November 1, 2010 -- Aleshire & Wynder attorneys June Ailin and Lona Laymon averted a $1.1 million judgment against the San Fernando Redevelopment Agency by establishing that a developer was not entitled to damages related to unsuccessful negotiation of a disposition and development agreement. Wilshire Ventures Corp., et al. v. San Fernando Redevelopment Agency, Los Angeles Superior Court Case No. BC410145.
The Agency and the developer had entered into an exclusive negotiation agreement (ENA) for the negotiation of an agreement to construct a mixed use development on several surface parking lots owned by the Agency and the City of San Fernando. The ENA did not obligate either side to enter into an agreement about the proposed development. The ENA required the Agency to process an EIR to the extent reasonably possible, but there was no firm deadline for completion of a draft EIR. The developer was responsible for 75% of the cost of preparation of the EIR. Preparation of the EIR was delayed due to the developer's inability to decide exactly what would be built on the property, as the project kept changing in ways that would affect the environmental analysis. The Agency and the EIR consultant did not want to scale up the project description for purposes of the EIR due to the infill nature of the project and the potential for overloading the project with mitigation measures that would increase the amount of financial assistance needed from the Agency. The ENA eventually expired and the Agency's governing body chose not to revive it due to public opposition to the project and a change in the financial backing for the project. The developer claimed, among other things, a competing developer had improperly influenced the Agency board's decision-making regarding the project. The developer sought to recover as damages not only the amount it had spent on the EIR, but all expenses related to planning and promoting the project.
Following a seven-day bench trial in July 2010, the judge requested closing briefs. In a ruling issued on October 22, 2010, Judge Joanne O'Donnell found the Agency had no contractual obligation to deliver an EIR by a date certain or to certify the EIR, acted reasonably in its approach to preparation of the EIR, was not improperly influenced by the competing developer and did not breach the ENA. The judge also found the Agency was under no contractual obligation to revive the ENA once it had expired and there were objectively reasonable grounds for the Agency's decision not to revive the ENA. The fact the Agency was under no obligation to enter into a disposition and development agreement with the developer was also a significant factor in the judge's ruling in the Agency's favor. The developer was awarded no damages.
Although there was favorable case law supporting the Agency's position that it had not breached the ENA, this was a fact-intensive trial with the potential for the judge to conclude either party's position was supported by substantial evidence. All redevelopment agencies can take heart from this significant victory that non-binding exclusive negotiation agreements do in fact protect their interests in negotiations with developers.