The city of San Diego last week consummated a controversial settlement partially to avoid a years-long legal battle over its scandal-plagued 101 Ash St. and Civic Center Plaza buildings, but the deal didn’t end all the legal woes surrounding the debacle.
The city is still left with a flurry of litigation tied to building renovations that went awry, a former real estate adviser and its now-former Ash lease.
It also now owns Civic Center Plaza and 101 Ash, a building it hurried to evacuate in early 2020 after a series of asbestos violations that has sat vacant ever since.
Mayor Todd Gloria and other top officials who championed the settlement have argued the deal allows the city to make decisions about its real estate future that would otherwise be snarled in years-long court fights.
But the settlement also requires the city to defend and indemnify its now-former landlord and its lenders in nearly all ongoing and future legal actions, one of several reasons that City Attorney Mara Elliott argued the City Council should reject the deal. There are a couple exceptions including any criminal cases and claims initiated by the city’s former real estate adviser or any of his companies.
“The city’s broad defense and indemnification obligation under the agreement is not justified and would result in the city absorbing additional legal defense costs and potential monetary damages in an uncertain, but likely substantial, amount,” Elliott wrote in a June legal analysis.
Gloria’s office argued the indemnification is a worthwhile sacrifice for more certainty – and the ability to sever its ties with former landlord Cisterra Development.
“In total, the city administration believes that indemnification is a small and limited price to pay in exchange for what it is receiving as part of this settlement,” Gloria spokeswoman Rachel Laing wrote in an email.
Here’s a look at where the city’s existing legal battles stand.
The Battle Over the Bombshell Payouts
City Hall was rocked last year by the public revelation that the city’s 101 Ash and Civic Center Plaza landlord paid onetime city adviser Jason Hughes, who in 2013 volunteered to advise on city real estate issues, $9.4 million for his work on the two leases.
Attorneys for the city responded with legal filings declaring the payments to Hughes an illegal conflict-of-interest and attempting to void both deals. The settlement halted the effort to kill the deals. But the city’s conflict-of-interest case against Hughes – and a District Attorney’s Office criminal investigation of the situation – is continuing.
Hughes’ attorneys are now asking Superior Court Judge Timothy Taylor to rule on the merits of the city’s case against the former city adviser at a Sept. 30 hearing.
Hughes told several city officials he wanted to be paid and has produced a letter he says the city’s former real estate director signed giving him the go-ahead to seek compensation for complex city lease deals. Yet the former real estate director and other former city officials have said that they didn’t know the city’s landlord paid Hughes and the city has argued that the payouts to Hughes constituted an illegal conflict of interest that should void both leases.
In a recent filing, Hughes’ attorney Michael Attanasio argued that Hughes – who did not have a formal contract with the city – is not covered by state conflict-of-interest law, Government Code Section 1090.
Even if Hughes is covered, Attanasio wrote, a four-year statute of limitations has lapsed. He noted Hughes’ statements to multiple city officials about seeking payment put the city on notice and could have triggered further investigation.
Elliott’s office has said the city only learned of the payments to Hughes after issuing subpoenas last year and that Hughes is covered by the state conflict-of-interest law.
“Mr. Hughes’s excuses keep evolving, but Section 1090 has not changed and neither has the city attorney’s position that Jason Hughes and Cisterra violated this straightforward anti-corruption law, defrauded the city, and must be held accountable,” Elliott spokeswoman Leslie Wolf Branscomb wrote in an email.
Four legal experts told Voice of San Diego they expect debate beyond the Sept. 30 hearing over whether Hughes is covered by the state conflict-of-interest law. Two said they expect an eventual ruling that Hughes is covered by the law.
All agreed that Hughes also faces a high threshold with what they described as a more substantial statute-of-limitations argument.
Los Angeles-based white collar defense attorney Kenneth White, who has litigated multiple conflict-of- interest cases including in state appellate courts, said he believes Hughes has presented extensive evidence that makes a strong argument.
“I think that evidence would make a very strong defense attrial and could well persuade a jury that the city was reasonably on notice,” White wrote in an email. “The harder question is whether it’s so overwhelming that Hughes can win on summary judgment.”
Gary Schons, a former senior assistant attorney general who later spent years advising governments on issues including Government Code Section 1090, was among three other attorneys who said they expect the legal disputes on the statute-of-limitations to continue beyond Sept. 30.
Schons said Hughes made a strong argument in court filings but said it’s significant that the city’s former real estate director has testified under oath that she at least twice asked the city’s landlord if it paid Hughes and was told it did not and that Hughes didn’t disclose the payments to city officials after receiving them.
“From what I see here, it seems like there’s triable issues of fact for the jury,” Schons said.
Attanasio declined to comment on his recent motion or the other attorneys’ comments. He said he looks forward to addressing the issues in court.
For now, the city’s case again Hughes is set to go to trial in January.
The Constitutional Case
Former city attorneys Mike Aguirre and Maria Severson rushed to Superior Court hours before the City Council vote on the Ash settlement to argue that constitutional issues they raised in a separate lawsuit should halt a major component of the deal. Judge Joel Wohlfeil ruled against a temporary restraining order and the City Council approved the settlement, but the attorneys are now due back in court Aug. 26 to argue for a preliminary injunction.
Aguirre and Severson say they plan to proceed with that argument despite the city’s Aug. 4 buyout of the Ash lease. They are also now zeroing in on the city’s plan to pursue a bond to backfill funds that had been reserved for infrastructure projects but were instead used to pay off the Ash lease.
Aguirre and Severson, who are representing taxpayer John Gordon, argue that the 101 Ash lease was unconstitutional because it required the city to make rent payments on a building it’s been unable to use. They argue the planned bond is a vehicle for a continuing violation.
The attorneys previously argued the city shouldn’t pay out the Ash lease until at least late September, when Wohlfeil is expected to rule on the merits of the argument that the arrangement violated the state Constitution.
In a filing last week, Severson also argued that the “illegal expenditure of city funds” to pay off the Ash lease contradicts ex-mayor Kevin Faulconer’s 2020 decision to stop paying rent following a letter from the two former city attorneys calling for the city to halt payments and the city’s own argument that the lease is unconstitutional.
In a statement, Elliott’s office said the Ash deal is voided by the settlement and that the city settlement constitutes “a new purchase agreement” that it has determined is legal.
Attorneys for the city last year unsuccessfully sought to have the Gordon case dismissed. Elliott’s office said last week it expects the case to continue “until a court orders otherwise.”
Attorneys for Cisterra and the lenders behind the two deals have filed separate motions urging Judge Wohlfeil to rule that among other things, the now-former lease indeed satisfied the state Constitution and that since the original lease called for the city to eventually own 101 Ash and thus the time it took to renovate 101 the building “cannot constitute waste.”
While the city’s landlord and its lenders are eager to move past the constitutional suit, Aguirre and Severson are eager to move forward. The two former city attorneys have asked Judge Wohlfeil to move up their trial to November, a proposal he’s also expected to rule on after an Aug. 26 hearing.
The Coming Fight with Contractors
For two years, attorneys for the city have largely been focused on legal fights over the 101 Ash and Civic Center Plaza transaction. Now that the city has moved forward with a deal with Cisterra and its lenders, more focus will be on its fight with contractors who worked on the Ash building.
Last year, attorneys for the city formally accused contractors West Coast General Corporation and Argus Contracting of negligence. The court filing followed cross complaints from Cisterra and lenders that included claims against the city and three contractors including West Coast and Argus. Those filings inspired a wave of additional court filings that roped in more than a half dozen other companies who did work on the Ash building.
In a complaint last summer, the city alleged that West Coast General and Argus Contractor violated “their duty of care” by disturbing asbestos and performing work inadequately, among other concerns.
A city-sanctioned review of the 101 Ash debacle produced in 2020 by law firm Hugo Parker and others said that city workers it interviewed described a “consistent and disturbing pattern of questionable performance by the contractors.”
In their own court filings, the companies have denied those allegations and said that if there was indeed negligence, other subcontractors may have contributed to the damage at 101 Ash.
For now, the city’s case against its construction contractors has been moving slowly.
It’s likely to get more interesting once the parties start digging in.
Voice has previously reported on documents suggesting top city managers dismissed or downplayed safety concerns from the people working on site and pressed ahead with plans to occupy the building amid public pressure. The city’s former real estate director also testified under oath that there was a major push to get the project finished and that “people cut corners to make that happen.”
On Aug. 1, in the wake of a City Council vote approving the settlement with Cisterra and its lenders, Argus Contracting asked Judge Timothy Taylor to consider bifurcating the city’s Ash lawsuit to separate Hughes’ trial and its own trial over asbestos issues. Taylor is set to consider the proposal on Sept. 30.
The Workers’ Claims
As controversy of the 101 Ash acquisition has dominated City Hall debate, dozens of workers who reported to the 101 Ash building during and immediately after renovations have been waiting in the wings for their day in court. Nearly 60 workers have joined lawsuits against the city alleging they were exposed to toxic conditions, leading to emotional distress. Three also allege that they were retaliated against after raising concerns.
The two largest lawsuits collectively include 56 workers represented by attorney Larry Shea, who wrote in both complaints that the contract workers were “placed in areas containing highly concentrated amounts of uncontained asbestos over extended periods of time without personal protective gear.” Shea has also alleged that the city falsely denied workers were being exposed to asbestos, concealed the exposure from workers and failed to warn them about it.
At a press conference late last month, Shea urged the city to consider settling with workers including one he said received what amounts to 30 years of asbestos exposure during a few days working in the building.
County air pollution regulators for months starting in 2019 filed a series of notices of violation against the city, at one point shutting down construction at 101 Ash to allow for cleaning. The situation escalated in January 2020 when regulators found debris in a conference room on the seventh floor that was theoretically accessible to city workers and issued a nuisance order. The city responded by shutting down the building and moving out hundreds of employees.
Yet the 2020 review by law firm Hugo Parker review pushed back on the notion that workers were exposed to asbestos.
“At no time was there any true health risk to workers, city employees, or the public during the renovation work or during the city’s brief occupancy of 101 Ash,” the report reads.
A slew of workers argue otherwise.
Two former employees for then-building manager CBRE and a city engineer also claim the city retaliated when they flagged issues during renovations.
City engineer Marlon Perez, the onetime project manager at 101 Ash, alleges that his planned promotion was revoked, and he was removed from his role managing the project after he flagged fire safety and building system issues that city managers had sought to dismiss. Attorneys for the city denied these claims in a June filing.
Former CBRE employee Luis Guerrero, who had been assigned to the Ash building, claims he asked county regulators to investigate materials he feared were asbestos in summer 2019 and later, blew the whistle when he feared janitors helping prepare the building for occupancy that November could be exposed. Guerrero says the city later banned him from working at the building. The city in a June filing argued Guerrero failed to establish “any statutory basis for liability against a public entity.”
Former CBRE executive Juan Rose alleges that the city also retaliated after he notified the city of an initial CBRE investigation that found 101 Ash had $100 million in needs to address before the building could be occupied and insisted that Guerrero should be treated as a whistleblower. The City Attorney’s Office has said it will respond Rose’s allegations in court.
Many “ASH” Principals endorsed and vaulted both D2 candidates to prominence. Why are you wasting our time with these crocodile tears of lament when the voters don’t care otherwise why do they support the “ASH” ringleaders? Americans rarely tell the truth, and everybody is a saint.
Its a bitter deal but the city needs to go forward and begin resolving any lawsuits or settlements with the contractors. No winners here.