Federal judge downsizes SunCal suit

Federal judge downsizes SunCal suit

Michele Ellson

Updated at 6:52 p.m. Monday, September 17

A federal judge offered the city a fresh victory in former Alameda Point developer SunCal's fraud and breach of contract lawsuit, deciding the developer isn't entitled to recoup the $17 million it spent in its effort to reach a development deal.

In a 23-page opinion, United States District Court Judge Charles Breyer said SunCal didn't offer convincing evidence that the language of its exclusive negotiating agreement with the city allowed the Irvine-based developer to recover what it spent in its quest to build some 4,500 homes, commercial and office space at the Point. The developer could recover its $1 million deposit if the court determines the city breached the agreement, though.

City officials said they were heartened by the decision, which marks the city's latest victory in the two-year-old case. In January, Judge Breyer dropped SunCal's claim that the city owed $100 million in lost profits, but allowed both parties to gather evidence about whether the agreement allowed SunCal to recoup its costs. SunCal attorney Louis "Skip" Miller did not respond to a call seeking comment on the decision.

“I am very pleased by this decision,” Mayor Marie Gilmore was quoted as saying in a city-issued press release. “We understand litigation is a lengthy process, and this is a positive step for us.”

The 2007 agreement was the subject of heated negotiations, the opinion said. City officials testified that they specifically sought to block attempts by SunCal's lawyers to insert language into the agreement that would allow the developer to recover its costs and that they would have walked away from the developer if it failed to concede.

SunCal's attorneys disagreed, testifying that they wouldn't have agreed to such terms, though one of the developer's attorneys said that while they would have liked to include clear language in the agreement that specifically allowed repayment of SunCal's costs, they feared the city would reject it, so they agreed to more general terms that they thought would allow such cost recovery.

The City Council voted SunCal off the Island in July 2010 after voters roundly rejected a proposed development plan and business deal for the Point and relations between the developer and the city reached a melting point. SunCal sued less than a month later, ultimately seeking $117 million in damages. In its suit, the developer claimed the city had breached its agreement and that former Interim City Manager Ann Marie Gallant had engaged in fraud, coming up with an alternate plan to have the city develop the Point when city officials were supposed to be negotiating a deal with the developer.

While the September 13 decision limits the amount SunCal can recoup if it proves the city breached its contract to its $1 million deposit, the developer could recover additional damages if the court determines its fraud claim against Gallant has merit. City Attorney Janet Kern said the city could be on the hook for those damages if the court determines Gallant's alleged bad acts were committed in the scope of her employment with the city.

A downloadable copy of the decision is below.


Al Wright's picture
Submitted by Al Wright on Mon, Sep 17, 2012

It's common for doctors to carry malpractice insurance, and non profits routinely insure their board members to protect them and the non profit in case of a suit. Does the city carry any kind of insurance for it's elected officials and highest paid staff that might pay off a claim against AMG for fraud?

Submitted by Michele Ellson on Tue, Sep 18, 2012

Hey Al,

Presumably the city would have insurance, though I think that when we were in the thick of the AMP telecom bond cases the city was self-insured to a certain point and facing a potentially significant payout if they lost the case. Let me ask what the city's insurance situation is.

Submitted by Michele Ellson on Tue, Sep 18, 2012

Hey Al,

Just got an e-mail from Bob Sullwold, one of our board members; he forwarded the risk management note from the city's CAFR and info related to the city's insurance coverage and limits. Long story short, it appears the city does have insurance and would be covered for up to $40 million (less a $500,000 co-pay, if you will) subject to restrictions outlined in the state risk pool policy we're a part of. Hope that helps!