The judge overseeing the taxpayer lawsuit challenging San Diego’s acquisition of the uninhabitable 101 Ash St. high-rise has declined to stop the city from selling bonds to repay the city budget after buying out the lease.
But in spelling out his reasons for not granting plaintiff John Gordon’s request for an injunction against issuing any bonds, Judge Joel Wohlfeil noted that the San Diego taxpayer may very well win once the case gets to trial.
“The court finds that, based on the record presented to date, there is a reasonable probability that plaintiff will prevail on the merits,” Wohlfeil wrote in a tentative ruling issued late Thursday.
The preliminary decision was made final on Friday after a scheduled hearing at which both the plaintiff and defendants agreed not to contest the decision.
If Gordon were to win at trial, the city could potentially recover millions of dollars paid to the Ash Street landlord and its lender.
Lawyer Michael Aguirre, the former elected San Diego city attorney who represents Gordon, said he was pleased with the ruling even though the judge did not grant an injunction.
“Our case is moving forward, and there appears to be some wind at our back,” he said. “That feels really good.”
The City Attorney’s Office declined to comment on the ruling. Lawyers for landlord Cisterra Development and the trust that managed the deal did not respond to requests for comment.
Aides to Mayor Todd Gloria and Council President Sean Elo-Rivera similarly did not offer any response to the ruling.
The Gordon legal team had asked Wohlfeil to bar the city from spending any more money on 101 Ash St., a mid-century office tower that cannot be safely occupied due to asbestos and other issues.
But the judge said there was no immediate need to intervene in city business.
“Plaintiff has failed to show that plaintiff is likely to suffer greater injury from a denial of the injunction than defendants are likely to suffer from a grant of the injunction,” he wrote.
Wohlfeil also pointed out that the settlement recommended by Gloria was approved by the City Council against the advice of City Attorney Mara Elliott, who had authored an 11-page opinion detailing why she said the city should not settle the cases.
The city sued Cisterra, its lender and a real estate broker who had previously served as a mayoral volunteer before collecting almost $10 million in fees from the Ash Street deal and a similar lease for the nearby Civic Center Plaza. The city’s settlement resolves its claims against Cisterra and its lender but not those against the real estate broker.
But San Diego is a defendant in the separate Gordon case, which claims the Ash Street lease violated the state constitution by indebting the city without a public vote.
Under the settlement proposed by Gloria and approved by the City Council last month, the city bought out the Ash Street and Civic Center Plaza leases for $132 million in cash.
More than half of that money was diverted from capital projects like dog parks and street repairs that were part of the city budget approved in June.
The mayor and council majority also agreed to indemnify Cisterra and lender CGA Capital in the Gordon case and in lawsuits filed by city workers and contractors who say they were wrongly exposed to asbestos inside the 101 Ash St. building.
San Diego closed escrow on both Ash Street and the Civic Center Plaza earlier this month.
City officials plan to sell bonds later this year to replenish funds they borrowed from previously budgeted projects. The bonds could take up to 30 years to fully repay and drive the overall cost as high as $207 million.
The settlement approved on a 6-to-3 council vote affected only the two cases the city filed against Cisterra, lender CGA Capital’s trustee Wilmington Trust and broker Jason Hughes, though Hughes is not part of the agreement.
Cisterra, CGA Capital and Hughes all have denied doing anything improper and defended the Ash Street lease as a good deal for the city.
Hughes has said he informed at least six city officials that he would seek to be paid for his consulting work for former Mayor Kevin Faulconer. But Faulconer and others in his istration have said they were not aware he collected $9.4 million in fees on the two leases.
The city’s Ash Street and Civic Center Plaza cases against the remaining defendants — Hughes and several contractors — are moving forward and headed to trial early next year.
In his ruling, Wohlfeil singled out the millions of dollars Hughes collected for his work on the Ash Street lease.
“Though the transaction yielded little or no benefit to the city, others have fared dramatically better (for example, Jason Hughes, the city’s financial advisor, was paid more than $4,000,000),” the ruling states.
The judge also called the Gordon lawsuit “the catalyst” in Faulconer’s decision in September 2020 to stop making monthly $535,000 lease payments on a building that could not be safely occupied.
City officials cited the same provision in the state constitution that Gordon relied on to justify their suspension of lease payments.
“The court infers from the city’s immediate capitulation to cease making payments that the city (along with its legal and financial advisors) agreed with the merit of plaintiff’s claim that the initial transaction violated the state constitution,” he wrote.
Wohlfeil also pointed out that the city has stated in court that the lease was illegal.
“The court also notes that, in a recent filing in a related case, the city argued that the of the transaction (referred to as ‘101 Ash Lease’) violate the ‘debt limitation provision,’ are illegal and ‘cannot be enforced,’” the ruling says.
In court filings, lawyers for the city said the settlement approved last month was a policy decision reserved for elected officials — not something a lawsuit by a taxpayer should decide.
Wohlfeil said there are many reasons for striking a deal, but not all of them best serve the public.
“The court recognizes that there are multiple reasons to settle a controversial lawsuit, some of which may be in the best interest of the taxpayers and some of which may be in the best interest of persons other than the taxpayers,” he ruled.
The Gordon complaint, which is scheduled to go to trial in January, must next survive a motion for summary judgment filed by CGA Capital. That hearing is scheduled for Sept. 22.
