks. The letter bumps that commitment up to a clean 60 acres of total park space.
The initiative also says whoever leases the land – almost certainly FS Investors, but by law the initiative can’t say that outright – would pay the market value of the land, based on a third-party appraisal, in one upfront lump sum. Following city precedent from another lease, the letter committed FS Investors to also making an annual payment of 10 percent of that appraised value. After the letter came out, the city’s newest appraisal of the property pegged it at $110 million.
And the letter said if MLS doesn’t grant San Diego an expansion team, the initiative would be null and void.
Nick Stone, a partner at FS Investors who has been the lead on the project, doesn’t agree with opponents’ charge that all of the public benefits in the initiative are contained in the letter. Building a stadium and laying out a river park are already in the initiative.
The big addition he sees is the offer the letter makes to SDSU, which had vocally opposed SoccerCity by the time the letter was released because it said the measure would hurt the university and football team’s long-term health.
A few months earlier, SDSU gave the mayor a list of seven conditions that were “imperative to the future success of SDSU and San Diego” at the Mission Valley stadium site. Jack McGrory, San Diego’s former city manager and a major university supporter, delivered that document.
The first condition was that the university wanted to buy, or sign a 99-year lease, for 12 acres of land for a new multi-use stadium. Next was that whoever was the partner on the entire site (since SDSU “does not intend” to take over the entire property), would get started immediately on building that stadium, and if it didn’t do so within 90 days, the right to build the stadium would go to SDSU. The university wanted a competitive process to pick a stadium architect, and for the stadium to be 35,000 seats that could expand to 40,000 – and SDSU had to have a unilateral right to pursue that expansion any time. The stadium would have ample parking from the first day it was open. And SDSU would either buy or lease 35 acres of developable land, not counting the stadium property, so it could make way for any future expansion needs.
SoccerCity’s letter gives a nod to those demands, but it doesn’t exactly meet them.
SDSU backers – who’ve since embraced Measure G – don’t think it’s even close. In fact, they see the letter as openly antagonistic.
In the letter, FS Investers pledged to build a 33,500-seat stadium that could expand to 40,000 seats (compared with 35,000 seats expandable to 40,000). It offered to give SDSU 17 acres of land – the 12 underneath the stadium it requested, plus five adjacent acres.
And FS Investors offered three options for a future campus expansion.
SDSU could partner with FS Investors to develop 10 acres for future expansion, sharing the costs for preparation. FS Investors said it could develop, on SDSU’s behalf, enough space for 2,000 new units of housing and 200,000 square feet of research space, that SDSU could move into by 2024. Or SDSU could buy 30 acres of already developed land, at market-rate costs, 30 years from now – because SDSU representatives have, at times, said that’s when it will have a pressing need for more space.
Combining the 17 acres of gifted land with the 30 acres of developed land would get the university to the 47 acres it said it needed – however, SDSU’s demand was for 35 acres of undeveloped land, without specifying a timeframe, rather than FS Investors’ offer of 30 acres already built out 30 years from now.
SDSU is not satisfied with those offers – but it also doesn’t think the offers matter, because it sees the letter as a meaningless piece of paper.
When Is a Promise Legally Binding?
In a confidential legal memo to the City Council – the same one that became a scandal because of City Councilman Chris Cate’s decision to pass it along to SoccerCity’s attorneys to get their response to it – Elliott said the letter was “not a legally enforceable contract.”
For one, she said, it isn’t even guaranteed that if Measure E is approved, the lease will go to FS Investors. If it doesn’t, a new leaseholder would be bound only by the initiative, not any additional promises made in the campaign.
The bigger problem, she wrote, is that terms in the lease can’t contradict anything that’s required by the initiative.
And she acknowledges that determining whether they do is no easy task.
“This is a complex analysis,” she wrote. “New commitments may be permissible, so long as there is no conflict with the initiative.”
Last week, Elliott again offered an unequivocal interpretation.
“The letter is not legally binding on either party so there is no recourse if its terms are not followed,” Elliott spokeswoman Hilary Nemchik wrote in an email. “But any additional terms beyond those in the initiative could be included in a lease negotiated and signed by the mayor as long as the new terms do not conflict with the terms of the initiative.”
Conflicts between the letter and the initiative are exactly what Kim Kilkenny, a land use professional who used to run the city’s redevelopment agency and who is part of the Friends of SDSU group behind Measure G, thinks are a major problem.
For instance, the initiative calls for FS Investors to make a single lump-sum payment to the city at the onset of the lease; the letter calls for additional annual payments of 10 percent of the property’s value.
“That’s an express contradiction,” he said. “I don’t know how you get around that.”
Likewise, the lease promises to gift the land underneath the stadium to SDSU, while the initiative says that land must be privately owned. How can you gift land to a public institution without contradicting the initiative?
“It was and is a political document, not a legal document,” Kilkenny said. “You need to check each part of the letter against the initiative, and there are contradictions all over the place.”
Municipal attorneys came down with a range of legal interpretations.
Colantuono said if one side of a negotiation makes a promise and the other side acts on that promise, they can’t just back out of it after the fact. He thinks that would apply here.
It’s especially true, he said, because FS Investors has so publicly touted the letter as a material commitment in the run-up to the election.
“If it was an obscure letter written in the dark of night, that’s a different scenario,” he said. “If there’s reason to believe that voters wouldn’t pass the initiative but for these promises, the law is likely to say that a deal is a deal.”
The question is complicated because it’s so unusual, Colantouno said. FS Investors sent the letter in reaction to political criticism after it had already published the full text of the initiative.
“I’ve been doing this kind of law for 30 years, and I’m not aware of a situation in which initiative proponents tried to address issues by making a side deal,” he said. “Critics are saying, ‘If you really meant this, it would be in the initiative.’ That’s fair enough, but these additional promises are probably as enforceable as the initiative is. They wrote this letter under criticism to get it passed – they can’t pull a bait and switch now.”
But even that complicated scenario – in which a court could ultimately force FS Investors to accept the terms in the letter if they happened to back out of the promises after the initiative passed and if the city sued to enforce the terms – is further complicated by a couple extenuating circumstances.
One is that the letter was written last year, when SoccerCity backers still envisioned the measure’s fate being determined in a special election. That means all the promises in the letter are tied to dates that have already passed. It says they’d commit to the letter’s terms “following the passing of the initiative at the November 7, 2017 special election.” Obviously, that’s out the window. The terms related to SDSU likewise require that they enter into a joint stadium venture “by December 1, 2017.”
“It makes it messier and therefore less certain,” Colantuono said. “Having said that, if the voters take the promise seriously, the court would translate the promises into the new world to give voters what they thought they were getting.”
The other complicating factor is that the mayor never signed anything. It’s a one-way promise.
Chris Morris, at the Morris Law Firm, doesn’t think it’s all that complicated: The letter is not a contract, so it doesn’t bind anyone to anything, from a legal perspective, he said.
From a political or public relations perspective, he thinks it would be incredibly hard for FS Investors to back out of the commitment.
“For the city and these guys to have a binding contract, that has to go through proper public contracting channels,” he said. “As a practical matter, would they be politically bound to follow these commitments? I’d say, sure, from a pure political perspective. And the mayor, if these guys back out, I can only imagine he’d be fit to be tied. But as a legal question, they are not bound.”
Morris agreed with Elliott’s point that any contradictions between the letter and the initiative are a problem.
“It’s the formalized document that governs any public entity,” he said.
Gil Cabrera, a former chairman of the city’s Ethics Commission who ran unsuccessfully against Elliott in 2016, also said there’s nothing binding about the letter until the mayor signs something.
Cabrera said there are three clear parts of any contract: an offer, an acceptance and a consideration. A consideration is just some clear benefit that both parties received, which could be just about anything.
In this case, that consideration for the city could be the additional benefits, and for SoccerCity it could be the political capital it gets from sweetening the deal. And Cabrera said the letter itself is “definitely an offer letter.”
“If the mayor were to accept it, then it would arguably be binding,” he said.
That has not happened yet – at least formally – since the mayor never signed anything.
But Faulconer spokeswoman Christina Chadwick said in an email that Faulconer has agreed to the terms in the letter, at least informally, because he has consistently said he won’t support a lease that doesn’t include those terms.
That could simplify things, if the initiative were to pass. That’s because the initiative puts arriving at an acceptable lease on the mayor, removing the City Council from the process entirely.
“Regardless of any legal enforceability, the mayor will only support a lease that includes the final conditions in the letter,” Chadwick wrote.
FS Investors has said repeatedly that it’s their preference that the mayor draw up the lease ahead of the election, so that there’s no ambiguity over what the terms be if the initiative were to pass.
Chadwick said that hasn’t happened because the mayor doesn’t want to use scarce city resources writing a complex lease agreement for an initiative that may not even pass.
Establishing Legislative Intent
FS Investors thinks there’s a clear paper trail established over the last year-plus that would make it impossible for any court to let them off the hook if they didn’t comply with everything in the letter.
Their argument boils down to legislative intent. That is, that between what’s in the initiative, what’s in the letter, what they’ve said on the campaign trail and what’s in their ballot statement, it will be clear that voters expect to receive these benefits if they approve the initiative, and FS Investors is required to provide them.
The initiative itself says that the mayor can make changes to the lease requirements to ensure it doesn’t violate any city contracts or agreements. Stone says that was specifically written to allow an agreement like this one – he says the idea of a side agreement with the mayor was “hardwired into the initiative.”
Plus, he pointed out that the ballot summary specifies that the initiative calls for specific lease terms, but allows the mayor to make certain changes. And the “argument in favor of the initiative” that appears in the official voter guide outlines in broad strokes most of the commitments contained in the letter.
He pointed to legal precedent that established that courts can discern voters’ intent based on more than just what is included in the initiative itself, including statements made in the official ballot pamphlet.
“What we’re trying to make sure that we’ve done is establish a legislative intent,” he said.
Cabrera isn’t so sure it’ll play out that way.
When courts have to decide the intent of normal legislation, they have all the debates and records that occurred while the bill moved through the system. There’s no comparable way to get inside the mind of a voter.
“You’d have to prove somehow in court what the voters relied on to make their decision,” he said. “I bet if you did a poll it would be pretty low in the minds of voters – and you’d have to somehow prove that.”
To Kilkenny, the big, unanswered question is: Why was any of this necessary in the first place?
“Why did they spend 18 months drafting a 2,000-page document, and then have to slap together a side letter after they got caught that the initiative wasn’t really promising the things that they claimed they were promising faithfully to the voters?” he said.
Stone said there are two reasons. The first is politics.
“Endorsements come with concessions,” he said. Faulconer endorsed SoccerCity the day after receiving the letter.
The other has to do with the inability of a city initiative to force the transfer of property to SDSU, since it is a state entity. That can’t be done through the initiative, so it would have to be done through a contract after the fact.
“The simple answer for the university is that we had no idea they needed 35 acres when we put our initiative out, because they didn’t need 35 acres when we put our initiative out,” he said.