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Duarte, Oxnard and Pasadena Experience Some Successes in Redevelopment Dissolution Litigation

February 12, 2013

Initially, successes in cases filed by local agencies challenging AB x1 26 and AB 1484 were few and far between, but recently positive results have started to emerge.

 

More than 55 lawsuits have been filed challenging the Department of Finance’s (DOF) decisions. Of those 55 lawsuits, more than 30 are currently active.

The League has compiled a summary of those lawsuits, a listing which is periodically updated. The cities of Duarte, Oxnard and Pasadena recently used litigation to achieve successful outcomes.

City of Duarte

Duarte had committed $1.2 million in 20 percent housing set-aside funds for a 43-unit affordable senior housing project. The project also was the subject of a grant application for $7.7 million in federal Housing and Urban Development (HUD) funds. Duarte had an option agreement with an affordable housing developer that was conditioned upon the award of the HUD grant. Duarte listed the $1.2 million on its ROPS III as an enforceable obligation, which DOF rejected alleging that the developer had not timely exercised the right to extend the option agreement after receiving notice of the HUD grant award. DOF had not previously raised the issue of the option agreement extension in previous discussions with Duarte.

Duarte moved quickly to seek a temporary restraining order in Sacramento County Superior Court as any significant delay would place the HUD grant in jeopardy. After reviewing the city’s pleadings, the Attorney General agreed to have DOF drop its objection to the $1.2 million item.

The League congratulates Bill Ihrke and Dan Slater with Rutan & Tucker on the successful outcome of this case.

CRFL Family Apartments, LP (City of Oxnard)

This case involves an affordable housing project that is a component of a larger residential development project in Oxnard. To assist the development of the affordable housing, the city’s former redevelopment agency agreed to provide the developer with a loan not to exceed $15 million. The loan agreement was subsequently assigned to the current developer, CRFL. Oxnard listed this loan as an enforceable obligation on its ROPS, which DOF subsequently denied.

As the court noted, all the parties agreed that this loan agreement was an enforceable obligation. The question was whether it continued to be an enforceable obligation after the agreement was assigned to CRFL. DOF asserted that the agreement was no longer a valid enforceable obligation because the assignment was not valid. The Sacramento Superior Court disagreed and held that the assignment was valid under the terms of the contract. Further, the court stated that to deprive the parties of the right to assign the agreement “would inevitably raise serious impairment of contract issues since it would deprive a private party of an important right negotiated as part of the agreement.” The court further noted that this would also defeat the Legislature’s intent to honor existing enforceable obligations. The court ended by ordering DOF to recognize the agreement as an enforceable obligation without limitation.

The League congratulates Hans Van Ligten and Bill Irhke with Rutan & Tucker for their work on this case.

City of Pasadena

This case arises out of a 1986 reimbursement agreement between Pasadena and its redevelopment agency. The agreement was intended to reimburse the city for various costs it incurred in connection with various public improvements. Pasadena listed the agreement, which provides for payments to be made through 2014, as an enforceable obligation on its ROPS III. DOF asserted that this reimbursement agreement was not an enforceable obligation.

Pasadena asserted that the agreement had been validated by state statute in 1987 and by a court judgment in 1999. Further, Pasadena asserted that DOF did not object to the agreement’s inclusion on previous ROPS. DOF, on the other hand, asserted that these types of redevelopment agency-city reimbursement agreements were invalidated by ABx1 26, and that the 1987 statute validating the agreement was effectively withdrawn by virtue of ABx1 26. Further, DOF questioned whether the 1999 court judgment served to actually validate the agreement.

The court characterized the issue as whether the 1986 agreement was an enforceable obligation for the benefit of the city that should be placed on the ROPS. The court concluded that the agreement easily fell within the broad definition of “enforceable obligation” in the statute under several subsections. The court further rejected DOF’s argument that the reimbursement agreement fell within an exception to the “enforceable obligation” definition, giving that exception a narrow construction.

In granting the preliminary injunction, the court noted that the city was likely to suffer irreparable harm if the funds at stake were to be released to the taxing entities. The court noted that there was no mechanism by which the funds could be recouped. Therefore, the purposes for which the funds were to be used by the city would either be unfunded or the city would be forced to redirect city funds intended for other purposes. Lastly, the court observed that since the funds were primarily to be used for the payment of pension bonds issued by the city, releasing the funds to the taxing entities would effectively trigger a material default on the bonds that would likely result in harm to the city’s credit rating.

The League congratulates Murray Kane, Guillermo Frias, and Edward Kang of Kane Berkman & Ballmer for their success in this case.

As demonstrated by Duarte, Oxnard and Pasadena litigation can offer a path to a successful resolution of issues with DOF decisions. The League will continue to monitor and report on redevelopment dissolution litigation of interest.



 
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