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Is Santa Clara Anticipating Lawsuit From Related Companies Over Stalled Agreement?

It appears so according to this agenda item on Tuesday’s Santa Clara City Council closed session meeting:

“Conference with Legal Counsel-Anticipated Litigation … City as potential defendant: Letter from Gibson Dunn law firm, representing Related Santa Clara LLC, dated September 24, 2018 regarding Force Majeure under DDA.” Related Gibson Dunn Letter Force Majeure 09-24-18

The powerhouse real estate company is the developer of CityPlace Santa Clara on the City’s municipal golf course and closed landfill. The first phase of the multiphase project was supposed to be completed this year.


Related noticed Santa Clara on Sept. 24 that it was declaring a force majeure event because, the company said, the City has failed to finalize Landfill Operation and Management (O&M) agreement for the closed landfill required by the 2016 Development and Disposal Agreement (DDA).

Force majeure is a condition that frees both parties to a contract from liability when an event beyond the parties’ control prevents one or both from meeting their obligations — for example, natural disasters. Invoking force majeure stops the project clock until the condition changes or is fixed.

The agreement was supposed to be signed by June 11, 2017 and is needed to proceed with development.

The City doesn’t disagree that the stalled contract is a force majeure event, but does dispute that Related’s date for start of the impediment to moving ahead with the project and that Santa Clara bears sole responsibility for it.

This is the second Council meeting where this has been discussed; the first was a Nov. 29, 2018 special meeting. Although City Hall appears to believe litigation is a credible possibility, nothing provided to the Weekly under a public records request fulfilled by the City of Santa Clara included a direct threat of litigation.

California’s public meetings law, the Brown Act, allows closed session discussions in “a situation where, based on the advice of counsel taking into account ‘existing facts and circumstances’ there exists a ‘significant exposure’ to litigation” and “when the agency itself has decided or is deciding whether to initiate litigation.”

Any litigation between the City and Related will be handled through private arbitration, the proceedings of which don’t have to be made public.


Related Says City is Remiss, City Cites Circumstances Beyond Its Control

Related and the City have been going back and forth on this since July 2017, according to documents received by the Weekly under a public records act request.

Related sent the City its proposed draft of the O&M agreement on June 5, 2017, according to a Sept. 7, 2018 letter (Eimer Letter 9-7-28 RE O&M and Other Delays) from Related Urban EVP Steve Eimer to Santa Clara’s outside attorney, Anna Shimko. In July the two exchanged comments about the draft.

“Since that time,” Eimer wrote, “despite my constant and weekly reminders to the City, we have received no response. Finally…the City attorney told us …Wednesday that he is still not in a position to provide comments and that he will not be able to do so until October, a full sixteen months after our initial draft. This delay is inconsistent with the City’s obligations under the DDA, and now threatens Related’s ability to meet its project deadlines.”

Eimer also noted that there remained “major delays in the resolution of three key issues,* all of which are in the city’s hands. These delays have been so chronic that they are now affecting our ability to successfully and timely implement the project.”

On Sept. 24, 2018 Related’s attorney Neil Sekhri noticed the City that Related was invoking the force majeure clause of the 2016 DDA, naming the failure to complete the O&M agreement as the force majeure event and Aug. 17, 2017 as its start.

“Without the certainty of its obligations and the pricing of its insurance,” Sekhri wrote, Related is prevented from exercising its development phase options “under the current Schedule of Performance (which sets an outside date of Dec. 13, 2018) and is prevented from committing the significant equity and/or debt resources … for a proposed development plan in accordance with the current performance schedule.”

Sekhri’s letter concludes by saying that the force majeure period will continue until the O&M agreement is signed.

Shimko responded (Oct 18 Letter About Force Majuere) to Sekrhi’s letter on Oct. 18, 2018, saying that the City accepted “Related’s assertion that …delay in entering into the O&M agreement constituted a force majeure event.” But the City disputed Related’s contention that the City was unresponsive, she wrote, and “the date that any Force Majeure event…commenced.”

Shimko listed six meetings between the City and Related about the O&M agreement from October 2017 through May 2018. She also noted that “representatives from …Related’s environmental engineers have been meeting with the City and its consultant over the past three months on landfill-related issues.”

Another cause of delay over which the City has no control, Shimko wrote, was a Santa Clara County Dept. of Environmental Health report that “raised concerns regarding both the feasibility and the effectiveness of the pilings design for project structures.”

Santa Clara City Manager Deanna Santana, wrote Shimko, “expressed to Steve Eimer on Oct. 8, 2018 that the City feels these concerns need to be addressed before the O&M Agreement can be finalized.”

In March 2018 the City and Related exchanged letters acknowledging prior events of force majeure and agreed upon a new Schedule of Performance, Shimko continued. “Therefore at that time Related clearly did not contemplate that any Force Majeure delay existed with respect to the O&M agreement.”

Finally, based on the terms of the DDA, wrote Shimko, which state that a force majeure event can only be dated back 60 days from the date of the notice, the “Force Majeure event can be deemed to have commenced …July 27, 2018,” 60 days before Related’s Sept. 24, 2018 letter.

Shimko concluded by saying, “Now that our review …is wrapping up, we …look forward to continue engaging with Related in good faith to finalize and execute” the O&M agreement.

*Those additional issues are resolution of David Ibrahimi’s banquet hall lease, now in progress, and approval of amendments to 49ers parking agreements awaiting review by the City Attorney since March 28, 2018, according to Eimer’s Sept. 7 letter.


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