Lots of Good Faith in San Diego, and Still a Conflict of Interest Mess
<b>Update below</b>:<br>
Back in August, I wrote <a href="http://www.cityethics.org/node/503" target="”_blank”">a
long blog entry</a> praising the way San Diego's Centre City
Development Corp.'s (CCDC) board handled a conflict matter. I
focused on the board's refusal to pull the usual San Diego (and
elsewhere) stunt of denying that anything serious had occurred.
Instead, it looked into possible conflict problems with other projects,
and it shelved the big project tainted by the too-late-disclosed
conflict. The CCDC even hired Bob Stern, California's ethics guru, to
help it work things out the right way in the present and the future.<br>
<br>
Now, the developer all but finally selected to handle the shelved
project has <a href="http://www3.signonsandiego.com/stories/2008/dec/17/1m17related235435-de…; target="”_blank”">sued
the city</a> for $3.8 million, and possibly more (here's <a href="http://www.signonsandiego.com/news/metro/images/081216ccdcsummons.pdf&q…; target="”_blank”">the
actual complaint</a>).<br>
<br>
The developer insists that the CCDC president
had no conflict of interest, that the developer had no reason to
believe the former CCDC president had had a conflict, and that, therefore, the
CCDC was not acting in good faith when it refused to sign the final
Disposition and Development Agreement, which the developer said had
been fully negotiated and signed by the developer.<br>
<br>
The developer's name certainly caused a problem here: Related
California Urban Housing LLC. The reason for this problem is that the
former CCDC president, before that a developer in Florida, had done a deal with
the Related Group of Florida. There is also a company, Related
Companies, L.P., which is related to both Relateds. And yet, Related CA
insists, Related CA and Related FL are not related according to the
controlling state law. And if Related CA is telling the truth about the
relationships between the Relateds, it has a good point. But let's talk
about an appearance of impropriety! A sprawling group of companies that
doesn't want to get caught up in conflict of interest messes should
change its name to something else, like Acme or Unaffiliated.<br>
<br>
The real question here is whether the CCDC acted in good faith. It
certainly believed in good faith that there was a conflict, because it
had the matter investigated by an independent attorney, and he said
there was undoubtedly a conflict (in fact, according to t<a href="http://www3.signonsandiego.com/stories/2008/dec/17/1m17related235435-de…; target="”_blank”">he
San Diego <span>Union-Tribune</span></a>,
he said that the former CCDC president “tainted the transaction to the level
that the transaction should not continue.”). And the CCDC also believed
in good faith that the former CCDC president had misrepresented her lack of
involvement in the negotiations with Related CA.<br>
<br>
And yet Related CA may have been acting in good faith as well, having
no knowledge of the former CCDC president's past deal with its Florida
affiliate or, even if it knew, it may very well not have known that the
final payment on the deal was made to the former CCDC president around the
time Related CA was chosen as the project's developer, which made it
seem like a payoff for her help.<br>
<br>
There seems to be a lot of good faith going around here, which is nice to see for
a change, but the result could be very costly to San Diego: a big
project is on hold at a time when cities are dying for valuable
developments, and now there's an expensive suit, as well. And it could be very costly to a developer that may not
have done anything wrong.<br>
<br>
This mess is one of those unintended consequences of doing the right
thing. The CCDC did the right thing, but it may have acted based on a
faulty reading of state law and, according to Related CA, it acted
without consulting with the developer about its actual relationship
with the other Relateds. It appears that the CCDC board wanted to do the right
thing so badly, it might have done something wrong.<br>
<br>
And the reason it wanted to do the right thing so badly, it appears, is
that the CCDC board has been under attack for consisting of people in
the real estate development field. This underlines <a href="http://www.cityethics.org/node/350" target="”_blank”">my oft-stated concern</a>
with having industry people on boards where they have to deal with
industry people. The expertise-independence dilemma is at the center of
so many government conflict of interest problems.<br>
<br>
I should add here that, although it seems that the former CCDC president failed to disclose her conflict (even if it may not technically have been a conflict, this difficult determination was not hers to make) and allegedly misrepresented her lack of involvement in negotiations with Related CA, she may very well get off without any penalty although she appears to be responsible for this mess. The reason is that her case is being handled by the City Attorney's office as a criminal case, rather than by the city's ethics commission (failure to disclose a conflict is a misdemeanor). She may get off because it will be difficult to prove beyond a reasonable doubt that she knew that she had a conflict, if that is a criterion. <a href="http://www.cityethics.org/node/497" target="”_blank”">As I have written before</a>, I do not believe that this sort of conflict situation should be handled as a criminal matter.<br>
<br>
<i>Update (5/2/09)</i>: Well, according to <a href="http://www.voiceofsandiego.org/articles/2009/05/01/government/286graham…; target="”_blank”">an article</a> at today's voiceofsandiego.com, it does seem that the district attorney couldn't prove a conflict, so he settled for a misdemeanor no-contest plea of failure to disclose. That conclusion could have been reached more quickly and far less expensively by an ethics commission.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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