SR-9B (2)
CA:f:\atty\muni\strpts\lbc\nme 98
City Council Meeting 3-21-95 Santa Monica, California
MAR 2 1 1995
TO: Mayor and city Council
FROM: City Attorney
SUBJECT: National Medical Enterprises Community Room
Introduction
The city Council directed the city Attorney's office to provide, as
an agenda item, information and a recommendation as to the City's
dispute with National Medical Enterprises ("NME") about NME's
performance under its development agreement for 2600 Colorado.
This report fulfills that direction.
Backqround
The dispute with NME is about whether NME failed its obligation to
provide the city with a community room and a park.
On April 16, 1982, the City and Colorado Place Associates (NME'S
predecessor in interest) entered into a Development Agreement (lithe
DA") which set forth the terms and conditions of the development of
the real property located at 2600 Colorado. The DA required the
developer to provide, among other things, housing, space for a
pUblic park consisting of an unspecified amount of open space
between an office building and residential housing, space
consisting of not less that 800 square feet for a day care center,
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MAR 2 1 1995 -
and 1500 square feet of "community space1l. A schematic drawing
attached to the DA depicted the relative locations and approximate
size of the amenities.
The DA was amended in February of 1987. The principal purpose of
this amendment was to eliminate the housing requirement and
authorize an in-lieu fee instead. In conjunction with the First
Amendment, the schematic drawing of the project was revised.
However, the total quasi-public area of the project as specified in
the amended DA remained equivalent to the total quasi-public area
shown on the attached schemat1c. Square footages for specific
amenities were not set forth in ~he First Amendment.
In March of 1987, the Second Amendment to the DA was executed. It
merely addressed operable windows and did not relate to the park,
day care center or community space.
In August of 1988, the Third Amehdment was executed. At that time,
construction of the park, community space and day care center had
not commenced. The Third Amendment was negotiated because NME
desired to increase the size of the day care center from 800 square
feet to 4,000 square feet. The Third Amendment states that
improvements comprising the day care c3nter would not diminish the
size of the park, and the staff reports contain similar statements.
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In July of 1988 plans were submitted to the city for construction
of the day care center, community space and park. These plans were
consistent with the schematic drawings which accompanied the Third
Amendment. The plans were checked for consistency with the DA and
were approved, and a building permit issued. The day care center,
community room and park were constructed in compliance with the
permit. A certificate of occupancy was issued in March of 1990.
Documents in the City's possession indicate that the park actually
built pursuant to the permit is 11,779 square feet in size --
approximately 1600 square feet smaller than the park shown on the
schematic which accompanied the original DA.
On April 30, 1990 the city wrote a letter confirming that NME had
fulfilled all terms and conditions of the improvement bond covering
the community center, child care center and park.
A community meeting room was eventually built, after significant
delays, and is available to the City upon execution of a lease or
operating agreement with NME.
Piscussion
As to the community room, there are problems with the space.
Parking is inadequate. other than the complex garage, which
consists of paid parking and which is locked at night, there are
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only a few, off-street spaces. Moreover, NME is apparently not
prepared to staff the community room.
NME claims that the statement in the Third Amendment saying that
the size of the of the park would not be reduced is not what the
parties negotiated. Instead, NME claims that it was clearly
understood that the total quasi-public area would remain the same
in size but that increasing the size of the day care center would
have the effect of reducing the size of the park. NME further
claims that the schematic drawings submitted to the council and
Planning commission reflect this understanding. Those drawings
were approved.
Various alternatives for resolving this dispute have been explored
and discussed, both with NME and with the affected neighborhood
organizations. The present proposal is as follows: (1) NME would
pay $725,000 to the City to be used for park improvements and/or
community room space benefitting the pico and Mid-City
Neighborhoods; (2) the city would release NME from its obligation
under the amended DA to provide community room space and would also
release NME from the claim that NME failed to meet its obligation
to provide a park.
City staff have met with the pico Neighborhood Association and
Santa Monica Mid-City Neighbors. The pico Neighborhood Association
has written a letter in support of the proposed settlement. A
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letter received from Mid-City Neighbors outlines their response to
the recommended settlement. They proposed that the preferred
course of action be: (1) to take all measures to enforce the
Development Agreement as writteL, or, if the city declines to do
so, (2) require a $1,450,000 "in lieu fee" from NME as representing
the actual replacement and market value of the community room and
adjoining park, or (3) accept the $725,000 from NME with the City
matching these funds with an equivalent amount. They request that
the settlement be placed in a trust account to be expended only for
the purchase of new park space within the two impacted
neighborhoods (Mid-city and pico Neighborhoods). They further
request that the two neighborhood associations be parties to the
settlement and trust agreements and that the development and
monitoring of future development agreements formally involve
impacted recognized neighborhood assoLiations.
In response to concerns by Mid-city Neighbors, the City transmitted
the request for a $1.4 million in lieu fee to NME, although a
similar proposal had been a part of the negotiations with NME and
the City and were rejected. NME's position continues to be that
they will comply with the proposal to pay $725,000 to the City and
will not comply with the recent proposal by Mid-city Neighbors.
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Budqet/Financial Impact
The settlement would result in the City receiving $725,000 which
would be deposited in a designated revenue account. The use of
these funds would be determined by the city in consultation with
Mid-City Neighbors and the pico Neighborhood Association, and would
only be used for park improvements and enhancements in these two
neighborhoods.
Recommendation
We recommend that the City accept NME's settlement proposal. We
have carefully reviewed the legal claims in this matter and the
avallable evidence. We have also evaluated the defenses which NME
has advised us it will assert if the city filed a lawsuit to
enforce the amended DA or obtain money damages for its breach. Our
evaluation indicates that NME has defenses, at least one of which
may be viable. For example, NME will contend that insofar as the
amended DA does not conform to the schematic drawing, it does not
reflect the understanding of the parties. NME will also contend
that the City's claims are barred as stale because of the passage
of time. Also, NME will contend that the city's issuance of the
building permit and the certificate of occupancy and release of the
bond bar any claim that NME failed to perform as required. stated
otherwise, NME could contend that having "signed off on the
project", the city is poorly situated to assert that NME did not
comply with its obligations.
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Whether a court would agree with NME about these or other
contentions is uncertain. However, given the risk that a court
would agree, and the fact that the settlement proposal would
significantly benefit the City and would eliminate the
uncertainties of this situation, we recommend that: (1) the
settlement proposal be accepted; (2) City staff be directed to work
with the pico Neighborhood Association and Mid-City Neighbors to
develop an acceptable plan for use of these funds; and (3) long
term park planning efforts include strategies for enhancing parks
and open space in these impacted neighborhoods.
PREPARED BY: Marsha Jones Moutrie, city Attorney
Lyn Beckett cacciatore, Deputy City Attorney
Susan McCarthy, Director of Community &
Cultural services
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