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San Diego City Attorney sues to void 101 Ash Street deal, citing anti-corruption law

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Posted at 1:09 PM, Jun 29, 2021

SAN DIEGO (KGTV) — San Diego's city attorney is suing to void two city lease-to-own agreements, including the much-criticized 101 Ash Street deal, claiming the real estate broker who negotiated the deals acted as a volunteer but received millions in unreported compensation.

In a release, City Attorney Mara Elliott said evidence showed, "that commercial real estate broker Jason Hughes, a principal of Hughes Marino, Inc., who was acting as then-Mayor Kevin Faulconer’s 'special volunteer for real estate services,' violated California anti-corruption laws by negotiating the two deals on behalf of the City and then receiving $9.4 million in unreported compensation from the seller."

Elliott's lawsuits are seeking monetary and punitive damages from Hughes, adding that he, "failed to disclose to the City Council that he was secretly paid by other parties for his work."

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"At all times, Hughes publicly held himself to be providing free representation to the City out of a sense of civic duty. The City did not become aware of the secret payments until Elliott began to subpoena documents as part of discovery in litigation over the 101 Ash Street deal," Elliott's release stated.

Elliott added, "Hughes’s conflict of interest prohibited the City from receiving impartial advice regarding alternative locations and better leasing terms. Had the City Council known about the payment to Hughes it reasonably would have behaved differently."

In addition to damages from Hughes, the lawsuits aim to void the city's contracts for the two properties and reimburse the city $24 million paid in rent for 101 Ash Street and $20 million paid in rent for Civic Center Plaza.

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The damages sought from the Civic Center Plaza site are because of the state's anti-corruption law and not directly because of any building issues.

Elliott cited California Government Code section 1090, an anti-corruption law that prohibits public officials from participating in the contract process if they have a financial interest and also prohibits private entities from giving compensation to public officials that would create a financial interest. Elliott argued that Hughes was a public official even though his role was as a "special volunteer."

"It’s now clear why the 101 Ash Street deal has been shrouded in secrecy: at its heart is a massive betrayal of the public trust and a clear violation of California’s anti-corruption laws," Elliott said. "Questions still remain about who else knew of the secret payment to Jason Hughes and what other laws may have been broken. We will continue to dig for answers and to use every tool we can to return taxpayer funds to the city treasury."

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The downtown 101 Ash St. property has sat vacant for most of the last five years. When the city approved its lease-to-own deal for the property in 2016, it intended to move 1,100 city employees into the building. But those plans were soon sidelined after officials discovered major renovations were needed to the building. In December 2019, after the city began to move workers in, the building needed to be vacated after traces of asbestos were found.

Elliott's lawsuits also seek damages from West Coast General Corporation and Argus Contracting LP related to, "their failure to exercise due care with work they performed at the 101 Ash Street building, resulting in significant asbestos contamination that has rendered the building inoperable for the City’s intended purpose."