California Sued by Investors Over $2.33 Billion Deal

Saturday, 12 Mar 2011 04:39 PM

(Corrects to show Hines Interests isn’t involved in the litigation in headline and first and fifth paragraphs.)

March 11 (Bloomberg) -- A group of investors sued California for canceling a $2.33 billion agreement to sell and lease back 11 state buildings.

The investor group, named California First LP, filed a complaint yesterday in state court in Los Angeles, accusing the California Department of General Services of breach of contract. The plaintiffs seek either a court order enforcing the contract or unspecified damages.

“The state negotiated and signed a contract with California First and has no right to back out of the deal,” Stuart Liner, a lawyer with Liner, Grode, Stein, Yankelevitz, Sunshine, Regenstreif and Taylor LLP who represents the investors, said in a statement. “California First met its obligations every step of the way and we intend to compel the state to live up to their end of the contract.”

The partnership was the winning bidder in October for the 11 buildings that outgoing Governor Arnold Schwarzenegger, a Republican, wanted to sell at the time to pay off bonds on the properties and to add $1.2 billion to its general fund. Governor Jerry Brown, a Democrat elected in November, last month canceled the deal, saying that leasing back the buildings would cost the state $6 billion more than owning them over 35 years.

The investors, which had included Antarctica Capital Real Estate LLC, said they received a termination letter on Feb. 9, the day Brown said at a press conference the state wouldn’t go through with the sale. Houston-based real estate investor and developer Hines Interests LP, previously an adviser to California First, said in a statement that it’s not a party to the litigation.

‘A Binding Contract’

“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,” the investors said in their complaint.

The group has been composed of equity investors including Antarctica, led by Rich Mayo of Spyglass Realty Partners and Chandra Patel of Irvine, California-based Antarctica Capital, the General Services Department said in October.

“This suit is frivolous and wholly without merit,” Eric Lamoureux, the department’s acting deputy director, said in a statement. “We are confident we will prevail when the facts surrounding California First’s actions under the purchase and sale agreement are brought out in court.”

The case is California First v. California Department of General Services, BC457070, California Superior Court (Los Angeles).

--With assistance from Dan Levy in San Francisco. Editors: Peter Blumberg, Andrew Dunn

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net

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