The San Diego City Council on Wednesday agreed to a settlement with the real estate broker who helped the city negotiate controversial agreements for two downtown properties.
The settlement from San Diego Superior Court Judge Kenneth So, over the 101 Ash St. and Civic Center Plaza buildings, was offered on March 16.
It passed the council 7-2 and will lead to broker Jason Hughes returning $9.4 million he earned from Cisterra Development in exchange for the city dismissing with prejudice its lawsuits against Hughes and his company, Hughes Marino.
Hughes will have 10 business days to return the sum total of $9,433,872.30.
City Attorney Mara Elliott encouraged the council to accept the deal, describing it as an “excellent result and an indisputable victory for the city.”
“We’ve done right by the taxpayers,” she said at Wednesday’s special meeting of the City Council. “The resolution we’ve negotiated with Hughes is fair and it is wise.”
The San Diego City Attorney’s Office had sued Hughes, developer Cisterra and lender CGA and sought to void the city’s lease-to-own agreements for the buildings.
Elliott’s office argued there was a conflict of interest because Hughes allegedly represented himself as a volunteer adviser on both deals, but unbeknownst to the city, collected the $9.4 million from Cisterra.
Hughes’ attorneys have maintained that he disclosed his intent to receive compensation to several city officials.
Nevertheless, San Diego County District Attorney Summer Stephan announced that Hughes planned to enter a guilty plea on a single criminal count.
“During a hearing set for tomorrow, Hughes is expected to plead guilty to a misdemeanor violation of conflict-of-interest law, Government Code section 1090, and agree to pay $9.4 million in restitution to the city of San Diego, the amount he was secretly paid for the two transactions,” the DA’s statement reads.
The DA’s office said the City Council’s actions Wednesday cleared the way for the case to proceed, and that “civil or administrative remedies” were not enough “in this egregious case.” Stephan said “it was important to attain a measure of criminal liability.”
“The message we are sending is clear: whether you are in an elected position, a public employee, a contractor or an appointed volunteer, if you personally profit from contracts related to a government position, you will be held accountable for violating this public integrity law,” she said.
Steven Goldberg, a spokesperson for Hughes Marino and Jason Hughes, said Wednesday’s actions “bring finality for Jason Hughes, his family, and the Hughes Marino team.” He also noted Hughes’ contention that “six senior City officials involved in the transactions approved Jason’s compensation plan, culminating with a written agreement signed by the City’s Director of Real Estate at the specific direction of the then-Mayor (Kevin Faulconer) and his Chief of Staff.”
“While Jason was prepared to put forth a vigorous defense at trial, he has concluded it is in his best interest to settle all claims against him in order to avoid the heavy cost and ongoing distraction of protracted litigation,” Goldberg said.
The saga began when employees began moving into the 101 Ash building following a 2017 lease-to-own deal, and it was discovered that the property was unsafe for occupation due to asbestos.
Initially, city staff during Mayor Faulconer’s administration said the building needed $5 million worth of repairs and retrofitting.
The bill, however, had already exceeded $26 million by 2020, and an independent review later found that an estimated $115 million more in remediation will be necessary.
Councilwoman Vivian Moreno, who voted against the settlement, said it was disappointing.
“It sends a message that if the city gets taken for a ride by an individual, they just need to repay what they made,” she said.
Councilwoman Marni von Wilpert joined Moreno as the only no votes, largely because Hughes himself was not present at the meeting to agree to an amendment that he could never again do business with the city.
“These people defrauded us on a massive scale,” she said. “I have no assurance Hughes will not form another company and do business with the city again.”
Despite these objections, the majority of the council was happy to proceed with the settlement.
“The 101 Ash Street settlement is a win for San Diego,” Councilwoman Jennifer Campbell said. “It holds Jason Hughes accountable for illegally brokering the deals that cost San Diego’s taxpayers more than $9.4 million. The city, the mayor and this council can now continue to move forward from the 101 Ash Street debacle.”
Council President Sean Elo-Rivera said he appreciated the work Elliott’s office had done and didn’t want to gamble with the $9.4 million by relying on testimony “from a previous administration I view as inept.”
In July 2022, the City Council accepted a much-debated settlement with Cisterra Development and lender CGA over the real estate deals.
The settlement transferred ownership of the properties to the city for around $132 million – $86 million for 101 Ash and $46 million for CCP – and refunded the city $7.5 million in profits Cisterra made in its lease-to-own deal with the city on the 101 Ash property.
The deal allowed Cisterra to keep its $6.2 million in profits from a similar deal with Civic Center Plaza. That refund will come in two payments this fiscal year.
Elliott urged the City Council to reject the settlement at the time and brought up the deal again Wednesday.
“Despite today’s good news, the moment is also bittersweet,” she said. “Cisterra is no less culpable than Hughes or Hughes Marino, yet the city agreed to dismiss its litigation against them in exchange for the return of the profits it made on the 101 Ash Street transaction.
“The city also agreed to buy 101 Ash Street from Cisterra, even though our remedy under conflict-of-interest law would be to return the building to Cisterra and to get our money back,” Elliott said.
Under the previous settlement, the city is responsible for all remediation fees to make the building habitable. But it also would be entitled to all insurance or third-party reimbursement related to previously botched remediation of 101 Ash under the settlement and would “be able to determine the best course of action to garner the most value from (the) building.”
– City News Service