San Diego City Attorney Mara Elliott is misleading the public by refusing to release potentially damning parts of a forensic report that reviewed the 101 Ash Street building deal, even after the report was promised to be an independent and comprehensive analysis of what has now become one of the City’s worst financial debacles in its history.

The “forensic analysis” was touted as an in-depth investigation of all aspects of, and all departments and personnel involved in, the $128 million purchase and $30 million renovation of the building after the 19-story tower had to be evacuated in January 2020 over employees’ exposure to asbestos.

Even though the City Attorney’s office negotiated the lease and approved its language, which included on the first two pages in capital letters a release of the seller’s responsibility for any hazardous materials or contamination, the City Attorney kept control over the report even though she and her staff would have been among the subjects of the investigation.

Despite the City Attorney’s conflict of interest, the resulting “Preliminary Report on 101 Ash Street” submitted by the law firm of Hugo Parker, LLP, was made public at a City Council meeting on August 6, 2020, and presented as a definitive independent analysis of the project and has since been used by the City to as the blueprint for solving issues with the now abandoned building.

The Parker report includes a Table of Contents with “Section I. Executive Summary” and Items A through E. The report was “revised” on July 30, 2020, and “corrected” on August 3, 2020.

But La Prensa San Diego has learned that an earlier version of the Parker report, with two more pages worth of details, shows that City staff and the City Attorney’s office failed to conduct proper due diligence for the acquisition before agreeing to a 20-year, lease-to-own agreement. The version of the report released to the public had been watered down by the City Attorney’s office.

Although the official version released to the public contains Executive Summary Section I-A through I-E, an earlier version dated July 25th contains two additional sections; I-F and I-G.

La Prensa San Diego filed two separate requests for documents under the California Public Records Act asking for copies of a version of a report by Hugo Parker dated July 25, 2020, and also asked for the version containing Sections 1-F and 1-G. The City refused to release the document, claiming attorney-client privilege and refusing to give out even a redacted copy with privileged material blocked out.

By claiming attorney-client privilege over the document, the City Attorney’s office has admitted that an earlier, lengthier version of the Parker report dated July 25th and containing Sections I-F and I-G does, in fact, exist but is being withheld it from the public contrary to promises made at a Council meeting to conduct a transparent forensic analysis.

 

CITY PROMISED A PUBLIC FORENSIC ANALYSIS

Just 10 days after the 101 Ash Street tower was evacuated by City staff in January 2020 because of continued exposure to asbestos, the City Council discussed the status of the building at its January 28, 2020 meeting.

During the meeting, the issue of a forensic report was discussed as the mechanism for reviewing all of the information about the negotiations that led to the 20-year lease-to-own agreement, as well as how the City dealt with the exposure of asbestos materials and moving employees in and out of the tower.

The City’s then-Chief Operating Officer Kris Michell spoke to the Council about the value of a “forensic analysis” that would answer important questions she said were critical to identifying and dealing with the problems related to the growing debacle.

“We are in the process of hiring a forensic consultant on an emergency basis and as a top priority to perform a forensic analysis of what went wrong on this project. Simply, who knew what and when, and who has the obligation to assist us in solving this problem?,” Michell said during the Council meeting.

Michell went on to say that a forensic analysis would be made public.

“We are treating this as an emergency given the scope of the uncertainty and the need for experts to guide the City on the best possible course of action going forward,” Michell said. “I cannot tell you today what those options will be, but I can tell you that the forensic findings will be made public,” Michell promised.

Michell was the highest-ranking member of then-Mayor Kevin Faulconer’s administration to address the Council about issues with the building, and she promised that the forensic report would expose all of the people involved in the deal where “obviously something went wrong.”

“We are engaging outside help to analyze the larger picture from 2016 through January 2020 to identify those parties who had direct involvement in the situation we are now in,” Michell said.

When asked by Councilman Scott Sherman whether the forensic analysis could be presented to his Audit Sub-Committee for a “full public viewing,” Michell responded, “I think that would be great. We’d be more than happy to do that.”

La Prensa San Diego reached Michell this week and asked about her comments during the Council meeting. Was she speaking for the Mayor’s office and with its support in promising that the report would be made public?

“Yes,” Michell replied, reiterating that she believed at the time that an outside forensic analysis would review all aspects of the deal and give the City and the public the information needed to identify what she said at the meeting were the five critical questions to be asked in situations like this.

“What happened, how are we going to fix it, how long is it going to take, what’s it gonna cost, and then number five, how are we to assure that a similar situation like this won’t happen again,” Michell said during the Council meeting.

But after that Council meeting, the City Attorney’s office took over arranging for, managing, and supervising the creation of a forensic analysis by deciding to use a law firm that the office had already engaged to deal with asbestos-related lawsuits and was already being supervising.

 

CITY ATTORNEY HAD A LEGAL AND ETHICAL CONFLICT OF INTEREST

Any truly independent forensic analysis would have to examine all of the aspects of the 101 Ash Street transaction to reveal what errors, if any, resulted in the building having been abandoned and multiple lawsuits having been filed.

Of course, the negotiations and execution of the underlying lease-to-own agreement would have been one of the most important issues to examine, especially given the liability release on the very first page, and the City Attorney’s role was one of the most important aspects to investigate.

The lease agreement was approved by the City Council on October 17, 2016, and required the approval of the City Attorney to become valid and enforceable. Then-City Attorney Jan Goldsmith, who was termed out of office, did not sign the agreement before he left office on December 12, 2016. Instead, Goldsmith left it for his successor, Mara Elliott, to handle.

Elliott had served as a Chief Deputy City Attorney under Goldsmith and ran to replace him in the 2016. She won the November 8, 2016 election and was sworn-in on December 12th. Goldsmith and Elliott agree that she was given full access to the office and staff as the City Attorney-elect during the 34 days between the election and assuming office on December 12th.

The City Attorney’s office signed the lease agreement on December 19, 2016, seven days into Elliott’s tenure and nearly six weeks after the election.

Signature page of 101 Ash St lease approved by Elliott’s office

Elliott had access – and an obligation – to review the 20-year lease-to-own agreement before approving it. It is clear that a forensic analysis would have to review the actions or inactions of the City Attorney and her office with respect to the lease deal, as well as actions in approving the Council’s subsequent $30 million funding for improvements of the building.

According to the City Charter, the elected City Attorney is the official lawyer and chief legal advisor to the City. However, in the case of a conflict of interest, the Council can hire outside counsel to handle issues where the City Attorney cannot participate.

Charter Section 40 clearly states that “The Council shall have authority to employ additional competent technical legal attorneys to investigate or prosecute matters connected with the departments of the City when such assistance or advice is necessary,” but Elliott has argued that only she can hire outside counsel and must also supervise those lawyers even if she has a conflict of interest.

A memo written by Elliott when the City Auditor wanted to hire outside counsel just one month after the Parker report was released sheds light on how the City Attorney believes she should handle cases where she has a conflict of interest.

“The only legal basis for the City Attorney to recuse herself from her Charter-mandated duties is when she determines that she has a conflict of interest under controlling state law that prohibits her and her subordinate attorneys from working on a matter,” Elliott’s memo reads. “This is a decision she alone must make,” Elliott declares.

But her memo then goes on to explain that even in a situation where the City Attorney has a conflict of interest, she would continue to oversee the outside counsel investigating her.

“Even in those circumstances, the City Attorney is obligated to oversee the legal work to ensure compliance with her Charter-mandated duties,” the memo concludes.

Elliott memo regarding outside legal counsel, September 8, 2020

According to Julie H. Biggs, a retired ethics and public-law attorney, there is no question that Elliott had a legal conflict of interest and should have recused herself from any involvement in a forensic report that would have to investigate her actions related to the 101 Ash Street deal. Biggs previously served as City Attorney for the cities of Wildomar, Goleta, Colton, Glendora, Banning, and Hemet, and as special counsel to numerous other local governmental entities.

“It is clear that the investigation posed a significant risk to the City Attorney and that she had a conflict of interest in this case,” Biggs told La Prensa San Diego. “The City Attorney, as a target of an investigation, should have had no controlling role in that investigation or in the preparation, review, or editing of the report.”

It is now clear that neither the Mayor nor the City Council sought outside lawyers to perform the promised forensic analysis. Instead, the City Attorney decided to give the task to a law firm already engaged and performing work under her supervision and control: Hugo Parker, LLP.

 

OUTSIDE LAW FIRM COULD NOT BE INDEPENDENT

The Hugo Parker law firm had already been working with the City Attorney on legal cases involving asbestos in two other City buildings before being tasked with conducting a forensic analysis. James Parker, a principal member and managing partner of Hugo Parker, has extensive experience in asbestos cases.

The legal services contract limit with Parker was raised by an additional $150,000 at the same Council meeting in January 2020 even though an Assistant City Attorney at the meeting clarified to the Council that the action item was not related to the forensic review discussed moments earlier by Michell.

But, as outside legal counsel already working on litigation for the City, Parker had a duty to safeguard the City’s information and not disclose details that could harm the City’s position in legal cases. Parker was retained for his expertise and experience in asbestos-related cases, not as a forensic investigator.

Parker’s own biography on his firm’s website touts his experience in “asbestos defense, products liability law, construction and real estate litigation, and civil appeals.”

As outside counsel hired and supervised by the City Attorney, Parker was also limited in his access to witnesses and other individuals directly connected to the 101 Ash transaction. Two former high-ranking City officials have told La Prensa San Diego that their interviews with Parker were approved and scheduled through the City Attorney’s office.

Parker’s firm could not have published a forensic report critical of the City without first submitting the report to the City Attorney’s office, and that is exactly what they did.

Parker submitted a longer, more honest forensic analysis of the 101 Ash Street deal to the City Attorney, but the report was edited, revised, and sanitized to remove damaging information that exposed the lack of due diligence of City staff and officials, the lop-sided nature of the lease agreement, and the failure of the City to hold the sellers and intermediaries accountable for defects and misrepresentations made about the condition of the building before the purchase.

 

POLITICAL TIMING OF PARKER REPORT’S RELEASE

Commissioning a forensic analysis was first discussed at the City Council meeting on January 28, 2020, and the first version of the Parker report – we now know – was dated July 25th.

Just three days later, the Council held a closed session discussion that was agendized as “Conference with Legal Counsel – Significant Exposure to Litigation” related to 101 Ash Street, stating that “there is significant exposure to litigation against the City of San Diego in relation to the renovation and occupancy of its 101 Ash Street property. The City Attorney’s Office will discuss these facts and circumstances with the Mayor and Council and seek direction.” The item listed Parker as participating in the meeting, but no mention was made of the report.

The law requires prior public notice of any discussion by the Council in a closed session meeting and, immediately afterward, the public disclosure of any action taken during the meeting. No actions were announced after the closed session with Parker. Had the Parker report been properly classified as privileged (despite the initial promises and despite the City Attorney’s conflict of interest), the Council would have had to vote to waive any applicable attorney-client privilege before any portion of the report could lawfully be released to the public. According to the published minutes for the meeting, the Council did not waive its privilege as to any documents discussed in the closed session meeting or take any other action.

Later that same day, however, then-Mayor Kevin Faulconer’s Communications Director and former San Diego Union-tribune reporter, Craig Gustafson, emailed a copy of the Parker report to a journalist from the Voice of San Diego, an online news source, with the condition that it be held until 5:00 p.m. the next day. That email was the first release of the Parker report to someone outside of the City, thereby waiving any attorney-client privilege claim to the report.

In addition, Gustafson’s email did not disclose that the report had been edited from Parker’s original version.

Email from Gustafson to Voice of San Diego

The day after, on July 29th, Gustafson emailed a copy of the Parker report to Thomas Jones, an investigative producer at NBC7/39, saying, “Here’s what was released publicly today. This was always going to be released today,” but leaving out that he had already shared a copy with the Voice of San Diego the previous day. Gustafson also included a lengthy comment from Mayor Faulconer.

Email from Gustafson to NBC7/39

“I called for this independent review because City Hall has a very long and troubled history with managing its property and sweeping problems under the rug, and I didn’t want that culture to persist,” Faulconer’s comment included. “This report could have been put on a shelf or delayed so other people would have to deal with it, but it is my responsibility to share information with the public and propose corrective actions that get to the root of the problem.”

The Mayor’s comments calling the report an “independent review” and saying that he didn’t want the City’s history of sweeping problems under the rug to persist came just one day after his office was informed in closed session that the full report would not be disclosed to the public. Gustafson’s two emails to reporters did not clarify that the report he was sending out was not a full and complete forensic analysis, or that the City Attorney’s office had taken on a supervisory role after Michell’s statements to the Council back in January.

Then on August 6th, the City Council held a meeting at which the Parker report was discussed and released to the public. None of the Councilmembers, the City Attorney, or anyone from the Mayor’s office revealed that the Parker report was not fully transparent or that any of its original findings were edited or removed, despite having attended the closed session meeting just nine days earlier where the full report was discussed.

Several comments were made that the Parker report was “on-going” and “preliminary,” but no further versions have been made public since that meeting.

At the time, Elliott was running for re-election and also providing legal advice, managing outside counsel investigations, and controlling edits to a report that were investigating her own actions and inactions with respect to the building transaction.

Although Gustafson’s email to NBC included the statement from the Mayor, it is not known whether Faulconer was informed that the report had been revised and that critical information about the City’s handling and about the City Attorney were removed before his Communications Director sent it to the media.

Releasing a true and correct version of the Parker report in July or August 2020 would have reflected poorly on the City Attorney during her re-election campaign, leading to suspicions that she maintained control over the process and had a hand in editing the report to conceal damaging information about her conduct with respect to the 101 Ash Street transaction.

 

ELLIOTT’S DUTY OF LOYALTY TO CLIENT ABOVE HERSELF

But, regardless of her status as a political candidate, as City Attorney Elliott still had a duty of loyalty to her client – the City via the City Council – and she may have failed to live up to her responsibility to put her client’s interests above her own.

During the Council meeting on August 6, 2020, both Councilwoman Barbara Bry and Councilwoman Vivian Morena asked specifically about whether full disclosure of all individuals benefiting from the lease contract with the City were properly disclosed as required under Section 225 of the City Charter.

Parker responded directly to Moreno by saying that the names of the owners of the building and intermediaries were disclosed to the City through a copy of the Purchase and Sale Agreement (PSA) between those companies, and that news articles had mentioned Doug Manchester and Sandy Shapery as the building’s owners. Elliott was seated directly behind Parker, but she did not address the questions from the Councilwomen or clarify Parker’s answers.

But Elliott did answer Bry’s questions in writing – as Bry requested – eight days later within a memo dated August 14, 2020. Elliott responded to the question about full disclosure pursuant to Section 225 of the Charter by including a response provided to her by the Real Estate Assets Department, stating that the Department had submitted a note in the file as to the owners’ involved in the transaction.

Elliott included in the memo language of Section 225 which stated that “Every person or entity contracting with the City shall first disclose to the City the names and identities of all natural persons who will receive more than 10% of the contracted amount or who own more than 10% of the entity contracting with the City,” and that “The names listed on the note to file are: Steven Black and Jason Wood, Cisterra Development.“

But the language in Elliott’s memo was not the wording of Section 225 as it existed in 2016 when Elliott approved the lease agreement, and Elliott knew she was providing false information to Bry, one of Elliott’s clients as a member of the Council.

The language of Section 225 in 2016 required “a full and complete disclosure of the name and identity of any and all persons directly or indirectly involved in the application or proposed transaction and the precise nature of all interest of all persons” and warned that “Failure to fully disclose all of the information enumerated above shall be grounds for denial of any application or proposed transaction or transfer and may result in forfeiture of any and all rights and privileges that have been granted.”

The language of Section 225 was amended by a ballot initiative passed by voters in November 2018, nearly two years after the lease deal was signed. The language changed the requirement from disclosing those persons “directly or indirectly involved in the application or proposed transaction” to now only requiring disclosure of “persons who will receive more than 10% of the contracted amount or who own more than 10% of the entity contracting with the City.”

Elliott was aware of the language change because she wrote a memo on August 20, 2018, that the “City Council has directed the City Attorney to prepare a ballot title, summary and impartial analysis of a Charter amendment measure related to mandatory disclosure of business interests that the City Council voted to place on the November ballot,” and included her own “impartial analysis” of the language change from the 2016 requirements.

The responses provided to Moreno during the August 6, 2020 Council meeting and the response Elliott provided to Bry in writing eight days later both misrepresented the language of Section 225 that was in effect when the lease agreement was approved by Elliott, and also covered up the fact that a “full and complete disclosure” of all of the parties that benefited from the lease was not properly made before Elliott’s office gave the final approval to the 101 Ash Street lease-to-own contract.

During the Council meetings in 2016 to approve the lease deal, neither the names of the owners of the building – Sandy Shapery and “Papa” Doug Manchester – nor the names of the owners of Cisterra Development, the landlord and the intermediary from whom the City acquired the building, were used publicly. More importantly, no names of brokers, investors, or others who may have profited from the contract with the City were disclosed.

Cisterra has refused to provide an accounting of who received proceeds from the $91.8 million in financing it received toward the building purchase. Documents show that Cisterra paid $74,440,000 to Shapery and Manchester for the building and applied $5 million toward tenant improvements, but Cisterra still has not disclosed how the remaining $14.36 million in the deal was split up, even though Section 225 of the Charter required full disclosure of all parties who directly or indirectly receive benefits in a City contract at the time it was approved.

One of the persons who refuses to clarify whether he received any payment from Cisterra or the sellers is Jason Hughes, the City’s real estate broker consultant who worked closely with Faulconer, City staff, and the landlord to negotiate the 101 Ash deal.

As La Prensa San Diego has previously reported, Hughes served as an unpaid consultant to the City, but licensed real estate brokers in California are restricted from receiving fees from opposing parties unless they have a dual-agency agreement signed by both sides. City officials say no such agreement exists with Hughes.

If Hughes received payment from Cisterra or the seller, that would have violated California Government Code Section 1090, the state’s laws prohibiting self-dealing in public contracts where someone is involved in negotiating and approving a contract that benefits himself. If someone involved in the process violated Section 1090, the contract would be void and all money paid by the City would have to be paid back.

La Prensa San Diego reached out to Hughes for comment several times starting in September 2020 through emails, phone messages, and contacts with his personal assistant, as well as emailing his wife, Shay Hughes, who serves as President, COO, and owner of Hughes Marino, for comment on behalf of the company.

Jason R. Wood, a principal of Cisterra, did not respond to a request for comment to confirm whether his company made any payments to Hughes.

Last month, Hughes emailed La Prensa San Diego stating that an article mentioning him was “defamatory and not accurate in a number of ways” and that “Just because I don’t want to comment doesn’t mean any of your speculation is true.” Hughes, however, did not demand a correction or retraction to any LPSD story.

When asked again to clarify if he received any compensation on the 101 Ash deal, Hughes responded that “you can be absolutely sure that I would not participate in any transaction without making all the requisite disclosures,” but he did not answer whether or not he was paid. Hughes did not specify what disclosures, if any, he made or to whom he made such disclosures. No further responses were received from Hughes.

The California Department of Real Estate has opened an investigation into whether Hughes received payment from Cisterra. That investigation is still pending.

 

WHO REALLY DECIDED WHAT TO TELL THE PUBLIC

It is clear that the City Council did not take a vote to waive its attorney-client privilege as to any of the reports, and no minutes from closed sessions reflect a vote in private to waive its privilege.

In other cases when the Council has waived its attorney-client privilege, it was done by a vote and announced in the minutes of the meeting, as was the case in 2005 when the US Securities and Exchange Commission was investigating the City’s finances.

In a campaign-endorsement interview with the San Diego Union-Tribune Editorial Board on September 9, 2020, Elliott was asked whether she would release the forensic reports to the public and she explained that the Council would have to vote to do so.

“There’s a great deal of pressure to release the documents and that rests with the City Council as a legislative body. They have to vote to disclose these documents, just as they voted not to disclose these documents,” Elliott said. “Nobody would be more served than I, I can say, to disclose them at this point because it would show that there was no monkey busy with the documents,” Elliott added.

Elliott admitted that the reports contained information that revealed “bad facts” about the City’s actions.

“[Outside counsel] were very forthcoming in their analysis because our decision-makers absolutely need to have all the facts, the good facts and the bad facts, so that they can give proper guidance and make good decisions,” Elliott argued.

But if the City Council did not vote to waive its attorney-client privilege and release the Parker report, then only two conclusions can be reached: either the City Attorney unilaterally decided on her own what portions of the report to release and waived the City’s privilege in doing so; or the report was never privileged in the first place since it was promised to be made public from the first Council meeting at which a forensic analysis was discussed and by Mayor Faulconer’s comments to the media when it was released.

Also, the reports emailed to two news reporters on July 28, 2020, and July 29, 2020, along with the inclusion of the revised Parker report at the City Council meeting on August 6th, either were waivers of attorney-client privilege as to the report or were unauthorized leaks that could be prosecuted as misdemeanors by the City Attorney’s Office and fined by the Ethics Commission.

In 2018, Councilman Chris Cate was fined $5,000 by the Ethics Commission and investigated by the California Attorney General for releasing a confidential City document prepared by Elliott related to the SoccerCity stadium proposal. Leaking copies of privileged information that could harm the City’s standing in legal cases is a misdemeanor under the City’s Municipal Code.

The City Attorney’s insistence now that the earlier version of the Parker report is still privileged, even after a vast majority of its contents are clearly included in the versions already released publicly, indicates that more-damaging findings were included in Parker’s original version of his forensic report and were left out of the report made public.