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HomeMy WebLinkAboutClaim #646 CITY OF PALM DESERT COMMUNITY SERVICES DIVISION CITY CLERK OPERATIONS STAFF REPORT REQUEST: CLAIM AGAINST THE CITY (#646) BY LMI CO., LLC, ROYCE INTERNATIONAL INVESTMENT COMPANY,SEVERIN&COMPANY LLC, AND PALM DESERT VILLA PORTOFINO I, LLC, IN EXCESS OF $100 MILLION SUBMITTED BY: Rachelle Klassen, City Clerk DATE: August 27, 2009 CONTENTS: I. Staff Report II. Recommendation of Claims Adjusters III. Claim No. 646 Recommendation: By Minute Motion, reject the Claim and direct the City Clerk to so notify the Claimants. Background: Based on a review of the subject Claim and the recommendation of the Claims Adjuster, Risk Manager, City Attorney, and staff, it is recommended that the Claim be rejected. Discussion of this item should be held in Closed Session pursuant to Government Code Section 54956.9(b), potential litigation. Submitted by: �— RA HELLE D. KLASSE , CMC DA J. N, C TTO NEY CITY CLERK Approved: C��'�'Y C(9U1�C(LA�Ttn�t f#i'1'1���✓I?[� ✓ 1�3�NlFD �Zi;CI:IV[;@) �37`�aF12 N M. WOHLMUTH M�:E'TING DATE `��1-C�`� � Y MANAGER �s���:S: ����n _���r�u�on - inP� ( ��� I � �c)rS: _Nv/,t' � `�—� � � 1�. v' �—T rdk A[3�I;NT: �;v�� ' AI�S"I'AIN: ' `Y� � Attachment (as noted) VERIFIEI) 13Y:_____�� !'q Original on File with City Clcrk's Office H:IWPdafaIWPDOCSICLA1MS1646 staffrpt.wpd �Uli� ,_1!II � t 4'a�3 ��` v�, July 24, 2009 TO: The City of Palm Desert ATTENTION: Rachelle D.Klassen, C ity Clerk _ . RE: Claim : LMI Co., LLC, et al vs. The City of Palm Desert Claimant : LMI Co., LLC, et al D/Event : 7/22/2008 Rec'd Y/Office : 7/13/20�09 Our File : 5-1499843-RQ We have reviewed the captioned claim /pleadings and request that you take the action indicated below: • REFER TO CITY ATTORNEY: The subject matter does not appear to meet the criteria for participation in the joint liability protection program. We suggest you refer the claim to your City Attorney for recommended action. At your reqeust we will review any subsequent pleadings and/or information for application under the California Joint Powers Liability Protection Program. Please note that the California Joint Powers Memorandum of Liability Coverage provides for an appeal process for a review of the determination of a lack of coverage by the California Joint Powers Insurance Authority Executive Director. The appeal must be made in writing and within 90 days of the date of this written notice of a lack of coverage. The appeal should be mailed to the California Joint Powers Insurance Authority -Attn: Jonathan Shull, Exec. Director, 8081 Mood y Street, La Palma, CA 90623 If you have any questions please contact the undersig ned. Very truly yours, � , WARR�C PANY � � �� Ric rd D. Marque cc: CJPIA w/enc. Attn.: Ex ecutive Director CARL WARREN & CO. CLAIMS MANAGEMENT CLAIMS ADJUSTERS � �-���J � 770 Placentia Avenue,Placentia,CA 92870-6832 L'Q� T� --�^�''��' Mail:P.O.Box 25180•Santa Ana,Ca 92799-5180 � ����/f CJ l-�� Phone:(714)572-5200 •(800)572-6900•Fax:(714)961-8131 � a,1'O� m DATE C11Y OF P � ll� D � SE � � ` �' ; 73-5�0 FRED WARING DRIVE PALM DESERT, CALIFORNIA 92260-2578 TEL: 760 34b—o6�t Fnx: 760 340-0574 � infoC�palm-desert.org TO: CJPIA (c/o CARL WARREN & CO.), CITY MANAGER, CITY ATTORNEY, ACM FOR DEVELOPMENT SERVICES, DIRECTOR OF COMMUNITY DEVELOPMENT, DIRECTOR OF PUBLIC WORKS, RISK MANAGER FROM: CITY CLERK DATE: JULY 13, 2009 SUBJECT: CLAIM NO. 646 - CLAIM AGAINST THE CITY BY LMI CO., LLC, ROYCE INTERNATIONAL INVESTMENT COMPANY, SEVERIN&COMPANY LLC, AND PALM DESERT VILLA PORTOFINO I, LLC, IN EXCESS OF $100 MILLION �fhe attached Claim No. 646 is being transmitted to you for the follawing: ❑ Information only. or ❑ Review and recommendation to the Claims Review Committee for any action required by the City of Palm Desert. We would appreciate your report, if requested, by August 13, 2009, for timely response to the Claimant. NOTE: Bv e-mail, my office will be transmitting electronic copies of Resolution Nos. 99-18 and 99-19, and Ordinance Nos. 906 and 907 that are related to this Claim. Please let us know if you need anything further to assist you with reviewing this rnatter. RACHELLE D. KLASSEN, CMC CITY CLERK Attachment (as noted) cc: Paul S. Gibson, Director of Finance/City Treasurer ��rume ow uaato�m� CITY OF PALM DESERT f�i{•�C C I�J L U ASStGNED CLAIM NO.r��Z� CL�IIM AGEl1NS'C YE3E. CITY �F PALN6 DESE}�2� C(7 Y C L E f��C'5 0 F F I C E (1 or D�r�age(s) to Persan(s) ar Personal Property) P�L�i D E S E R T, C d � � 2009 J�IL I 3 AF110� S C Received by: via: U.S. Mafli Interoftice Mail,____�vec-�Ctie-Counter A CLAIl�[ MlUST BE FII.ED W�TH 7HE CITY CLERK � C OF P1�M DESER WITHIN 5IX MONTHS AF1'ER WHICH THE INCIDE[dT OR EYENT OCCfJRRED. BE 5[JR`E YOUR CL}l1M l5 AGAINST THE CI1Y OF PALM DESERT, N4T ANOTHE�t PUBLIC $IVYI?Y. wHLRE SP'ACE LS INSUFF.ICIENT� PLEI�.SE USE ADDTfIOI�SAL PAPER AND IDEN1'Q�Y I[�3FORMATIOIV BY PARAGRAPH NUM�ER. COMPLETED CLAUAS�lUST BE MAII.ED OR DEL1YEttED TO TEIE CITY CL.ERK��AiM DESERT�FRED WARIltiTG DR1VE, PALM DESERT, CA 92Z60. _ TO THE HOtVORABLE M/�YOR AND CITY COUNCIL, City o� Palm Desert, Califorrua; � The undecsigned �espectfully submit(s) the foll�wing cia.irn and infocrnation relative to damage(s) �o person(s?and/or personal�property: 1. CLAYL�ANT INFORMATION: LMI' C0. , LT.C; ROYCE INTERNATIONAL INVESTMENT COMPANY; SEVERIN & COMPANY, LLC; and PALM D�SERT VILLA PORTFOLIO I, LLC NAME c/o Michael La Melza - ADDRLSS Las Entradas Drive, Santa Barbara, CA 93108 PHONE NO. (742) 493-1321 DATE OF BIRTH: Not a licable SOCIAL SECURI O.N A - - DRNE'FL'S C NSE . N A- 2. Name, telephone ntunber and post office address to which claimant desire$ natices to be sent, if other tf�ar+ above: David W. Trotter, Esq. (925) 935-3300 BOWLES & VERNA LLP � 21�21 N Califor�}a'Boulevard,_ Si�ite 875 Wa nu� Creelc. CA 94596 . 3. Occurrence or even# from which the cla.im arises: a. DA3'E: b. TIME: c. PLACE {exact and specific ' iocation� � Please see �h�:.attached':I.�tter. d. How ar►d tu�de� what circumst�nces did "damage or injur}r xcur? Specify the particular � cc�urren�e, even-'t, act or ommission you clairn caused the injury o� darraage. (Use additiona! paper if necessary.) Please see the attached letter. . e. What particular action by the City, or its employees, caused the alleged damage or injury? Please see the attached letter. Page 1 of 2 . � �p� G.. Give a gene�al description of the indebtedn�ss, obligation, injury, damage, or lass incurred sa far as it may be known at the tim� cf preseeta�tiian nf the claim. If there were no 1RJti�l.@5� 5tate "no ictjuri�S": Please see the attached letter. 5. Give the r►ame(s) of the City ernployee(s)causing th� darnage ar injury: Please see the attached letter. . ' • . . : �, : . ' 6. EVame�and.addr�ss of any o�t�►er�person(s)in)ured: tvot applicable. _ 7, .N.ame �nd address �f the o�r.ner°af any damaged.property: Please see .attached letter. $. Daenages claimed:' . a. Amotattt clairned a5 of this d3te: $ In excess of $100, million b. Esti�r►ated amount of futuce costs: $ c. Tatal ameunt cla.irned: $ In excess of $100 million. d. Basis fvr com�utation of amounts eta.ime inclu e copies of a!! ills, invoices, estimat�5, e;te.): Please see the attached letter. 9,� Names arid ad$r•esses uf all w�tr►e�es;,hospitals, doctors, etc.: _ . Pl.ease see"the attached l.etter. � ' !0. Any additional information, inclridir►g g�lice reports, whieh migt�t tse hetpfu! in co�sider.ing this claim: ' � � � .. � W�ki1�Ii�G:IT dS � �2�t�i�►Io. ��ISE ��,:FflLE h ��YSE CL�S6 �h9��. C�DE �2� 1[�SLR4A�IVCE CO+D� 556.1?. � I have read the ina't�ers and statements made ih the abave claim, and I lrnow the same to be true of rny own 1�io,wledge, except as to ti�ase matters stated upon informa�i�n or belief as to such matters I believe the sam� ta be true, I ce�tify under �e�alty of perjury that the foregoing is TRUE AND CORRECT. � - Signed his lOt �aY �� �i lv ,2d 09 , �� Walnut_Creek, California 1JlM'�' � ' . 5IG A URE O 'CL� I S REPRESENTATI �- ST�[�tt URE OF CL�I �EINT Office of �he City Clerk, Palm Desert; Cali€ornia DOC. NO. �AT� FII.ED �age 2 �f 2 � �� Richnrd T.Bowles Jason J.Granskog � Michael P.Verna Liwrence D.Goldberg � ,� �f.'. ���L�r�L D Robert 1.Westerfield William T.N�gte Y C L E!7�C�S ��F��� Richard A.Ergo Cathleen S.Fivang • • � P���-I D E S��r C� K.P.Dean Fla r per Drian D.Horwitz Mary P.Sullivan Michael P.Connolly 2QQQ��� f� Kenneth G.Jones Steven P.McFarlanc i �lo' �j f Bradley R.Bowles Veronicu Ann O.8enigno Charles S.Goldman Thomas E.Marrs Kenneth B.McKen�ie Nathaniel B.Duncan David W,Trotter Chelsey T.Westf�ll Mich�el P.Reid July 10,2009 VIA FEDERAL EXPRESS Ms. Rachelle D. Klassen City Clerk City of Palm Desert Palm Desert Civic Center 73-510 Fred Waring Drive Palm Desert, CA 92260 Re: Claim Pursuant to Government Code Section 900, et seq., on behalf of LMI Co., LLC,Royce International Investment Company, Severin &Company LLC, and Palm Desert Villa Portofino I, LLC,Regarding the Development Agreement Pertaining to the Villa Porto�no Development, and Related Matters Dear Ms. Klassen: Pursuant to Califarnia Government Code § 900, et seq., LMI Co., LLC{"LMI"}, and LMI-affiliated companies Royce International Investment Company("Royce"), Severin& Company,LLC ("Severin"), and Palm Desert Villa Portofino I,LLC (collectively, "Claimants"), hereby submit the enclosed Claim to the City of Palm Deseri("City"). The claim is for monetary damages, attorneys' fees and costs, disbursements and litigation expenses in excess of$100 million resulting from: (1)the City's breach ofthat certain Development Agreement appzoved by the City Council and entered into by ihe City and Royce on or about February 25, 1998 (the"Development Agreement") in connection with the Villa Portofino development project("Villa Portofino"or the"Project"}; (2}the City's violation of claimants' procedural and substantive due process rights(42 U.S.C. § 1983); and (3)the City's actions resulting in the unlawful taking, inverse condemnation and destruction of Claimants' interests in real property without payment of just compensation therefor,in violation of the Fifth Amendment to the United States Constitution and Article T, Section 19 of the California Constitution. The basis for this claim is as follows: California Plaza ♦ 2121 N_ California Blvd. � Suite 875 • P.O. Box 8180 • Walnut Creek, CA 94596-8180 Phone {925) 935-3300 • Fax (925) 935-0371 • www•bowlesverna.com � �� . � Ms. Rachelle D. Klassen City Clerk City of Palm Desert July 10,2d09 Page 2 Prior to the actions of the City giving rise to this claim, Claimants were the owners and developers of Villa Portofino, a senior housing development project. By Resolution No. 99-19, the Palm Desert City Council approved a Precise (PP 98-21) and Conditional Use Permit (CUP 98-21) for the Project. By Ordinance No. 907 adopted in 1999, the City Council approved the Development Agreement, which refers to the City's approval of a Precise Plan 98-21 "to construct a health club and weliness resort for seniors, 288 apartments, 182 casita units, 161 bed skilled nursing facility, 150 bed assisted living facility and zolie change to senior overlay." Development Agreement at p. 1, Recital B. The foregoing land use entitlements, including the Development Agreement, covered an approximately 62-acre parceI owned by Severin, and an adjacent approximately 13-acre parcel owned at that time by another LMI af£tliate,Davide& Company,LLC ("Davide"),which Davide conveyed to tlurd parties prior to the events giving rise to this claim. A legal description of the real property covered by the Deveiopment Agreement is provided in an exhibit thereto. The Villa Portofino project was planned to be built over time in seven separate phases, which at the time of the events giving rise to this claim were owned by the following entitles: Phase I(72 units)—Severin Phase II (40 units)—Severin Phase III{120 units)—Villa Portofino I, LLC Phases N—VII (238 units)—Severin Pursuant to various building permits issued by the City and in good faith reliance thereon, Claimants expended significant financial resources and by the spring and sununer of 2005 had completed the construction of"Phase I",consisting of 72 residential units (36 high-end"casitas" and 36"villa"condominium units), a 30,000 square foot clubhouse and associated roads and infrastructure. In early 2006,the City issued building permits for a portion of"Phase III"of the Project consisting of an additiona148 "villa"condominium units. As of the time of the events giving rise to this claim, Claimants retained approximately 12 unsold units in Phase I, and the 48 units in Phase III were under construction but not yet completed. Under California law and its express terms, the Development Agreement granted an enforceable"vested right"to Claimants to construct the entire Project in accordance with the land use entitlements granted by the City,notwithstanding any subsequent"change in the applicable general or specific plan, zoning, subdivision, or building regulations adopted by City � `�� . h Ms.Rachelle D. Klassen City Clerk City of Palm Desert July 10, 2009 Page 3 which alter or amend the rules, regulations or policies governing permitted uses of the land, density,design, improvenlent and construction standards and specifications." Development Agreement,¶7(i); Govt. Code § 65864, et seq. Claimants also acquired a common law vested right to build out the entire Project,having expended a substantial amount of money in the several years after 1999 to commence constniction of the Project in good faith reliance on building permits isst�ed by the City after it approved the Precise Plan, CUP and Development Agreement. In or about May 2005, the City approved a Precise Grading Plan for Phase II of the Project. Based on the approved Precise Grading Plan, the City issued a grading permit for Phase II of the Villa Portofino development in or about May 2006. Claimants thereafter completed the Phase II grading in substantial compliance with the grading permit and Precise Grading Plan, including the pad elevations specified therein,with no adverse comments or concerns expressed by City inspectors or staff prior to the completion of the grading work. In the fall of 2007, Claimants obtained banlc financing to commence construction of the Phase II residential units and associated roadway and utility network. Claimants thereafter approached the City and requested that it issue building permits for Phase II. Over the course of the next several months, the City unlawfully and wrongfully delayed, failed and refused to process or issue any further building permits to Claimants to complete the construction of Villa Portofino, including Phase II af the Proj ect. These unlawful and wrongful acts culminated in a letter from the City Engineer,Bo Chen, dated July 22, 2008,in which the City advised Claimants' civil engineer,Tetra Tech, that the pad elevations for Phase II first had to be"approved"by the City's Planning Cornmission before Claimants could proceed with development of the Project. The July 22, 2008 letter, and the City actions that preceded it,were part of a concerted effort by the City to thwart,delay and deny to Claimants their contractual, constitutional and legal rights to proceed with the build-out of the entire Project, subject to the ministerial approval and issuance of building permits by the City. The wrongful and unlawful actions of the City and its staff include,without limitation, the following: (a) Holding up the issuance of building permits for Phase II, and taking the position that Claimants were required to construct certain access, street, curb and sidewalk improvements on Portola Avenue, dedicate a right of way along Portola Avenue, and construct a perimeter wall on the 13-acre parcel formerly owned by Davide as a"condition precedent"to the issuance of building permits on Phase II. However,the Development Agreement and other land use ��O� . � Ms. Rachelle D. Klassen City Clerk City of Palm Desert July 10, 2009 Page 4 entitlements issued by the City did not specify or require the construction of such off-site improvements—on lands that Davide and Claimants no longer owed in any event—as a "condition precedent"to the issuance of building permits on Phase II. (b) Asserting that the Precise Grading PIan for Phase II had beei� "issued in error" and that"no perniit was issued for the work depicted therein." Such statements were and are untrue. They were a pretext to justify the City's wrongful failure and refusals to timely issuing building permits to Claimants. They were also apparently made in response to complaints from residents af the nearby Casa Blanca development who had expressed concern that the previously approved pad elevations were"too high" and would overlook their homes. (c) Asserting that the Phase II building pads were significantly higher than the neighboring Casa Blanca development and hence "unacceptable." (d) Falsely contending that Claimants had violated the terms of a borrow site grading permit, and purporting to require that alleged"excess"soils talcen from the borrow site had to be removed. (e) Puxporting to "rescind"the Precise Grading Plan for Phase II and require Claimants to "re-apply" for approval of their grading plans by the Planning Commission, despite the fact that the Precise Grading Plan and the related grading permit had been lawfully issued in 2045 and 2006 and the grading work undertaken had been canried out in substantial cornpliance with the terms and elevations noted thereon. The banks which had previously financed the various phases of the Project took note of the City's harsh new policies toward Claimants, and its failure and refusal to deal with Claixnants fairly and in good faith. As a direct result of the City's wrongful actions and conduct, including its failure and refusal to timely issue building permits for Phase II, Claimants lost their financing for the Project and became unable to service the outstanding debts on the Villa Portofino development. Ciaimants' remaining interests in the developed and undeveloped portions of the Project and real properties secured thereby were foreclosed on by their lenders, as to approximately 12 consfinzcted but unsold units in Phase I(Integrity Capital), Phase II(Temecula Valley Bank), Phase III(Imperial Capital Bank), and Phases IV through VII (Scripps Tnvestments and Loans,Inc.). As a direct result of the City's breaches of the Development Agreement and other wrongful and unlawful actions and conduct, the City has taken and damaged Claimants' real � �P� � Ms.Rachelle D. Klassen City Clerk City of Palm Desert July 10, 2009 Page 5 property and Claimants have suffered compensable damages in excess of$100 million,including but not i.imited to the following cornponents: (1) Clamaints' loss of use of iheir remaining undeveloped real properties in the Project having a fair market value in excess of$70 million. (2) Lost profits in excess of$35 million that Claimants would have eanied from completion of the build-out of the Villa Portofino development. (3) Engineering costs, attorneys' fees and other development costs incurred by Claimants in connection witl�Phase II and other undeveloped phases of the Project, which are estimated to exceed $14.5 million. (4) Claimants' costs, disbursements and expenses of suit including attorneys' fees and experts' fees,pursuant to the Development Agreement, 42 U.S.C. § 1988 and Code of Civil Procedure § 1036. In compliance with California Government Code § 910 efi seq., Claimants hereby provide the following information: (a) Claimants: LMI,Royce, Severin, and Palm Desert Villa Portofino I, LLC may be contacted c/o Michael La Melza,249 Las Entradas Drive, Santa Barbara, California 93108. (b) Person to whom notice should be sent: David W. Trotter,Esq.,Bowles &Verna LLP, 2121 N. California Boulevard, Suite 875, Walnut Creek, California 94596. (c) Date and events '�ving rise to claim: See description above. {d) Description of the indebtedness: See description above of the damages sustained by Claimants. (e) Name(s)of public employee(s) causin i� niurv: Carlos L. Ortega, former City Manager; Mark Greenwood, Director of Public Works;Bo Chen, City Engineer; Lauri Aylaian,Director of Community Development; and DOES 1-50. (fl The amount claimed exceeds $100 million and thus would qualify this case for unlimited civil jurisdiction in the Superior Court. The basis for the amount of the �'<P�� . � Ms. Rachelle D. Klassen City Clerk City of Palm Desert July 10, 2009 Page 6 claim is set forth in the description of the claim set forth above. If enforcement of this claim is sought in Superior Court, it would be a generai civil jurisdiction case, and not a limited civil case. Pursuant to Califoinia Government Code § 912.4, the City has forty-five(45) days to respond to this claim. If no response is nnade within that period, the claim is deemed denied and Claimants will be free to seek enforcement in a cottrl of law. Very truly yaurs, � , �,..,, � DAVID W. TROTTER DWT:te Enclosure cc: Mr. John H. Wohlmuth, City Manager(w/encl.) Michael La Melza(w/encl.) Richard T. Bowles, Esq. (w/encl.)