SD City’s Lawyers Craft 101 Ash Settlement, Offer to Not Indict City’s Broker for Crimes
(story updated February 16 @ 8:00 p.m.)
By Alberto Garcia
The legal team representing the City of San Diego in a group of lawsuits related to the failed 101 Ash Street building acquisition is brokering a global settlement that would include a deal not to charge the City’s private real estate broker with any crimes.
The broker, Jason Hughes, CEO of Hughes-Marino real estate, recently admitted receiving more than $4.4 million in previously-undisclosed profits from the City’s landlord, Cisterra Development, in the deal that tied the City to the controversial building through a 20-year, lease-to-own agreement signed in 2016.
Hughes also received more than $5 million from Cisterra in a nearly identical deal in 2014 when he helped the City negotiate a lease for the Civic Center Plaza (CCP) building where the City Attorney’s office is located.
The 101 Ash building has since been evacuated after the County Air Pollution Control District (APCD) deemed the 19-story office tower to be a “public nuisance” in January 2020 because of loose asbestos material.
Sources close to the secret negotiations confirm that the City’s legal team, including City Attorney Mara Elliott’s office, is crafting a global settlement that would include Hughes returning the money he made in the deals in exchange for a decision by both the City Attorney and District Attorney Summer Stephan to not pursue criminal charges against him.
The elected City Attorney has the power to file misdemeanor charges for crimes committed within the City, and the District Attorney has the power to file both misdemeanor and felony charges anywhere in the County.
The City filed a lawsuit last year claiming Hughes had an undisclosed conflict-of-interest in both the lease deals he helped negotiate, and invoked the provisions of California Government Code Section 1090 to invalidate the agreements.
Under the state’s conflict-of-interest law, any public contract made through the efforts of a person with a financial interest in the outcome of the deal becomes invalid and all monies paid through the contract would have to be returned.
A conviction under Section 1090 could include civil fines of up to three times the benefit received, as well as criminal charges as either a misdemeanor or felony.
A recent California Supreme decision specifically extended liability for independent contractors and consultants like Hughes who participate in the “making” of a public contract, as well as others who “aid and abet” a 1090 violation. In this case, Cisterra paid over $9.4 million in profit splits to Hughes and could face both civil and criminal charges as well.
Although a settlement which includes Hughes returning the money he made could help recover millions of dollars for the City, allowing the lease to remain in place without being voided would leave the most costly part of the deal in place: the $128 million in lease payments the City is committed to pay for a building that is currently unusable and could require up to $100 million in repairs and improvements before anyone can occupy the offices again.
A request for comment to City Attorney Elliott’s Chief of Staff, Gerry Braun, was not returned by the time this story was published. Any comments received after publication will be added to this story in updates.
In response to a request for comment for this story, the District Attorney’s office wrote that “the DA’s criminal investigation, which is ongoing, is being conducted independently and our office is not involved in any potential civil negotiation, litigation or settlement.”
Attorney Geneviéve Jones-Wright, co-founder and Executive Director of Community Advocates for Just and Morale Governance said any such deals would be
“It is wholly inappropriate for any DA’s Office to make an offer of immunity before doing its due diligence to investigate matters fully,” Jones-Wright said. “A DA must not be politically motivated; rather, it must make decisions that are justice-focused and integrity led.”
In addition to the City’s lawsuit related to Hughes, there are also lawsuits by the financiers to force the City to restart its payments which were halted in 2020, as well as a taxpayer lawsuit seeking to invalidate the lease as unconstitutional because the City made payment when it was not using the vacated building.
Rumors of a settlement have been floating around City Hall for months as lawyers and principals for the various sides met secretly several times to negotiate a resolution. Chris Wahl, a local lobbyist representing Cisterra, admitted he had been in meetings during the last few months of 2021.
Several City Hall insiders expect that a global settlement to resolve the ongoing lawsuits will include a reinstatement or signing of a new lease to replace the tainted 2016 deal, as well as financial arrangements to finance the needed improvements to the building so that the City can reoccupy the space.
One insider close to the negotiations suggested that the final decision on Hughes will be more nuanced that a quid pro quo, and will most likely include the DA announcing a conclusion to their independent investigation that will include restitution, fines, and possibly even Hughes losing his broker’s license, but no criminal charges.
The latest clues that a mutual settlement may be close surfaced in the last few weeks when multiple legal depositions were delayed, rescheduled, and even challenged by several of the key players in the 101 Ash saga.
Wahl’s deposition was cancelled after he refused to appear, and the trial judge later issued an order forcing him to reschedule. Wahl testified for one day, but is expected to be recalled soon.
Last week, Hughes cancelled his deposition at the last minute after lawyers initiated an emergency ex-parte request to the court to include a third-party referee in depositions because they claim former city attorney Mike Aguirre, who is representing the taxpayer lawsuit, was being too difficult and confrontational in previous depos.
One of the parties who supported the emergency order to require a referee was the City Attorney’s office, which seemed at odds with the City’s lawsuit claiming Hughes’ undisclosed participation in the deal renders the lease void. Some legal observers commented that it was unusual that the City’s elected City Attorney would engage in the feud between Hughes and Aguirre, who is basically pushing the City’s agenda forward.
Nonetheless, Judge Joel R. Wohlfeil rejected the emergency request this week and refused to stop depositions from proceeding.
Depositions for Hughes, Wahl, and others involved in the 101 Ash deal, including the City’s former Chief Financial Officer, Mary Lewis, are expected to continue later this month and in March, unless a settlement is reached, rendering the deposition unnecessary.
Although the City Attorney’s office and County District Attorney’s office are operated independently by individually elected politicians, a recent connection between them has raised concerns when the only two officials in the County with powers to prosecute people are now represented by the same political consultant.
Democratic consultant Daniel Rottenstreich managed Elliott’s 2020 re-election campaign when the 101 Ash issue became headline news. Elliott argued that the disastrous deal was “approved” before she was elected in 2016, but it has now become clear that she provided the final approval five weeks after the election and one week into her tenure as City Attorney.
Last year, Stephan hired Rottenstreich as her campaign consultant for her current re-election campaign. Stephan, a long-time Republican, dropped her Republican Party registration in 2019 and is now a “No Party Preference” voter.
Rottenstreich’s wife is Bridgette Browning, the leader of the San Diego-Imperial Counties Labor Council, the umbrella organization of labor unions that is a major player in local elections. The power couple has been involved in supporting some of the most powerful local elected Democrats.
Any settlement deal would have to be approved by the full San Diego City Council.