A special meeting of the City Council has been noticed for 9:15 AM on July 20, 2021, with a public hearing for the sole purpose of considering the termination of the Development Agreement for Campus Bay. The agenda item reads:
F.1 HOLD a public hearing to consider whether the Development Agreement and Project Approvals should be terminated if HRP Campus Bay Property, LLC does not obtain fee title to the property - City Attorney's Office/Community Development Department (Teresa L. Stricker 510-620-6509/Lina Velasco 510- 620-6706).
The Agenda Report pretty well describes the context. This is the most recent effort by the RPA-controlled City Council majority, conspiring with a weak and compliant city attorney, to unravel previous approvals consisting of the following, collectively known as “entitlements:”
- Development Agreement (DA): On December 1, 2020, the City Council determined that the Development Agreement complied with CEQA and introduced an Ordinance approving the DA, which the City Council adopted on December 15, 2020.
- Addendum to EIR: City prepared an addendum (the “EIR Addendum”) to the Final Environmental Impact Report for the Richmond Bay Specific Plan (SCH No. 2014092082), certified by the City Council on December 6, 2016 ("FEIR"). The City Council adopted the EIR Addendum on December 1, 2020.
- Vesting Tentative Map: On December 1, 2020, the City Council approved a "Vesting Tentative Map for Condominium Purposes Campus Bay" (the “VTM”) for the Property;
- Use Permit: On December 1, 2020, the City Council approved the Use Permit.
The development agreement is not just an approval; it’s a contract between two parties.
We understand there are some people out there, including the RPA-controlled City Council majority, who don’t like this project. We know that there is a CEQA lawsuit pending (Richmond Shoreline Alliance, SPRAWLDEF, Citizens for Eastshore Parks, Sunflower Alliance and Greenaction for Health and Environmental Justice v. City of Richmond.)
Instead of simply letting the lawsuit run its course and letting the courts decide if the EIR is defective, the RPA City Council members are letting their zeal overtake their reason, collaborating nonstop with the city attorney to attempt to unwind the contract, which. among other actions, requires the developer to take title to the property by July 19, 2021, which would be this coming Monday, midnight at the latest. Not to be deterred in their quest by even a day, the special meeting to consider terminating the agreement has been posted for July 20, 2021, at 9:15 AM, only nine hours and 15 minutes past the deadline.
So, what’s the problem?
First of all, a special meeting can be called only two ways – by the mayor or by a majority of the City Council. I did not call this meeting, and there is no record that a majority of the City Council called it, including which members requested it. The city attorney claims the request was made in closed session on June 22, but, on June 22, 2021, the city attorney stated in open session, “There were no final decisions made during closed session.” The Brown Act requires, “The legislative body of any local agency shall publicly report any action taken in closed session and the vote or abstention on that action of every member present..”
Second, the information in the Agenda Report under “Financial Impact of Recommendation” is erroneous. It states, “Loss of net fiscal surplus of $4.0 to $4.2 million as previously set forth in Staff Report for December 1, 2020 meeting.” In fact, the $4.0 to $4.2 million is an annual amount, so the fiscal impact would actually be in the tens of millions. That does not include additional tens of millions of dollars in community benefits, including millions for the Richmond Promise Program. If this project goes away, the financial hit on the City of Richmond will be significant.
Third, and even more troubling, is the way the city attorney collaborates with the RPA City Council majority to undermine the City’s obligations under an existing agreement. The Development Agreement includes the following:
No Action to Impede Project Approvals. City shall take no action nor impose any condition that would conflict with this Agreement or the Project Approvals. An action taken or condition imposed shall be deemed to be "in conflict with" this Agreement or the Project Approvals if such actions or conditions result in one or more of the circumstances identified in Section 2.2.2 of this Agreement.
While planning a “gotcha” move related to the property title transfer may not be technically in conflict with the Development Agreement, it is part of a pattern of collaboration to seek ways to unwind the agreement. For example, instead of waiting to see if the developer would miss the title transfer deadline and then considering what action to take, the City Council assumed the breach would occur and plotted to pounce as soon as possible -- in this case nine hours and 15 minutes later. It’s like scheduling a funeral and ordering the flowers before someone dies.
It is also inconsistent with the City Council’s approach to other developers who have dawdled in the aftermath of COVID-19, such as the Terminal 1 prospective purchaser, Laconia. The deadline for purchasing Terminal 1 passed months ago without any pressure from the City Council or the purchaser/developer to perform.
The city attorney clearly has a role to play in Campus Bay but needs to recognize that her client is not just four RPA City Council members but in fact is the entire City of Richmond, including all of its residents, as well as businesses and property owners who stand to benefit. In common parlance, “ A deal’s a deal.” Whether the current City Council likes it or not, a previous City Council entered into an agreement with the Campus Bay developer, and the City has an obligation to honor it, not only explicitly but implicitly as well. The doctrine of good faith and fair dealing obligates the City to not only follow the letter of the agreement but the spirit as well.
Three City Council members have already meddled with the smooth transition of the Campus Bay property by writing a letter to DTSC urging extension of the public comment period for the Prospective Purchaser Agreement. (See http://www.tombutt.com/forum/2021/21-7-1d.html).
The downside of City Council meddling in agreements already caused the City to lose control of Point Molate. In the litigation Upstream Point Molate v. City of Richmond, the case was remanded from the 9th Circuit back to the District Court based solely on the actions of former Mayor Gayle McLaughlin, who abused her office in a breach of the implied covenant of good faith and fair dealing (https://caselaw.findlaw.com/us-9th-circuit/1869961.html).
The 9th Circuit held:
As discussed herein, we affirm the dismissal of certain of Appellants' claims, reverse the dismissal of certain of Appellants' claims, and remand for further proceedings.
1. Breach of Implied Covenant of Good Faith and Fair Dealing. The district court erred in concluding that Appellants failed to plead a plausible claim of breach of the implied covenant of good faith and fair dealing.
“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” Carma Developers (Cal.), Inc. v. Marathon Dev. California, Inc., 826 P.2d 710, 726 (Cal. 1992) (quoting Restatement (Second) of Contracts § 205). “In the case of a discretionary power, it has been suggested the covenant requires the party holding such power to exercise it ‘for any purpose within the reasonable contemplation of the parties at the time of formation — to capture opportunities that were preserved upon entering the contract, interpreted objectively.’ ” Id. at 727 (quoting Steven J. Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 Harv. L. Rev. 369, 373 (1980)).
The Third Amended Complaint (“TAC”) contains plausible allegations that the City violated the implied covenant of good faith and fair dealing by interfering with Appellants' ability to obtain federal approval for the casino, thereby preventing Appellants from satisfying a condition precedent of the LDA.
The TAC alleges that, beginning in 2009, the City, through Mayor Gayle McLaughlin, contacted the Bureau of Indian Affairs, Contra Costa County, and various public officials including the Governor of the State of California and United States Senator Dianne Feinstein, to encourage them to deny, delay, or otherwise oppose the Tribe's quest to obtain the necessary federal and state approvals for gaming. Appellants allege that this pressure delayed the federal approval process — a condition precedent of the LDA — sufficiently that the City abandoned the project in April 2011 in part because “[w]ithout these Federal approvals, a casino use at Point Molate is not legally permitted.” Resolution No. 23-11 ¶ 5. Appellants further allege that the City's pressure ultimately led the Department of the Interior (“DOI”) to determine in September 2011 that the Point Molate property was not eligible for gaming.
On April 5, 2011, the City issued Resolution 23-11, determining that a casino use was not allowed at Point Molate. In Resolution 23-11, the City cited the federal government's delay in granting the approvals and the opposition of other government officials as reasons for its denial. Appellants contend that the City acted in bad faith, as the delay in approvals and the opposition of federal officials were induced by the City's own covert lobbying.
Under the “doctrine of prevention,” if a contracting party interferes with the performance of a condition precedent in a way that the parties did not reasonably contemplate, then the interference is a breach of the implied covenant of good faith and fair dealing, and the interfering party “cannot in any way take advantage of that failure [of the condition precedent].” 13 Williston on Contracts § 39:3 (4th ed.); see also City of Hollister v. Monterey Ins. Co., 81 Cal. Rptr. 3d 72, 100 (Cal. Ct. App. 2008), as modified on denial of reh'g (Aug. 28, 2008). “The implied covenant of good faith and fair dealing requires a promisor to reasonably facilitate the occurrence of a condition precedent by ․ refraining from conduct which would prevent or hinder the occurrence of the condition ․” Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 212 (2d Cir. 2002) (quoting Cauff, Lippman & Co. v. Apogee Fin. Group, Inc., 807 F. Supp. 1007, 1022 (S.D.N.Y. 1992)).
Appellants allege in the TAC that the parties to the LDA did not contemplate that the City would directly attempt to oppose or interfere with the Tribe's gaming application and Request for a Land Determination. Whether the City is liable for the Mayor's actions depends on whether she acted in her official capacity, which is ordinarily a question of fact better resolved after discovery and not through a Motion for Judgment on the Pleadings. See Farmers Ins. Grp. v. Cty. of Santa Clara, 906 P.2d 440, 458–59 (Cal. 1995).
The TAC contains some of the alleged interfering communications from Mayor McLaughlin wherein she identifies herself as the Mayor acting on behalf of the City of Richmond. These allegations present an issue of fact concerning whether the Mayor was acting in her official capacity and are sufficient to plead a plausible claim of breach of the implied covenant of good faith attributable to the City. See Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes, 120 Cal. Rptr. 3d 797, 803 (Cal. Ct. App. 2010) (“The Developer established a breach attributable to the Town by evidence of the actions of town officials, acting within their authority.”). Therefore, the City is not entitled to judgment on the pleadings on the theory that it is not responsible for the actions of the Mayor.
We also disagree with the district court's conclusion that the waiver provision in the Sixth Amendment to the LDA precluded a claim based on the Mayor's actions. That Amendment, executed May 18, 2010, states,
“[N]o event of default under the LDA exists as of [May 18, 2010], and that no event has occurred which, with the passage of time or the giving of notice, or both, would constitute an event of default.”
Sixth Amendment to the LDA, § 5.
However, to the extent that there may have been a waiver of default claims, the waiver would not apply to the alleged actions causing defaults after May 18, 2010. At least two of the Mayor's allegedly improper actions, as well as the City's disapproval of the casino project, occurred after May 18, 2010.2 Therefore, the City is not entitled to judgment on the pleadings by virtue of the waiver provision in the Sixth Amendment.
We therefore conclude that the TAC states a plausible claim that, by preventing the 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.
1. We reverse the district court's grant of the Motion for Judgment on the Pleadings and remand the case for further proceedings regarding whether the City violated the LDA by interfering with the Tribe's ability to fulfill a condition precedent.
2. We affirm the district court's dismissal of the express breach of contract claims.
3. We reverse the district court's order denying leave to amend the Proposed Fourth Amended Complaint. Appellants may file the Proposed Fourth Amended Complaint.
4. The district court's amended judgment is vacated and the case is remanded for further proceedings consistent herewith, including consideration of a legal fee award against the Tribe.
In a presentation to the League of California Cities entitled “City Attorney Ethics: The Client, Confidentiality and Misconduct,” Gregory Stepanicich wrote:
First, Rule 3-600(A) [of the California Bar] clearly defines for city attorneys who is the client. “In representing an organization, a member shall conform his or her representation to the concept that the client is the organization itself, acting through its highest officer, employee, body, or constituent overseeing the particular engagement.”
In this case, the client would be the municipal corporation which is the City of Richmond, not just four City Council members. The city attorney is faced with an ethical dilemma, whether to act in the best interests of the organization or to act as directed by four RPA members of the City Council. It appears that, so far, the city attorney has chosen job security over duty to the organization. Stepanicich does provide a way out for city attorneys facing this ethical dilemma:
This paragraph applies to both conduct that violates the law and conduct that is not unlawful but nonetheless is likely to result in substantial injury to the city. It also addresses conduct that has occurred and conduct that is threatened. Rule 3-600© addresses what happens if the city Council refuses to take any corrective action recommended by the city attorney. It provides:
“if, despite the member’s actions in accordance with paragraph (B), the highest authority that can act on behalf of the organization insists upon action or a refusal to act that is a violation of law and is likely to result in substantial injury to the organization, the member’s response is limited to the member’s right, and where appropriate, duty to resign in accordance with Rule 3-700.”
This practice of what I consider to be unethical behavior inimical to the City’s best interests is only one of several reasons why I moved to terminate the city attorney Obviously, the City Council majority likes what she is doing and want her to continue. We’ll see how it plays out.