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DENNIS J. HERRERA, State Bar #139669
City Attorney
CHERYL ADAMS, State Bar #164194 : TILED
Chief Trial Deputy
THOMAS S. LAKRITZ, state Bar #161234 Superior Court of California,
Deputy City Attorney County of San Francisco
Fox Plaza 02/15/2019
1390 Market Street, Sixth Floor ee
San Francisco, California 94102-5408 Deputy Clork
Telephone: (415) 554-3963
Facsimile: (415) 554-3837
E-Mail: tom.lakritz@sfcityatty.org
Attorneys for Plaintiff, Cross-Defendant
CITY AND COUNTY OF SAN FRANCISCO
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
UNLIMITED JURISDICTION
CITY AND COUNTY OF SAN Case No. CGC-18-568954
FRANCISCO,
REQUEST FOR JUDICIAL NOTICE IN
Plaintiff, SUPPORT OF CITY AND COUNTY OF SAN
FRANCISCO’S NOTICE OF DEMURRER
vs. AND DEMURRER TO FIRST AMENDED
CROSS-COMPLAINT
MICHAEL E. JOHNSON; FILLMORE
DEVELOPMENT COMMERCIAL, LLC; EM | Reservation Number: 02110320-04
JOHNSON INTEREST, INC.; URBAN CORE
DEVELOPMENT, LLC; and DOE ONE Hearing Date: March 20, 2019
through DOE TWENTY, inclusive, Hearing Judge: Hon. Ethan P. Schulman
Time: 9:30 a.m.
Defendants. Place: Dept. 302
Date Action Filed: | August 16, 2018
Trial Date: TBD
Attached Documents: Exhibits A & B
FILLMORE DEVELOPMENT
COMMERCIAL, LLC; EM JOHNSON
INTEREST, INC.;
Cross-Complainants,
vs.
CITY AND COUNTY OF SAN
FRANCISCO, ROES 1-50, inclusive,
Cross-Defendants.
RJN ISO DEMURRER TO FAC: CASE NO. CGC-18-568954 NALITALI2018\180503\01338672.docx,Co ON Dn PB WN
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TO THE COURT, PLAINTIFFS, AND TO ALL COUNSEL OF RECORD:
PLEASE TAKE NOTICE THAT on March 20, 2019, at 9:30 a.m. or as soon thereafter as
this matter may be heard, in Department 302 of the Superior Court for the County of San Francisco,
located at 400 McAllister Street, San Francisco, California, the City and County of San Francisco
(“the City”) will, and hereby do, request this Court to take judicial notice of the Exhibits attached
hereto, which are described below.
This request for judicial notice is made pursuant to Evidence Code sections 452 and 453. For
any matter specified in section 452, a trial court must take judicial notice if the requesting party (a)
gives the adverse party sufficient notice of the request and (b) “furnished the court with sufficient
information to enable it to take judicial notice of the matter.” (Evid. Code, § 453.) Pursuant to
Evidence Code section 452, subdivision (d), the Court may take judicial notice of the file and
pleadings in this case, including the First Amended Cross-Complaint. Legislative enactments of any
public entity in the United States, including the San Francisco Board of Supervisors’ are the proper
subject of judicial notice. (Evid. Code, § 452, subd. (b).)
1. Attached hereto and marked as Exhibit A is a true and correct copy of the First
Amended Cross-Complaint, dated December 21, 2018.
2. Attached hereto and marked as Exhibit B is a true and correct copy of the City and
County of San Francisco Ordinance 215-12, adopted by the San Francisco Board of Supervisors and
approved by the Mayor of the City and County of San Francisco.
Dated: February 15, 2019
DENNIS J. HERRERA
City Attorney
CHERYL ADAMS
Chief Trial Deputy
THOMAS S. LAKRITZ
Deputy City Attorney
By: /s/ Thomas S. Lakritz
THOMAS S. LAKRITZ
Attomeys for Plaintiff, .Cross-Defendant
CITY AND COUNTY OF SAN FRANCISCO
1
RJN ISO DEMURRER TO FAC: CASE NO. CGC-18-568954 NALIT\LI2018\180503\01338672.docxEXHIBIT Awe
an
JAMES A. QUADRA, State Bar No. 131084
REBECCA COLL, State Bar No. 184468
ROBERT D. SANFORD, State Bar No. 129790
QUADRA & COLL, LLP
649 Mission Street, Fifth Floor
San Francisco, CA 94105
Telephone: (415) 426-3502
Facsimile: (415) 625-9936
Attorneys for Defendants and Cross-Complainants
Fillmore Development Commercial, LLC and
Em Johnson Interest, Inc.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
CITY AND COUNTY OF SAN
FRANCISCO,
Plaintiff,
v.
MICHAEL E. JOHNSON; FILLMORE
DEVELOPMENT COMMERCIAL, LLC; EM
JOHNSON INTEREST, INC.; URBAN CORE
DEVELOPMENT, LLC; and DOES 1-10,
inclusive;
Defendants.
FILLMORE DEVELOPMENT
COMMERCIAL, LLC; EM JOHNSON
INTEREST, INC.;
Cross-Complainants,
v.
CITY AND COUNTY OF SAN
FRANCISCO, ROES 1-50, inclusive,
Cross-Defendants.
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Case No.: CGC-18-568954
FIRST AMENDED CROSS-COMPLAINT
BY FILLMORE COMMERCIAL, LLC
AND EM JOHNSON INTEREST, INC.
AGAINST CROSS-DEFENDANT CITY
AND COUNTY OF SAN FRANCISCO
First Amended Cross-Complaintwe
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Cross-Complainants Fillmore Development Commercial, LLC and Em Johnson Interest,
Inc. allege as follows:
THE PARTIES
1. Cross-Complainant Fillmore Development Commercial, LLC ("FDC") is a
limited liability company formed and duly organized under the laws of the State of California.
2. Cross-Complainant Em Johnson, Interest, Inc. (“EJI”) is a corporation formed and
duly organized under the laws of the State of California, and the managing member of FDC.
3. Cross-Defendant City and County of San Francisco (“City”) is a municipal
corporation organized and existing under and by virtue of the laws of the State of California. On
January 24, 2012 the City’s Board of Supervisors enacted Resolution No. 11-12, whereby the
City became the “successor agency” to the Redevelopment Agency of the City and County of
San Francisco (“Agency”), pursuant to the definition of “successor agency” under Health and
Safety Code §34171(j) and as provided by Health and Safety Code §34173(d)(1) in effect at the
time. Following the amendment of Health and Safety Code §§34171 and 34173, the Board of
Supervisors enacted City Pursuant to Resolution No. 215-12 which allegedly established a new
successor agency to the Agency as a separate legal entity from the City, which Cross-Defendants
are informed and believe, and on that basis allege. became known as Office of Community
Investment and Infrastructure (“OCIL”). FDC and EJI are informed and believe that, although the
City contends that OCII is s separate public entity, the City has not respected OCII as a separate
public entity, but so dominated and controlled the functions and proceedings of OCI with
respect to the matters alleged below, such that the City is liable for all wrongdoing as alleged
below.
4. Since this Cross-Complaint arises out of the allegations of the Complaint as
described below and seeks damages suffered as a result of the Complaint, FDC and EJI are not
required to file a government claim with the City under Government Code §§900 et seg. (People
ex rel. Dep't of Parks & Recreation v. W.-A-Rama, Inc. (1973) 35 Cal. App. 3d 786, 794 (1973))
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5. FDC and EJ are ignorant of the true names and capacities of Cross-Defendants
sued herein as ROES | through 50 and therefore sues such Cross-Defendants by fictitious names.
FDC and EJI will amend this Cross-Complaint to allege the true names and capacities of ROES |
through 50 when ascertained. FDC and EJ] are informed and believe that each of said Cross-
Defendants designated herein is legally responsible and liable in the same manner for the events
and happenings described herein and for the causes of action alleged herein, and are therefore
liable and responsible to FDC and/or EJI for an amount be determined or for such other relief as
may be afforded.
6. FDC and EJ] are informed and believe that each Cross-Defendant specifically or
fictitiously named herein acted in his, her or its own right and is the agent, employee,
representative or co-conspirator of some or all of the other Cross-Defendants, as to each of the
matters set forth herein. Each such Cross-Defendant, whether specifically or fictitiously named,
was at all times acting within the scope and purpose of such agency, employment, representation
or conspiracy, or alternatively, if the acts of each such Cross-Defendant were not authorized at
the time, such acts were subsequently ratified by the appropriate principal and Cross-Defendants.
INTRODUCTION
7. As alleged below, the City, acting on behalf of itself and through various agencies
such as OCII and Mayor’s Office for Housing and Community Development (““MOHCD”),
engaged in bad faith conduct against FDC, EJI and Defendant Michael Johnson (“Johnson”)
regarding the development of the Fillmore Heritage Center Project (the “Project’’) as a jazz
entertainment venue and restaurant, which is only the latest of the City’s misguided attempts
over the past several decades to redevelop the Fillmore District in San Francisco. The City
persisted in attempting to operate the Project as a jazz club and restaurant, even when it became
readily apparent that this use was not economically viable. After the failure of two jazz clubs,
including a new club opened by the renowned Yoshi’s which filed bankruptcy, the City still
refused to allow FDC to attract investors willing to use the property for a different commercial
purpose that would generate enough revenue to ensure the Project’s economic success and
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service the loan from the City to FDC and guaranteed by EJI to develop the Project. As a result,
the City breached its obligation under a lease with FDC to permit a different use. Furthermore,
the City acted in bad faith by failing to honor its promise as documented in a written term sheet
executed by the City and FDC to negotiate and finalize restructuring of a ground lease and loans
related to the Project, which included an agreement that FDC would transfer its interest under the
lease to the City in exchange for a full release of any claims by the City. In short, rather than
focus limited public resources to successfully revitalize the Fillmore District and assist the
economic and cultural well-being of District residents, the City has engaged in bad-faith tactics
while the Project has remained vacant for years.
FACTUAL ALLEGATIONS
8. The Agency entered into a written Disposition and Development Agreement
(“DDA”), dated May 18, 2004, with Fillmore Development Associates, LLC (“FDA”), an entity
related to FDC. Under the DDA, FDA developed certain real property owned by the Agency and
commonly known as 1300-1330 Fillmore Street in the Fillmore District of San Francisco (the
“Property”). FDA secured over $50 million in private financing to develop and construct a
mixed-use commercial and residential project on the Property, known as the Fillmore Heritage
Center Project, and alleged in paragraph 14 of the Complaint as the “Project.” Consistent with
the City’s redevelopment plan, the Project’s goal was to help revitalize the economy of the
historic Fillmore Jazz Preservation District, while preserving and celebrating the District’s jazz
history. In 2007, FDA completed construction of the Project, which consists of approximately
40,000 square feet of commercial space, approximately 80 condominiums and a public parking
garage.
9. Pursuant to a Ground Lease Agreement dated as of August 23, 2005 (“Lease”),
between the Agency and FDC, FDC leased the commercial portion of the Property
(“Commercial Parcel” or “Premises”) from the Agency. The Lease is an “enforceable
obligation,” defined by Health & Safety Code §34171(d)(1)(E), of the City as the successor
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agency to the Agency, pursuant to Health & Safety Code §34177(c). A true and correct copy of
the Lease is attached as Exhibit A and incorporated herein by reference.
10. In order to develop and construct the Commercial Parcel, FDC obtained financing
in the amount of $5.5 million (“Loan”) from the City through MOHCD. The Loan was
evidenced by a written Loan Agreement, a copy of which is attached as Exhibit A to the
Complaint, and a Promissory Note (“Note”), a copy of which is attached as Exhibit B to the
Complaint. The FDC’s obligations under the Note were secured by assets of FDC, including its
leasehold interest in the Commercial Parcel under the Lease. EJI guaranteed the Loan pursuant
to a written Guaranty, a copy of which is attached as Exhibit C to the Complaint. The Lease,
Loan Agreement, Note and Guaranty are all part of one transaction relating to the Project alleged
in paragraph 14 of the Complaint and are taken together under Civil Code §1642.
11. At the time FDC entered into the Lease and Loan Agreement, London Breed
(“Breed”) was a Commissioner of the Agency. Breed has been involved in the City’s bad faith
misconduct towards FDC regarding the Lease and Property, and the City’s dealings with FDC
from the inception of the Project through the present as alleged herein, whether as an Agency
Commissioner, the former Supervisor of District 5 where the Property is located, or the current
Mayor of the City. Other City representatives involved in the bad faith wrongdoing include
Naomi Kelly, the City’s current Administrator, and Steve Cawa, the former Chief of Staff of
former Mayor Ed Lee.
12. Under Section 18.1 of the Lease, the Agency and FDC agreed that a jazz club and
restaurant would be a permitted of use the Commercial Parcel, but further agreed:
[i]f the Jazz Club and the Restaurant open and have operated for at least twelve
(12) months, but then fail and the Tenant [FDC] demonstrates that it has used all
reasonable efforts to obtain a substitute entertainment and/or restaurant subtenant
for at least six (6) months, then Tenant may use the Premises for any general
retail and/or commercial use which use enhances the jazz district theme, or if
such uses do not enhance the jazz district theme then they are not in conflict
with the jazz district theme and address other redevelopment goals and
purposes, including meeting community benefit objectives such as
community economic development goals, and are approved by the Agency
which approval shall not be unreasonably withheld.
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(emphasis added).
Section 18.1 of the Lease is binding on the City as successor agency of the Agency.
13. As provided by Section 18.1 of the Lease, FDC obtained the agreement of
Yoshi’s, a well-known jazz club and restaurant in Oakland, to open and operate a venue in the
Commercial Parcel, which the City understood was crucial to the Project’s success as the anchor
tenant and which furthered the City’s redevelopment plan to revitalize the Fillmore Jazz
Preservation District. Yoshi San Francisco, LLC (“Yoshi’s SF”) opened its jazz club and
restaurant in December 2007 in a portion of the Commercial Parcel.
14. While other commercial tenants occupied the Project, including Food for Soul
which operated a restaurant known as “1300 on Fillmore” and the non-profit Jazz Heritage
Center, Yoshi’s SF was the anchor tenant so, as known to the City, the success of Yoshi’s SF
was crucial to the Project’s viability and to FDC’s ability to pay the Loan. Yoshi’s SF suffered
net losses exceeding $350,000 each year during the six years it was open, despite generating an
average of $10 million in annual revenue. The revenue generated by Yoshi’s SF and the other
subtenants of the Commercial Parcel was never sufficient to cover FDC’s operating expenses,
including payment of the Loan. From the date of the Lease and Loan Agreement, the use of the
Commercial Parcel as a jazz club and restaurant, and the other theme restaurants and ventures,
failed to generate sufficient revenue for FDC to meet all its obligations under the Loan, an
economic reality that FDC repeatedly told representatives of the Agency and MOCD, but which
the City never accepted. Instead, the City continued to insist that the Commercial Parcel had to
have a jazz entertainment venue consistent with the City’s misguided redevelopment vision for
the Fillmore Jazz Preservation District.
15. In 2010, FDC and the City renegotiated the terms of the Loan Agreement and
Note in an attempt to address FDC’s difficulty making timely payments under the Note as a
result of the issues with the economic viability of the Commercial Parcel. As a result, the parties
entered into the First Amendment to Loan Agreement and Promissory Note (“Loan
Amendment”), dated December 8, 2010, a copy of which is attached as Exhibit D to the
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Complaint. Under the Loan Amendment, the parties agreed to a payment plan for FDC to pay
the delinquent amount due under the Note while continuing to make future payments as they
became due under the Note.
16. The Project continued to suffer economic difficulties after the Loan Amendment
because the rent from Yoshi’s SF and Food for Soul remained inadequate to service the Loan and
cover FDC’s full operating expenses, even as adjusted by the Loan Amendment. In or about
November 2012, the managing member of Yoshi’s SF filed bankruptcy on behalf of Yoshi’s SF
under Chapter 11 of the United States Bankruptcy Code without the consent of FDC or the other
members of Yoshi’s SF. Yoshi’s SF did not reorganize in bankruptcy and ceased operating the
jazz club and restaurant, although a successfully reorganized Yoshi’s SF would have improved
the economic viability of the Project. The City did not make any effort to assist Yoshi’s SF
during its attempt to reorganize in bankruptcy or, following the bankruptcy, cooperate with FDC
in a further re-structuring of the Loan which was required if a jazz club and restaurant operations
were to continue in the Commercial Parcel as the City demanded.
17. In connection with the bankruptcy of Yoshi’s SF, the City, acting through the
OCII and MOHCD, agreed to a written term sheet, dated March 3, 2014 (“Term Sheet”), with
FDC and affiliated entities. Under the Term Sheet, the parties agreed to negotiate in good faith
the restructuring of the Loan and Lease. A true and correct copy of the Term Sheet is attached as
Exhibit B and incorporated herein by reference. Among the terms, the City agreed to accept a
“deed in lieu” of FDC’s interest in the Lease in exchange for forgiveness of the amounts owed
the City under the Loan Agreement. FDC and EJI relied on the Term Sheet and the promise of
the City to restructure the Loan and Lease in good faith by, among other things, not invoking
FDC’s right under Lease §18.1 to compel the City to allow the reasonable use the Premises in a
manner consistent with the community benefit objectives. Although required under the Term
Sheet, the City failed to negotiate the restructuring of the Loan and Lease in good faith, as
further alleged below.
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18. With the approval of the bankruptcy court on or about June 24, 2014, Yoshi’s SF
and its creditors agreed to restructure its debt and assign certain liabilities and its sublease of the
jazz club/restaurant to Fillmore Live Entertainment Group, LLC (“FLEG”), a new entity that was
formed as provided by the Term Sheet by several investors, including Johnson. The investors
contributed over $1.0 million to establish FLEG in an attempt to preserve over 100 existing jobs
by reopening a new jazz club and restaurant in the Commercial Parcel called “The Addition” on
or about July 1, 2014. FLEG was formed in part because the City continued to insist that the
Commercial Parcel be used as a jazz entertainment venue.
19. In January 2015, FLEG was forced to close The Addition due to operating losses.
Like Yoshi’s SF, The Addition could not generate sufficient revenue to pay operating expenses
such rent and loans it assumed from Yoshi’s SF. Eight years after Yoshi’s SF opened, the City
still refused to recognize that a jazz club and restaurant could not be the anchor tenant.
20. ‘Ina letter dated February 20, 2015, the City, acting through MOHCD, notified
FDC that it was in default under the Loan Agreement and Note, and demanded payment of over
$2.0 million by March 2, 2015. In a second letter dated February 20, 2015, OCII notified FDC
that it was in default under the Lease, including Section 18.1 of the Lease because FDC had
purportedly abandoned a portion of the Commercial Parcel which had to be continuously
operated for the permitted use of a jazz club.
21. FDC advised the City, through OCII and MOHCD, that FDC was taking steps to
address the default by entering into negotiations with a group of investors to recapitalize or
restructure FDC and to obtain a new anchor tenant for the Commercial Parcel to operate a music
entertainment venue and restaurant. In a letter, dated March 13, 2015, to Tiffany Bohee of OCII
and Olson Lee of MOHCD, FDC memorialized these efforts, which included meetings with then
Supervisor Breed among others. OCII and MOHCD did not respond to FDC’s March 13 letter.
22. FDC sent a letter of intent, dated April 10, 2015, to OCII and MOHCD to
memorialize discussions between FDC and the City (acting through OCI and MOCHD) that
included refinancing the Loan, paying back taxes and amounts due under the Lease, and securing
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a financially viable anchor tenant for the Project. FDC provided to the City letters of intent from
two possible tenants which included one proposing to invest in FDC, The OCII and MOHCD
never responded to FDC’s April 10, 2015 letter.
23. Ina letter dated May 31, 2015 to OCI and MOHCD, FDC summarized its efforts
to locate a new anchor tenant, which included discussing the opportunity with over ten potential
tenants and/or investors. The May 31 letter outlined issues with attracting new tenants in the
entertainment business, including the prohibitively high rent required to service the Loan and
concern about OCII requiring payment of the loan for tenant improvements. Nonetheless, the
May 31 letter included four potential tenants and/or investors, including potential tenants in the
restaurant business and other retail uses allowed under the Lease.
24. — The City responded in a letter dated June 5, 2015 from OCII to FDC, in which the
City terminated the Lease and FDC’s right to possession of the Property.
25. Ina letter dated June 22, 2015, FDC’s counsel advised OCI that it had obtained a
letter of intent from a national grocery store chain, later identified to the City as Whole Foods,
which offered a refinancing opportunity to cure the default under the Lease and the Loan, and
generate a substantial amount of capital that could be reinvested by the City into the
neighborhood. Under the FDC’s proposal. which was supported by several community leaders,
the Commercial Parcel would have included a brew pub/live music venue, as well as jazz at the
club at 1300 Fillmore Street. FDC’s proposal also included refinancing to buy-out the Lease.
26. OCII (acting on behalf of the City) responded to the June 22 letter with a letter
dated July 21, 2015, in which the City and OCH refused to cooperate with FDC’s efforts to
restructure the Loan and attract a new tenant.
27. Ina letter dated July 6, 2015 to the City, FDC followed up on negotiations with
the City to advise that FDC had a draft letter of intent from Whole Foods to operate a grocery
store, restaurant and brew pub with live performances. The July 6 letter identified other potential
investors interested in restructuring the Loan. In the July 6 letter, FDC requested that the City
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reinstate the Ground Lease for a period of 90 days in order to facilitate a new investment. The
City did not respond.
28. In August 2015, the City issued a public statement with responses to “frequently
asked questions” that continued to insist that the Commercial Parcel would be used as an
entertainment venue, despite the economic reality that this use did not generate enough revenue
to service the Loan and other expenses.
29. MOHCD sent a notice of default, dated October 21, 2015, to FDC demanding that
EJI pay all sums due under the Guaranty. This demand was contrary to the City’s representation
that the City would not seek to enforce the Guaranty if FDC and EJI cooperated with the City’s
taking possession of the Commercial Parcel. Despite the October 2015 demand, the City then
went silent, leading FDC to believe the City would honor it representations that it would not
enforce the Note and Guaranty. However, while FDC cooperated so the City took possession of
the Commercial Parcel, the City filed this action three years later (with no interim
communication) in an attempt to enforce the Note against FDC and the Guaranty against EJI, as
well as attempt to improperly hold Johnson and Defendant Urban Core Development LLC liable
as alleged alter egos of FDC without factual or legal bases.
FIRST CAUSE OF ACTION
Breach of Lease
30. Cross-Complainants incorporate by reference the allegations of all preceding
paragraphs as if fully set forth here.
31. FDC fully performed all of its obligations under the Lease to the extent those
obligations were not excused by impossibility, frustration of purpose, and/or the City’s failure to
allow FDC to sublet the Commercial Parcel to subtenants with the ability to generate sufficient
revenue as allowed by Section 18.1 of the Lease.
32. As the successor agency of the Agency, the City, acting on its own behalf and
through OCII, breached the Lease, in part by refusing to allow FDC to sublet the Commercial
Parcel for general retail and/or commercial use that enhanced or did not conflict with the jazz
district theme, as provided by Section 18.1 of the Lease. The City’s refusal to reasonably agree
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to a use allowed under Lease §18.1 prevented FDC from generating sufficient rental income to
make timely payments under the Note.
33. As the result of the City’s breach of the Lease, FDC and EJI have been damaged
in an amount to be proven at trial, which accrued when the City filed the Complaint in this action
to recover sums allegedly owed under the Loan Agreement and Note.
SECOND CAUSE OF ACTION
Breach of Loan Agreement and Promissory Note
34. Cross-Complainants incorporate by reference the allegations of all preceding
paragraphs as if fully set forth here.
35. FDC fully performed all of its obligations under the Loan Agreement and
Promissory Note to the extent those obligations were not excused by impossibility, frustration of
purpose, and/or the City’s breach of the implied covenant of good faith and fair dealing.
36. | The City breached the implied covenant of good faith and fair dealing in the Loan
Agreement and Promissory Note, in part by refusing to act in good faith to negotiate the terms
outlined in the Term Sheet.
37. As the result of the City’s breach of the Loan Agreement and Promissory Note,
FDC has been damaged in an amount to be proven at trial.
THIRD CAUSE OF ACTION
Breach of Guaranty
38. Cross-Complainants incorporate by reference the allegations of all preceding
paragraphs as if fully set forth here.
39. EJI fully performed all of its obligations under the Guaranty to the extent those
obligations were not excused by impossibility, frustration of purpose, and/or the City’s breach of
the implied covenant of good faith and fair dealing.
40. The City breached the implied covenant of good faith and fair dealing in the
Guaranty, in part by refusing to act in good faith to negotiate and perform the terms outlined in
the Term Sheet.
First Amended Cross-Complaintwe
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41. As the result of the City’s breach of the Loan Agreement and Promissory Note,
EJI has been damaged in an amount to be proven at trial.
PRAYER
Cross-Complainants pray as follows:
1. For compensatory damages in an amount to be proven at trial;
2. For reasonable attorney fees and costs; and
3. For such other and further relief as the Court deems just.
DATED: December 21, 2018 QUADRA & COLL, LLP
oN —
By: A}, all eeeeeet
JAMES A. QUADRA co
REBECCA COLL
ROBERT D. SANFORD
Attorneys for Michael E. Johnson; Fillmore
Development Commercial, LLC; Em Johnson
Interest, Inc.; Urban Core Development, LLC
12
First Amended Cross-ComplaintEXHIBIT ADUPLICATE
GROUND LEASE AGREEMENT
between
THE REDEVELOPMENT AGENCY
OF THE CITY AND COUNTY OF SAN FRANCISCO
and
FILLMORE DEVELOPMENT COMMERCIAL, LLC,
a California limited liability company
for
THE COMMERCIAL PARCEL
DATED AND EXECUTED AS OF AUGUST 23, 2005ARTICLE 1
ARTICLE 2
ARTICLE 3
ARTICLE 4
ARTICLE 5
ARTICLE 6
ARTICLE 7
ARTICLE 8
ARTICLE 9
ARTICLE 10
ARTICLE 11
ARTICLE 12
ARTICLE 13
ARTICLE 14
ARTICLE 15
ARTICLE 16
ARTICLE 17
ARTICLE 18
ARTICLE 19
ARTICLE 20
ARTICLE 21
ARTICLE 22
ARTICLE 23
ARTICLE 24
ARTICLE 25
ARTICLE 26
ARTICLE 27
TABLE OF CONTENTS
Page
PREMISES; TERMS; EXTENSION OPTIONS; REDEVELOPMENT
PLAN; DEFINITIONS
RENT; FINANCIAL ACCOUNTING; OPTION TO PURCHASE.
DEVELOPMENT AND TITLE TO IMPROVEMENTS ........c:scssssseeseees 12
PAYMENT OF IMPOSITIONS..........:cssccssessesssessesssessessssessseesseessessseesseensee 12.
CONTESTS...
INSURANCE
LANDLORD’S RIGHT TO PERFORM TENANT’S COVENANTS.
COVENANTS AGAINST WASTE AND TO REPAIR AND
MAINTAIN PREMISES .......scsssessssessseeseesseeeseeesecssesssecsesssiessssssasesseeeseeseseses 24
LEASED PROPERTY CONDITION; HAZARDOUS MATERIALS
INDEMNIFICATION........cccssessseesseesseesseesseesseessessseeseesessuteessssneasessseeeanensees 25
SUBSEQUENT CONSTRUCTION ...sssessesseessessseessesssssueessesssessseeesasseessees 28
UTILITY SERVICES .....ccccssescssesesssssssssecsssessssssseeesneeceveccsanecnsneessunensnsvesseee 30
DAMAGE OR DESTRUCTION
CONDEMNATION
LIENS on. ecoseeseessees
INSPECTION OF PREMISES BY LANDLORD ..
ASSIGNMENT, TRANSFER, SIGNIFICANT CHANGE AND
SUBLEASING.....eessesssssesssssssessuesesssssassscsssecsnnesssvesesseessserssseressnnecesnneeasanessaee 42
QUIET ENJOYMENT ........ccsccsssesesssesssesssseesssneeesnssssseesnnsessnsesenesessneeenseets 55
DELAY DUE TO FORCE MAJEURE ..vscscscesssssssssssscsseesstessnsessseereseetsssees 55
EVENTS OF DEFAULT; TERMINATION .
{INTENTIONALLY DELETED.]...........0+
REMEDIES
LANDLORD’S EQUITABLE RELIEF ....cescccscsesssessecssseeeessessnsectecnreenenseess 64
NO WAIVER BY LANDLORD OR TENANT |... .ocesssesessstesstesstesseeeseeeseeene
DEFAULT BY LANDLORD; TENANT’S REMEDIES
ACCEPTANCE OF SURRENDER ...
“iARTICLE 28
ARTICLE 29
ARTICLE 30
ARTICLE 31
ARTICLE 32
ARTICLE 33
ARTICLE 34
ARTICLE 35
ARTICLE 36
ARTICLE 37
ARTICLE 38
ARTICLE 39
ARTICLE 40
ARTICLE 41
ARTICLE 42
ARTICLE 43
ARTICLE 44
ARTICLE 45
ARTICLE 46
ARTICLE 47
TABLE OF CONTENTS
(continued)
Page
NO MERGER OF TITLE ..eesscesssesssssssssssesstesssessessssesssessnsecsussaerseenneerseeasesseee 67
ESTOPPEL CERTIFICATE BY TENANT .......secscsssssseescssecestecssntesseeensens 67
APPRAISAL; ARBITRATION/MEDIATION
END OF LEASE TERM..
PROVISIONS SUBJECT TO APPLICABLE LAW.
CUMULATIVE REMEDIES; NO WAIVER ......c:sscescesseesseceseesseeeseesteenees 72
NOTICES ...sseesseesssssssesstessnecssecsseesseesneesnessnessteasecsssessseesseassssaveessesavecsuesnsessses 72
SUCCESSORS AND ASSIGNS BOUND; GOVERNING LAW
LANDLORD’S RECOURSE AGAINST TENANT.
RECOURSE AGAINST LANDLORD... .ssccssssesssssesessstsecesssesssersssneenseneessine
TENANT TO FURNISH AND EQUIP THE IMPROVEMENTS ..............77
NO JOINT VENTURE 7
MORTGAGE OF LEASEHOLD... 8
NONDISCRIMINATION; EQUAL OPPORTUNITY
ATTORNEYS? FEES .....sccssssesssesesessessneesseessesssessiecssecesesssesssesesesseesaresevessnaes 93
RECORDATION OF LEASE .....cssssesssssssesssesssesessstessssssesssesssneessaessneessnese 94
DEFINITION OF CERTAIN TERMS; MISCELLANEOUS
LIST OF EXHIBITS
“ii-THIS GROUND LEASE AGREEMENT (“Lease”) is entered into as of August 23, 2005,
(“Effective Date”) by and between the REDEVELOPMENT AGENCY OF THE CITY AND
COUNTY OF SAN FRANCISCO, a public body, corporate and politic of the State of California
(“Agency” or “Landlord”), and FILLMORE DEVELOPMENT COMMERCIAL, a California
limited liability company (“Tenant”).
RECITALS
A. Landlord is the fee owner of certain real property in San Francisco, California
containing one parcel, more particularly described as Parcel 2 on that map entitled “Parcel Map”
of Fillmore Heritage Center“ filed in the records of the City and County of San Francisco,
California on March 22, 2005, in Book 90 of Condominium Maps at pages 26-34 (“Site”) in the
Western Addition Redevelopment Project Area A-2 (“Project Area”). The Site is described in
Exhibit No. 2B.
B. The Site is subject to a redevelopment plan (“Redevelopment Plan” or “Plan”)
and a Declaration of Restrictions, and references to the Plan include the Declaration of
Restrictions.
Cc The Agency entered into a Disposition and Development Agreement dated
May 18, 2004 (as amended “DDA”) with Fillmore Development Associates, LLC, a California
limited liability company (“FDA”) for the development on the Site. The Agency has merged and
subdivided the Site into three parcels: (1) the first is a below grade parcel for a public parking
garage (“Land and Garage Parcel”) which is Parcel 1 on the above described Parcel Map and is
more particularly described in Exhibit Nos. 1A and 1B; (2) the second is a land and air rights
parcel located immediately above the Land and Garage Parcel for retail/commercial uses
(‘Commercial Parcel’) which is Parcel 2 on the above described Parcel Map and is more
particularly described in Exhibit Nos. 2A and 2B; and (3) the third is an air rights parcel which is
Parcel 3 on the above described Parcel Map, a portion of which is located on the same level as
the Commercial Parcel and the balance of which is located immediately above the Commercial
Parcel for residential condominiums (“Housing Parcel”). The Housing Parcel is more
Western Addition Redevelopment Project Area A-2
Ground Lease
Land and Garage Parcel and Commercial Parcel
Page 1 of 108particularly described in Exhibits Nos. 3A and 3B. Collectively, the Land and Garage Parcel, the
Commercial Parcel and the Housing Parcel are referred to as the “Parcels”. Pursuant to the
DDA, the Agency has conveyed fee title to the Housing Parcel to FDA.
D. FDA has assigned its interest and obligations in the DDA regarding the
development and operation of the Commercial Parcel to Tenant and Tenant has accepted the
assignment regarding the development and operation of the Commercial Parcel pursuant to the
DDA through a Partial Assignment dated of even date herewith; and the Agency has approved
the assignment. Tenant has entered into a Turnkey Development Agreement with FDA dated of
even date herewith (“Turnkey Development Agreement”), with the Agency’s consent, under
which FDA has agreed to develop the Commercial Parcel as required in the DDA and this
Ground Lease on behalf of Tenant. Upon completion of construction, FDA will turnover the
commercial improvements to Tenant.
E. Tenant will cause the improvement of the Commercial Parcel with approximately
40,550 gross square feet of entertainment-related retail/commercial uses by FDA pursuant to the
Turnkey Development Agreement. FDA will improve the Housing Parcel with eighty (80) for-
sale condominium units and associated parking. FDA will improve the Land and Garage Parcel
for the Agency with a one (1) floor underground public parking garage for both public and the
commercial uses (the “Garage”). FDA will construct the improvements on the three (3) Parcels
as a single building (collectively, the “Project”). FDA will develop the Project pursuant to the
terms of the DDA.
F. The Agency has agreed to provide Tenant with control of the Commercial Parcel
during the Interim Lease, as defined in Section 1.3, from the date hereof until completion of the
Project for the purpose of constructing the Improvements, as defined in Section 46.1, on the
Commercial Parcel subject to the terms and conditions further detailed in this Lease regarding
the Interim Lease. Tenant has entered into a License with FDA allowing FDA to enter onto the
Commercial Parcel in order to fulfill FDA’s obligations under the Turnkey Development
Agreement to construct the Improvements on the Commercial Parcel, and under the DDA to
Western Addition Redevelopment Project Area A-2
Ground Lease
Land and Garage Parcel and Commercial Parcel
Page 2 of 108construct the other parts of the Project, and Agency herein approves that License. The Agency
has also agreed to continue this Lease for the Commercial Parcel under this Lease to allow the
Tenant to manage and operate the Improvements on the Commercial Parcel after the construction
of the Project.
G. As of the Effective Date, FDA and, as to the Commercial Parcel, Tenant have
secured financing commitments sufficient to fund the estimated construction cost of the Project.
These commitments are: (1) a construction loan to FDA for approximately $28,183,000 from
National Electrical Benefit Fund (“NEBF”); (2) a construction and permanent loan to Tenant for
approximately $5,500,000 from the Mayor’s Office of Community Development of the City and
County of San Francisco (“MOCD”) which Tenant will pay to FDA pursuant to the Turnkey
Development Agreement to be used by FDA to construct the Improvements on the Commercial
Parcel; (3) approximately $6,700,000 in loans to FDA for the development of the Housing and
Commercial Parcels from Mugar Fillmore, LLC (“Mugar”); (4) a $350,000 loan to FDA from
Essie Collins Revocable Living Trust; (5) approximately $703,000 in equity from FDA; (6) an
$864,445 grading, excavation and soil remediation allowance from Agency to FDA; and (7) a
grant in the approximate amount of $4,700,000 to FDA for construction of the Garage from
Agency (“Agency Garage Financing”), both (6) and (7) being provided through that certain
Grant Agreement between the Agency and FDA (“Grant Agreement”).
H. As of the Effective Date, Tenant has also entered into the following agreements:
(1) a lease for a portion of the Commercial Parcel with Yoshi’s San Francisco, LLC (“Yoshi’s”);
and (2) a lease for a portion of the Commercial Parcel with Food For Soul, LLC (“FFS”). Also,
as of the Effective Date, Landlord has entered into (i) a tenant improvements loan agreement
with Yoshi’s for $4,400,000, and (ii) a tenant improvement loan agreement with FFS for
$1,700,000.
I. Landlord, on the basis of the foregoing and Tenant’s covenants pursuant to this
Lease, is willing to lease the Commercial Parcel to Tenant for the purposes of (1) having FDA
construct the Improvements on the Commercial Parcel during the Interim Lease Term, as defined
Western Addition Redevelopment Project Area A-2
Ground Lease
Land and Garage Parcel and Commercial Parcel
Page 3 of 108in Section 1.2, pursuant to the Turnkey Development Agreement, all in accordance with the
provisions of the Redevelopment Plan, the DDA, and this Lease, and (2) Tenant managing and
operating the Commercial Parcel during the Commercial Term in accordance with the provisions
of the DDA and this Lease.
NOW, THEREFORE, in consideration of the mutual promises and covenants, the
purposes stated in the above Recitals, and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant (the “Parties”) hereby agree
as follows:
ARTICLE 1 PREMISES; TERMS; EXTENSION OPTIONS; REDEVELOPMENT
PLAN; DEFINITIONS
11 Premises
(a) Mutual Acceptance of Lease; Premises Defined. Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, the Commercial Parcel and all
appurtenances thereto (the “Premises”) for and in consideration of the ground rents, covenants
and agreements contained in this Lease. The Parties understand, acknowledge and agree that as
of the Effective Date of this Lease, the premises comprised of the Commercial Parcel shown in
Exhibit No. 2A, Commercial Parcel Map, together with all rights, privileges and licenses
appurtenant to such Parcels are owned by Landlord.
(b) Permitted Exceptions. Each of the interests granted to Tenant
pursuant to Subsection 1.1(a) are subject to (i) the exceptions listed in Attachment No. 8,
Permitted Exceptions, to the DDA (“Permitted Exceptions”); (ii) the Reciprocal Easement
Agreement entered into between the Agency and FDA regarding the Parcels (“REA”) and
(iii) such other matters as Tenant shall cause or suffer to arise.
Western Addition Redevelopment Project Area A-2
Ground Lease
Land and Garage Parcel and Commercial Parcel
Page 4 of 1081.2 Term of Interim Lease; Interim Lease Effective Date
Tenant’s interim leasehold interest in the Commercial Parcel (the “Interim
Lease”) shall commence on the date the Memorandum of this Lease is recorded in the Official
Records (“Interim Lease Effective Date’) and shall end on the earlier of: (i) the issuance of a
Final Certificate of Occupancy for the Garage Improvements and for the improvements on the
Commercial Parcel and for the residential units on the Housing Parcel or (ii) a termination by
Master Landlord pursuant to and subject to the conditions of Article 21 of this Lease.
1.3 Term of Commercial Ground Lease: Commercial Ground Lease
Effective Date
Subject to the provisions of Section 1.4 below, Tenant shall have a
leasehold interest (the “Commercial Ground Lease”) in the Commercial Parcel for twenty (20)
years (as may be extended pursuant to Section 1.4, the “Commercial Term”) beginning on the
date the Interim Lease ends (“Commercial Ground Lease Effective Date”). Subject to the rights
of Mortgagees as set forth in Article 42 or in any separate agreements between Landlord and
Mortgagees of Tenant or between Landlord and Mortgagees of FDA regarding the Housing
Parcel, if an Event of Default described in any one or more of Sections 21.1(d)-(i) exists on the
date the Commercial Ground Lease is to commence, the Commercial Ground Lease will not
commence and this Lease will expire at the end of the Interim Lease Term unless Landlord
provides Tenant with an extension of the Interim Lease Term for Tenant to cure the default. In
the event MOCD, or any subsequent lender approved by Landlord, takes possession of the
Commercial Parcel through foreclosure or otherwise, the Commercial Term shall automatically
extend to fifty-five (55) years.
1.4 Extension Options
Landlord hereby grants Tenant two (2) consecutive options to extend the
Commercial Term by five (5) years each, for a total term not to exceed thirty (30) years, on the
following conditions: (a) Tenant has provided written notice to the Agency not more than six (6)
Western Addition Redevelopment Project Area A-2
Ground Lease
Land and Garage Parcel and Commercial Parcel
Page 5 of 108months nor less than one (1) month before the end of the Commercial Term or the first extension
option, as applicable, of its intent to exercise the option to extend (“Option Notice”); (b) no event
that, if not cured within any applicable cure period, would constitute an Event of Default (as
defined in Article 21 of this Lease) has occurred at any time between the date of Tenant’s notice
and the first day of the extension option; (c) Tenant will have made payments that have reduced
the outstanding principal balance of the Commercial Value to no less than Five Hundred
Thousand Dollars ($500,000) by the end of the initial twenty (20)-year term. Ground Rent for
both option terms shall be equal to the lesser of (i) the then applicable Ground Rent amount, or
(ii) the amount of Fair Market Rent as determined by the parties, or, if necessary, as determined
by the appraisal process described below. If Tenant exercises its option(s) and believes that Fair
Market Rent is less than the amount being paid as Ground Rent pursuant to Section 2.2 it shall
notify Landlord of the lesser amount it believes to be Fair Market Rent. If Landlord agrees that
the stated amount is Fair Market Rent, that shall be the rent for the option term. If Landlord
believes that the stated amount is not Fair Market Rent, then Tenant and Landlord shall negotiate
Fair Market Rent for not more than thirty (30) days. If they do not reach agreement within that
period then they shall follow the appraisal process set forth in Section 31.1 to determine Fair
Market Rent, during which period Tenant shall continue to pay the then current Ground Rent
amount. If Fair Market Rent is later determined to be less than the then current Ground Rent
amount, Landlord shall promptly credit Tenant the total amount overpaid by Tenant, which
amount will be credited towards any future Ground Rent payments. After such process is
concluded, the agreed upon Ground Rent shall be set for the first extension option period.
Unless and until Tenant pays to Landlord full Commercial Value and all unpaid accrued interest
(and if applicable, full Housing Value) and the Commercial Term has not expired or this Lease is
not otherwise earlier terminated, Landlord will retain all of its rights as ground lessor.
1.5 Definitions and Exhibits
(a) Capitalized Terms All capitalized terms used herein are defined in
the DDA or in Article 46 or have the meanings given them when first defined.
Western Addition Redevelopment Project Area A-2
Ground Lease
Land and Garage Parcel and Commercial Parcel
Page 6 of 108(b) Exhibits to this Lease Whenever an “Exhibit” is referenced, it
means an attachment to this Lease unless otherwise specifically identified. All such Exhibits are
incorporated herein. Whenever an article, section, subsection, or paragraph is referenced, it is a
reference to this Lease unless otherwise specifically referenced.
1.6 License Agency hereby approves the License Agreement by
and between Tenant and FDA, dated of even date herewith, which provides for FDA’s access to
the Commercial Parcel during the Interim Lease Term and FDA’s exercise of the rights and the
fulfillment of the obligations of Tenant regarding the Interim Lease contained in this Lease.
ARTICLE 2 RENT; FINANCIAL ACCOUNTING; OPTION TO PURCHASE
2.1 Rent During Interim Lease Term
During the Interim Lease Term, Tenant shall pay Landlord One Dollar
($1) per year for the use of the Premises without offset of any kind and without necessity of
demand, notice or invoice from Landlord (“Interim Rent”).
Tenant shall pay Interim Rent beginning on the Interim Lease Effective
Date (as defined in Section 1.2) and thereafter annually on the anniversary of such date.
Landlord and Tenant have entered into this Lease for valuable consideration, receipt of which is
hereby acknowledged by the Parties.
2.2 Ground Rent During Commercial Term
(a) Payment of Ground Rent Ground Rent is waived for the first five
(5) years of the Commercial Term and will commence on the sixth (6th) year of the Commercial
Term; provided however, interest payments on the Commercial Value, as discussed below are
deferred but accrue during the first five (5) years of the Commercial Term, and shall be added to
the principal balance of the Commercial Value. Tenant, however, may make interest and
principal payments on the Commercial Value at any time. Ground Rent must be paid to the
Agency on a quarterly basis beginning on the first day of the fourth (4) month after the fifth
Western Addition Redevelopment Project Area A-2
Ground Lease
Land and Garage Parcel and Commercial Parcel
Page 7 of 108(Sth) anniversary of the Commercial Ground Lease Effective Date (“Ground Rent
Commencement Date”) for the first (1") quarter of such sixth (6th) year and thereafter on the
first day immediately following the end of each quarter. Fifty percent (50%) of Tenant’s Net
Rental Income, as defined below, from all operations of the Commercial Parcel for the previous
calendar quarter are to be paid to Landlord and shall constitute “Ground Rent” during the
Commercial Term.
(b) As provided in the DDA, Tenant is entitled to purchase the
Commercial Parcel by paying to Agency at the expiration of the Commercial Term, or earlier as
provided below, the Commercial Value plus all interest accrued at a rate per annum that is one
percent (1%) above the prime rate published by the Wall Street Journal (“Prime Rate”) on the
Effective Date. Notwithstanding Section 2.02(f) of the DDA, payments by Tenant will apply
first to any Additional Ground Rent, then to accrued interest, then to the balance of the principal
of the Commercial Value. All payments of Ground Rent, but not Additional Ground Rent, shall
be credited to payment of Commercial Value and current or accrued interest.
(c) | Tenant’s Net Rental Income. “Tenant’s Net Rental Income”
means the Gross Rental Income, as defined below, less Permitted Rental Expenses, also as
defined below.
(i) “Gross Rental Income” means any and all
retail/commercial rental income, pass-throughs, subtenant charges, subtenant reimbursements to
Tenant under all leases and subleases of its interests in the Commercial Parcel, real estate tax
rebates or refunds, and insurance proceeds received by or for the account of Tenant for
renting/leasing/letting of retail/commercial spaces on the Premises. If Developer occupies any
portion of the Commercial Parcel, Landlord will be entitled to impute, in accordance with the
terms of the Commercial Ground Lease, a rent obligation on Developer’s possessory interest for
the purpose of calculating Tenant’s Net Rental Income.
(ii) “Permitted Rental Expenses” mean (1) all operating
expenses or other costs attributable to Tenant’s operation and management of the Commercial
Western Addition Redevelopment Project Area A-2
Ground Lease
Land and Garage Parcel and Commercial Parcel
Page 8 of 108Parcel improvements, including property taxes, assessments, insurance, business taxes, utility
services, commissions, auditing, commercial property and asset management, operating reserves,
payments made pursuant to the REA, and any other imposition, costs or reserves related to the
ownership, operation, and maintenance of the retail/commercial improvements on the
Commercial Parcel that Tenant is responsible to pay, provided that such expenses are
commercially reasonable and specifically approved in the DDA or Agency Loan Documents or
otherwise approved by the Landlord, and (2) all debt service payments for loans from sources
and in amounts approved by Landlord for the capital financing of the Commercial Parcel
improvements. Permitted Rental Expenses shall not include any amount incurred by Tenant in