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This post has been updated.
San Diego is betting a state anti-corruption law can be an escape hatch from two city leases that a real estate guru it had considered a volunteer received more than $9 million to help execute.
City Attorney Mara Elliott and a team of lawyers allege former adviser Jason Hughes violated Government Code Section 1090, which bars government officials from having financial interests in contracts they broker in their official capacities. In past cases, the law has also applied to contractors and consultants like Hughes, particularly when they provide advice to government officials.
The law is based on the premise that government officials should act in the best interest of taxpayers rather than their own.
Attorneys for the city argue that Hughes, the architect of the city’s Civic Center Plaza and 101 Ash St. lease-to-own deals, never told the city that the middleman in the deal, developer Cisterra, paid him $9.4 million for his work on the city leases – and that the arrangement and the role he played in negotiations amount to a major conflict of interest. The city took two legal actions this week to try to undo the two leases.
If the city cases are successful, the penalties could be steep. A court victory in a Government Code Section 1090 case can lead to voided transactions and contracts and orders to pay back governments, as the city is seeking to do with the Civic Center Plaza and 101 Ash deals. Violators can also be criminally charged if investigators can prove they knowingly skirted the law. Hughes has not been charged with any crimes.
Unsurprisingly, Elliott’s office and Hughes’ attorney have opposing views on the city’s prospects of backing out of the two deals. Hughes’ attorney argues Hughes didn’t violate the law and that the legal actions Elliott’s office took this week amount to political grandstanding, while Elliott’s office argues the attorney’s arguments thus far don’t hold water.
Several attorneys who spoke to Voice of San Diego this week said they believe the city has a viable case against Hughes. A few, including Hughes’ attorney, noted that there are issues that could trip up the city’s quest to kill the two lease deals, including Hughes’ unique dealings with the city and a statute of limitations on Government Code Section 1090 cases.
Ann Ravel, a Bay Area attorney who once chaired the state Fair Political Practices Commission and the Federal Election Commission, is among those who believes the city has a case that Hughes violated the state conflict-of-interest law.
“He used his position with the city essentially to negotiate a huge contract on his own behalf, which is exactly what (Government Code Section) 1090 was intended to preclude and prevent,” Ravel said. “He was the one who convinced the city to enter into this contract that gave him an enormous amount of money.”
Michael Attanasio, a veteran white-collar defense attorney now representing Hughes, argues his client was an informal adviser rather than an employee subject to the state law and that he took pains to let top city officials know he hoped to get paid for his work on the deals. He also cites a 2017 state Supreme Court opinion that included a passage suggesting outside contractors hired by government agencies may not always conclude they need to subordinate their own financial interests to the public’s.
“Jason’s transparent disclosures to senior city officials are fatal to the city attorney’s allegation,” Attanasio wrote in an email to VOSD. “Jason disclosed that he would seek compensation from third parties on alternative lease-to-own transactions to the mayor, the mayor’s chief of staff, the chief financial officer, the deputy chief operating officer, and the director of real estate assets. The latter official, Cybele Thompson, signed an agreement with Jason in which she specifically acknowledged and agreed that he would seek compensation from other parties.”
Thompson, former Mayor Kevin Faulconer and his then-Chief of Staff Stephen Puetz have told VOSD they don’t recall signing off on any payments.
Elliott spokeswoman Hilary Nemchik said the city had only received unconfirmed reports of Cisterra’s payments to Hughes until Monday when developer Cisterra provided documents confirming it had paid Hughes. Nemchik also told VOSD that city attorneys are certain Hughes’ position with the city and the payments he received put him the crosshairs of Government Code Section 1090, despite his attorney’s arguments to the contrary.
“This is a textbook conflict-of-interest case where Hughes put his own interests ahead of his duty to represent the city,” Elliott wrote in a statement. “He has not produced any evidence that he disclosed his substantial financial interests in these deals to the City or to the public. We are confident that the court will agree.”
A handful of attorneys told VOSD that Hughes’ reported disclosures about his plans to be paid – and his unique role advising the city on real estate issues – are likely to be significant points of debate in the case.
In 2013, as the city faced a series of downtown real estate woes, then-Mayor Bob Filner took up Hughes’ offer to serve as an unpaid real estate adviser. The two played up the value that the city would get from the arrangement, including savings from commissions it would otherwise pay other real estate brokers.
“I appreciate Jason’s commitment to public service in this advisory role, which he will perform without compensation from any party,” Filner wrote in an April 2013 press release announcing the appointment.
More than a year into the volunteer arrangement, the city faced the prospect of being forced to quickly move hundreds of city employees out of Civic Center Plaza after its longtime lease went month-to-month and a legal challenge stalled efforts to go to the bond market to fund a quick purchase.
Hughes came up with a solution in the form of a lease-to-own deal that would allow the city to essentially pay a monthly mortgage and own the building after 20 years. Cisterra would take on the city’s earlier $44 million purchase deal to buy Civic Center Plaza and then execute the lease with the city.
Hughes’ attorney said he flagged his intent to be paid by parties on the other side of that deal in emails and a letter obtained by VOSD.
But former top city officials, including Puetz, say they were shocked this week to learn that Cisterra paid Hughes just over $5 million in fees for Civic Center Plaza and $4.4 million for the virtually identical Ash Street deal nearly two years later.
Most attorneys who spoke to VOSD this week – with the exception of Hughes’ attorney – said they believed Hughes would be subject to Government Code 1090 despite simply signing on with the city as a volunteer.
Gary Schons, a former senior assistant attorney general who later spent years advising governments on issues including 1090, was among those who said Hughes likely wouldn’t have an out simply because the city didn’t pay him.
“It doesn’t matter that he wasn’t paid,” Schons said. “He voluntarily took it upon himself to put himself in a position to work with the city, to work on their behalf.”
Schons, who reviewed the letter Hughes said he shared with city officials, said Hughes’ disclosures to the city about Cisterra’s payments were also lacking because he never specified who was paying him and how much he was being paid in those disclosures.
“It’s a meaningless disclosure,” Schons said. “It’s not a disclosure at all.”
Ravel agreed.
“His disclosure was not full disclosure, and his relationships were not full disclosure,” Ravel said. “That’s the issue.”
Attanasio has said city officials could have asked for further disclosures or legal reviews after Hughes presented them with the November 2014 letter describing his intent to be paid but never did.
“All they had to do was say so,” Attanasio wrote in an email to VOSD.
Attorney Gil Cabrera, who once chaired the city’s ethics commission, highlighted the decision by Hughes’ legal team to essentially argue that his disclosures and status as a volunteer consultant to the city should make him an exception to Government Code 1090.
In most cases, Cabrera said, disclosure doesn’t negate a conflict of interest.
“They’re arguing that it’s possible that his interests are reasonably in place given his disclosures, but the general rule is outside consultants with influence on a municipal decision are subject to 1090,” Cabrera said.
Those arguments are crucial, Cabrera said, because Hughes’ unique position and his disclosures mean the case against him will likely be battled in court for years. After all, there hasn’t been another case exactly like it.
“There’s no slam dunk because ultimately some court of appeal will have to decide whether in fact Hughes was subject to 1090,” Cabrera said.
Before the case ever gets to that point, Attanasio has another legal argument he plans to float.
He’s preparing to contend that a four-year statute of limitations for Government Code Section 1090 should apply since the law states that any legal actions should kick off within four years after the plaintiff has uncovered issues, or “in the exercise of reasonable care should have discovered.”
The statute of limitations applies in this case, Attanasio said, because Hughes notified the city in 2014 that he wanted to be paid for lease-to-own agreements and got Thompson’s signature on a letter saying so. (Thompson has said she doesn’t recall signing the letter.)
“The statute of limitations began to run when the city knew exactly what it is complaining about now – that Jason would be paid on the Civic Center Plaza and 101 Ash transactions,” Attanasio wrote. “The time to bring this claim ran out in 2018.”
Former city attorney Mike Aguirre, part of a team of attorneys challenging the 101 Ash acquisition in a separate civil suit, also noted the statute of limitations this week and questioned whether past disclosures might complicate the city’s case.
“It’s important to know when the city attorney knew and it’s important to know how did the city attorney come to know,” Aguirre said at a Wednesday press conference.
Elliott said that her office pursued legal action against Hughes’ alleged 1090 violations as soon as it documented them.
“Building a solid case requires upfront work. Once we had the facts we needed to prove our case, we amended our lawsuit and initiated the (Civic Center Plaza) litigation,” Elliott wrote in a statement.
Update: This post has been updated to include a statement from the city attorney.