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Judge upholds prior ruling, dismisses claim against Ash Street lender

San Diego Superior Court Judge Joel Wohlfeil granted a request to reconsider his prior dismissal of the taxpayer lawsuit challenging the city’s acquisition of the 101 Ash St. property but immediately tossed out the case again.

The judge also rejected a request from plaintiff John Gordon for a new trial before the case ever went before a jury.

The decision was posted online Monday but is time-stamped late Friday morning, barely an hour after parties to the dispute appeared at the latest court hearing.

In throwing out the taxpayer complaint against Wilmington Trust, Wohlfeil amended the portion of his previous ruling that did not fully capture a portion of the city’s 2016 lease of the high-rise.

“Specifically, the reference to language within Section 11 of the lease found at page 5 of the ruling is changed to read as follows: ‘Section 11 of the lease explicitly permits abatement of rent in specified circumstances, such as following “an event of destruction [where] there is substantial interference with the use and occupancy”’…,” Wohlfeil wrote.

“The court reaffirms all other language within the original ruling, and this small change does not alter the conclusion reached in the previous ruling,” he added.

Attorney Michael Aguirre, who represents Gordon in the litigation, argued at the Friday hearing that Wohlfeil’s earlier ruling wrongly characterized the city’s ability to stop making payments on the former Sempra Energy headquarters.

He said state law requires public agencies to include provisions in leases that allow them to suspend payments in cases other than “destruction” of the property.

He has argued that the Ash Street lease illegally prevents the city from halting the $535,000 monthly payments even though the building is uninhabitable due to asbestos and a host of other issues.

Aguirre said Monday he would move forward with an appeal.

“The people of San Diego should not lose confidence in our legal system,” he said. “We have the right to appeal to a higher court.”

Wilmington Trust attorney Craig Ganz declined Monday to comment on the final ruling.

The decision closes the case against the entity representing CGA Capital of Maryland, which paid Cisterra Development $91.8 million on the promise that the city would acquire the building for $128 million paid over 20 years.

The 19-story office tower was appraised at $67 million before the city agreed to the deal in 2016. The Gordon lawsuit sought to void the agreement.

Cisterra and real estate broker Jason Hughes each collected millions of dollars when the deal closed in early 2017 — payments the city later argued were illegal because Hughes had previously worked as a volunteer adviser to the mayor.

City Attorney Mara Elliott pressed the same argument in relation to a 2015 lease Hughes helped negotiate with Cisterra for the Civic Center Plaza.

Hughes has said he did nothing improper because he told six city officials he planned to seek compensation for consulting work for the city.

District Attorney Summer Stephan has opened a criminal investigation into the transactions.

Cisterra previously filed its own motion to be dismissed from the Gordon lawsuit, but that request will not be heard until early next year.

The city also remains a defendant in the case.

Lawyers for the city are scheduled to seek a dismissal of the claims against it later this week. They say the complaint is now moot because Mayor Todd Gloria negotiated a settlement in July to pay Cisterra and CGA more than $86 million to buy out the lease.

Elliott, who recommended that the city council reject the settlement deal negotiated between Gloria and Cisterra, is moving ahead with separate civil claims against Hughes.

Those cases are scheduled for trial early next year. If successful, the city could generally collect the $9.4 million Hughes received from the Ash Street and Civic Center Plaza leases and related costs, but it could not recover damages for any overpayments for the two properties.

The settlement Gloria reached with the landlord also called for the city to indemnify Cisterra and CGA from their own potential future legal costs.

In his ruling posted Monday, Wohlfeil said he considered all of the evidence and oral arguments put forward at the Friday hearing.

Aguirre noted at a separate hearing last week that a former Sempra executive told him in deposition testimony that the utility had vacated 101 Ash St. in 2015 because it would have cost the company more to occupy it over the next 25 years than to build a new office. Cisterra built Sempra’s new headquarters nearby.

He also argued that the $4.4 million Hughes collected on the Ash Street deal should automatically void the lease because it illegally inflated the cost of the property.

Lawyers for the city relied on the same legal argument in their initial claims against Cisterra and CGA, and they are seeking to recover the payments to Hughes.

Judge Wohlfeil did not comment on the fees paid to Hughes in his final ruling.

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