Loading...
HomeMy WebLinkAbout2015 CON SA City of National City - Rosenow Spevacek - Settlement Proceeds Distribution AgreementNOTE TO FILE 11-03-15 IN THE MATTER OF: Resolution of the Board of the Successor Agency to the CDC as the National City Redevelopment Agency authorizing the Chairman to execute a Memorandum of Understanding (MOU) between the Successor Agency and the City of National City regarding the distribution of anticipated settlement proceeds from the RSG arbitration matter. Please note the following: THE FULLY EXECUTED ORIGINAL MOU HAS BEEN FILED WITH CITY COUNCIL RESOLUTION NO. 2015-158 UNDER THE SAME CONTRACT FILE NO. C2015-57 • Only one fully executed original MOU has been provided for both City Council Resolution No. 2015- 158 and Successor Agency Resolution No. 2015-72 NTF MEMORANDUM OF UNDERSTANDING BETWEEN THE CITY OF NATIONAL CITY AND THE SUCCESSOR AGENCY TO THE COMMUNITY DEVELOPMENT COMMISSION AS THE NATIONAL CITY REDEVELOPMENT AGENCY This Memorandum of Understanding is entered into this 20th day of October, 2015, by and between the City of National City ("City") and the Successor Agency to the Community Development Commission as the National City Redevelopment Agency ("SA"). RECITALS A. In 2011, the CITY and SA commenced arbitration proceedings against Rosenow Spevacek Group, Inc. ("RSG") arising out of work performed by RSG pursuant to its contract with the Community Development Commission of the City of National City dated February 20, 2007 (the "Arbitration Proceedings") . B. In the Arbitration Proceedings, the CITY and SA alleged that RSG negligently performed its contractual obligations resulting in invalidation of the 2007 Redevelopment Plan Update in an action filed by Community Youth Athletic Center and others (collectively "CYAC"). The Superior Court's judgment invalidating the Redevelopment Plan in the underlying action was affirmed by the Court of Appeal in 2013. C. In the Arbitration Proceedings, the CITY and SA sought compensatory damages from RSG, representing (1) attorney fees totaling $2,016,249 awarded in the underlying action; (2) attorney's fees totaling $1,064,574 incurred by the CITY ($277,074) and SA ($787,500) in defending the underlying action; (3) attorney's fees exceeding $110,000 to prosecute the Arbitration Proceedings; and (4) compensatory damages representing (a) loss of revenues caused by disruption of improvement and development within the City which was dependent upon validation of the Redevelopment Plan Amendment, in the form of increased sales tax revenue to the CITY ($18,000,000), increased property tax/tax increment revenue to the SA ($12,640,000), the value of developer -provided infrastructure improvements to the CITY ($2,500,000), etc.; and (b) additional expenses incurred by the SA related to increased bonding expenses caused by the invalidation proceedings ($9,148,840). The damages alleged were approximately $24,702,589 for the SA and approximately $20,777,074 for the CITY. 1 D. Following a period of due diligence and formal discovery, it was determined that RSG was insured by National Union Fire Insurance Company of Pittsburgh, PA with aggregate policy limits of $2,000,000.00 reduced by claims expenses. RSG denied liability for the claims and damages alleged by CITY and SA. RSG incurred legal fees and costs to defend the Arbitration Proceedings, which have been paid from the proceeds of the National Union Policy, thereby reducing the available policy limits. Due diligence and discovery by CITY and SA revealed that RSG is likely unable to satisfy a judgment or award in favor of CITY and SA substantially in excess of its available insurance policy limits. E. During the pendency of the Arbitration Proceedings, the Parties engaged in two lengthy negotiations conducted at two mediation sessions over many months. The Parties agreed to settle the disputes between them for approximately $1,800,000 subject to the terms and conditions set forth in the settlement agreement, which was subject to California Department of Finance ("DOF") approval. F. The DOF sought review of the settlement agreement, and stated it could not approve the Oversight Board action regarding the settlement agreement until DOF receives documentation delineating the breakdown of the estimated $1,800,000 between the SA and the City. G. This Memorandum of Understanding ("MOU") is intended to document the distribution of the estimated $1,800,000 between the SA and the CITY. NOW, THEREFORE, the SA and the CITY agree as follows: 1. The amount of proceeds received by RSG from the settlement of the RSG Arbitration Proceedings shall be distributed as follows: a. Prior to distribution between the CITY and SA, the attorneys' fees due to Mazzarella and Mazzarella shall be paid, pursuant to and as obligated by the Agreement for Legal Services previously approved by DOF; and, b. After the attorneys' fees due to Mazzarella and Mazzarella have been paid, the balance of the proceeds shall be distributed between the CITY and SA reflective of their damages described in the recitals above, as follows: SA shall receive 54% of the balance remaining; and, ii. CITY shall receive 46% of the balance remaining. 2 2. This MOU shall be effective upon approval by the parties, the Oversight Board, and the California Department of Finance. IN WITNESS WHEREOF, the parties have executed this MOU on the date and year first written above. CITY OF NATIONAL CITY on Morrison, Mayor APTROVED AS TO FORM: 1 i A ► \! 5 W.'i" ALA :u•ia G. SilvaJ City Attorney 3 SUCCESSOR AGENCY TO THE COMMUNITY DEVELOPMENT COMMISSION AS THE NATIONAL CITY REDEVELOPMENT AGENCY B on Morrison, Chairman PPROVED AS TO FORM: Claudia G. Sil''a General Counsel Corrected Resolution RESOLUTION NO. 2015 — 72 RESOLUTION OF THE BOARD OF THE SUCCESSOR AGENCY TO THE COMMUNITY DEVELOPMENT COMMISSION AS THE NATIONAL CITY REDEVELOPMENT AGENCY AUTHORIZING THE CHAIRMAN TO EXECUTE A MEMORANDUM OF UNDERSTANDING BETWEEN THE SUCCESSOR AGENCY AND THE CITY OF NATIONAL CITY REGARDING THE DISTRIBUTION OF ANTICIPATED SETTLEMENT PROCEEDS FROM THE RSG ARBITRATION MATTER WHEREAS, on February 20, 2007, the former Community Development Commission of the City of National City ("CDC") entered into an Agreement with Rosenow Spevacek Group, Inc. ("RSG"), for the 2007 Redevelopment Plan Amendment; and WHEREAS, the 2007 Redevelopment Plan Amendment was prepared by RSG and eventually adopted in July of 2007; and WHEREAS, in September 2007, the 2007 Redevelopment Plan Amendment was challenged by the Community Youth Athletic Center (the "CYAC matter"); and WHEREAS, in April 2015, the trial court entered judgment in the CYAC matter, awarding fees to CYAC in the amount of $2,016,249.87; and WHEREAS, in 2011, the City and CDC (now the Successor Agency to the Community Development Commission as the National City Redevelopment Agency ("SA")) commenced arbitration proceedings seeking damages against RSG arising out of work performed by RSG pursuant to its contract with the CDC (the "Arbitration Proceedings"); and WHEREAS, in the Arbitration Proceedings, the City and SA alleged that RSG negligently performed its contractual obligations resulting in compensatory damages; and WHEREAS, the parties agreed in the Arbitration Proceedings to settle the matter for insurance policy limits estimated at $1,800,000, contingent upon approval by the Oversight Board and the California Department of Finance ("DOF"); and WHEREAS, the Oversight Board approved the settlement, but the DOF denied approval because the DOF required documentation of the settlement distribution between the SA and the City; and WHEREAS, the proposed memorandum of understanding between the City and SA addresses DOF's concern and distributes the settlement proceeds proportionally between the City and SA based on each party's respective percentage of damages with the total approximate damage claimed by the SA at $24,702,589, and the total approximate damage claimed by the City at $20,777,074. This methodology results in the SA receiving 54% and the City receiving 46% of the balance of the settlement proceeds, after the attorneys' fees are paid; and WHEREAS, the MOU must be approved by both the Oversight Board of the Successor Agency to the Community Development Commission as the National City Redevelopment Agency ("Oversight Board") and the California Department of Finance prior to being effective. Resolution No. 2015 — 72 Page Two NOW, THEREFORE, BE IT RESOLVED that the Successor Agency to the Community Development Commission as the National City Redevelopment Agency hereby authorizes the Chairman to execute a Memorandum of Understanding between the Successor Agency and the City of National City regarding the distribution of anticipated proceeds from the RSG Arbitration matter. PASSED and ADOPTED this 20th day of October, 2015. on Morrison, Chairman ATTEST: Michael R. Dalla, ity Clerk as Secretary to the Successor Agency '"OVED AS TO FORM: 111 CIW.'-GY itua Silva Successor ency Counsel Passed and adopted by the Successor Agency to the Community Development Commission as the Redevelopment Agency of the City of National City, California, on October 20, 2015 by the following vote, to -wit: Ayes: Boardmembers Cano, Mendivil, Morrison, Rios, Sotelo-Solis. Nays: None. Absent: None. Abstain: None. AUTHENTICATED BY: RON MORRISON Chairman of the Successor Agency to the Community Development Commission as the Redevelopment Agency of the City of National City, California A 4 ity Clerk Servir as Secretary to the Successor Agency By: Deputy I HEREBY CERTIFY that the above and foregoing is a full, true and correct copy of RESOLUTION NO. 2015-72 of the Successor Agency to the Community Development Commission as the Redevelopment Agency of the City of National City, California, passed and adopted on October 20, 2015. City Clerk Serving as Secretary to the Successor Agency By: Deputy MEETING DATE: SUCCESSOR AGENCY TO THE COMMUNITY DEVELOPMENT COMMISSION AS THE NATIONAL CITY REDEVELOPMENT AGENCY AGENDA STATEMENT October 20, 2015 Cr)O\s-5`1 yob-\o-‘3 AGENDA ITEM NO.5 ITEM TITLE: Resolution of the Successor Agency to the Community Development Commission as the National City Redevelopment Agency authorizing the Chairman to execute a Memorandum of Understanding between the Successor Agency and the City of National City regarding the distribution of anticipated settlement proceeds from the RSG Arbitration matter. PREPARED BY: Claudia G. Silva Brad Raulston PHONE: Ext. 4222 Ext. 4256 EXPLANATION: Please see attached staff report. DEPARTMENT: City Attorney n Su f ssor APPROVED BY: APPROVED BY: FINANCIAL STATEMENT: APPROVED: ACCOUNT NO. APPROVED: N/A ENVIRONMENTAL REVIEW: N/A ORDINANCE: INTRODUCTION: FINAL ADOPTION: Finance MIS STAFF RECOMMENDATION: Adopt proposed resolution. BOARD / COMMISSION RECOMMENDATION: N/A ATTACHMENTS: Staff Report Memorandum of Understanding Proposed resolution Staff Report BACKGROUND On February 20, 2007, the former Community Development Commission of the City of National City ("CDC") entered into an Agreement with Rosenow Spevacek Group, Inc. ("RSG") for the 2007 Redevelopment Plan Amendment. The 2007 Redevelopment Plan Amendment was prepared by RSG and eventually adopted in July of 2007. On or about September 2007, the 2007 Redevelopment Plan Amendment was challenged by the Community Youth Athletic Center (the "CYAC matter"). In addition to the reverse validation challenge to the 2007 Redevelopment Plan Amendment, the CYAC matter alleged violations of the public records act, due process, and takings. In April 2015, the trial court entered judgment in the CYAC matter, awarding fees in the amount of $2,016,249.87. In or about 2011, the City and CDC commenced arbitration proceedings seeking damages against RSG arising out of work performed by RSG pursuant to its contract with the CDC (the "Arbitration Proceedings"). In the Arbitration Proceedings, the City and CDC (now the Successor Agency to the Community Development Commission as the National City Redevelopment Agency ("SA")) alleged that RSG negligently performed its contractual obligations which resulted in compensatory damages. More specifically, the invalidation of the 2007 Redevelopment Plan Amendment (as well as the public record act violations) in the CYAC matter resulted in compensatory damages for the expended and awarded attorneys' fees amounting to over $3,000,000; compensatory damages representing the loss of revenues which were dependent upon validation of the 2007 Redevelopment Plan, in the form of increased sales tax to the City ($18,000,000), increased property tax/tax increment to the Successor Agency ($12,640,000), and the value of developer -provided infrastructure improvements ($2,500,000); and, the damages related to the additional expenses incurred by the SA related to increased bonding expenses ($9,148,840) for the 2011 bonds. During the course of the Arbitration Proceedings, extensive discovery was undertaken by the parties. The City and SA determined that RSG was insured with an aggregate policy limit of $2,000,000, reduced by claim expenses. The Arbitration Proceedings defense costs (by RSG) have been paid from the insurance policy proceeds, thereby reducing the available policy limits to approximately $1,800,000. During the pendency of the Arbitration Proceedings, the parties engaged in two lengthy negotiations conducted at two mediation sessions over many months. The parties agreed to settle the matter for the available policy limits, contingent upon approval by the Oversight Board and the California Department of Finance ("DOF"). The Oversight Board approved the settlement. The DOF denied approval, stating the DOF needed documentation of the distribution of the estimated $1,800,000 between the SA and the City. Successor Agency staff have been engaging in discussions with DOF to obtain approval of the settlement so that the Arbitration Proceedings can conclude. Successor Agency staff has suggested to DOF that approval can include a requirement that distribution of the proceeds between the City and SA requires separate approval by DOF MEMORANDUM OF UNDERSTANDING REGARDING DISTRIBUTION OF SETTLEMENT PROCEEDS While the conversation between staff and DOF are still occurring, staff has drafted a memorandum of understanding between the City and SA regarding the distribution of the settlement proceeds. The proposed memorandum of understanding ("MOU") distributes the settlement proceeds proportionally between the City and SA based on each party's respective percentage of damages, which are summarized above. The total approximate damage claimed by the SA is $24,702,589 and the total approximate damage claimed by the City is $20,777,074. This methodology results in the SA receiving 54% and the City receiving 45% of the balance of the settlement proceeds, after the attorneys' fees are paid. RECOMMENDATION Staff recommends authorizing the Chairman to execute the MOU. These actions would require Oversight Board approval and DOF approval before they are final. The MOU contains these contingencies. This item is on the Oversight Board agenda for October 21, 2015. MEMORANDUM OF UNDERSTANDING BETWEEN THE CITY OF NATIONAL CITY AND THE SUCCESSOR AGENCY TO THE COMMUNITY DEVELOPMENT COMMISSION AS THE NATIONAL CITY REDEVELOPMENT AGENCY This Memorandum of Understanding is entered into this 20th day of October, 2015, by and between the City of National City ("City") and the Successor Agency to the Community Development Commission as the National City Redevelopment Agency ("SA"). RECITALS A. In 2011, the CITY and SA commenced arbitration proceedings against Rosenow Spevacek Group, Inc. ("RSG") arising out of work performed by RSG pursuant to its contract with the Community Development Commission of the City of National City dated February 20, 2007 (the "Arbitration Proceedings") . B. In the Arbitration Proceedings, the CITY and SA alleged that RSG negligently performed its contractual obligations resulting in invalidation of the 2007 Redevelopment Plan Update in an action filed by Community Youth Athletic Center and others (collectively "CYAC"). The Superior Court's judgment invalidating the Redevelopment Plan in the underlying action was affirmed by the Court of Appeal in 2013. C. In the Arbitration Proceedings, the CITY and SA sought compensatory damages from RSG, representing (1) attorney fees totaling $2,016,249 awarded in the underlying action; (2) attorney's fees totaling $1,064,574 incurred by the CITY ($277,074) and SA ($787,500) in defending the underlying action; (3) attorney's fees exceeding $110,000 to prosecute the Arbitration Proceedings; and (4) compensatory damages representing (a) loss of revenues caused by disruption of improvement and development within the City which was dependent upon validation of the Redevelopment Plan Amendment, in the form of increased sales tax revenue to the CITY ($18,000,000), increased property tax/tax increment revenue to the SA ($12,640,000), the value of developer -provided infrastructure improvements to the CITY ($2,500,000), etc.; and (b) additional expenses incurred by the SA related to increased bonding expenses caused by the invalidation proceedings ($9,148,840). The damages alleged were approximately $24,702,589 for the SA and approximately $20,777,074 for the CITY. 1 D. Following a period of due diligence and formal discovery, it was determined that RSG was insured by National Union Fire Insurance Company of Pittsburgh, PA with aggregate policy limits of $2,000,000.00 reduced by claims expenses. RSG denied liability for the claims and damages alleged by CITY and SA. RSG incurred legal fees and costs to defend the Arbitration Proceedings, which have been paid from the proceeds of the National Union Policy, thereby reducing the available policy limits. Due diligence and discovery by CITY and SA revealed that RSG is likely unable to satisfy a judgment or award in favor of CITY and SA substantially in excess of its available insurance policy limits. E. During the pendency of the Arbitration Proceedings, the Parties engaged in two lengthy negotiations conducted at two mediation sessions over many months. The Parties agreed to settle the disputes between them for approximately $1,800,000 subject to the terms and conditions set forth in the settlement agreement, which was subject to California Department of Finance ("DOF") approval. F. The DOF sought review of the settlement agreement, and stated it could not approve the Oversight Board action regarding the settlement agreement until DOF receives documentation delineating the breakdown of the estimated $1,800,000 between the SA and the City. G. This Memorandum of Understanding ("MOU") is intended to document the distribution of the estimated $1,800,000 between the SA and the CITY. NOW, THEREFORE, the SA and the CITY agree as follows: 1. The amount of proceeds received by RSG from the settlement of the RSG Arbitration Proceedings shall be distributed as follows: a. Prior to distribution between the CITY and SA, the attorneys' fees due to Mazzarella and Mazzarella shall be paid, pursuant to and as obligated by the Agreement for Legal Services previously approved by DOF; and, b. After the attorneys' fees due to Mazzarella and Mazzarella have been paid, the balance of the proceeds shall be distributed between the CITY and SA reflective of their damages described in the recitals above, as follows: i. SA shall receive 54% of the balance remaining; and, ii. CITY shall receive 46% of the balance remaining. 2 2. This MOU shall be effective upon approval by the parties, the Oversight Board, and the California Department of Finance. IN WITNESS WHEREOF, the parties have executed this MOU on the date and year first written above. CITY OF NATIONAL CITY SUCCESSOR AGENCY TO THE COMMUNITY DEVELOPMENT COMMISSION AS THE NATIONAL CITY By: REDEVELOPMENT AGENCY Ron Morrison, Mayor APPROVED AS TO FORM: Claudia G. Silva City Attorney 3 By: Ron Morrison, Chairman APPROVED AS TO FORM: Claudia G. Silva General Counsel RESOLUTION NO. 2015 — RESOLUTION OF THE BOARD OF THE SUCCESSOR AGENCY TO THE COMMUNITY DEVELOPMENT COMMISSION AS THE NATIONAL CITY REDEVELOPMENT AGENCY AUTHORIZING THE CHAIRMAN TO EXECUTE A MEMORANDUM OF UNDERSTANDING BETWEEN THE SUCCESSOR AGENCY AND THE CITY OF NATIONAL CITY REGARDING THE DISTRIBUTION OF ANTICIPATED SETTLEMENT PROCEEDS FROM THE RSG ARBITRATION MATTER WHEREAS, on February 20, 2007, the former Community Development Commission of the City of National City ("CDC") entered into an Agreement with Rosenow Spevacek Group, Inc. ("RSG"), for the 2007 Redevelopment Plan Amendment; and WHEREAS, the 2007 Redevelopment Plan Amendment was prepared by RSG and eventually adopted in July of 2007; and WHEREAS, in September 2007, the 2007 Redevelopment Plan Amendment was challenged by the Community Youth Athletic Center (the "CYAC matter"); and WHEREAS, in April 2015, the trial court entered judgment in the CYAC matter, awarding fees to CYAC in the amount of $2,016,249.87; and WHEREAS, in 2011, the City and CDC (now the Successor Agency to the Community Development Commission as the National City Redevelopment Agency ("SA")) commenced arbitration proceedings seeking damages against RSG arising out of work performed by RSG pursuant to its contract with the CDC (the "Arbitration Proceedings"); and WHEREAS, in the Arbitration Proceedings, the City and SA alleged that RSG negligently performed its contractual obligations resulting in compensatory damages; and WHEREAS, the parties agreed in the Arbitration Proceedings to settle the matter for insurance policy limits estimated at $1,800,000, contingent upon approval by the Oversight Board and the California Department of Finance ("DOF"); and WHEREAS, the Oversight Board approved the settlement, but the DOF denied approval because the DOF required documentation of the settlement distribution between the SA and the City; and WHEREAS, the proposed memorandum of understanding between the City and SA addresses DOF's concern and distributes the settlement proceeds proportionally between the City and SA based on each party's respective percentage of damages with the total approximate damage claimed by the SA at $24,702,589, and the total approximate damage claimed by the City at $20,777,074. This methodology results in the SA receiving 54% and the City receiving 45% of the balance of the settlement proceeds, after the attorneys' fees are paid; and WHEREAS, the MOU must be approved by both the Oversight Board of the Successor Agency to the Community Development Commission as the National City Redevelopment Agency ("Oversight Board") and the California Department of Finance prior to being effective. Resolution No. 2015 — Page Two NOW, THEREFORE, BE IT RESOLVED that the Successor Agency to the Community Development Commission as the National City Redevelopment Agency hereby authorizes the Chairman to execute a Memorandum of Understanding between the Successor Agency and the City of National City regarding the distribution of anticipated proceeds from the RSG Arbitration matter. PASSED and ADOPTED this 20th day of October, 2015. Ron Morrison, Chairman ATTEST: Michael R. Dalla, City Clerk as Secretary to the Successor Agency APPROVED AS TO FORM: Claudia Gacitua Silva Successor Agency Counsel