I was glad to see someone else picked up on the interesting comment in SunCal’s response to the mayor last week. Michele at The Island not only noted that SunCal let drop that they have been negotiating an amended Development Agreement (DA) with the City, in response to some of their concerns, but also got Deputy City Manger Lisa Goldman (DCMLG) to confirm and to indicate that there are legal ways for the city to lock in changes pre-ballot.
Which brings us to the Mayor’s interesting press release last week, which essentially said, “I had no idea what I was supporting when I supported the SunCal plan,” and then went on to explain that she had concerns about the initiative and was against it. Flat out.
So which is it? Is the City negotiating to get a better deal for Alameda in the D.A.? Or are there no changes that will make it palatable, so why bother? And quick aside, if the City is negotiating with SunCal, why wouldn’t the Mayor issue a press release making her support conditional along the lines of “I can’t support the initiative as written, but hopefully SunCal will come to the table in good faith and fix these concerns so that I can support the initiative when it goes to the voters?” As written, and given her continued support of the Plan (per The Island), the Mayor would appear to be suggesting that the multitude of negotiations, past and future, with SunCal are a complete waste of time, if not money.
Which brings us to tomorrow night (Tuesday), the Council will discuss having a public presentation of the City’s election reports. Great idea, but absent a corresponding discussion of what can and cannot be negotiated prior to the vote, the presentation will not be informing people about the issues, only that there are concerns. No context of whether they can be dealt with or not.
Given the City and SunCal’s statements, it looks like both parties believe that they can be legally dealt with (wouldn’t be good-faith negotiations if they didn’t).
Tomorrow night, we’ll know if the Mayor and the Council are sincere about supporting The Plan. Or are they’re just looking for another CYA moment, burying their collective head behind a staff report without any meaning.
If one supports The Plan, and one believes that the major concerns can be dealt with (and all signs point to “they can,”) then the only course of action is to fix the problems in order to end up with an initiative that can be supported.
Therefore, the council should make sure to include in their request, a general discussion on what issues can or cannot be dealt with prior to the election. This way the ultimate goal of informing voters will be met.
Prior to observing the Alameda development agreement initiative, I was very actively involved on the “legal side” of six hotly contested initiatives.
I must comment that neither the Government Code nor the Elections Code contain any authority, whatsoever, for an initiative proponent to alter the content of a ballot measure after signatures have been obtained. Similarly, neither the Government Code nor the Elections Code give any City Council to alter the content of a ballot measure after signatures have been obtained, even if the initiative’s proponents agree.
As a result, all of this discussion of the City Council, or the City Attorney or SunCal negotiating changes in the initiative is simply delusional, from a legal point of view.
Now that the signatures have been turned in, if there are enough valid ones, the initiative has to go onto the ballot unchanged.
The City Council can put a “competing initiative” on the ballot, with or without SunCal’s support of that measure’s contents.
There are several legal theories of what happens with duelling initiatives are on the ballot, when they overlap to some extent. If both are defeated, the problem is solved. If one is defeated, the public is stuck with the one which is approved.
If both measures are approved, the one with the most votes controls, except as to additional, not inconsistent provisions in the measure which comes in second. Those not-inconsistent provisions also apply. This is the scenario where hundreds of thousands of dollars in taxpayers’ money are spent in legal fee unravelling the mess created when a City Council puts a competing measure on the ballot, as a means of “making a deal” with a developer.
In reality, what the Government Code requires is a long series of public hearings to be held before a City Council adopts a development agreement which is classified as an ordinance under California law. The Government Code requires those hearings so that the public has a great deal of opportunity for input BEFORE a development agreement is enacted by a City Council.
As a result, City staff or City Council members or a City Attorney is privately negotiating a “compromise” development agreement with SunCal, and planning to put it on the ballot, out of fear that SunCal’s initiative will “win”, those public officials are, at the very least, breaching their fiduciary duty to the entirety of the public which requires development agreements to be adopted through an open, public hearing process.
That sort of conduct by public officials raises the prospect that the public in Alameda can demand criminal prosecution of those public officials under the Federal “honest services” criminal law. It’s the same law under which former Illinois Governor Rod Blagojevich is being prosecuted. It’s the same law under which a voting majority of the Clark County Nevada Board of Commissioners ended up in the Federal slammer for just this sort of secretive conduct designed to circumvent that state’s laws about the legislative process occurring in public in a not-corrupt way.
Then, of course there’s a good chance some Alamedan will file a Superior Court lawsuit to invalidate whatever abortion these public officials an SunCal agree to in private.
As a result, I repeat that anyone associated with the City of Alameda or SunCal who tells the public that this abortion of a development agreement can be made palatable, by private deal making, is simply delusional.
Kinda what some of us John and Jayne Q Publics have been thinking, but everyone FOR the plan keeps saying otherwise and spinning it all way crazy!
Thank you, Kind Sir, for setting us straight.
Alan, you are absolutely correct. Nobody is talking about altering the initiative. The initiative specifically outlines how changes to the Development Agreement can be made, the negotiations are being discussed in this context. If successful, SunCal and the City would agree to amendments to the DA prior to the vote, so that voters could feel comfortable with the agreement.
Thanks for your input, which is consistent with everything that I’ve heard as well, my understanding (confirmed by the City and SunCal’s statements) is that a number of respected law firms have indicated that the negotiations I’ve mentioned would be binding and legal.
Alan’s citations of the gov’t and elections codes regarding initiatives are correct – I posted pretty much the same on Lauren Do’s site yesterday. All those speculating that SunCal can withdraw its initiative or can alter it in any way are incorrect. All that can be done is for them to enter into binding (and it CAN be legally binding if both parties agree to be bound by it) agreements that specify how the Development Agreement will be handled by both parties. Such agreements do not have any effect on the measure which has to appear on the ballot as the petitioners signed, but may convince (or not) the voters that certain contentious portions of the ballot measure will be in some way mitigated after its adoption.
The city could of course put on a rival measure, such as that proposed by Kevis Brownson on Lauren’s site and the “side agreements” could be used to apply to the Development Agreement when it is finalized.
I still think Alan Shaw is correct. The side agreement discussions are simply making up new law.
The Notice of Intent to circulate the petition to put this initiative on the ballot says that it includes the following: It amends the City Charter; it amends the General Plan; it adopts a Specific Plan; it amends the Zoning Ordinance; and it ADOPTS A DEVELOPMENT AGREEMENT. The Development Agreement is part of the initiative.
Over in Michele Ellson’s story she cites Deputy City Manager Lisa Goldman: “Whether an agreement is binding over the ballot measure will depend on whether the agreement goes about making changes to the ballot measure in line with the provisions in the ballot measure that explain how changes can be made.”
And Lauren Do cites initiative Section 14. Amendment. which lays out how the initiative can be amended or repealed.
You can call these agreements that are being worked on “side agreements,” “changes to the ballot measure,” “binding agreements,” or any such term. They are still amendments to the ballot initiative for which voters will be asked to vote Yes or No. They will not be on the ballot. The fact that there will be mutual agreement to post-date the agreements does not change the basic nature of the agreements. They are to effect the outcome of the election.
In Kate Quick’s post above she says, “All those speculating that SunCal can withdraw its initiative or can alter it in any way are incorrect.” The side agreement negotiations are an attempt to ALTER the initiative by following what some people believe is permitted in Section 14. Amendments.
The purpose and intent of the negotiations is to alter the initiative. Otherwise, what is the point?
Whether I would be pleased with the changes is beside the point. We can’t just make up election law to salvage a poorly drafted ballot measure.
And if everything is fair game for a side agreement except the housing number and public benefit number, what would prevent them from agreeing that all pages would become blank if it passed? If it can’t be withdrawn, then why not just render it moot by mutual agreement that all pages will be blank?
If it is permissible to change the Development Agreement prior to the election, then the same provision for amendments would also allow for changing any other aspect of the initiative. The people who signed the petition were not authorizing a bargaining agent. Imagine what we would have if any individual or group promoting an initiative could negotiate amendments with, say, state legislators, or the attorney general prior to the election. The whole notion seems preposterous.
Detailer says:
1, October 21, 2009 at 4:20 am
Legally binding commitments from SunCal or D.E. Shaw? What a joke.
SunCal and its owners the Elieff brothers, more so that just about any other developers in California know that “There ain’t no such animal”.
There are currently pending in the Central District of California Bankruptcy Court 30 different Chapter 11 bankruptcy cases for Lehman/SunCal entities. For administrative purposes, they are rolled into two separate cases with two separate trustees.
Part of the Chapter 11 process is that the debtor gets to reject (i.e. cancel) any contract it pleases, and the other party to the contract is simply left with a damage claim for which that other party is an unsecured creditor. In Chapter 11 bankruptcies, unsecured creditors get just pennies on the dollar of what they are owed.
At the end of a Chapter 11 case, whatever contracts have not been expressly assumed by the debtor company or by the party who will end up owning the real estate when the Chapter 11 Plan goes into effect are automatically terminated.
All of that is true of private contracts as well as all sorts of agreements with public agencies.
In fact, that is exactly what is happening under the Chapter 11 Plan for approximately 20 Lehman/SunCal projects, in the Chapter 11 Plan proposed by Lehman Brothers. The Chapter 11 Plan specifically says that not only are all public agency contracts rejected, all damage claims of all public agencies are released, all public agencies are to be forever enjoined from suing the Lehman/SunCal entities, the Lehman entity which ends up owning the property and their successor owners, and that no public agency can sue any of them at a later date on any claim or issue which existed on the date the Chapter 11 Plan is approved. To top it off, the Lehman Chapter 11 Plan also provides for punitive damages against any public agency and its officials which even tries to sue the Lehman/SunCal entities, the Lehman entity which ends up owning the properties, or their successor owners.
The people in San Clemente, San Juan Capistrano, Riverside County and Bakersfield, and their local government agencies, are screaming bloody murder because of all of the breaches of contracts and agreements for on-site and off-site improvements promised by Lehman/SunCal.
Frankly, given the reality of what is going on in the Lehman/SunCal bankruptcies, Pat Keliher’s promise of “legally binding agreements” is complete baloney. There are no such things because Chapter 11 exists so that developers can get out of all sorts of obligations and promises. The only hope anyone has for a “legally binding agreement” is if a developer posts surety bonds in the nature required under the Subdivision Map Act and Subdivided Lands Act, in the full amount of the developer’s obligations required by local ordinance (whether or not state law requires them to be bonded) and in the full amount of the developer’s promises which go beyond what local ordinances require.
Even with those sorts of bonds, smart ash lawyers like Lehman Brothers’ still try to wriggle out of all contractual and statutory obligations, even the bonded ones. There is no reason to believe that D. E. Shaw would operate in a manner any different than the way Lehman’s lawyers are operating in the 30 Lehman/SunCal bankruptcy cases.
And, by the way, what is SunCal’s “big issue” in terms of the 30 bankruptcy cases? Getting Mr. & Mrs. Bruce Elieff out of their personal liability to pay $230 Million to reimburse the bonding companies who issued the bonds on the Lehman/SunCal projects. That facts is disclosed, repeatedly, in the Lehman/SunCal bankruptcy court documents filed by SunCal and by Lehman.
If the Elieffs end up stiffing the bonding company on the 30 Lehman/SunCal bankruptcies, what chance does anyone think the SunCal/D.E. Shaw entity will have to sucker some bonding company into issuing mega million dollars worth of bonds to make Pat Keliher’s offer of “legally binding agreements that would commit the developer to ensuring funding is available for public benefits beyond a $200 million cap set in the initiative and to consent to an increase in the area’s tax rate if more money is needed to build, operate and maintain the project”????? Zero, zip, nada.
Pat Keliher is shameless in his bs’ing people in Alameda, concerning SunCal’s intentions. Keliher also manages the Lehman/SunCal Oak Knoll project, yet his name never appears on any important documents filed with the bankruptcy court in that case. He is simply a talking head hand puppet, and nothing more.
SunCal is equally shameless in bs’ing the people of Oakland. Remember that $500,000 that SunCal told the City of Oakland, and the public by way of press releases, that the “bankruptcy trustee” would release to begin clearing the brush at Oak Knoll, removing the asbestos debris and providing security guards? As late as October 20, 2009 that bankruptcy trustee had filed no such agreement or stipulation, nor had SunCal. The judge had not signed any order having anything, whatsoever, to do with fire hazard abatement at Oak Knoll. It’s all just complete b.s. and fabrication by SunCal’s employees Keliher and Aguirre.
And by the way, D.E. Shaw’s refinancing “offer” for Oak Knoll is in that bankruptcy court file. It’s so full of loopholes, conditions, and other “outs” it looks like Swiss Cheese after a mouse has gnawed away at it.
I can just imagine what D.E. Shaw’s financing commitmant for Alamenda Point looks like. Probably more of the same. Since there is no one at the City of Alameda with the intellectual background sufficient to negotiate with D.E. Shaw’s Wall Street lawyers to protect the City of Alameda’s interests in a bankruptcy, I am sure that “financing commitment” is worth less than the paper it is written on.
By the way, the head of D.E. Shaw’s real estate division is Mr. George Rizk aka Mr. Risk. He apparently got his MBA at Wharton School of Finance. Until Mr. Risk shows up in Alameda, with all of the documents his company has signed with SunCal in hand, and until he makes those documents available for public inspection by everyone in Alameda and their lawyers, it seems pretty clear that this whole SunCal/D.E. Shaw operation is nothing but an elaborate shuck and jive.
A Dialog With John Knox White on 10/21/09
Hi Alan,
Thanks for your informative post on my blog yesterday. I was wondering if you have stumbled upon case law regarding voter initiatives that define agreements (developer or otherwise) but also have mechanisms to change those agreements after the vote. Do you know of any cases where the agreements were changed almost immediately? Or if they were rejected by the courts?
Thanks again.
John Knox White
Reply:
I haven’t researched the specific question you ask.
The basic principle of California initiative law in cities is that an initiative is an ordinance or legislative act, and if an initiative is adopted by the voters, it cannot be changed by a city council unless there is a specific provision re-delegating the power to amend back to the city council. Since development agreements are, by historical quirks dating back to the mid 1970′s considered ordinances, that principle rings especially true.
California has such a huge body of law on initiatives that the City is absolutely guaranteed to drown in litigation and attorneys fees either fighting with the SunCal or anti-SunCal forces over this albatross. Based on the theory that anyone can sue based on their own lawyers’ reading of case law and statutes, even if cases analogous to Alameda’s were found, one side or the other’s lawyers would argue to distinguish them in litigation.
Alan
Reply:
So here’s my question, the initiative does have specific provision delegating power back to the City Council, and it’s that power that is being used, within the negotiations of the DDA, to make amendments to the issues within the DA.
It would seem that based on what you’ve written, it would likely be legal, though your point on anyone can sue anyone is well taken.
Thanks for the response.
John Knox White
Replly:
The problem, of course, with that approach is that a Disposition and Development Agreement is only a contract, which can be rejected by a debtor in bankruptcy, be it SunCal, D.E. Shaw or their successor. That leaves the Development Agreement in place, as an ordinance with all of the promises by the SunCal in the DDA shorn away either during or at the end of the bankruptcy case.
The only way to “fix” the initiative on a permanent basis is if the redelegation power authorizes the City to pass additional ordinances which literally change the terms of the Development Agreement.
Even if the changes were made by way of ordinance, there are two further problems:
First, bankruptcy courts in California view all “obligations” to pay any money or build anything, even if spelled out in a development agreement ordinance, as mere contractual promises which are rejectable and dischargeable. Thus, the bankrupt successor developer gets the benefits of the development agreement (such as density increases by rezoning, etc.) up front, but none of the burdens.
Second, the bankruptcy courts believe, under sections of the Bankruptcy Code relating to cities exercise of the police powers, that any exercise of a city’s police powers to “punish” a land owner for breach of an ordinance can only be by sending individuals to jail. If the breach of the ordinance is one which can be cured by spending of money, or the punishment is an order that money be spent, then the bankruptcy court judge’s approval is required before the punishment can be meted out. That leaves cities unable to terminate development agreements for breach (which is what the Government Code actually says can be done in the event of a developer’s non-performance) without the bankrupt developer’s consent.
At seminars for real estate developers’ lawyers throughout California, the use of “surgical strike bankruptcies” is now widely discussed as a means of renegotiating all sorts of obligations, including obligations under land use exactions. Remember that Texaco filed a surgical strike Chapter 11 about 10 years ago when it didn’t want to post the bond required under California’s Civil Code after Texaco lost a case to Getty at trial.
Frankly, the smarter move for the developer would have been to do a simple initiative exempting its project from the old ballot measure, and then negotiating with the City Council members over the content of a development agreement and related land use entitlements which they would enact through normal procedures. Unfortunately, the die is cast.
Alan
P.S. By the way, did you know that both the California Supreme Court and Court of Appeal opinions are online, and fully searchable using advanced search terms? Go to:
http://www.courtinfo.ca.gov/opinions/continue.htm
Click agree, and then go to advanced search. Select terms and connectors and you can used common boolean connectors like “initiative w/20 developer” or “initiative and amendment” or “CEQA and initiative”. Not only do you get the full cases, but when they cite other California cases, you can automatically link to them.
I guarantee you that you will find a case to support any principle you choose to articulate.
The key thing to remember is that the basics of initiative law are covered by the Supreme Court, but not in cases concerning development agreements, so if you really want to learn the law of litigation over the content and enforceability of initiatives you have to read the Supreme Court cases on initiatives totally outside the land use arena. Some of the Supreme Court opinions give you a long history of initiative law, and the basic principles, while other opinions assume the reader knows the nuances and don’t start from the beginning.
One of the key things to watch for in the initiative cases is the distinction between “legislative acts” which can be taken by the voters through the use of the initiative power, and “administrative acts” which cannot be taken by the voters through the use of the initiative power. You need to keep a chart of what is what, in terms of legislative vs. administrative, because one way someone will probably attack the SunCal initiative is to go through it sentence by sentence, and seek to strike out all provisions which are administrative acts reserved to the City Council.
The other interesting thing for you to ponder but not know after the election is who the judge(s) are in Alameda County who hear cases called “Writs of Mandamus”. That will be the principle attack tool for all sides in the initiative dispute, unless there is a clear loss at the ballot box. The judicial philosophy of the judge assigned to the case, especially if the City is unhappy with the outcome, will be very determinitive of what parts of the initiative survive the litigation meat grinder. In addition, by state law, each county must have a CEQA judge to preside over CEQA challenges. If the writs judge is not a CEQA judge, there could be two lawsuits going on either simutaneously or sequentially.
At first I thought the land use lawyers who wrote the initiative for SunCal were simply over-reaching in what they wanted for SunCal. Now I realize they are very clever. If SunCal chooses them to defend their work product, they stand to earn several million dollars in attorneys fees arising out of very protracted complicated litigation including appeals.