PERSPECTIVE: City Attorney’s Office is the Epicenter of the 101 Ash Controversy
A string of data points show that the City Attorney’s office –under both the past and current City Attorneys– took an active role in advancing, approving, and now continuing to conceal the truth about San Diego’s worst political and financial scandal: 101 Ash St.
The 101 Ash Street building was acquired by the City of San Diego in 2016 through a 20-year, lease-to-own deal that has now become the subject of several lawsuits and finger pointing after the 19-story office tower was evacuated and deemed to be a “public nuisance” in 2020.
Since then, the current City Attorney, Mara Elliott, has worked to manipulate supposedly independent investigations and recently threatened to sue the region’s largest newspaper to coerce them into softening their coverage that has grown increasingly critical of her, even though they endorsed her in both her 2016 and 2020 election campaigns.
The City Attorney’s office has been and continues to be the epicenter of the controversy and is now driving decisions on how to resolve the debacle; whether it’s good for the public or not is the question.
The same office negotiated, approved, signed, investigated, and is now resolving the disastrous building acquisition. Does that seem right?
Regardless of individual players, the City Attorney’s office has been part of the culture of downtown power deals for decades, and seems to have allowed developers and insiders to benefit from public deals at the expense of the taxpayers of San Diego.
Let’s review the facts in this case.
EXHIBIT 1: City Attorney’s office intervened in Council’s decision:
The first piece of evidence that the City Attorney’s office has been more than just a technical player in the 101 Ash debacle came in 2016 when the City Council was deciding how to acquire the 19-story office tower.
When the proposal went before the Council’s Land Use Committee in September 2016, two of the City’s most-senior staffers presented a rosy picture of the lease proposal that was forecast to save the City millions of dollars when compared to renting other office spaces. Then-Councilman Todd Gloria -now the Mayor- spoke glowingly about the lease deal and made the motion to pass it on to the full Council.
Although the presentation seemed convincing, one Councilman was skeptical and asked several times why the City would lease the building instead of buying it outright. Councilman David Alvarez kept pushing staff for an answer without receiving a clear response to justify the lease, until an Assistant City Attorney stood up to defend the decision.
Assistant City Attorney Hilda Mendoza told Alvarez and his Council colleagues that “there was some uncertainty in the language” of the purchase agreement between Cisterra (the landlord) and the building sellers which Mendoza said created “concerns” for “bond counsel“, a murky response that left Alvarez with still more questions, but he ultimately gave in to the unanimous position of all of the staff that a lease was the best option.
We have since learned that the purchase agreement always contemplated an assignment which would have allowed the City to step into Cisterra’s place and purchase the building directly, cutting out the middleman and -we have now learned- could have saved up to $20 million in profits Cisterra and its friends made off the flip transaction.
We have also confirmed that then-Mayor Kevin Faulconer directed the five highest-ranking staffers in the City to only pursue a lease because he didn’t want to buy the building directly from one of the sellers (and one of his biggest campaign donors) “Papa” Doug Manchester.
The City Attorney’s office, at that time led by City Attorney Jan Goldsmith, gave “legal” advice that was based, at best, on scare tactics -if not flat-out lies- that drove the Council toward a predetermined outcome; a lease, not a purchase.
Councilmembers were led down a path that cost taxpayers at least $17 million more than it should have and enriched political donors and powerful developers.
EXHIBIT 2: Mara Elliott approved the lease:
The 101 Ash lease was passed unanimously by the City Council on October 14, 2016, and was then pending final approval at the City Attorney’s office as required by the City Charter.
Mara Elliott was elected on November 8, 2016, and acknowledges that she had full access to the City Attorney’s office, staff, and documents for the month until her official swearing-in on December 12, 2016.
The lease was signed five weeks later on December 19, one week after Elliott became the City Attorney.
Elliott had every opportunity -and obligation as the City’s new chief legal advisor- to review the $128 million lease document and to ensure that all proper legal due diligence was performed BEFORE signing the 20-year agreement.
But we now know she failed to enforce, or even ask for, full disclosure of all parties who stood to benefit from the agreement as is required by Section 225 of the City’s Charter.
By failing to even ask, much less require, the full disclosure of all parties involved in the deal, Elliott allowed the City’s real estate broker, Jason Hughes, to reap over $4.41 million in hidden fees paid to him by the landlord, Cisterra Development.
Elliott is now suing the invalidate the lease solely because of Hughes’ undisclosed conflict-of-interest in the deal; a fact she would have discovered had she simply done her job as the City’s lawyer before signing the lease.
EXHIBIT 3: Elliott has controlled, white-washed, and manipulated investigations:
For three years after the lease was approved, no one questioned the acquisition of the building because it all seemed to be working out as planned.
But, then in January 2020, the building was evacuated when the County Air Pollution Control District deemed it to be a “public nuisance” because of loose asbestos material in the air.
By that point, the City had already spent over $30 million in renovations, in addition to over $20 million in lease payments, and only used the building for about three weeks from mid-December 2019 to early January 2020.
When the City Council and public began to ask questions about the failed building, Elliott started to control and manipulate so-called “independent” investigations to control the narrative and manage the fallout.
A series of legal memos from the law firm of Burke, Williams & Sorensen have now been leaked showing that lawyers brought in to investigate the deal couldn’t figure out why the City chose the more expensive alternative of a lease instead of buying the building directly from the sellers.
The memos were so damaging to Elliott that she hid them from her client, the City Council, and therefore the public.
Elliott also controlled and edited another “independent” report prepared by the law firm of Hugo Parker LLP. Known as the Parker report, it has now been proven a more damaging version was watered down before being released to the public as the “unvarnished truth” of what happened. The report was neither unvarnished, nor was it the truth.
All of this has served to protect the fact that Elliott failed to perform her legal due diligence on the deal before signing it. That failure, although not illegal, would have been embarrassing to Elliott and, more importantly, damaging to her re-election in 2020.
EXHIBIT 4: Elliott bullies NBC to retract story exposing flawed deal:
The first news stories that began to expose and explain the failed building deal were written by NBC reporter Dorian Hargrove in the Spring of 2020. Just as the coverage was gaining traction, Elliott objected to one of Hargrove’s stories which used a leaked version of the Burke report as its sourcing.
Elliott claimed that one footnote in the 26-page memo was “fabricated” and used that claim to cast doubt on NBC’s reporting. The footnote claimed Elliott kept investigators from interviewing Todd Gloria, then a State Assemblyman but also candidate for Mayor.
Gloria, for his part, also disputed the claim and charged that someone was using the “fabricated” footnote to sabotage his campaign. Gloria was running neck-and-neck with Councilwoman Barbara Bry who also questioned the building deal which Gloria championed as a Councilman in 2016 before Bry was on the Council herself.
The distraction worked and NBC retracted Hargrove’s use of the disputed footnote. Elliott and Gloria went on the win their respective races.
But, since then, complete copies of the Burke memos have been leaked by insiders within the City, showing that the questions raised within the disputed footnote fit squarely into the line of reasoning of the memos: Why would the City have entered into the more expensive way to acquire the building?
EXHIBIT 5: Elliott misquotes Section 225 to Councilwoman Bry:
In August 2020, the City Council held a public meeting to discuss the vacated building and how to move forward. During that meeting, Councilwoman Bry asked Elliott if she had fulfilled the requirements of Section 225 of the Charter which requires full public disclosure of all parties with interests in the contract. Bry asked Elliott to respond in writing.
A few weeks later, Elliott provided a written response to the Council, highlighting language of Section 225 which, as Elliott wrote it, only required disclosure of anyone with more than a 10% interest in a public contract.
The problem here is that the language Elliott quoted was from the Section 225 language as it was amended in 2018, two years AFTER the 101 Ash deal was signed.
The Section 225 language that existed in 2016 required disclosure of “any and all persons directly or indirectly involved” in the contract.
Hughes would have been disclosed under 2016 language, but not under the 2018 changes.
Could Elliott have made an honest mistake in quoting the wrong language which had the effect of hiding Hughes’ multi-million dollar payout?
Well, maybe, but the fact that Elliott’s own office prepared the 2018 amendment to the language and that she presumably researched her answer before providing it the her client, the City Council, would seem that it was not inadvertent.
Elliott -again- used her position as the City’s lawyer to help cover up her own shortcomings.
EXHIBIT 6: Elliott blocked City Auditor from using its own lawyers:
The City has an independent Auditor appointed by the City Council who is empowered to investigate any City department, but his office has no lawyers to help carry out his duties.
For over two years, the Auditor has been requesting to hire his own lawyers to help conduct investigations and compel witnesses to testify, but has been blocked by Elliott who claims only she can hire and oversee any lawyers involved in City matters, even, she claims, if she has a conflict-of-interest, as she clearly does in the 101 Ash deal.
The Auditor conducted an investigation last year but several key witnesses, including former Mayor Kevin Faulconer and key senior staffers, refused to be interviewed. Even Elliott herself did not provide any testimony, but she later complained that the Auditor’s report was “incomplete” because she wasn’t interviewed.
The one person authorized by the City’s Charter to conduct truly independent investigations was thwarted by Elliott’s refusal to allow him to hire lawyers and access important witnesses.
EXHIBIT 7: Elliott attempts to bully San Diego Union-Tribune to alter its coverage:
In October 2021, Mara Elliott called and wrote a letter to the Publisher of the San Diego Union-Tribune to complain about their coverage of her involvement in the 101 Ash deal. Elliott specifically complained that the Bruke memo did not actually name her, but, instead, her office and the City, as having failed to perform due diligence on the building deal.
The SDUT’s lawyers responded with a very strongly-worded letter rejecting her complaints and acknowledging that her letter was a veiled threat to sue for defamation.
To their credit, the SDUT leadership stood up to the threats -as veiled as they may have been- coming from one of only two elected officials in the County with the power to file lawsuits and criminal charges.
But Elliott’s threats to the SDUT revealed an even more cynical fact; that the downtown establishment has long enjoyed access to the region’s largest newspaper through political connections, wealthy contributors, and a series of former SDUT reporters who have become the spokespersons for Mayors, City Attorneys, the Port District, District Attorney’s office, and other high profile posts.
Elliott must have known that her attempt to influence the SDUT’s coverage would look bad because, after their correspondence were exposed through Public Records requests, Elliott followed up with SDUT’s publisher lamenting that her contacts with him would become public.
EXHIBIT 8: Elliott remains involved in ongoing settlement talks:
Reports of secret meetings between the City and parties in pending lawsuits related to 101 Ash have confirmed that a global settlement is being negotiated which could end all of the litigation, but more importantly for those involved, end the investigations into the controversial building deal.
Although Elliott’s conduct before, during, and since the failure of the building could be crucial in the lawsuits and pending investigations, Elliott insists that her office must control all of the legal aspects of the cases.
Elliott herself should at least be a witness, if not a subject, of the ongoing investigations into how and why the City entered into the lease deal, and what actions the City took after it became aware the building was unusable and that its own broker may have been a double-agent in the deal.
But relinquishing control of the flow of information would be dangerous for Elliott, so she has continued to control and manipulate the process to influence the outcome.
Regardless of what Mayor Kevin Faulconer told staff to do or not do, or whether the broker, sellers, and landlord drove the City toward a lease that made more money for all of them, the only person that allowed the flawed building acquisition deal to move forward was City Attorney Mara Elliott.
She is right that the City had used a nearly-identical lease to acquire the Civic Center Plaza building (which houses her office) in 2014; that deal was approved by her predecessor City Attorney Jan Goldsmith; included the same landlord, Cisterra; and that Hughes made over $5 million on that deal, too.
But what she omits is that the City had already occupied that building for years under a lease and they knew the conditions of the building, unlike buying the 101 Ash building without conducting independent inspections and relying solely on the sellers representations.
Compare it to buying out your own car lease when it expires compared to buying a used car from a salesman who tells you it’s fine, but you never looked under the hood or took it for a test drive.
The City bought a lemon of a building, and our last line of defense was our lawyer who failed to do her part in protecting taxpayers from unscrupulous sellers motivated by greed.
Now, while the building sits empty, the City is still on the hook for over $545,000 a month in payments, and still has 15 years to go on the $128 million lease.
The pending lawsuits will eventually sort out who owes what to whom, but, in the meantime, we should expect that the City Attorney is working for our best interests, not her own. That is not the case.
The City Attorney should not allowed to negotiate a settlement that hides the truth, rewards developers, and sticks taxpayers with an exorbitant bill just to protect herself.
101 Ash is not the first -and probably not the last- bad deal the City of San Diego has or will ever execute, but it should be a learning lesson of what to do and what not to do when entering into complex deals with sophisticated parties who always know more about the deals than public officials, are motivated by profit, and have no duty of care to taxpayers.
Think of the Chargers ticket guarantee, SoccerCity stadium debacle, San Diego Gas & Electric franchise agreement, and Convention Center financing. All problematic. All bad for taxpayers. All negotiated through the City Attorney’s office.
There are deals on the horizon which should be carefully vetted and negotiated. Mayor Gloria, and separately, the City Council, should look for more experienced and competent lawyers when working on the Padres Tailgate Park deal, the Sports Arena development, and other large projects where private parties are looking to benefit from City deals.
The independently-elected City Attorney’s office should be the public protector, ensuring every deal is good for taxpayers and the long-term financial health of the City, not for the benefit for developers who contribute money to politicians and employ the best lobbyists to gain access to decision-makers.
She’s supposed to be our lawyer, not theirs.
The City Attorney’s office is the epicenter of the 101 Ash debacle, and should now get out of the way to allow the full truth to surface and end this sorted saga once-and-for-all, for the good of our taxpayers.