HomeMy WebLinkAboutClosed Session Correspondence
FREEDMAN + TAITELMAN, LLP
ATTORNEYS AT LAW
1801 CENTURY PARK WEST, FIFTH FLOOR
LOS ANGELES, CALIFORNIA 90067-6007
TEL: (310) 201-0005
FAX: (310) 201-0045
E-MAIL: mtaitelman@ftllp.com
MICHAEL A. TAITELMAN OUR FILE NUMBER
692-714
July 19, 2021
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND EMAIL
(JUSTIN.CLIFTON@PALMSPRINGSCA.GOV)
City of Palm Springs
3200 E. Tahquitz Canyon Way
Palm Springs, CA 92262
Attn: City Manager
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED AND EMAIL
(JEFF.BALLINGER@BBKLAW.COM)
City of Palm Springs
3200 E. Tahquitz Canyon Way
Palm Springs, CA 92262
Attn: City Attorney
City of Palm Springs
3200 E. Tahquitz Canyon Way
Palm Springs, CA 92262
Attn: City Clerk
Re: Notice of Material Default under Orchid Tree Hotel - Amended and Restated Operations
Covenant Agreement No. 8449 dated January 13, 2020 (“Agreement”) between New
Church II, LLC and Cahuilla Church, LLC (collectively, “Owner”) and the City of Palm
Springs (“City”)
Dear City Manager, City Attorney and City Clerk,
My firm is litigation counsel to Owner. This letter shall respond to your letter to Owner and its
counsel, Joshua Gottheim at Canzoneri Gottheim Law LLP. Additionally, this letter shall serve a
notice to City pursuant to Section 7.11 of the Agreement, that City is in material default of the
Agreement. Failure to timely cure these defaults will expose the City to a substantial claim for
monetary damages and other remedies.
City of Palm Springs
July 19, 2021
Page 2
1. Nature of the Material Defaults.
a. City has materially defaulted by failing to acknowledge and agree to a force
majeure extension of the Performance Schedule1 to which Owner is entitled because of the
ongoing worldwide Covid-19 pandemic. Pursuant to Section 7.16 of the Agreement, Owner
timely gave notice to the City of the force majeure conditions, and submitted by letter dated
November 11, 2020 among several other occasions written and verbal requests to revise the
performance schedule, citing the legal basis and facts supporting the extension. For the sake of
brevity, I am incorporating the November 11, 2020 letter and attachments hereby by reference
rather than repeating its entire contents, which include documentation on the decimation of the
hotel lending market and expert testimony under penalty of perjury explaining why, due to
Covid-19’s effect on the market, Owner cannot finalize its expensive plans and proceed to plan
check without a reasonable prospect of having construction financing available at the conclusion
of the plan check process. Contrary to the express terms of the Agreement (including but not
limited to Section 7.15.2 and Section 17.18), the City has wrongfully withheld approval of the
force majeure extension.
b. City’s wrongful and unjustified refusal to acknowledge Owner’s right to an
extension violates the City’s express obligations under the Agreement as well as express and
implied covenants of good faith and fair dealing thereunder. The City’s bad faith has been
manifested by its not only withholding agreement to the extension, but also by other bad faith
conduct such as using the City’s police power to threaten criminal and civil penalties for alleged
code violations, and by issuing public records disparaging Owner and Owner’s development
project (e.g. the City Attorney’s letters of March 18, 2021, June 2, 2021 and July 13, 2021
claiming an historic structure on the site “was allowed to be burned, as a result of the property
owner’s neglect”; that “the City is done hearing reasons why your client cannot or will not meet
the milestones”; and that “the City intends to proceed with exercising its remedies”), thereby
casting a cloud of uncertainty over the Agreement and the project, which cloud has, together
with Covid-19, made financing impossible and has compounded the unprecedented challenges
already created by the disastrous global epidemic.
2. Additional Context. To correct the unfair and inaccurate portrayal of the facts in the
City Attorney’s recent and prior correspondence, it is helpful to review the Agreement in
context. Briefly:
In 2019, Owner acquired the balance of the hotel site by acquiring three separate
buildings all from different owners, and reaffirmed its management agreement with the
premiere ultra-luxury hotel operator in the State of California, Auberge Resorts.
The Agreement was entered into by City and Owner in January 2020, giving Owner the
right to certain tax incentives if it develops a luxury hotel meeting certain standards
within a specified timeframe indicated by milestones on the Exhibit “C” Schedule of
Performance. The Agreement included a detailed and negotiated force majeure clause
1 Capitalized terms not defined in this letter shall have the meaning set forth in the Agreement.
City of Palm Springs
July 19, 2021
Page 3
giving Owner the right to time extensions in the event of delays caused by “disease
epidemic” or other specified causes beyond Owner’s reasonable control.
Owner commenced performance under the Agreement, and timely met the first milestone
by submitting design development plans and other application documents for the
remaining planning approvals (CUP, GPA, etc.).
On March 20, 2020, in view of the emerging Covid-19 health crisis, Owner’s land use
attorney, Joshua Gottheim, e-mailed the City Attorney, stating: “Obviously the impact of
the epidemic and the response by public health officials and legal authorities is changing
on a day by day basis, and so it is impossible to predict at this point whether or not it will
be necessary to invoke a formal force majeure claim for time extension under the TOT
Covenant.” The City reviewed the applications and approved the remaining planning
approvals for Owner’s project on May 7, 2020.
Owner continued to work with its architects, civil engineer and project team for several
months on refining the project plans at a cost of hundreds of thousands of dollars. (Copies
of the voluminous plans demonstrating Owner’s progress were provided to you via a link
in Mr. Gottheim’s letter to the City Attorney dated July 12, 2021; namely
https://www.dropbox.com/sh/74kbovzkfhmnzm6/AAAT7JbaHVRhiecq12Qxk8ZUa?dl=
0.) Work on the plans ceased in mid-2020 as the severity and duration of the pandemic
and its devastating effects on the availability of construction financing increased. Covid-
19 hit hospitality and hotel development particularly hard, by among other things,
shutting down hotels and restaurants, eliminating business travel, chilling leisure travel,
disrupting supply chains and production of building materials, increasing costs, causing
loan defaults, etc.
Over the course of the year 2020, a clear picture was emerging that Covid would be the
most deadly and devastating disease epidemic in the past 100 years. Cases and fatalities
rose steadily in California and across the U.S. from March 2020 through an initial peak in
July 2020, followed by another even more severe peak in January 2021. (See, e.g.
https://covid19.ca.gov/state-dashboard/.)
On November 18, 2020, after several conversations with the City’s planning department
and former city manager, Owner submitted to the City a letter along with documentation
of the legal basis and facts supporting the requested force majeure extension. A few days
later, on November 23, 2020, the City Attorney responded by e-mail, stating: “We’ll
discuss at the City and get back to you soon.”
Rather than getting back to Owner “soon” as the City Attorney had promised and as the
Agreement requires, the City ignored the November 2020 submittal and made no reply
until March 18, 2021 when the City Attorney stated in a letter that Owner had missed the
January 7, 2021 deadline to submit construction plans. The letter, which made no
reference to force majeure and did not purport to be a notice of material default under the
Agreement, nevertheless threatened to commence judicial action to appoint a receiver for
the site based on the City’s allegation that the vacant buildings there constitute a public
nuisance. The City’s failure to timely respond to the November 2020 force majeure
notice (indeed, failure to respond at all) is itself an acknowledgment of the right to the
force majeure extension. At a minimum, the City is estopped from rejecting the force
majeure extension given its failure to reply, particularly when the City knew, or should
City of Palm Springs
July 19, 2021
Page 4
have known, that Owner continued to spend significant sums in meeting its obligations
under the Agreement.
In the same March 2021 timeframe when the City Attorney sent its letter to Owner
threatening to appoint a receiver, the City was also aggressively threatening prosecution
of three other delayed hotel project throughout the City. See, e.g. local news article here:
https://www.desertsun.com/picture-gallery/news/2021/03/19/andaz-dream-orchid-tree-
and-tova-hotels-face-action-over-delays/4767087001/
On April 30, 2021, Owner’s attorney sent the City Attorney a letter reiterating Owner’s
force majeure right. More than a month later, in a letter dated June 2, 2021, the City
Attorney for the first time addressed the force majeure issues raised by Owner informally
more than a year earlier by email in March 2020 and formally by letter in November
2020. The June 2, 2021 letter alleged that Owner had “not demonstrated how COVID-19
prevented [Owner] from engaging the appropriate design professionals, who could
complete the necessary construction documents and building permit applications.” The
June 2, 2021 letter, like the prior March 18, 2021 letter, did not purport to be a notice of
material default under the Agreement, and only threatened appointment of a receiver
based on the site being an alleged public nuisance.
Finally, on July 13, 2021, the City Attorney issued to Owner a third letter. The July 13
letter purported to be a “notice of material default” despite not being sent by certified
mail in the manner required for notices under the Agreement.
Contrary to the City’s false and disparaging portrayal of Owner as a negligent foot-
dragger holding on to a project going nowhere, Owner’s principal, Richard Weintraub, is
a successful and productive developer of high-end properties in Southern California,
including the Malibu Lumberyard luxury dining and retail complex, a just-completed
$50+ million beachfront home in Malibu, a $100 million upgrade and expansion of the
Sportsmen’s Lodge mixed use center in Studio City nearing completion, along with a 125
room hotel also nearing completion that will be the highest-end lodging in Calabasas.
(All of these projects started pre-Covid.)
Mr. Weintraub has spent millions of dollars to date (beyond site acquisition) and
continued to spend money even after the onset of Covid to bring the City of Palm Springs
an extraordinary luxury hotel that will surpass any other lodging in the entire Coachella
Valley and raise the reputation, profile and budgetary surplus of the entire City.
By continuing to threaten legal action and disparage Owner, rather than acknowledge the
obvious effects of Covid-19 on the Performance Schedule, the City has created a cloud
on the project and acted in bad faith constituting a breach of express and implied
covenants of the Agreement.
Even today, Covid-19 cases are rising and the duration of the pandemic emergency and
resulting market disruptions are unknown. Yesterday, for example, the L.A. County
Department of Public Health reinstated county-wide indoor masking requirements.
On July 15, 2021, the City issued to Owner a Notice of Violation threatening criminal
and civil penalties based on a long laundry list of false and/or exaggerated of alleged
code violations such as the presence of weeds and vacant buildings which create an
“attractive nuisance”. The Notice threatens to take away control of the property from
Owner through appointment of a receiver. Clearly it is no coincidence that the Notice of
Violation was issued just three days after the City Attorney’s purported notice of material
City of Palm Springs
July 19, 2021
Page 5
default under the Agreement. In concert with its purported notice of material default,
City is misusing the heavy club of its police as a bad faith weapon to achieve its goal of
taking back the tax incentives and causing Owner to forfeit the Agreement. While
criminal acts of trespassing and vandalism can never be 100% prevented, Owner has
worked with the City for many years keeping the property clean and secure and these
efforts have been coordinated closely with the police department and code enforcement.
3. Cure and Remedies Demanded by Owner. Owner hereby demands that the City:
a. Retract and Rescind Purported Notices of Default by Owner. The City must
affirm Owner’s good standing under the Agreement and retract the July 13, 2021 letter from the
City Attorney which purports to be a notice of material default by Owner under Section 7.10.1 of
the Agreement. Although that letter was not personally delivered or sent by certified mail and
therefore does not constitute a valid notice of default under the Agreement (see Section 7.5 re
notice requirements), it nevertheless shows the intent of the City to continue to harass Owner
with unjustified claims and to escape from its obligations under the Agreement.
b. Retract and Rescind the Notice of Code Violation. The Notice of Violation must
be rescinded immediately if the City has any interest in proceeding in good faith. If there are any
valid maintenance or security issues, Owner would be glad to walk the property with City code
enforcement personnel and discuss remedial measures.
c. Agree to Extend the Schedule of Performance. Insofar as the City’s failure to
respond to the formal November 2020 force majeure extension notice is approval of that
extension request, the City is hereby required to revise the Performance Schedule. To that end,
Owner insists that it be provided an extension until July 15, 2022 of the next performance
milestone which is submittal of construction plans for plan check. This is based on an estimate
of the time needed for the lending market to stabilize and recover assuming the current Covid
resurgence is short-lived. Successive milestones for start of construction and completion and
opening of the hotel development would be extended accordingly.
d. Joint Press Release. In order to undo some of the damage already done to
Owner’s reputation and the project by the City’s material defaults specified above in this letter,
the City and Owner would cooperate reasonably in crafting and issuing in the next 30 days a
joint press release announcing the performance date extensions agreed to under 3.c. above and
affirming Owner’s good standing and pledging mutual cooperation moving forward.
e. Monetary Damages and Other Remedies. If the City does not agree to and
implement items 3.a., 3.b., 3.c. and 3.d. above in the next 30 days, then Owner will initiate a
proceeding under Section 7.19 to obtain declaratory relief, monetary damages and other remedies
against the City. Components of the damages claim may include, among others, claims for (i)
reimbursement of pre-development costs spent to date, (ii) lost future profits, and (iii) attorneys’
fees and costs. We have not finished calculating these costs, but expect they will significantly
exceed $20,000,000.00.
City of Palm Springs
July 19, 2021
Page 6
4. Tort Claims Act Claim. To the extent any of Owner’s claims against the City described
in this letter may be required to be presented to the City under the California Tort Claims Act
(Gov’t Code Section 900 et seq.) (CTCA), you should interpret this letter as a claim submitted
thereunder. For purposes of Gov’t Code Section 910.2, Owner’s mailing address to which
notices should be sent is c/o Weintraub Real Estate Group, P.O. Box 6528, Malibu CA 90264.
The remaining places, dates, circumstances, persons involved and description of the relevant
obligations and damages are referenced above in this letter. This claim would not be a limited
civil case. Please forward this claim to any City personnel or official(s) required to consider it
under applicable local and state laws. If there are further procedures or requirements needed to
render this a complete and valid submitted claim under the CTCA, please advise me in writing.
5. Public Records Act Request. Pursuant to the California Public Records Act, Gov’t Code
Section 6250 et seq, Owner hereby requests copies of all documents in City’s possession or
control (including but not limited to letters, reports, presentations, files, memos, e-mails, text
messages, photos, videos, sound recordings, faxes, notes and other documents or data) from the
past 24 months relating to any of the following:
The Agreement.
Owner (including but not limited to Owner’s principal, Mr. Weintraub).
Owner’s property/project site (including any alleged code violations thereon).
6. Appeal from Notice of Violation. Pursuant to Chapter 11.72 of the Palm Springs
Municipal Code, Owner hereby appeals the Notice of Violation issued by the City on July 15,
2021. Appellant’s full name is New Church II, LLC and Cahuilla Church, LLC, and their
address is c/o Weintraub Real Estate Group, P.O. Box 6528, Malibu CA 90264. The relief
sought is rescission of the Notice of Violation as described in paragraph 3.b. above. Grounds for
the appeal include: (i) the allegations of the Notice of Violation are false; (ii) the allegations are
vague; (iii) the code standards for violation are vague; (iv) the property subject to the allegations
is not adequately described, i.e. the Notice includes only one property address which is not
consistent with the APNs listed, and the legal description in Exhibit “A” to the Notice was
omitted from the copy of the Notice received by Owner; (v) the corrective actions which the
Notice directs such as “Resume and complete construction to repair, demolish, or abate the
violations” are not narrowly tailored to address the alleged nuisance conditions and would be
impossible to timely perform due to among other factors the time required to obtain permits and
approvals from the City including permits to demolish recognized historic buildings which are an
integral part of the approved project; and (vi) the entire Notice of Violation is a sham,
confiscatory and discriminatory tactic whereby the City is improperly using its police power and
threat of criminal prosecution as leverage in a contract dispute so as to cause Owner to forfeit
Owner’s rights and benefits in the property and under the Agreement. Lastly, Owner will pay
the appeal fee as soon as you identify the correct fee. The Notice of Violation refers to the City’s
“comprehensive fee schedule” but does not state the amount or the category of fee. The City’s
website links to a comprehensive fee schedule here:
https://www.palmspringsca.gov/government/departments/finance-treasury/comprehensive-fees-
schedule but states on the website that the fees are only “Effective September 22, 2019 thru June
30, 2021”. Within the 76-page fee schedule there is no listing specifically for code violation