By Joe Tash
Rancho Santa Fe attorney Steven McKinley has won a $1.99 million settlement for his clients, who alleged in a lawsuit that the city of San Diego’s redevelopment agency acted improperly when it sought to obtain their downtown property.
The settlement, which was finalized July 24 when signed by Mayor Bob Filner, ends a legal saga dating back to 2004. At that time, the San Diego Redevelopment Agency — which is now dissolved — told La Jollans Chris and Margaret LaFornara that it wanted to buy their property at 14th Street and Market in the East Village, as part of a project to build a mixed-use residential and commercial development over a full city block.
Rather than pursue the acquisition, however, the redevelopment agency put its efforts on hold for about five years, leaving a cloud over the property and preventing the LaFornaras from selling to anyone else, said McKinley. In 2011, the LaFornaras lost the property to foreclosure, and the redevelopment agency then bought the property from the bank at a reduced price, McKinley said.
“So they never took my client’s property. They negotiated with my client in bad faith and kept him strung out for six years until he lost the property to foreclosure,” McKinley said.
The two-phase trial began last December before Superior Court Judge William Nevitt. In March, Nevitt issued a tentative ruling siding with the LaFornaras.
In a tentative ruling, Nevitt wrote that the redevelopment agency’s behavior “constitutes coercive precondemnation tactics and unreasonable precondemnation conduct.”
A second phase of the trial to determine damages to be paid to the plaintiffs was set for this October, but instead, the city and the LaFornaras agreed to the $1.99 million settlement, McKinley said. Of that amount, $647,000 is for attorney fees.
In essence, McKinley said the redevelopment agency announced it sought to acquire the LaFornaras’ property, then failed to move forward, causing the property to lose value. One potential buyer was willing to pay $3.4 million for the property, but backed off after learning of the redevelopment agency’s plans, McKinley said.
The agency did offer the LaFornaras $1.2 million for the property in 2010, which, according to court documents, was less than its value as determined by the agency’s own appraisal.
In his written ruling, the judge said the agency had made a “lowball offer” intended to “compel or induce an agreement on the price to be paid for the subject property.”
Deputy City Attorney Carmen Brock, who oversaw the settlement for the city, declined to be interviewed for this story. She referred a reporter’s inquiry to the office of City Attorney Jan Goldsmith, which did not respond to a request for comment by press-time.
Attorney Andrew Rauch, who represented the city as outside counsel in the case, also did not respond to a request for comment.
More than 400 redevelopment agencies were established across the state in past decades. Their job was to eliminate blight from urban areas by promoting new development. Among their powers was to acquire private property, through negotiation or eminent domain, and then sell it to private developers for new projects.
The state of California dissolved all of the redevelopment agencies in February 2012. Successor agencies were given the task of wrapping up their affairs, such as completing projects and paying off debts.
In San Diego’s case, the city became the successor agency, according to the redevelopment page on the city’s web site. The city has “assumed the former agency’s assets, rights and obligations… subject to some limitations,” said the statement.
In an email, Brock stressed that the settlement will be paid from the funds of the former redevelopment agency, and not the city’s general fund.
The settlement was approved by the San Diego City Council, as well as state officials who are in charge of monitoring the dissolution of the redevelopment agencies and the state Department of Finance, said McKinley.
Under state law, redevelopment agencies received a portion of the property taxes generated through new development in redevelopment areas, called “tax increment.” When Gov. Jerry Brown began the push to abolish redevelopment agencies, he argued that they diverted much-needed property tax revenue from other agencies, such as schools and cities.
According to McKinley, the settlement should serve as a lesson for government officials about the proper use of their powers of eminent domain.
“I just think it’s a huge vindication of property owners’ rights,” he said. “So often, these government agencies get carried away with the enormous power they have, there’s a tendency to abuse the power.”