Judge Overrules City Motion Seeking to End Legal Memo Lawsuit

Judge Overrules City Motion Seeking to End Legal Memo Lawsuit

Created: 03 November, 2021
Last update: 26 July, 2022

Photo credit: Ken Stone/Times of San Diego

By Alberto Garcia

A motion by the San Diego City Attorney’s office seeking to dismiss a pending lawsuit filed by La Prensa San Diego was overruled by the trial judge and now opens the door for continued discover to determine the truth behind a disputed legal memo. 

The lawsuit was filed by La Prensa San Diego’s Publisher, Arturo Castañares, after the City denied his request under the California Public Records Act seeking a legal memo that became newsworthy last year when it was part of an NBC7 story, but City Attorney Mara Elliott claimed the reporter used a “fabricated” version of the memo.

Castañares filed the lawsuit in February on behalf of La Prensa San Diego to force the public disclosure of the memo after an internal City staff message suggested that several versions exist within the City Attorney’s office. 

The City Attorney’s office has reportedly shown the memo to others outside of the City, thereby waiving attorney-client and/or attorney work-product privileges, Castañares contends. 

Last week, Judge Ronald F. Frazier overruled the City’s demurrer motion which sought to dismiss La Prensa’s case by arguing that the memo is protected from disclosure because of attorney-client privilege exemptions covering legal documents. 

“A determination as to whether documents are privileged would require the court to evaluate facts and evidence,” Judge Frazier wrote in his decision. “The mere allegation within the pleading that a memo was drafted by an attorney does not conclusively establish it is privileged.”

Ruling on October 29, 2021

A leaked version of a memo, written the law firm of Burke, Willams & Sorensen LLP, was used as the basis of a September 3, 2020, news article by NBC7 reporter Dorian Hargrove.

The body of the 26-page memo criticized City Attorney Mara Elliott for her part in approving a 20-year lease-to-own agreement in 2016 where the City acquired the 101 Ash Street building through a lease with Cisterra Development instead of buying the building directly from sellers Sandy Shapery and Doug Manchester. 

The memo found that the City relied exclusively on representations and documents related to the condition of the building provided by the sellers and Cisterra. The report concludes that the City did not conduct its own due diligence to confirm the condition of the building. 

Although accepting such documents from sellers is not unusual, the lease went on to include “as-is” language that protected the sellers and Cisterra from any known and unknown defects of the building, leaving taxpayers at risk for all potential issues with the 52-year old office tower. 

The outside lawyers concluded that Elliott approved and signed the lease that was “disproportionately unfavorable to the City” and that she violated usual and customary practices used in large commercial building purchases. 

One of the parts of the memo cited in Hargrove’s article was language found in the 15th footnote in the letter, now referred to colloquially as Footnote 15.

Several paragraphs in the memo leading up to the footnote citation describe the issues that City officials used to justify executing a lease instead of purchasing the building directly from the sellers. 

The memo states that “there are at least some questions raised by these explanations that are not answered by the known facts”, then the citation for Footnote 15 appears. 

The language in the footnote questions whether high-ranking City officials and “one member of the City Council misrepresented the transaction to the public and the rest of the City Council.”

The footnote describes that two City officials, Deputy COO Ron Villa and Real Estate Director Cybele Thompson, updated then-Council President Todd Gloria on the deal in September 2016 before it appeared at a Council committee meeting, and after the briefing, Gloria flipped from previously opposing a similar lease on another building to supporting a lease for 101 Ash. 

“The discussions during the update could be informative about why the City went forward with the transaction despite the unfavorable language in the lease Agreement, the due diligence materials available to the City, and the substantially higher cost of the lease-to-own structure,” the footnote reads. 

The footnote language then states that the lawyers could not interview Gloria or his staff. 

“However, we were unable to obtain the City Attorney’s approval to interview Mr. Gloria or his staff (all of whom are no longer in the employ of the City).”

The memo goes on to detail the reasons provided by City officials for eight more paragraphs. The explanations used by City officials to justify a lease are all questioned and the conclusions in the memo raise serious concerns with the deal structure that benefited Cisterra over the City. 

“Overall, these facts give rise to the potential that Cisterra received a better deal from the City than the City could have otherwise negotiated. Indeed, despite the potential for a purchase of the Property directly from the former owners, and the lack of necessity of Cisterra’s involvement in the transaction, the end result was that the City leased-to-own the Property from Cisterra, and that Cisterra made a substantial profit merely by acting as a conduit,” the memo concludes.

The language in the footnote fits the narrative of the body of the memo, adding additional information about the lawyers’ questions relative to why the City chose the more expensive and risky route to acquire the building. 

The remainder of the memo details the lease structure and the City’s lack of independent due diligence as reasons for concern. 

“Here, it is this office’s opinion that the terms of the lease Agreement were, in fact, disproportionately unfavorable to the City, on the specific issue of the exculpatory provisions in favor of Cisterra. Although such strong exculpatory provisions can be appropriate under the right circumstances, such as when the buyer has conducted a thorough review of the property as part of its due diligence, and/or is not concerned about the condition of any structures (for instance, because it plans to demolish and replace them), here such provisions were not appropriate specifically because of the low level of independent due diligence conducted by the City, and the City’s exclusive reliance on the reports and representations provided by Cisterra,” the memo concludes. 

The outside lawyers even offer their alternative they would have used to better protect taxpayers.

“As an alternative to what occurred here, this office would have recommended that either (1) the City conduct the additional due diligence investigation suggested in this report, or (2) require specific disclosures and representations on important issues (such as the Property’s condition) from Cisterra, and make those representations a binding part of the contract,” the memo states. 

La Prensa San Diego recently exposed that Elliott has hidden the legal memo from the City Council and other high-ranking City officials. 

Several current City Council members have told La Prensa San Diego that they had never read or been briefed on the findings in the Burke memo before it was released through the La Prensa San Diego article on October 11, 2021.

Two former Councilmembers who were in office last year when the Burke memo was written have told La Prensa San Diego that they did not know it existed either.

Elliott and Todd Gloria, then a candidate for Mayor, complained that Hargrove used a “fabricated” footnote in his story, both claiming that the substance of the footnote was untrue. 

Hargrove maintained that he had an anonymous source who first provided the memo and another source within the City who confirmed the authenticity of the document. Hargrove later said the second source retracted the confirmation over a “miscommunication”. 

Neither Elliott nor the outside lawyers provided any proof the footnote was fabricated, but the two lawyers who signed the memo swore in a statement signed under penalty of perjury that the footnote was “not included in any Memorandum from the Burke firm to the City.”

But neither Elliott’s nor the Burke lawyers’ denials of the footnote’s authenticity related to the body of the memo; in fact, none of the statements made by Elliott or the Burke lawyers ever questioned the validity of the entire 26-page memo.

Elliott’s office and Gloria’s campaign spokesman said someone was trying to use the footnote to affect the outcome of both Elliott’s re-election and Gloria’s campaign for Mayor.

Gloria’s campaign went further and said the story was “based on a fraudulent report” and demanded that NBC “take down the original story and print a retraction.”

NBC7 admitted that Hargrove could not confirm the authenticity of the memo from his source, and the news station announced it was “retracting a previously reported story that relied in part on a document that was “fabricated,” according to the law firm that wrote the primary report.”

But in its review of the situation, NBC7 was allowed to reviewed a copy of the actual memo provided by the City and concluded that the body of the memo was identical, except for Footnote 15 on Page 19, three other non-controversial footnotes added to Page 24, and one corrected typographical error.

The fact that the City Attorney’s office shared the document with NBC7 may have waived the attorney-client privilege, even if NBC had agreed not to print or share the document. 

The controversy over the footnote served to chill other media outlets’ reporting of the memo and allowed the undisputed findings in the damning report to go unreprired for the remainder of last year’s election cycle.

La Prensa San Diego originally requested the memo on February 22nd under the California Public Records (CPRA) Act which allows individuals access to public records with few exemptions. 

Some of the allowable exemptions are for records protected under the attorney-client privilege, attorney work-product privilege, or other limited circumstances. Courts have decided that government agencies should err on the side of disclosure, not rejection of requests. 

An individual’s rights to public documents are enshrined in the California Constitution, and were expanded in 2016 by state ballot Proposition 59 which added language stating that “people have the right of access to information concerning the conduct of the people’s business” and that laws governing the disclosure of public documents “shall be broadly construed if it furthers the people’s right of access, and narrowly construed if it limits the right of access.”

Before La Prensa’s request was filed, another CPRA request filed by another person was also denied; however, in that request, City staff inadvertently admitted that several versions of the memo exist, but were being withheld under the attorney-client privilege exemption. 

Legal experts argues that once the City showed the document to NBC and others outside of the City, their claim of attorney-client privilege is broken and the document should de released publicly. 

Last week’s court decision may lead to a review of the documents by the judge to determine if they are, in fact, still protected by the privilege or if those protections have been waived. 

A status conference with Judge Frazier is scheduled for January 14, 2022.