california first llc v. dgs

8/11/2019 California First LLC v. DGS

1/22

1 Stuart A. Liner,

Esq.

(SBN:

137495)

[email protected]

2 Angela C. Agrusa, Esq. (SBN: 131337)

[email protected]

3 Kim Zeldin, Esq. SBN: 135780)

kzeldin(ti linerlaw com

4 LINER GRODE STEIN YANKELEVITZ

SUNSHINE REGENSTREIF TAYLOR LLP

5 llOOGiendonAvenue, 14thFloor

Los

Angeles, California 90024-3503

6 Telephone: (310) 500-3500

Facsimile: (310) 500-3501

7

Attorneys for Plaintiff

8 CALIFORNIA FIRST, LP

APR

2 3

7 013

CLERK OF THE COURT

BY

CAROLYN BALISTRERI

Deputy Clerk

9

10

11

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF

SAN

FRANCISCO

12 CALIFORNIA FIRST,

LP,

a Delaware Limited )

13

Partnership, \

Plaintiff,

14

vs. )

15 CALIFORNIA DEPARTMENT OF GENERAL l

SERVICES; SCOTT HARVEY, in his capacity

16 as Acting Director of the

C a l i f o m i a D e p a r t m e n ~ _ _

)

of General Services; and DOES :through

50,

17 inclusive, -

18

Defendants.

19

20

21

l

l

)

)

)

2 2 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

23

24

25

26

27

28

\

Case No. CGCI0-505436

SECOND AMENDED COMPLAINT

FOR:

1)

SPECIFIC PERFORMANCE OF

CONTR CTFORS LEOFRE L

PROPERTY;

2) BREACH OF CONTRACT;

3) BREACH

OF

COVENANT OF GOOD

FAITH AND FAIR DEALING;

4)

BREACH OF CONTRACT

MODIFIED BY CONDUCT;

5)

BREACH OF IMPLIED CONTRACT;

6) BREACH

OF

COVENANT OF GOOD

FAITH

AND

FAIR DEALING

(MODIFIED AND/OR IMPLIED

CONTRACT)

Date Action Filed: November 16, 2010

SECOND

AMENDED COMPLAINT

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1

2

1

INTRODUCTION

In the face ofwhat is considered to be the worst financial crisis this state has ever

3 experienced, the California Legislature authorized the state

of

California' s Department of General

4 Services ( DGS ) to sell eleven state-owned properties to help reduce California's ballooning

5 budget shortfall, currently estimated at over $25 billion. Following an extensive bidding process

6 spanning several months involving over 300 bidders, in late 2010, while Governor Schwarzenegger

7 was in office, DGS entered into a binding, written 31-page fully-executed contract with California

8 First, LP ( California First ) to sell the eleven properties for the undisputed fair market price of

9 $2.33 billion and lease them back to the state. In its contract, the state expressly agreed that

if

it

10 fails to consummate the transaction contemplated by this Agreement for any reason, California

11 First, LP will be entitled to express legal remedies, including specific performance. The contract

12 sets forth a 30-day time period in which such suit would have to be filed. For months following

13

entering into the contract, DGS and the state, both under the Schwarzenegger administration and

14 later under the newly elected Governor Brown administration, repeatedly affirmed the binding

15 nature of the contract in legal filings, the media and communications with California First, LP and,

16 in response to these affirmations, the purchaser made a $55,000,000 cash deposit for the sale and

17 continued to incur expenses and other obligations associated with the expected closing

of

the

18 transaction. The state admits that it had express contractual obligations requiring it to

19 consummate the contract. Yet, on February 9, 2011, in a sudden and unprovoked turn of position,

20 Governor Brown announced via a televised press conference that the state would not go through

21 with the contract and even went so far as to the declare the contract dead. No matter what

22 political motivations inspired Governor Brown to repudiate the contract, a deal is a deal and

23 Defendants bear the legal obligation to remediate the harm caused to California First, LP for their

24 breach.

25

26

2.

THE P RTIES

Plaintif f California First, LP ( Plaint iff ' or California First ) is and, at all relevant

27 times herein, was a limited partnership organized and existing under the laws ofDelaware and is

28 and was at all times mentioned herein qualified to do business in California.

SECOND AMENDED

OM

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A

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3

Plaintiff is informed and believes and therefore alleges that Defendant California

2 Department of General Services ( DGS ) is and, at all relevant times herein, was a state department

3 which acts as the business manager for the state of California by providing services including

4 procurement and acquisition, real estate management, leasing and design services. (Gov. Code

5 14600 et seq.).

6

4.

Plaintiff is informed and believes and therefore alleges that Defendant Scott Harvey

7 ( Harvey ) is the Acting Director

of

the California DGS and therefore the head

of

DGS. (Gov.

8 Code 14605). Plaintif f brings this action against Harvey in his official capacity. (DGS and

9 Harvey may be referred to collectively herein as Defendants ).

10

5

Plaintiff does not know the true names and capacities of those defendants sued

11 herein as DOES through 50, inclusive, and therefore sues these defendants by such fictitious

12 names. Plaintiff will amend this Complaint to allege their true names and capacities when such are

13

ascertained. Plaintiff is informed and believes, and on that basis alleges, that each of the

14 defendants sued herein as DOES 1 through 50, inclusive, are in some manner legally responsible

15

for the wrongful acts set forth herein.

16

17

6

VENUE

A portion

of

the real property that is the subject

of

this action is located in the City

18

and County of Los Angeles, making the Superior Court of Los Angeles a proper court for the trial

19

of

this matter (Cal. Code Civ. Proc. 392(a)(l)), specifically the real property at the following

20 addresses:

21 300 South Spring Street in the City and County of Los Angeles; and

22 320 West 4th Street

in

the City and County of Los Angeles.

23

F CTU L LLEG TIONS

24 A.

25

The Legislature uthorizes DGS to Sell Eleven State Buildings

7

In 2009, in response to California's budget crisis, the Legislature and Governor

26 Schwarzenegger took decisive action. Chapter 20, Statutes

of

2009 (AB 22), passed by the

27 Legislature

in

July 2009, authorized DGS to sell and lease

back

to the state eleven state properties.

28 ee Gov t

Code

14670.13. AB 22 was approved in the Senate on a 37 to 0 vote and in the

2

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COMPL INT

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1 Assembly by a margin

of

76 to 3 The eleven properties include: (1) Attorney General Building,

2 1300 I Street, Sacramento, California; (2) Capital Area East End Complex, 1430

N

Street; 1500,

3 1501, 1615 and 1616 Capital Avenue, Sacramento, California; (3) Department

of

Justice Building,

4 4949 Broadway, Sacramento, California; (4) Franchise Tax Board Complex, 9645 Butterfield Way,

5 Sacramento, California; (5) California Emergency Management Agency Building, 3650 Schriever

6 Avenue, Sacramento, California; (6) Judge Joseph Rattigan Building, 50 Street, Santa Rosa,

7 California; (7) Elihu Harris Building, 1515 Clay Street, Oakland, California; (8) Edmund G Brown

8 Building (Public Utilities Commission),

505

Van Ness Avenue, San Francisco, California; (9) San

9 Francisco Civic Center, 350 McAllister Avenue and 455 Golden Gate Avenue, San Francisco,

10 California; (10) Junipero Serra State Building, 320 West Fourth Street, Los Angeles, California;

11 and (11) Ronald Reagan State Building, 300 South Spring Street, Los Angeles, California

12

(collectively referred to as the Properties ). Governor Schwarzenegger signed AB 22

as

urgency

13

legislation so that it became effective immediately.

14

8

Government

ode

14670.13 (AB 22) authorizes DGS to sell the Properties and

15

lease the buildings back from the new owners through long-term leases. The purpose of a sale-

16

leaseback, like the one authorized by AB 22, is

to

free

up

the original owner's equity while

17

allowing the owner to retain the use

of

the property. The leaseback component

is

essential to the

18

state since it will continue to need space in the buildings included in the sale.

19

9

Government

ode

14670.13 (AB 22) gives DGS broad discretion in determining

20 the terms and conditions

of

any transaction. Government

ode

14670.13(a) provides:

21

Notwithstanding any other law, but subject to the conditions specified in subdivision (c)

22 [providing that the proceeds of a sale will be used to defease or otherwise retire lease revenue

23 bonds on the real property and buildings at issue], the Department of General Services may enter

24 into a sale or long-term lease

of

the properties specified in subdivision (b). A sale or long-term

25 lease entered into pursuant to this section may include an option for the state to repurchase that

26 property or building,

or

both. The Director ofGeneral Services may determine the other terms and

27 conditions that shall be imposed upon that sale or lease, for the best interest of the state. Any sale

28

of

property pursuant to this section shall be for

no

less than fair market value.

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10.

The Legislature also required that, thirty days prior to executing any sale or lease

2 agreement, the Director must report to the chairs

of

the fiscal committees to the Legislature the

3 terms and conditions of the transaction, including, but not limited to, the financial terms, so that

4 the Legislature could exercise oversight

of

the transaction.

ee Gov t Code

14670.13(e). The

5 Legislature can use this notification period to scrutinize the deal and stop the sale if it is

6 unfavorable to the state. ee Legislative Analyst's Office Report dated April 27, 2010, p. 16.

7

B DGS Exercises Its uthority to Select Purchaser nd Chooses California First

8

11.

To implement AB 22, DOS conducted a competitive process to select a nationally

9 recognized commercial real estate brokerage firm -- CB Richard Ellis ( CBRE ) -- to assist with

10 the marketing of the Properties and to evaluate the purchase offers.

11

12.

In consultation with CBRE, a managed bid process was selected to achieve the

12 maximum price and provide the highest certainty of closure. Successive rounds

of

offers to reduce

13

the pool of bidders based upon price, ability to close and other factors were implemented. During

14 each successive round, prospective buyers conducted, reviewed, reconciled, addressed and/or

15 priced due diligence matters in their revised offers.

16

13.

Initial offers on the Properties were due April 14, 2010. CBRE s marketing effort

17

resulted in a total

of

391 offers

on

the eleven properties from sixty-four entities. The offers

18 included individually priced offers

on

each building; however, the most aggressive pricing came

19

largely from 30 offers for the entire portfolio. Portfolio buyers were given the opportunity to

20 submit a second round

of

offers on May 11. CBRE received 16 increased portfolio offers, 11 of

21

which exceeded the state's $2 billion estimate

of

the value

of

the properties. Those 11 bidders

22 were then invited to submit a 'best and final' offer by May 21. State

of

California Selects Buyer

23

for State Buildings, California Department of General Services ( DOS ) Press Release, October

24 11, 2010, p. 2,

3

25

14.

From May 21 to October 11 2011, DOS, in conjunction with CBRE, its broker,

26 evaluated the top offers. As reported by DOS in its October 11th press release: This evaluation

27 included a comprehensive analysis of each of the 11 best and final offers which included separate

28 interviews with each finalist. Buyers were evaluated based

on

a reconciliation

of

two primary

4

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1 factors -- price and certainty

of

execution.

CB

Richard Ellis investigated with DGS the bidder's

2 track record; and how much due diligence the bidder had done on the state properties prior to

3 making a buyer selection. As a result of the lengthy bidding process, DGS accepted California

4 First's offer of $2.33 billion for the Properties. Quoting from the state's Emergency Motion for

5 Relief From Stay; Memorandum; Order; Relief Requested by Monday December 20, 2010 at 12:00

6 Noon, filed in the Court

of

Appeal

of

the State

of

California, Sixth Appellate District, December

7

16 2010, p. 3 r

2.

15.

On October 11, 2010, DGS announced it had selected California First as the buyer

9 for the Properties and issued an award letter

to

California First. In a press release issued on

10

October 11, DGS stated, in relevant part: The winning offer was $2.33 billion -- resulting in more

11

than $1.2 billion for the state general fund, and $1. 09 billion to pay off bonds on the buildings.

12 Over the next 20 years, the state will lease the offices back from the new owner at predetermined

13

rates, and will no longer maintain, operate, or repair the buildings. All the leases with California

14

First allow the state to buy back any or all

of

the buildings at anytime during the 20-year term.

15

State of California Selects Buyer for State Buildings, DGS Press Release, October 11 2010, p.

16

1 ifl.

17 16.

In the press release, then-Acting DGS Director Ron Diedrich stated: After an

18 extensive review of the more than 300 bids that were received, I have determined that this offer

19

presents the best value for the state and achieves the goals set forth by the Legislature and

20 Governor. He further stated: This sale will allow

us

to bring in desperately needed revenues and

21

free the state from the ongoing costs and risks of owning real estate. State of California Selects

22 Buyer for State Buildings, DGS Press Release, October

11

2010,

p. 1 if

2.

23 17. On October 11, 2010, DGS reported to the Joint Legislative Budget Committee on

24 the terms and conditions of the proposed transaction with California First, including the financial

25

terms, as required by AB 22. In his letter to the Legislature, then-Acting DGS Director Ron

26 Diedrich shared the department's economic analysis

of

the sale comparing the status quo

27 ownership

of

the buildings to the sale and leaseback transaction. Using a series

of

reasonable and

28

prudent assumptions, the state's analysis showed that the sale would allow California

to

retire

5


38831/001/ 1017505


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1 $1.

09

billion in bond debt, leaving over $1.2 billion in new revenues

to

shore

up

the state budget

2 and,

as

a result, would eliminate the need for more program cuts statewide or tax increases. The

3 state concluded that, by no longer owning the Properties, the state would eliminate annual

4 operating expenses. The state also concluded that in entering into the transaction, the state would

5

no

longer have the responsibility for deferred and major capital improvements for each of the

11

6 properties, nor would it bear the obligation to pay for unforeseen and unpredictable repairs that are

7 inevitable due to the age

of

the buildings sold. DGS estimated the sale-leaseback would result in

8 2 million of savings in the first 20 years. In essence, the state confirmed that the transaction

9 would result in an immediate infusion

of

revenue

to

meet the state's budget crisis and would save

10 the state money for years forward under the lease component of the transaction. DGS

11

Correspondence from Ronald L. Diedrich to Joint Legislative Budget Committee, October

11,

12 2010.

13

18.

On November 5, 2010, the Legislative Analyst's Office ( LAO ) provided the

14

Legislature with a summary and analysis of the sale-leaseback transaction. The LAO provides

15 fiscal and policy advice to the Legislature.

t is

overseen by the Joint Legislative Budget

16 Committee, a 16-member bipartisan committee. In independently reviewing the sale-leaseback

17

transaction with California First, the LAO concluded that the sales price constituted fair market

18 value. On page 2

of

that report the LAO stated: Although the legislation gave DGS the authority

19 to determine most aspects of the sale and lease, it requires the sale price to be no less than market

20 value.

The

sale price of $2.3 billion meets this condition by all measures

of

which we are

21

aware.

(Emphasis added). LAO Correspondence from Michael Cohen, Deputy Legislative

22 Analyst to Legislative Budget Committee, November

5,

2010, p. 2, 4.

23 c.

24

25

DGS Enters Into A Binding ontract With California First For the Sale of the

Properties

19.

On November 15, 2010, more than thirty days after DGS provided its report to the

26

Legislature, the state entered into the Purchase and Sale Agreement with California First (the

27

Contract ) for the sale of the Properties for $2.3 billion. A true and correct copy

of

the Contract

is

28

6

SECOND MENDED COMPL INT

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1 attached hereto as Exhibit A. This resulted in $1.2 billion in general funds revenue available to the

2 state after existing obligations on the buildings are satisfied.

3

20.

As part

o

its own decision to enter into the Contract, California First conducted due

4 diligence on the Properties and was prepared to complete the transaction without contingencies.

5

21.

Pursuant to the Contract, DGS would enter into long-term leases at predetermined

6 rates, and would no longer bear the responsibility to maintain, operate, or repair the buildings.

7 California First's affiliate, California First, LLC, would assume responsibility for managing the

8 leases and Properties.

9

22.

In Section 4.2.1 DGS represents and warrants that it has the power to enter into this

1O Agreement and to execute and deliver this Agreement and to perform all duties and obligations

imposed upon it hereunder, and that it has obtained all necessary approvals required in

12 connection with the execution, delivery and performance

o

this Agreement and the transaction

3

contemplated herein and has obtained the consent

o

all entities and parties (whether private or

14 governmental) necessary to bind [DGS] to this Agreement.

5

23.

California First performed all conditions, covenants and promises required o it to

6

be performed in accordance with the terms and conditions o the Contract, except for those

7

conditions, covenants and promises

o

which performance has been legally excused. For example,

8 pursuant to the terms

o

the Contract and with the permission, acquiescence and/or agreement o

19 the state, California First had deposited fifty-five millions dollars ($55,000,000.00) into an escrow

20 account and in reliance on the state's ongoing and repeated affirmation

o

its ability and intent to

2 perform its own contractual obligations to California First.

22

24.

The transaction was set to close thirty days after November 15, 2010, which was

23 December 15, 2010.

24

25.

During the period o time from November 15, 2010 to December 15, 2010, DGS

25 and California First devoted substantial time and effort to timely close the transaction. During this

26 time, for example, DGS continued to prepare and deposit documents into escrow for purposes o

27 closing the transaction; DGS prepared and disseminated draft escrow instructions for a December

28 15, 2010 closing; DGS worked with the courts to resolve any alleged ownership interests the courts

SECON D AMENDED COMPLAINT

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claimed with respect to the personal property included in the Contract; DGS worked with

2 California First to resolve title insurance issues relating to the transaction; and DGS and California

3 First worked together to prepare and execute leases and other ancillary documents in connection

4 with the Contract. Moreover,

on

December 9, 2010, DGS submitted final, executed escrow

5 instructions to the escrow agent, First American Title Company, a true and correct copy of which is

6 attached as Exhibit B hereto (the December 9 Escrow Instructions ).

26.

Section 7

1 of

the Contract provides that,

if

DGS fails to consummate the

8 transaction contemplated by the Contract

or

otherwise breaches the Contract, California First may

9 either terminate the Contract or pursue the remedy of specific performance of Seller's obligations

10 under this Agreement. Section 7 1 further provided that any suit for specific performance must be

11 filed within thirty days after California First first becomes aware

of

the breach r default by DGS.

12

27.

Section 7.1

of

the Contract further provides that California First has the right to sue

13 DGS for damages as a result

of

a breach

of

the Contract.

14

28.

Section 9.9 of the Contract provides that the prevailing party in any action to

15 enforce the terms of the Contract shall be entitled to recover reasonable attorneys' fees, in addition

16 to other damages

or

remedies.

17

D

18

19

The State Successfully Fights

ff

Efforts By Two Former Building Commissioners

t

Block the Sale of the Properties in San Francisco Superior Court

29.

n November 16, 2010, the day after the Contract was entered into, two former

20 members

of

the Los Angeles State Building Authority Governing Board dismissed by Governor

21 Schwarzenegger, initiated an action in San Francisco Superior Court as private taxpayers

22 alleging the transaction was illegal and unconstitutional and seeking to enjoin the closing of sale of

23

the Properties pursuant to the Contract. Epstein et

al v

Arnold Schwarzenegger et al. San

24 Francisco Superior Court Case No. CGC-10-505436 (the Epstein Action ).

25

30.

The Epstein Action sought a writ of mandate to compel Governor Schwarzenegger,

26 DGS and the Acting Director of DGS at the time, Diedrich, to allow the Judicial Council to

27 exercise its authority and control over the appellate court facilities that are among the Properties. It

28 further sought to enjoin the sale

of

the Properties on that basis and further alleged that the Contract

8

SECOND

AMEN

D

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OM PLAINT

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1 constitutes an illegal expenditure and illegal waste of public funds and an unconstitutional gift

2 of public goods. Petition for Writ of Mandate; Complaint for Injunctive Relief and Declaratory

3 Relief for: Failure to Comply with State Law, Waste

of

Public Funds, Unconstitutional Gift of

4 Public Goods, Epstein et

al v

Arnold Schwarzenegger et al. San Francisco Superior Court Case

5 No. CGC-10-505436, p. 24,

if

58, lines 26-27.

6

31.

The state assured California First that it would oppose the motion and it did so. The

7 state advised California First that it believed it would successfully defeat the motion. Amongst

8 other things, the state opposed the motion by informing the court that the transaction was not

9 unlawful and that it was concerned that failure to consummate the sale would result in a breach of

10 contract, causing significant harm to the state as a result.

11

32.

For example, on November 22, 2010, in its Opposition to the Epstein plaintiffs'

12

motion for preliminary injunction, the state admitted, .. the sales transaction as authorized by the

13

Legislature fully complies with California law . . . [there is] no evidence that the transaction is

14 unlawful, no basis exists for the issuance of a preliminary injunction. Respondent's /Defendant's

15

Opposition to Petitioner/Respondents' Ex Parte Application for Temporary Restraining Order and

16 Order to Show Cause Re Preliminary Injunction Motion,

Epstein et

al v

Arnold Schwarzenegger

17 et al. San Francisco Superior Court Case No. CGC-10-505436, p.

1

18

33.

Consistent with the positions it took in the Epstein Action and in its statements to

19 California First, the state publicly reported that it intended to complete the sale of the Properties.

20 The lawyer hired

by

Governor Schwarzenegger to represent the state is reported in an LA Times

21

news article

on

November 26, 2010 as stating that the state intends to complete the sale of the

22 Properties.

23

34.

On December 10, 2010, the trial court denied the former building commissioners'

24 application for a preliminary injunction. The court's order provides in pertinent part:

25

Selling the buildings does not violate G.C. section 69204 (Judicial Council exercises

authority). G.C. section 14670.13 states Lb at notwithstanding any other law the

26 sale can go forward. G.C section 69204 does not designate the Judicial Council as

the owners of the buildings and its auth rization i.s not required. Se lling the

27 buildings does not implicate the separation ofpowers doctrine

or

affect a core

function of the judicial branch. See Superior Court of Mendocino

v

C nnty of

28 Mendocino (1996) 13 Cal 4th 45. The Court will not interfere with the discretion of

9

SECOND

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COMPLAfNT

38831/001/ 1017505


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the executive and legislative branches.

2

3 Additionally, there has been no i

ll

egal d legation of authority. The legislature was

specific in its del

eg

ation identified specific buil lings, and stated the price

of

fair

4 market value

or

gre

at

er The gis lature requfred defendant to report back before the

deal was consummated.

5

6

7

8

9

IO

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Order Denying Petitioner/Plaintiffs' Application for Preliminary Injunction and Intervenor's

Joinder Thereto,

Epstein et

al v

Arnold Schwarzenegger et al.

San Francisco Superior Court Case

No

. CGC-I0-505436, p . 2, lines 6-12 and 15-17.

E. The State Continues to Vigorously Oppose the Former Building Commissioners

Efforts to Prevent Consummation o the Contract n the Court o Appeal

35.

On

December 13, 20IO, the former building commissioners appealed the trial

court's order and requested a stay of the sale until a hearing.

36. The state continued to assure California First that it intended to and would complete

the transaction pursuant to the Contract it had signed and would continue to act to defeat the former

building commissioners ' efforts to block the sale.

37.

On

December 15, 20IO, in its Preliminary Opposition to the Petition, in the Court of

Appeal, the state argued: In seeking to enjoin the sale, Petitioners asked the Court to rewrite the

contract and prevent the State from meeting its express contractual obligations. This the Court

cannot do. Real Parties in Interest' s Preliminary Opposition to Petition, In the Court ofAppeal of

the State of California Sixth Appellate District (Case No. H036265), p. 11

38. On December 16, 2010, the state filed an Emergency Motion for Relief from Stay,

urging the Court

of

Appeal to lift the stay and permit the sale

of

the Properties to close. In its

Emergency Motion for

Relief

from Stay, the state affirms the existence of the Contract, its intent

and efforts to perform its obligations under the Contract and the harm that would result

if

the state

and the Legislature's intent were not followed. The state made the following important admissions

in that motion:

On November 15, 20IO, pursuant to ... enabling legislation, and following a lengthy

bidding process, DGS entered into a Purchase and Sale Agreement with California First,

IO


38831/001/ 1017505


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1 LLP to sell the buildings for $2.3 billion, resulting in $1.2 billion in General Funds revenue

2 available to the state after existing obligations on the buildings are satisfied;

3 DGS has been diligently working toward completing all necessary actions in time to close

4 escrow on the transaction on December 15, 2010;

5 The Stay Order is .. . jeopardizing a $2.3 billion transaction specifically authorized by the

6 Legislature and is depriving the state

of

$1.2 billion in desperately needed General Fund

7 Revenue;

8 Whatever interest the Stay Order purportedly protects is outweighed by its improper

9 interference with the Legislature's authority, and it thus constitutes an untenable frustration

10

of

the Legislature's intent. and

11 ... [I]t is absolutely untenable that three disgruntled taxpayers are being permitted to

12

single-handedly delay (and thereby threaten) the Legislature's plan to sell certain assets to

13 help alleviate an immediate financial crisis. The will of the people

of

California, express

14

through their dully elected Legislature, cannot be

so

easy to subvert.

15

Emergency Motion for Relief from Stay; Memorandum; Order, In the Court

of

Appeal

of

the

16

State

of

California Sixth Appellate District (Case No. H036265), Dated: 12/16/10, pp. 2-3, 5-6,

9

17

39.

On or about December 21, 2010, Arnold Schwarzenegger, Ron Diedrich, and DGS,

18

in their continuing effort to effectuate the sale

of

the Properties, filed a Petition for Extraordinary

19

Relief, including Writ

of

Mandate and Request for Immediate Relief from Stay and Memorandum

20 with the California Supreme Court (the Supreme Court Petition ).

21

40.

The state's Supreme Court Petition not only recognized a binding agreement to sell

22 the Properties to Plaintiff, but characterized it as a vital sale that would provide the state of

23

California with $1.2 billion in desperately needed revenue in the midst

of

an unprecedented

24 financial crisis. The state urged the Supreme Court to issue a preemptory writ

of

mandate

25

commanding the Court of Appeal to vacate its December 13, 2010 Stay Order and issue a new

26 order denying the stay. Petition for Extraordinary Relief, including Writ of Mandate and Request

27 for Immediate Rel ief from Stay, California Supreme Court, p 3, 3 and p 5,

6

28

11

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1

41.

Despite these efforts, on December 28, 2010, the California Supreme Court issued

2 its Order denying the Supreme Court Petition for Writ of Mandate and Request for Immediate

3 Relief from Stay.

4 F. After

the Change

in Administration, the State Continues to Assure California First

5 that t Will Complete

the Transaction

6

42.

On

or

about January 3, 2011, Governor Brown was sworn in as Governor of

7 California to replace Governor Arnold Schwarzenegger. In or about January 2011, Scott Harvey

8 became Acting Director

of

DGS.

9

43.

At a January 10, 2011 press conference, Governor Brown reaffirmed the state's

10 intent to consummate the Contract by revealing his proposed budget, which included the money the

state would receive once the Contract was consummated.

12

44.

While California First understood from press reports that political pressures were

3

being placed

on

Governor Brown with respect to the Contract throughout January 2011, the state

14 repeatedly assured the public and California First that it would consummate the transaction.

5

45.

On

January 27, 2011 the Court of Appeal granted Service Employees International

16 Union, Local 1000 application to file an Amicus rief in Support of the Epstein plaintiffs in the

17 Court

of

Appeal.

8 G.

19

Suddenly, Without Warning to California First, Governor rown Repudiates the

Contract

20

46.

At a February 9, 2011 press conference, Governor Brown announced, for the first

2 time and in contradiction to past statements, that the state would not proceed with the sale

of

the

22 Properties.

23

47.

On the same day, Mr. Harvey transmitted a letter to Plaintiff purporting to terminate

24 the Contract (the Terminat ion Letter ). A true and correct copy of the Termination Letter is

25 attached hereto as Exhibit C.

26

48.

The Termination Letter provides as follows:

27

J

am writing

to

let you know

th

at the proposed sale of the state-owned

properties authorized

y

Government Code secti.on 14670.13 will not proceed any

28 further. Accordi

ng

ly the Departm ent of General Services is rejecting all bids, to

2


38831/001/ 1017505


14/22

1 include that submitted by California First. We will notify the escrow agent to

terminate the escrow account.

2

3

4

5

6

7

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

49. The Termination Letter erroneously refers to the Contract as a proposed sale,

contradicting prior public statements and judicial admissions

made by

the state that there was a

binding contract between DGS and California First. For example, in the Epstein Action, the state,

in its efforts to effectuate the sale

of

the Properties, filed the Declaration

of

Robert McKinnon in

Opposition to Petitioners/Plaintiffs'

Ex

Parte Application for a Temporary Restraining Order and

Order to

Show

Cause Re Preliminary Injunction (the

McKinnon

Declaration ). The McKinnon

Declaration provides that Mr. McKinnon was, at that time,

an

Assistant Branch Chief with DGS

that was charged with managing the implementation of Government Code Section 14670.13

relating to the sale

of

the eleven state-owned properties.

McKinnon

Deel., pp. 1-2, 1-2.

50. The

McKinnon

Declaration acknowledges that

DGS

accepted California First's

offer of $2.33 billion for the entire

11

state buildings and that on November 15, 2010, the State

entered into a Purchase and Sale Agreement with California First. McKinnon Deel., p. 2, 9; p.3,

11.

H. California First Timely Demands Performance

51.

By

letter dated March 4, 2011, California First wrote to Mr. Harvey and DGS

demanding that the state perform all obligations required of it pursuant to the Contract and rescind

the attempted termination set forth

in

the February 9, 2011 letter.

52.

By

letter dated March 7, 2011, DGS advised California First that it would not

rescind its February

9

2011 letter.

53

. Pursuant to Section 7.1 of the Contract, California First files this action for specific

performance within thirty days after it first becomes aware of the breach or default by DGS.

FIRST

CAUSE

OF ACTION

(Specific Performance Against All Defendants)

54.

Plaintiff

re-alleges and repeats paragraphs 1 through 53, inclusive, as though set

forth in full herein.

55. The consideration set forth in the Contract was fair and reasonable at the time of

execution

of

the Contract.

3


38831/001/ IOI7505


15/22

2

56.

57.

The Contract is fair, just, and reasonable in all respects as to the Defendants.

Plaintiff has performed all conditions, covenants and promises required of it to be

3 performed in accordance with the terms and conditions of the Contract, except for those conditions,

4 covenants and promises ofwhich performance has been legally excused.

5

58.

Plaint iff is now and has been ready, willing and able to perform under the terms and

6 conditions required of it in accordance with the Contract and has offered, and continues to offer, to

7 perform them, except those that are excused by Defendants breach of the Contract, or otherwise.

8

59.

Defendants have failed and refused and continue to fail and refuse to perform the

9 terms and conditions

of

the Contract, which are required

on

their part, and Plaintiff is entitled to an

10 order requiring Defendants to specifically perform the terms and conditions of the Contract.

11

60.

California First has no adequate legal remedy at law in that the Properties are unique

12 and, pursuant to Civil ode 3387, monetary damages are presumed inadequate for the breach. As

13 such, Plaintiff needs and seeks an order requiring Defendants to specifically perform under the

14 terms of the Contract by selling the Properties to California First pursuant to the terms of the

15 Contract. Moreover, Section 7 1 of the Contract unambiguously gives Plaintiff the right to seek

16 specific performance

of

the Contract as a remedy upon Defendants default or breach. California

17 First is also entitled to an equitable accounting for all incidental losses it suffered or additional

18 costs it incurred as a result of Defendants failure to convey the Properties on the date specified in

19 the Contract, such that performance is related back to the date specified in the Contract so as to

20 fully vindicate

Plaintiffs

contractual rights. California First s incidental losses include, but are not

21 limited to, any increased financing costs and lost revenue it would have derived from its ownership

22 and operation

of

the Properties as of the date specified in the Contract.

23

24

25

61

SECOND CAUSE OF ACTION

Breach

o

Contract Against All Defendants -- Pied

n

the Alternative)

Plaintiff re-alleges and repeats paragraphs 1 through 53, inclusive, as though set

26 forth in full herein.

27

28

38831/001/ 1017505

14

SE OND AMENDED COMPLAINT


16/22

1

62. Plainti ff has performed all conditions, covenants and promises required

of

it to be

2 performed in accordance with the terms and conditions of the Contract, except for those conditions,

3 covenants and promises of which performance has been legally excused.

63.

Plainti ff is now and has been ready, willing and able to perform under the terms and

5 conditions required of it in accordance with the Contract and has offered, and continues to offer, to

6 perform them, except those that are excused by Defendants breach of the Contract, or otherwise.

7

64. Defendants have failed and refused and continue to fail and refuse to perform the

8 terms and conditions of the Contract, which are required on their part, and Plaintiff is entitled to an

9 order requiring Defendants to specifically perform the terms and conditions

of

the Contract.

1

65.

In the alternative to the specific performance remedy, and as a result of Defendants

breach of the Contract, California First has been damaged in an amount in excess of this Court s

2 jurisdiction to be proven at the time of trial.

3

THIRD CAUSE OF ACTION

4 Breach of

Covenant of

Good Faith

and

Fair Dealing Against

All Defendants -- Pied in the

5 Alternative)

16 66.

Plaintiff re-alleges and repeats paragraphs 1through53, inclusive, as though set

1

7


8

67.

Defendants owed California First an obligation

of

good faith and fair dealing, which

9

required that they refrain from any acts or omissions that would destroy

or

materially impede

20 California First s right to receive the benefits to which

it

is entitled under the Contract.

2 68.

Defendants engaged in the activities alleged herein notwithstanding the existence of

22 the covenant of good faith and fair dealing, and, in doing so, deprived and will deprive Plaintiff of

23

the benefits to which it was and is entitled under the Contract. Specifically, Defendants unilaterally

24 terminated the Contract without cause and refused to perform their duties under the Contract, thus

25

depriving Plaintiff of the benefit to which it is entitled. The acts alleged above, among others,

26 constitute breaches by the Defendants of the covenant of good faith and fair dealing.

27

28

38831/00111017505

5

SECOND AMEND D COMPLAINT


17/22

1

69.

In the alternative to the specific performance remedy, and as a result ofDefendants'

2 breach of the Contract, Plaintiff has been damaged in an amount in excess of this Court's

3 jurisdiction to be proven at the time

of

trial.

4 FOURTH CAUSE

OF

CTION

5 (Bre.ach

of

Contract Modified By Conduct Against All Defendants -- Pied in the Alternative)

70.

Plaint iff re-alleges and repeats paragraphs 1 through 53, inclusive, as though set


8

71.

DGS, by and through its conduct, modified the Contract, the material terms ofwhich

9 are reflected in the December 9 Escrow Instructions (the Modified Contract ).

1

72.

Plaint iff has performed all conditions, covenants and promises required of it to be

11 performed in accordance with the terms and conditions of the Modified Contract, except for those

12 conditions, covenants and promises

of

which performance has been legally excused.

3

73.

Plaintiff is now and has been ready, willing and able to perform under the terms and

14 conditions required of it in accordance with the Modified Contract and has offered, and continues

15 to offer, to perform them, except those that are excused by Defendants' breach

of

the Modified

16 Contract,

or

otherwise.

17

74.


18

terms and conditions of the Modified Contract, which are required on their part, and Plaintiff is

19 entitled to an order requiring Defendants to specifically perform the terms and conditions

of

the

20 Modified Contract.

21

75.


22 and, pursuant to Civil Code 3387, monetary damages are presumed inadequate for the breach. As

23 such, Plaintiff needs and seeks an order requiring Defendants to specifically perform under the

24 terms of the Modified Contract by selling the Properties to California First pursuant to the terms

of

25 the Modified Contract. California First is also entitled to an equitable accounting for all incidental

26 losses it suffered or additional costs it incurred as a result

of

Defendants' failure to convey the

27 Properties

on

the date specified in the Modified Contract, such that performance is related back to

28 the date specified in the Modified Contract so as to fully vindicate

Plaintiffs

contractual rights.

16


38831/00111017505


18/22

1 California First' s incidental losses include, but are not limited to, any increased financing costs and

2 lost revenue it would have derived from its ownership and operation

of

the Properties

as of

the date

3 specified in the Modified Contract.

76

In the alternative to the specific performance remedy, and as a result of Defendants'

5 breach

of

the Modified Contract, California First has been damaged in an amount in excess

of

this

6 Court's jurisdiction to be proven at the time

of

trial.

7 FIFTH CAUSE OF ACTION

8 (Breach

of

Implied Contract Against All Defendants -- Pied in the Alternative)

9

77.

Plaintiff re-alleges and repeats paragraphs 1through53 inclusive, as though set

10


11

78

DGS, by and through its conduct on and after November 18, 2010 entered into an

12 implied contract to sell the Properties to California First, the material terms

of

which are set forth in

13

the December 9 Escrow Instructions (the Implied Contract ).

14

79.

Plaintiff has performed all conditions, covenants and promises required

of

it to

be

15 performed in accordance with the terms and conditions

of

the Implied Contract, except for those

16

conditions, covenants and promises

of

which performance has been legally excused.

17

80 Plaintiff is now and has been ready, willing and able to perform under the terms and

18 conditions required of it in accordance with the Implied Contract and has offered, and continues to

19 offer, to perform them, except those that are excused by Defendants' breach

of

the Implied

20 Contract, or otherwise.

21

81.


22 terms and conditions of the Implied Contract, which are required on their part, and Plaintiff is

23 entitled to an order requiring Defendants to specifically perform the terms and conditions

of

the

24 Implied Contract.

25

82


26

and, pursuant to Civil

Code

3387, monetary damages are presumed inadequate for the breach.

As

27

such, Plaintiff needs and seeks an order requiring Defendants to specifically perform under the

28 terms of the Implied Contract by selling the Properties to California First pursuant to the terms

of

17

SEC

ON

D AMENDED COMPLAINT

38831/001/ 1017505


19/22

the Implied Contract. California First is also entitled to an equitable accounting for all incidental

2 losses it suffered or additional costs it incurred as a result of Defendants failure to convey the

3 Properties on the date specified in the Implied Contract, such that performance is related back to

4 the date specified in the Implied Contract so as to fully vindicate Plaintiffs contractual rights.

5 California First s incidental losses include, but are not limited to, any increased financing costs and

6 lost revenue it would have derived from its ownership and operation of the Properties as

of

the date

7 specified in the Implied Contract.

8 83. In the alternative to the specific performance remedy, and as a result of Defendants

9 breach

of

the Implied Contract, California First has been damaged in an amount in excess of this

1 Court s jurisdiction to be proven at the time

of

trial.

11

SIXTH

CAUSE

OF ACTION

12 (Breach

of Covenant of

Good

Faith

and

Fair

Dealing in Modified Contract

and or

Implied

13 Contract Against All Defendants -- Pied in the Alternative)

14 84. Plaintiff re-alleges and repeats paragraphs 1 through 53, inclusive, as though set


16

85. Defendants owed California First an obligation

of

good faith and fair dealing, which

17 required that they refrain from any acts or omissions that would destroy or materially impede

18 California First s right to receive the benefits to which it is entitled under the Modified Contract

19 and/or the Implied Contract.

20 86. Defendants engaged in the activities alleged herein notwithstanding the existence of

21 the covenant

of

good faith and fair dealing, and, in doing so, deprived and will deprive Plaintiff

of

22 the benefits to which it was and is entitled under the Modified Contract and/or the Implied

23 Contract. Specifically, Defendants unilaterally terminated the Modified and/or the Implied

24 Contract without cause and refused to perform their duties under the Modified and/or the Implied

25 Contract, thus depriving Plaintiff of the benefit to which it is entitled. The acts alleged above,

26 among others, constitute breaches by the Defendants of the covenant of good faith and fair dealing.

27

28

SE

MPL N

38831/001/ 1017505


20/22


21/22

1 incurred as a result of Defendants failure to convey the Properties on the date specified in the

2 Modified Contract;

3

2.

In the alternative to the specific performance remedy, for general and compensatory

4 damages in

an amount according to proof at the time of trial;

5

6

3.

4.

For costs of suit herein incurred, including reasonable attorneys fees; and

For prejudgment interest.

7 ON

TH FIFTH

CAUSE

OF

ACTION

8

1

For a decree that Defendants

be

ordered

and

directed to convey the Properties to

9 Plaintiff pursuant to the terms

of

the Implied Contract, and that the Cour t perform an equitable

10 accounting and compensate Plaintiff for all incidental losses it suffered or additional costs it

11

incurred as a result of Defendants failure to convey the Properties on the date specified in the

12 Implied Contract;

13

2.

In

the

alternative to the specific performance remedy, for general and compensatory

14 damages in

an amount

according to proof at the time

of

trial;

15

16

3.

4.

For costs of suit herein incurred, including reasonable attorneys fees; and

For prejudgment interest.

17

ON

TH

SIXTH CAUSE

OF

ACTION

18

1

In the alternative to the specific performance remedy, for general and compensatory

19 damages in

an amount

according to proof at the time

of

trial;

20

21

22

23

4

25

26

27

28

2.

3.

38831/001/ 1017505

For

costs of suit herein incurred, including reasonable attorneys fees; and

For

prejudgment interest.

20

SECOND

M

NDED COMPLAINT


22/22

1

ON ALL CAUSES OF ACTION

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

2

21

22

23

24

25

26

27

28

1

2

For

costs

of

suit herein incurred, including reasonable attorneys fees; and

For

such other relief as the Court deems just or proper.

Dated: April 23, 2013

LINER GRODE STEIN Y ANKELEVITZ

SUNSHINE REGENSTREIF TAYLOR LLP

By:

california first llc v. dgs

Documents