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HomeMy WebLinkAboutItem No.5REPORT TO CITY COUNCIL TO: MAYOR i CITY COUNCIL FROM: RON MOLENDYR, CITY MANAGER DATE: April 27, 1993 SUBJECT: Claims Against the City BACKGROUND Claims filed against the City of Lake Elsinore are reviewed and handled by Carl Warren & Company, Claims Administrators. When received, each claim is logged in the City Clerk's Office and forwarded to this company for investigation. After initial review and investigation, direction is issued to the City to take one of several actions such as rejection, notification of late claim or reservation of action until further information is obtained. The following claims have been recommended for rejection by Carl Warren & Company: Claim #93 -7 - Entry Level Housing Development, Inc. Claim #93 -8 - Joyce L. Hernandez FISCAL IMPACT None. RECOMMENDATION Reject the Claims as detailed above and direct the City Clerk to send letters informing the Claimants of this decision. PREPARED APPROVED AGENDA AGENDA ITEM NO. '5' ^ PAGE Or __LLB •SAXON, DEAN, MASON, BREWER a KINCANNON A ►RorESSIONAL CORroRAnoN THE CITY TOWER 333 CITY BOULEVARD WEST, SUITE ISOO ORANGE, CALIFORNIA 92668 -2221 TCLCrNONC ImA) 008.8300 . VAX (764) 978.8922 JOSEPH J. NAROULLI March 25, 1993 KKR 2 6 1993 City Clerk City of Lake Elsinore 130 S. Main Street Lake Elsinore, CA 92530 CL.4- 93�7 &A. DICOO a VN V err CC w90C.18 SoVAME x AiOS C.CCVTIVC SRVARC SCVC.1. rLOON LA .JOLL.Ve —C-C 1*. )0.6-7101 TtLtRNO1- Wq N)otoo rAe (0-0) 0.0-00., 1 "LAND CNnwC OmCC VA "IR 0 CR too ."T. -o- wag". S V ITC TIC M" 4CRNAND..0, CAL.Ml.IA 02101.00C TLLLRN0118 P1) 301•0121 rA. pH) 3111.4820 rILL NO. 9321.003 Dear City Clerk: We represent Entry Level Housing Development, Inc. ( "ELHDII) in connection with its claim for damages against the City of Lake Elsinore (the "City ") based on the City's approval and subsequent repudiation of the affordable housing project jointly developed by ELHD and the City's Redevelopment Agency. Pursuant to California Government Code c 910, this letter shall constitute a formal claim by ELHD for losses sustained as a result of the conduct of the City's Redevelopment Agency as set forth below. - Factual Backcround In or about August of 1991, ELHD purchased two lots of land within the boundaries of the City, at the corner of Heald and Ellis. The lots were improved with nine residential buildings. ELHD purchased the lots for the purpose of rehabilitating the buildings into quality affordable housing for the residents of the City of Lake Elsinore. If3 connection with the purchase, the buildings were inspected by an architect and an engineer, who determined that the buildings were structurally and foundationally sound, such that rehabilitation of the property could be achieved without demolishing the buildings. The City agreed with this analysis and requested that in connection with the planned rehabilitation ELHD demolish two buildings to provide off - street parking. VdW32100aX26 AGENDA ITEM NO.�_ PACE 0 7 t O The City of Lake Elsinore March 25, 1993 Page 2 From approximately December of 1991 through February of 1992, Sam Jiron, a principal of ELHD, met with City Manager Ron Molendyk and Assistant City Manager Phyllis Rogers to discuss ELHD IS plans for rehabilitating the buildings into quality affordable housing. During these meetings, the City proposed that ELHD demolish the buildings rather than rehabilitating them. The City further proposed that it donate three contiguous lots then owned by the City so that ELHD could construct a fourteen to eighteen unit complex of low cost condominiums. The City further proposed that it purchase and donate to the project a fourth contiguous lot, which was then privately owned. The City requested that ELHD negotiate the purchase price of the fourth parcel to avoid City involvement and suggested that a friendly condemnation proceeding would ultimately be appropriate. At the City's suggestion, ELHD hired an architect to produce floor plans and a color rendering of the project. on July 23, 1992, ELHD presented to Mr. Molendyk and Ms. Rogers a proposal concerning the project they had jointly planned, including the floor plans and color rendering for which ELHD had paid. ELHD requested that the proposal be transmittal letter to Molendykaand Ms. Rogers is attached her to as Exhibit "A ". on or about August 3, 1992, ELHD received a letter from City Council Member and Redevelopment Agency Director Tare Cherveny stating that the City of Lake Elsinore Redevelopment Agency ( "RDA ") had adopted the project and expressing the RDA's intent to proceed with the project. A copy of the RDA's August 3, 1992 letter is attached hereto as Exhibit "B ". In reliance on the City's request and adoption of the project, ELHD demolished the buildings on its property on or about August 30, 1992, at a cost of approximately $15,000. After further discussions between ELHD and the RDA, the RDA requested that ELHD provide a pro forma and formal request for assistance to be submitted for formal approval by the RDA. On or about September 17, 1992, ELHD submitted a pro forma and request for assistance to the RDA. A true and correct copy of the pro forma and a transmittal letter is attached hereto as Exhibit "C ". As negotiated with representatives of the-RDA, the pro forma called for ELHD to construct a 14 -unit affordable housing project on the property previously purchased by ELHD and on four lots to be donated to the project by the City, including the lot to be purchased by the City. Additionally, the project called for monetary assistance from the City of approximately $190,000, to partially defray development and WdW331003C.146 z. s AGENDA ITENI PLO. - _- PAGE —oi The City of Lake Elsinore March 25, 1993 Page 3 construction costs. As previously discussed with Mr. Molendyk and Ms. Rogers, as well as with the RDA, the City's assistance was necessary to permit ELHD to sell each condominium for approximately $95,000. Without the City's assistance, the cost of each condominium would necessarily exceed $125,000. On or about October 15, 1992, the RDA requested that ELHD provide financial statements for itself and its principals. A copy of the RDA's request is attached hereto as Exhibit "D". On October 16, 1992, ELHD provided the requested financial statements, copies of which are attached hereto as Exhibit "E". On November 10, 1992, the RDA approved the project as requested, including the City's assistance, by a unanimous vote of five to zero. Those present and voting at the RDA meeting were Directors and City Council Members Gary Washburn, George Alongi, James Winkler, Fred Dominguez and Tere Cherveny. The RDA instructed ELHD to prepare a development agreement memorializing the terms of the approved project to be executed upon obtaining construction financing. A true and correct copy of the RDA Board Minutes is attached hereto as Exhibit "F ". After the RDA approved the project, the City budgeted $460,000 in connection with the project, including $190,000 cash to be used to partially defray development and construction costs and approximately $270,000 representing the value of the land to be granted to ELHD. Shortly thereafter, the RDA scheduled the project -for reconsideration at its December 8, 1992 meeting. At that meeting, the RDA repudiated its prior agreement to fund the project, voting three to two to cancel financial assistance to the project. RDA Directors George Alongi and Gary Washburn cast the dissenting votes. RDA Directors James Winkler, Fred Dominguez, and Tere Cherveny voted to cancel financial assistance to the project. A copy of the December 8, 1992 RDA Minutes is attached hereto as Exhibit "G". As reflected in the minutes, the RDA voted to repudiate its prior approval of the project based on its desire to fund and construct a minor league baseball stadium within the City boundaries. After the December 8, 1992 RDA meeting, Directors George Alongi and Tere Cherveny stated to Sam Jiron of ELHD that the project would be reconsidered at the January 12, 1993 meeting. They further stated that the project would be approved if ELHD provided a development contract memorializing the prior terms and approval of the project and if ELHD provided the RDA with a financial institution's expression of intent to provide the necessary construction loan. wCb%M210M0.&96 Y AGENDA ITEM NO 5 PAGE — OF —La- The City of Lake Elsinore March 25, 1993 page 4 At the January 12, 1993RD f Meeting, F HD presented he rattached development contract. A co p y James Milhiser of the hereto as Exhibit "H ". Prior to the meeting, Construction Lending Division of First Bank is lip onest Ron Molendyk and /or Phyllis Rogers to express providing the necessary construction loan. North County Bank in Murrieta was similarly interested in providing the tconstruction three Despite ELHD's compliance with the RDA's ith George Alongi and hree to two not to reinstate the project, w casting the Dominguez dissenting vo d against Directors reinst reinstating Gary Washburn, James At the same meeting, the RDA voted unanimously to reimburse ELHD $15,000 for its costs of demolishing the two buildings as requested by roperty to the City and stated that it would of the Januarya12, 1993 tRDA pMinutes is recover such costs. A copy ain as reflected in the Minutes, attached hereto as Exhibit "I ". A4 1 the reason cited for denying reinstatement of the project as previously approved was the RDA's desire to fund a minor league baseball stadium. ELHD is informed and believes that prior to the January 12, 1993 RDA meeting, City Attorney John Harper, or a representative from the City Attorney's Office, advised the various RDA Directors that failure to reinstate the project would be improper and would subject the City to a claim for damages by ELHD. Accordingly, ELHD believes it.has personal claims against the individual Directors who voted against reinstating the project. ELHD is further informed and believes that the City, through its employees, defrauded ELHD with respect to the project in that the RDA Directors intentionally or negligently misrepresented the City's ability and desire to complete the project as agreed. ELHD is further informed and believes that the RDA Directors agreed to the project without intending to perform as agreed. Nature of Claims ELHD has a variety of causes of action against the City arising from the foregoing facts. The City, through the RDA, entered into a binding contract with ELHD when it accepted ELHD's offer to construct affordable housing on its property. The City subsequently breached the agreement by, among other things, repudiating the agreement, refusing to grant land and financial assistance to ELHD as agreed, and refusing to permit ELHD to proceed with the project. w&T93110M0.A46 r. c. m. AGENDA ITEM NO. ✓ PAGE CF--[-(2- The City of Lake Elsinore March 25, 1993 Page 5 Moreover, the City and the individual RDA Directors breached the implied covenant of good faith and fair dealing that inheres in all contracts by, among other things, denying the existence of the agreement. Although the City may not be liable for punitive damages, the individual Directors will be. Further, in adopting the project and accepting ELHD's offer, the City should have reasonably expected to induce ELHD's reliance. ELHD did in fact rely on the City's conduct when it demolished its buildings and incurred various other costs set forth below. By its actions in reliance, ELHD so changed its position that unconscionable injury will result unless the contract is enforced. Accordingly, ELHD has a cause of action based on promissory estoppel, entitling ELHD to enforcement of the City's promises and to recovery of its damages, under cases such as C &K Engineering Contractors v. Amber Steel Co, (1978) 23 Cal.3d 1. Moreover, by its conduct outlined above, the City intentionally led ELHD to believe that the City was capable of performing and intended to perform under the contract, with the intent that ELHD would act based upon the City's conduct. ELHD, ignorant that the City was incapable of performing, and /or did not intend to perform, was induced to act based upon the City's conduct. Thus, under the doctrine of equitable estoppel, the City is estopped from attempting to deny the validity and enforceability of the project agreement. City of Lona Beach v. Mansell (1970) 3 Cal.3d 462, 496 -497. ELHD is informed and believes that the conduct of the City and its agents constitutes fraud in that the City Manager, Assistant City Manager, and RDA Directors intentionally or negligently misrepresented to ELHD that the City was capable of acting as agreed and that the City wished to do so, when that was not in fact true. ELHD is further informed and believes that the misrepresentations were intended to, and did, induce ELHD to take the actions outlined above. ELHD is further informed and believes that the City did not intend to perform its obligations at the time it agreed to perform, yet promised to do so in order to induce ELHD to act as set forth above. Additionally, ELHD has a claim based on the principles of inverse condemnation. Article I, S 19 of the California Constitution requires that just compensation be paid when private property is damaged for public use. Where the entity damaging the property does not first bring eminent domain proceedings, the property owner may recover based on inverse condemnation. Baker v. Burbank - Glendale - Pasadena Airport Authority (1985) 39 Cal.3d 862, 866 -867. In the context of inverse VCM93210030.M6 gg 3. k: z: AGENDA ITEM NO. PAGE 07 The City of Lake Elsinore March 25, 1993 Page 6 condemnation, "[plublic use . . . is a use which concerns the whole community or promotes the general interest in its relation to any legitimate object of government." ar +n v Citv of San Rafael (1980) 111 Ca1.App•3d 591, 595 u 'n t v City of Fairfax (1963) 212 Cal.App.2d 345, 358. Here, .in furtherance of the public object of providing affordable housing to the citizens of the City, the City caused the demolition of nine buildings owned by ELHD. The City must therefore compensate ELHD for its losses resulting from such demolition. Although the City has already paid the cost of the demolition, the proper measure of damages where the City causes damage to zeal property includes other factors, such as the diminution in the value of the real property and the costs incurred in recovering from the governmental entity. iT Francs sco I-=U ea of Shasta (1970) 5 Cal.App.3d 336, 342; Rapid Transit Dist (1976) 17 Cal.3d 648, 654. General Description of Loss Incurred As a result of the City's conduct, ELHD has sustained and will sustain a variety of losses. These losses include diminution in value of the ELHD lots resulting from the demolition of nine buildings, lost rental value of the buildings had they been rehabilitated and rented as planned, attorneys' fees and costs associated with ELHD's efforts to recover for its losses, sums spent at City request in developing floor plans and a color rendering of the project and in obtaining a development agreement,. loan renewal fees necessitated by the City's breach of the agreement, substantial time expended in connection with developing the project,_ and the benefits to be received upon performance of the contract. The dollar value of the losses sustained by ELHD is sufficient to rest jurisdiction over this claim in the Riverside County Superior Court. Votice The post office address of ELHD is as follows: Entry Level Housing Development Omega Mortgage West 506 West Graham Avenue, Suite 207 Lake Elsinore, California 92530 %%bU%93210M9.M26 AGENDA ITEM NO. 15 PAGE OF -J. The City of Lake Elsinore March 25, 1993 Page 7 Any notification or communication concerning this claim should be addressed as follows: Joseph J. Nardulli, Esq. Saxon, Dean, Mason, Brewer & Kincannon 333 City Boulevard West, Suite 1600 Orange, California 92668 -2924 In accordance with the provisions of Government Code Section 912.4, you have forty -five days within which to consider this claim. Unless notification of the City's intended action is received within that time, ELHD will consider the claim rejected by the City and will pursue its legal rights as appropriate. If you have any questions or comments, please feel free to call me. Very truly yours, WCH:kv vchU\932100 0. N 6 SAXON, DEAN, MASON, BREWER & KINCANNON =Nardulli oration c Y AGENDA ITEM N0. " — PAGE.._ LS CLAIM AGAINST THE CITY OF LAKE ELSINORE (For Damages to`Pe sons or Persona Property) . 1 / Received By jj. t4aW l (T a so (Name) ved) A claim must be filed with the City Clerk of the City of Lake Elsinore within six (6) months after which the incident or event occurred. Be sure your claim is against the City of Lake Elsinore, not another public entity. Where space is insufficient, please use additional paper and identify information by paragraph number. Completed claims must be mailed or delivered to the City Clerk, City of Lake Elsinore, 130 South Main Street, Lake Elsinore, California 92330. TO THE HONORABLE MAYOR AND CITY COUNCIL, CITY OF LAKE ELSINORE, CALIFORNIA: The undersigned respectfully submits the following claim and information relative to damage to persons and/or personal property: 1. NAME OF CLAIMANT G C� ` ' l�C //1 CZ - , iI a. Address of Cla b. Phone No. (q(��QZ�- 411 c. Date of Birth V -1 / / (/o( /o? d. Social Security No _ _e. Drivers Lic. 2. Name, post office address and telephone to which claimant desires notices to be sent, if other than the above: 3. occurr o event from which this claim arises: a. Datence e / b. Time c. Place (Exact and specific location) d. How and nder what circumstances did damage or injury occur? Specify the particular occurrence, event, act or omission you claim caused,the injury or damage (use additional paper if necessary). �G 0 � ` i�C� ' e. what a icular act)"-4ie on by the u City or its employees, caused the alleged damage or injury? Y. li. AGENDA ITEM NO. 10 PAGE._L(�_ OF_1___ 4. were there any injuries at the time of this incident? If there were no injuries, state "No Injuries ".' 5. Give the name(s) of the City employes(s) causing the damage or injury: 6. Name and address of any other person injured: 7. Name and address of the owner of any damaged property: it - ,/ . o _ i a. amount claimed as of this date: $ a� b. Estimated amount of future costs: $ c. Total amount claimed: $ d. Basis for computation of amounts claimed (Include copies of all bills, invoices, . estimates, etc) : &L4 G 9. Names and addressed of all witnesses, hospitals, docto: etc: a. x%551 77/S b. C. 10. Any additional information that might be he pful n considering this claim: ' �/ K c7fl��ld 4 s NARNI1IG:KII' IS A CRIMINAL OFFENSE TO FILE A FALSE CLAIMI � (Penal Code 72 /Insurance Code 556.1) I have read the matters and statements made in the -above claim and I know the same to be true of my own knowledge, except as to those matters stated upon information or belief as to such matters, I believe the same to be true. I certify under penalty of perjury that the foregoing is TRUE AND GCORRECT. SIGNED THIS 6- —DAY OF r� , 19 AT ZQFe�S ///o /1Z. CALIFORNIA. CLAIMANT'S SIGNATURE: All" zr. AGENDA ITEM NO.� PAG`E 10 OF 1�