MAJORITY COUNCIL POISED TO GIVE AWAY POINT MOLATE FOR $400 RISKS MILLIONS IN LAWSUITS

Richmond Neighbors Unite
By:

Reposted with permission from Richmond Neighbors Unite

For more than 28 years, politicians and environmentalists have fought over their vision of Point Molate.  Emotions and beliefs run strong on both sides.  There are at least one hundred thousand pages of public documents involving Point Molate, including the Point Molate Reuse Plan, environmental restoration proposals and reports, the Land Disposition Agreement (LDA), Developer Agreements, Disposition and Development Agreements, Environmental Impact Reports, and legal documents.

This article attempts to explain the history, beginning with the lawsuit filed in 2012 by Upstream Point Molate LLC and the Guidiville Band Of Pomo Indians (listed on lawsuit as Guidiville Rancheria of California) vs Richmond and what may happen on May 21, 2022.  This article is based on information from available public documents summarizing the situation, but all public documents used are linked for the reader’s review so they may draw their own conclusions.

Environmental lawsuits began in 2005, but the reason Point Molate may sell for $400 is a result of the Upstream Point Molate LLC and Guidiville Rancheria of California (Upstream/Guidiville) vs Richmond lawsuit filed in 2012.

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2012

In 2012, the 1997 Point Molate Reuse Plan, developed by the Blue Ribbon Advisory Committee (a 45 member advisory committee appointed by Mayor Rosemary Corbin), was incorporated into the Richmond General Plan 2030.  The Richmond City Council (RCC) then approved and adopted the Richmond General Plan 2030 (also in 2012).  In the Richmond General Plan 2030, Point Molate is designated as a combination of Business/Light Industrial, Medium Density Residential, Low Density Residential, Open Space, and Parks and Recreation.

In 2012, Upstream/Guidiville (Plaintiffs) sued for $750 million in damages alleging Richmond unlawfully rejected their casino project after they spent $30 million for deposits and project entitlements.  On February 3, 2015, the lawsuit was decided in Richmond’s favor then appealed by Plaintiffs to the Ninth Circuit Court of Appeals.

On August 4, 2017, the Ninth Circuit decided the Plaintiffs’ Third Amended Complaint (TAC) held plausible allegations Richmond violated the implied covenant of good faith and fair dealing by interfering with the Plaintiffs’ ability to obtain the necessary gaming permits, preventing them from satisfying part of the LDA.

The TAC alleged the City, through Mayor Gayle McLaughlin, contacted the Bureau of Indian Affairs, Contra Costa County, and public officials to encourage them to “deny, delay, or otherwise oppose the Tribe’s quest to obtain the necessary federal and state approvals for gaming.”  It contained some of the alleged interfering communications which identified her as the Mayor acting on behalf of the City of Richmond.  The TAC alleged the actions delayed the federal approval enough that the RCC abandoned the project in April 2011 (Resolution 23–11).  Plaintiffs alleged the City’s pressure led the Department of Interior to decide in September 2011 that Point Molate was not eligible for gaming.

Point Molate Alliance member(s) (Point Molate Alliance fought against both Upstream/Guidiville’s and SunCal’s developments) allege the lawsuit never went to trial so settling was unnecessary because the $750 million in damages would not be recovered if the gaming permit was denied; and because Senator Diane Feinstein’s views were well known, Mayor Gayle McLaughlin didn’t impact the outcome.  It does not change the fact, however, that the Ninth Circuit Court of Appeals concluded the TAC “states a plausible claim that, by preventing occurrence of the condition precedent and relying partially on the non-occurrence to deny the casino project and avoid carrying out the purpose of the LDA, the City breached the implied covenant of good faith and fair dealing when it promulgated Resolution 23-11 and discontinued consideration of a casino use for Point Molate.”


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Bill Lindsay, Richmond City Manager in 2018, announced a judgment entered in U.S. District Court settling the case, fully resolving the six-year dispute, which cost Richmond millions to defend, stating “It could have dragged out for many more years, at considerable expense to the City.”  Under the judgment, the City paid no monetary damages, no casino would be built, and the Plaintiffs’ claims would be dismissed with prejudice.  New developments would be evaluated with community input.  Richmond would review all projects in full compliance with the California Environmental Quality Act (CEQA), a new developer would be chosen and land use entitlements issued by April 2020.


June 2018

Four private citizens, Citizens for East Shore Parks, and a coalition called Sustainability, Parks, Recycling, and Wildlife Legal Defense Fund (SPRAWLDEF) filed a lawsuit claiming Richmond’s acceptance of the settlement in Executive Session violated the Brown Act.  On September 14, 2018, Judge Yvonne Gonzalez Rogers (U.S. District Court) allowed the lawsuit to proceed.


Building_6_Aerial_04.05.22___RFR.jpgApril 2019

On April 23, 2019, the RCC voted to sell Point Molate to Winehaven Legacy LLC, a subsidiary of SunCal, for $45 milion.


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On November 21, 2019, Judge Gonzalez-Rogers signed and entered the Amended Judgment in the Guidiville case (Docket No. 410) (April 6 ltr, pg 4–5) stating the City could: “consider and approve discretionary conditions for the development of the property, market and sell the property for development within 48 months and pay a portion of the proceeds to Guidiville and Upstream, or the City could transfer the property to Guidiville and Upstream.  The City is responsible for costs, including legal fees relating to entitlement and pre-development of the property in order to carry out the City’s obligations.”  It made clear SunCal received no pre-existing entitlements, one of the claims made by SPRAWLDEF. 

Additional provisions:  Section 5 describes the four development areas.  Other sections: Plaintiffs and City split net revenues 50/50; City bears all expenses of maintaining and securing property until sold to a third party; “If the Northern Development Area, Southern Development Area, Central Development Area, or any portions thereof, are not Sold within 30 months of Effective Date or 24 months of City approving the last Discretionary City Approval, whichever occurs first (“City Sale Deadline”), Plaintiffs or either of them as designated by Upstream and the Tribe in writing, shall have the option to buy such Development Area(s) or portions thereof for a purchase price of $100 per Development Area or portion thereof….”.


September 8, 2020

Richmond approved entitlements for the Point Molate mixed-use project.


Molate_NYT-071C-DG-RFR.jpgOctober 9, 2020

Environmental groups, including Point Molate Alliance and North Coast Rivers Alliance et al., filed lawsuits (later consolidated into one lawsuit known as North Coast River Alliance vs Richmond) claiming officials approved SunCal’s project without addressing environmental impacts and failed to comply with CEQA, the State Constitution, and Richmond’s General Plan.


April 2021

The RCC advised SunCal and Upstream/Guidiville that the City of Richmond will no longer defend against the SPRAWLDEF (Brown Act) and North Coast Rivers Alliance (Environmental) lawsuits.  There was swift response from the attorneys representing SunCal and Upstream/Guidiville, including:

“It should be noted that the current abandonment of the City’s defense obligations appears to be a continuation of the behavior of the RCC in 2010 and 2011, which led to the Amended Judgment.  It was no secret that the 2011 Council led by Gayle McLaughlin did not believe it had to honor the agreements reached by prior councils.  Now with the November 2020 election of Ms. McLaughlin and her allies to the current City Council, the City is, for ideological and personal political purposes, resorting to the same behavior abrogating its agreements and causing economic and other damages to Upstream, Guidiville and the City’s residents.”

Upstream/Guidiville’s attorneys pointed out in their response to Richmond that there was a federal mandate (April 6 ltr, pg 3, paragraph 2) to develop the land for the economic benefit of the City’s citizens.  Under the terms of the Dellums’ legislation that authorized the closure of former Naval Fuel Depot Point Molate, part of the terms of sale to the City included that Point Molate be “an economic engine for the revitalization of the community.” 

Upstream/Guidiville’s attorneys quoted Judge Gonzalez-Rogers from a September 11, 2018, hearing:  “I have to tell you I feel for the people of Richmond because no one can get this darn thing resolved.  And it is, it is a tragedy for a City like the City of Richmond who is not the most well off to have years and years and years of litigation without any benefits.”

Upstream/Guidiville threatened to initiate contempt proceedings and seek an order to immediately sell the property to them rather than wait until May of 2022, and stated they expected the City to make reasonable and diligent efforts to entitle and deliver the property for sale to Winehaven Legacy LLC if the City wished to maintain control over the sale and development before it was required to sell it to Guidiville and Upstream.  They go on to say, “The recent change in the City Council to an RPA majority has led to a predictable effort by this council to direct the City to violate its legal obligations.”

As a last parting shot, the attorneys requested “all communications between the current City Councilmembers and SPRAWLDEF or CESP (Citizens for East Shore Parks), or any of their respective lawyers, agents, employees, directors, officers or representatives.”  They wanted all communications preserved relating to Point Molate since the Amended Judgment was entered, whether or not it was in personal or official capacities.  The request was made because shortly after they were informed the City would not defend the lawsuits Plaintiffs received a call from SPRAWLDEF’s legal counsel seeking to mediate, and they felt the actions “seemed to represent a coordinated effort.”

Upstream/Guidiville’s attorneys informed the RCC that in the extremely unlikely situation SPRAWLDEF won, “The City would be facing a summary judgment motion on liability in the Guidiville case, which based on the law of this case, would likely be granted, and the City would once again be looking at going to trial on a damages case in excess of $250 million." (This reference is in April 6 ltr, pg 12, 1st paragraph.  Other references are included in April 5 and April 6 ltrs.)


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After a two-hour closed RCC session dedicated to Point Molate litigation, Teresa Stricker, then City Attorney, announced, “The City Council voted to defend two lawsuits.”  The vote was 6-1, with Councilmember Eduardo Martinez (currently running for Mayor), dissenting.

According to the Richmond Pulse, “The Council did not address the lawsuits or its reversal during open session.  Butt had put the Point Molate issue on Tuesday’s agenda, but Councilmember Gayle McLaughlin moved to table the item indefinitely at the start of the meeting.  ‘This matter needs to be discussed in closed session, and the council needs to come up with a resolution to the matter and not expose the city to litigation,’’’ McLaughlin said.


October 19, 2021

Councilmembers McLaughlin, Claudia Jimenez, Eduardo Martinez, and Melvin Willis voted to instruct Teresa Stricker to file a brief in SPRAWLDEF supporting SPRAWLDEF’s claim that a Brown Act violation was committed (in other words join their appeal against Richmond) rather than defend the City of Richmond.  Mayor Tom Butt and Councilmembers Demnlus Johnson and Nat Bates voted No.


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City Attorney Teresa Stricker and Amy Hoyt (outside counsel hired by Richmond to assist in defense) are contacted by Upstream/Guidiville’s attorneys who state it is the City’s second formal attempt to avoid its obligation to defend the appeal and they already went through this bad faith scenario in March when the Council directed Ms. Hoyt not to file an answering brief.

“The City’s threat to join the appeal is a highly abnormal and bizarre tactic that on its face reveals the City’s bad faith.”  (Ltr, Crowell-Stricker/Hoyt, pg 2, paragraph 3)

Upstream/Guidiville (through their attorneys) warn the City they will initiate contempt proceedings and indemnification of all legal fees incurred.  They reserve the right to “now, or any time before May 2022,” seek an order to require the City to immediately sell Point Molate to them rather than waiting.

Mayor Tom Butt later wrote in his e-forum that Teresa Stricker informed the Council that filing a brief in support of those suing the City violated federal regulations in civil court procedures.  In response to Tom Butt’s disclosure, Teresa Stricker announced the Council directed her to draft a resolution that censured the mayor for “exposing confidential attorney-client privileged information” (in his e-forum newsletters).  The resolution directed her to refer the matter to a civil Grand Jury and the Contra Costa County District Attorney’s Office.  Teresa Stricker later resigned.  (See her email resignation here.)  In this newsletter, Mayor Butt speculates she resigned because following the Council’s direction would be “illegal and unethical.”


November 2021

Teresa Stricker received a letter from SunCal’s attorneys about Richmond’s inaction on the Communities Facilities Division (CFD). The Development Agreement requires the City to work with the developer “provided that no such financing mechanisms shall obligate the City’s General Fund or negatively impact the City’s General Fund.”  The attorneys ask the City to cure the breach or they may seek a court order directing the City to establish the CFD and seek attorneys’ fees for doing so.

In November, Judge Gonzalez-Rogers ordered all seven Councilmembers to appear in court on December 1 to respond to allegations they were attempting to sabotage the Settlement Agreement.  The Judge later canceled the hearing, “Given the current record, the Court finds too much ambiguity to resolve the issues at this juncture.”

Dismissal of both SPRAWLDEF (Brown Act) and North Coast River Alliance (Environmental) Lawsuits

On November 20, 2021, the SPRAWLDEF case was dismissed with prejudice.  The court reiterated that the City Council cured any alleged Brown Act violation when it adopted the Amended Judgment at an open, noticed public hearing.

On January 31, 2022, Judge Weil denied the Petition for a Writ of Mandate challenging CEQA.  The 42-page decision said there wasn’t enough evidence to support the contention environmental impacts weren’t addressed.  Weil also rejected the coalition’s contention the City granted entitlements—all the City did in settling was agree to consider future development proposals.


March 18, 2022

Denial of Community Facilities District

To quote Jeff Kilbreth, member of the Point Molate Alliance who put together one of the financial assessments of Point Molate, “Until two years ago, the battle for Point Molate was largely waged between developers and environmentalists…..So what changed?”  The battle shifted to whether or not the project affects the General Fund.  The Development Agreement states the project can’t negatively impact the General Fund.

This article can’t access the correctness of any of the assessments without access to all the information and, of course, the required expertise.  We can look at who made the assessments and assumptions used.  (The studies are linked so you can come to your own conclusions.)

Two items need to be specifically addressed:

  1. Both Councilmember Gayle McLaughlin and Jeff Kilbreth state SunCal is a company with a significant history of bankruptcies—Councilmember McLaughlin mentioned 22 in the last decade. While this is true, 21 of the bankruptcies occurred in November 2008 because SunCal’s financial partner was Lehman Brothers, whose September 2008 bankruptcy precipitated the greatest financial crisis in decades.  The one other bankruptcy occurred in 2010.  SunCal has been in business since the 1930s.
  2. The “SunCal Concession.” The City’s financial analysis did, indeed, show a hit to the General Fund prior to SunCal’s concession to the Rate and Method of Apportionment (RMA), the tax formula for the CFD.  Quoting from the March 18 Agenda Report (prepared by Anil Comelo, Interim Deputy City Manager; Belinda Brown, Director of Finance; Joe Leach, PE, Director of Public Works; and Lina Velasco, Director of Community Development):

“Prior to build out, staff and the finance team have determined that the need to fund $5 million+ per year in fire and police operating expenses for Point Molate will result in a negative fiscal impact prior to the completion of about 600 of the 1,400+ units planned for Point Molate.”  (However, still projecting a $7.8 million surplus/year at full buildout.)

Initially, the developer’s fiscal impact analysis by EPS showed no impact on the General Fund over the expected absorption timeframe of seven years for buildout.  (March 18 Agenda Report, Background, Discussion, Paragraph 6)  Because a police and fire station is necessary early on in project development, the speed of development and sales is critical.  Over a number of public meetings, the analysis was expanded to 15- and 30-year buildout scenarios.

To prevent a negative fiscal impact, the developer first offered $2 million per year for five years to support operations. The finance team for the City further suggested using the $22.5 million revenue from the sale of the land, as an early development security fund, that would eventually be transferred to the City’s General Fund. The City Council then questioned the assumed sales prices of the units which created the possibility of a negative impact within the 30-year buildout scenario.  The RCC asked staff to reevaluate the fiscal impact of the project using Strategic Economics’ (commissioned by Point Molate Alliance) sale price of $571,000 per house/townhome/condo.  This sales price is significantly lower than that assessed by BAE (City’s consultant) in their June 29, 2020, peer-reviewed study of EPS and by Integra (the only registered appraiser) in their February 7, 2022, study.  (Refer to the chart on pg 3 of “The SunCal Concession.”)

“Use of Strategic Economics’ lower valuation assumptions and projecting a long 30-year buildout period for Point Molate results in a negative fiscal impact on the City’s General Fund.  Use of a 7-year or 15-year build out period with Strategic Economics’ valuation assumptions results in a positive fiscal impact on the City’s General Fund.”  (March 18 Agenda Report, pg 5, paragraph 5)

It would be prudent to note that a 15-yr buildout is a conservative scenario for buildout of a major project in the Bay Area, and a 30-yr buildout is a “very conservative” scenario for build out of a major project in the Bay Area.  (pg 26-27 in the February 24 Agenda Documents, which are pg 4-5 of the 30 Yr Fiscal Impact Projections for Pt. Molate by NHA Advisors)

“The City’s financial team went back to the developer and requested that the City’s $22.5 million commitment as security be removed, and the developer fund the public safety operations until the costs can be fully carried by the CFD. The developer has responded favorably and will provide an operational subsidy as needed. The City’s police and fire station services costs are projected at $5.355 million, and the developer will provide $6 million with a 12 percent contingency, which payment would escalate at the maximum CFD rate of 6 percent. The need for the $22.5 million Security Fund from the City is eliminated. With this, the City’s financial team thinks the City Council’s efforts have now substantially improved the City’s position.”  (Also in the March 18 Agenda Report)

To cover this cost SunCal proposed taxing undeveloped property (whether owned by SunCal or another developer).  The amount of the tax will be determined by a City-appointed fiscal consultant, using the actual sales prices and the 2020 BAE (City peer reviewed) model.  The tax will be limited to $6.3 million per year maximum (which covers the cost of police and fire at $5.3 M).  There will be an annual inflator in maximum tax equal to no less than 2% per year, or the CPI subject to a 6% per year cap.  This is the "SunCal Concession."

Other concerns Councilmembers Claudia Jimenez and Gayle McLaughlin expressed around the fiscal analysis included the amount of incoming revenue estimated from sales tax revenue; the User Utility Tax—Chevron was removed from the study as the biggest user, but Councilmembers McLaughlin and Jimenez argued Sims Metal and others should have been removed for a residential rate; a property transfer tax based on a 15.5% annual turnover rate; the rising cost of building materials and Terminal One’s plan being changed from condos to single family homes due to building issues; and inflation concerns.  Additionally, the cost of the projected infrastructure (CFD) bonds went from approximately $100 million to $292 million.  Point Molate Alliance member, Jeff Kilbreth, pointed out many of the financial issues Councilmembers McLaughlin and Jimenez noted during the CFD discussion.  View other questions asked and answered here.

Mark Northcross of NHA Advisors, consultant for the CFD, said the one way a negative fiscal impact could occur is if the long-term inflation rate in City operating expenses exceeds the 6% per year annual cap put in the Rate and Method Apportionment in the CFD AND at the same time inflation in home prices for a sustained period of time is under the 6% cap.  That would mean a disconnect between inflation in City operating expenses and inflation in real estate.

“Personally, I believe that would result in negative fiscal impact for lots of cities and counties in California, Period.  Can you say that’s not going to happen?  No.  It’s uncertainty.  There are uncertainties that can’t be quantified.”  His conclusion, however, was, “The potential for negative fiscal impact is as fully mitigated as it can be under the Mello-Roos law.” 

Councilmember Gayle McLaughlin (during the March 18 City Council meeting) and Point Molate Alliance member Jeff Kilbreth (in his financial analysis) both suggested Winehaven Legacy LLC is a shell company set up to protect SunCal.  However, almost all development projects are set up as a separate business as a subsidiary of the developer.  It is a legal maneuver to protect developers in the event of a catastrophic event.  Mark Northcross noted concerns that Point Molate would be owned by a subsidiary of SunCal, “If there is a negative impact and the tax on undeveloped land is levied and goes delinquent, the only recourse is to foreclose on the property.  It is not a guarantee from SunCal, it is a senior lien.”

Prior to voting:

  1. Winehaven Legacy LLC’s attorney, Dan Engler, called in and commented that the City, Council, and staff had previously closely analyzed the project in 2020 and there were hearings and a fiscal analysis prepared and peer reviewed and the City decided to approve the project and entered into 2 separate contracts (a Development Agreement and a Statutory Development Agreement). Both obligated the City “in good faith” to form the CFD; and, “I think if the Council were to decline the Resolution of Intent to form the CFD the City would be in breach of those contractual obligations.”
  2. Additionally, Cox Castle and Nicholson submitted written comments on behalf of Winehaven Legacy LLC. The comments can be found here.

David Aleshire, Interim City Attorney, addressed the RCC.  Realizing some Councilmembers might not want to approve the Resolution of Intent (the item was held over from the March 15 RCC meeting), staff had prepared a second resolution denying the CFD.  David Aleshire stated the Development Agreement made it clear if the Council had a reasonable concern the General Fund would be hit to fund improvements that’s a basis for not going forward, and the concerns the Council expressed were reflected in the resolution denying the CFD.  The resolution denying the CFD also indicated that at this point in time there were financial obligations the developer was supposed to pay which included supporting the litigation, the litigation on CEQA and other issues. Richmond had expended $1 million to address those issues, and Mr. Aleshire indicated there were also some payments due for consultants that put together the CFD.  “These items the developer has paid some funds but is not current in terms of what the obligations are and that’s recited in the resolution.”

David Aleshire continued that to be prepared staff felt the RCC needed the resolution to go forward with forming the district, and staff was recommending that course of action.  However, staff had prepared the alternative resolution for reasons not to go forward with the CFD should the Council choose to go in that direction.

On March 18, 2022, despite the Interim City Attorney’s recommendation that the Resolution of Intent be adopted so concerns about General Fund impact could be addressed in the resulting public hearing, it was denied with Councilmembers Gayle McLaughlin, Claudia Jimenez, Eduardo Martinez, and Melvin Willis voting no.  Mayor Tom Butt had wifi problems preventing him from voting.  Councilmembers Demnlus Johnson and Nat Bates were absent.  Here is the link to the March 18 RCC meeting.


RPA-4___RFR.jpgSo What Happens May 21, 2022?

  1. The Interim City Attorney, David Aleshire, recommended the Resolution of Intent be passed so any General Fund concerns could be addressed at the public hearing. Since the CFD was denied without the opportunity to address concerns, will SunCal and Winehaven Legacy LLC consider that acting in good faith?  (The Ninth Circuit Court of Appeals already found in the TAC plausible claims Richmond violated the implied covenant of good faith and fair dealing.)
  2. SunCal believes the Point Molate development will be sufficiently successful that they proposed the SunCal Concession, which will hit their bottom line with an additional cost of $48 M.
  3. Quoting Mike Medve, Richmond’s financial consultant: What it (Point Molate) does, it generates a significant General Fund surplus that could be used for other purposes:  homeless intervention, treatment programs, health and human services.  “It's pretty good security; while not perfect, it’s better security for the interim period than he’s ever seen in any other project.”  He fully believes the project will benefit the General Fund.

“Given all these considerations, the peer-reviewed fiscal impact analysis would indicate, when adjusted for SunCal's current development plans for Point Molate, an annual fiscal surplus of approximately $7.5 million per year at full build out.”  (March 18 Agenda Report, pg 5, 3rd paragraph)

  1. As Mark Northcross concluded, “The potential for negative fiscal impact is as fully mitigated as it can be under the Mello-Roos law.”
  2. When asked who will pay for the settlement in his April 17, 2022, YouTube presentation, “Why the Point Molate Development Proposal Doesn’t Work" (Approx. 56 min. in), Jeff Kilbreth stated, “If the deal falls apart, which seems pretty likely, some other developer has to be found who’s smarter or better or luckier than SunCal and can figure out a way to make it work. I don’t believe that’s going to happen and if I’ve done anything I’ve shown you the magnitude of the losses, the magnitude of the risks here.  That’s not going to change with another developer by much.  I think that all of this makes people understand that the best option regardless of what you think about the environmental issues, the value of open space, and many other perfectly worthy considerations, the only thing that makes sense for the City of Richmond financially is to make it a park and so the question of where the money comes from, it comes from people who value public land, public space, open space, parkland, youth recreation, and stuff like that.  All of which you know we could do something pretty terrific out there for a modest amount of money, but we’ve got to find enough foundations and people who value those things to be able to raise the $25 million or $30 million it would take to buy the land and settle all the lawsuits.  And then another $25 or $50 million to turn it into a terrific park.  But all of those numbers are much more manageable and much more realistic than having a 24/7 police and fire station for upper middle-class condos.”
  3. What will SunCal do? What will Upstream/Guidiville do?  Their Amended Judgment states they may buy back the property for $100 per development area.  As stated above, they’ve advised the City several times to be prepared to sell it to them for $100 per Development Area.  Will Richmond face a lawsuit from SunCal/Winehaven Legacy LLC AND loss of Point Molate for $400?

Update, Tuesday, May 17, 2022

At the May 17 RCC meeting, David Aleshire, Richmond’s Interim City Attorney, reported he had been working with Winehaven Legacy LLC since the Council’s denial of the CFD (Resolution 33-22) in anticipation of closing on May 18; and he sent Winehaven Legacy LLC’s attorneys a letter, dated May 9, 2022, listing all the requirements for closing.

Resolution 33-22 denying the formation of the CFD states as one of the reasons for denial (pg 3, last paragraph):

“The actual police and fire services provided in the Project are similar to that provided to all other residents of Richmond.  However, the Project residents will pay far more.  The residents of the Project are likely to feel unjustly abused by excessive taxes when they come to realize the disparity between themselves and other Richmond residents.”

Does the disparate taxation argument ring true?  Of all the clauses in Resolution 33-22, this particular clause immediately jumped out because the claim all along has been that Richmond residents should not subsidize a “high-end luxury development,” yet the Council is arguing Point Molate residents shouldn’t be taxed more for the same services.  The purpose of Mello-Roos bonds is the taxpayer who chooses to live at Point Molate will pay for the services they receive, which leads to the response from Winehaven Legacy LLC Richmond’s attorneys received May 16:

“The City’s stated grounds for declining to form the CFD—namely, disparate taxation of new Richmond residents, Winehaven ’s financial ability to complete the project, and the CFD’s alleged potential impact on Richmond’s General Fund—are demonstrably baseless and pretextual.  In fact, the City’s own expert advisors and consultants publicly stated that the CFD is protective of the City’s interest.  No substantial evidence—or any evidence whatsoever—supports the City’s basis for refusing to approve the Resolution of Intent to establish the CFD.  The only explanation for the City’s action is a bad faith attempt to evade its obligations under the Agreements.  (pg 4, paragraph 1)

Further, the alleged concerns about speculative future risk of impact on the General Fund results from the City seeking a fully staffed fire station before one is required for safety reasons is not a risk of the CFD.  It is a risk of the already-approved Project combined with the City’s manufactured fire station staffing requirements.  Using the fire station as a rationale for denying the CFD is plainly pretextual.”  (Footnote, pg 2)

In U.S. law, pretextual usually describes “false reasons that hide the true intentions or motivations for a legal action.”  Continuing with the response from Winehaven Legacy LLC’s attorneys:

“In enacting the Development Agreement Statute (i.e., Government Code §§ 65864 et seq.), the State Legislature emphasized the principal purposes of a Development Agreement are to give certainty and assurance to a developer that it will be able to complete its entire project, as approved, without concerns that later changes by a municipality will impact the economics and viability of the project.  It is a baseless overstatement of the law to assert that the City is free to breach the Agreements so long as it couches its breach in terms of exercising its discretion,” and “A contract entered into by a governing body is binding upon the municipality and may not be summarily canceled by a successor governing body.” 

Keep in mind for two years SunCal believed, relying on the Development Agreement and the Disposition and Development Agreement, a Resolution of Intent to form the necessary CFD for the infrastructure for Point Molate would be approved on March 18, 2022.  On the very date the Council was to approve a Resolution of Intent, it was denied.  TWO MONTHS before closing.

Click here (pg 7, Item 3) to see Winehaven Legacy LLC’s response to Richmond’s claim they are the ones in breach of the Development Agreement, as well as their explanations for why some of the financial obligations had not been met (mainly because they had not been invoiced or properly informed).  The attorneys go on to state if the City doesn’t cure its breaches, Winehaven is prepared to take an “alternate pathway,” which includes initiating a lawsuit against the City for its breach of the Agreements and violations of the law.

David Aleshire discussed both letters, and he indicated he and the rest of his team were trying their best to facilitate closing and had been since the March 18 RCC meeting when the Council denied the CFD.  Mr. Aleshire informed the Council Winehaven Legacy LLC had concluded the City was not operating in good faith and had not acted to address alternative funding (necessary after denial of the CFD).  Instead, Winehaven Legacy LLC wanted the City to cure its breach around the CFD.

PtMolateAerialDG_RFR.jpgMr. Aleshire described some of the actions his staff had initiated:  Mark Northcross, NHA Advisors for the CFD, had suggested SunCal look into a Joint Powers Authority to issue bonds or delay the formation of a CFD until the utility stub under I–580 was completed.  Once that infrastructure was completed, regular merchant builders would likely flock to the project because any uncertainty in sales prices would be reduced and houses would likely be able to go up in weeks vs years.

Anne Lanphar, Real Estate Attorney with Aleshire & Wynder, LLC, worked on the financing and getting a guarantor and financial strength and funding letter, which was not received.  She indicated Winehaven Legacy LLC is a shell company until the funding is transferred.

David Aleshire tried hard to get an extension to work out closing issues, but Upstream is blaming the inability to close on the City and is indicating they will sue; while Guidiville agreed to the extension but demanded $110,000 in payment for the extension and put so many conditions on the extension Mr. Aleshire indicated it was impossible to comply, all the while indicating they will execute their option to buy Point Molate for $400 as soon as the opportunity presents itself.

In summary, David Aleshire indicated SunCal/Winehaven Legacy LLC were unhappy about the denial of the CFD, but he didn’t believe it was a breach and “they had good notice.”  Mr. Aleshire could not, at this time, recommend going forward with closing without the securities provided in the agreement; but he also indicated residents should know we are likely in for extensive litigation if the closing doesn’t happen.

Winehaven Legacy LLC’s attorney, Linda Klein, called in to comment, paraphrasing:  Richmond has an incredibly talented staff, and Winehaven Legacy LLC hopes to continue working with Richmond staff.  We have submitted numerous documents for closing, we were not invited to speak, and the CFD is the only significant item needed for the wrongful denial.  We hope closing will still occur.

Councilmember Gayle McLaughlin proposed preparing a resolution for the May 24 RCC meeting setting forth the conditions not met for closing and based on the discussion and developments identify all the reasons Richmond is not able to go forward.  It passed with  Councilmembers Gayle McLaughlin, Eduardo Martinez, Claudia Jimenez, and Melvin Willis voting yes.  Mayor Tom Butt and Councilmember Nat Bates voted no.  Councilmember Demnlus Johnson was absent.

Lastly, according to the Development Agreement, The Resolution of Intent to form a CFD was to be adopted no later than March 18, 2022.  However, the adoption of a Resolution of Intent did not compel the Council to adopt the Resolution of Formation (of the CFD).  The Resolution of Formation is a public hearing where evidence can be presented (Resolution 33-22, pg 2, paragraph 2).  The Resolution of Formation hearing was to be held April 19, 2022.  At the March 18 RCC meeting when the Council denied the CFD, David Aleshire told the Council, “City staff,” presumably including him, the Interim City Attorney, recommended forming the CFD so any concerns around the General Fund could be addressed.  Consequently, when Council denied the CFD, the City Council denied the developers the opportunity to address their concerns at a public hearing.

Now take a look at the “Consequences of Alternatives,” pg 5-6 of the May 17 Agenda Report.  These are directly the consequences of the Richmond City Council’s actions (all the while they are claiming they are protecting the General Fund) and may likely include:

  • Loss of the $22.5 Million Sale Price ($45 Million Sale Price, but split 50/50 with Upstream/Guidiville in the settlement reached when the Ninth Circuit Court of Appeals found claims that Richmond violated the implied covenant of good faith and fair dealing plausible).
  • $1 Million in legal fees that would have been reimbursed by SunCal.
  • Millions of dollars to defend lawsuits (extensive litigation likely if closing doesn’t happen, per Interim City Attorney David Aleshire); Upstream has already indicated it will sue.
  • $10’s-$100’s of Millions if there are additional Judgments against Richmond from lawsuits.
  • $1 Million/year for (up to) 5 years maintaining Point Molate, even if the Guidiville Band of Pomo Indians buys Point Molate for $400, which they have indicated they will. (They must sell within 5 years.)
  • An additional 5-year delay in much needed housing and revenue from property tax, business and sales tax, and short- and long-term local jobs.
  • Will Point Molate be available to residents if purchased by the Guidiville Band of Pomo Indians?
  • Winehaven Historical District: Will it ever be restored?
  • Why would any developer ever want to bring much needed housing to Richmond after observing the experiences of Upstream and SunCal?

May 21, 2022, is fast approaching.  While readers will draw different conclusions about the material presented here, Richmond will soon learn all about “uncertainties that can’t be quantified.”

Reposted with permission from Richmond Neighbors Unite

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