City, SunCal settle suit

City, SunCal settle suit

Michele Ellson

Updated at 12:05 p.m. Thursday, December 20

The city has agreed to pay former Alameda Point developer SunCal $4.25 million to settle the developer's claims the city and its former manager failed to negotiate in good faith toward a development deal, a move that ends the developer's quest for damages and another chance to develop the Point.

Under the terms of the agreement unanimously agreed to by the council - including two outgoing members - on Tuesday, the city will pay the Irvine-based developer $3.177 million over the next 18 months and return SunCal's $1.073 million deposit, the city announced in a press release. The former amount will be paid using Alameda Point lease revenues, City Attorney Janet Kern said in response to a reporter's questions Friday.

City officials said the cost of pursuing the case would have outpaced the settlement the council approved. Kern said the city has paid an estimated $1.5 million to date - also using Alameda Point lease revenues - and would likely pay much more over the course of defending the case and handling SunCal's anticipated appeals, a process Kern said would likely take years.

"This is a prudent settlement: it gets the City out of this case; it lifts the cloud over Alameda Point; and, it clears the path for future development projects. This settlement frees both parties to set aside past disagreements and go our separate ways,” Kern was quoted as saying in a press release. None of the parties to the suits has admitted to any wrongdoing, the 10-page agreement shows.

A SunCal representative did not respond to a request for comment Thursday morning.

The council selected SunCal as its second master developer in 2007, giving the developer three years to work out an agreement to develop the former Naval Air Station. But in February 2010, voters overwhelmingly rejected SunCal's proposal to build more than 4,800 homes and 4.57 million square feet of commercial space at the Point, and five months later, the council voted the developer off the Island.

SunCal sued in August, hoping to be reinstated. The developer ultimately sued for $100 million in lost profits and another $17 million they said they spent trying to move the development forward, claiming then-Interim City Manager Ann Marie Gallant of sabotaging their efforts because she secretly wanted the city to develop the base instead.

In January, a federal judge dismissed SunCal's lost profits claim and nine months later, their claim for cost recovery, leaving a claim against the city for the developer's original $1 million deposit and another for $18 million in damages from Gallant, which the city would have to pay if awarded. The court had also not yet decided whether the city had breached its exclusive negotiating agreement with SunCal, as the developer claimed; a separate case the developer filed in September 2010 that claimed the city failed to produce requested records, which also sought damages, had also not yet been decided.

The developer had offered a settlement proposal during an August 9 mediation, court documents show, but the council opted to wait for the ruling on its request that the court drop the $17 million claim before making a decision. Kern said the settlement the council approved Tuesday was hammered out over the course of the last few months.

"Those negotiations intensified during the last three months, culminating in the settlement that has now been finalized," Kern said.

Under the terms of the agreement, the city has to pay SunCal $3.25 million by the end of the year and another $1 million in two equal installments by July 1, 2014. The developer's state and federal court claims and the city's federal counterclaim are to be dismissed after the first payment is made, the agreement says.