Conflict-of-Interest Case Triggers City, Housing Commission Conflict

Government

Conflict-of-Interest Case Triggers Conflict Between City, Housing Commission

For months, staff at the agency, its board and elected officials have been at odds over how to handle the revelation that a broker made a significant financial investment in one of the hotels he helped the agency acquire. The quarrels between the city attorney and lawyers for the Housing Commission reveal a significant lack of trust between the two legal departments which both have a role overseeing the city’s low income housing efforts.

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Illustration by Adriana Heldiz

As a conflict-of-interest case over the San Diego Housing Commission’s purchase of a Mission Valley hotel has unfolded in public, disputes about it between city officials have been playing out in private.

Since March, staff at the agency, its board and the City Council, which oversees the Housing Commission in its role as the city’s Housing Authority, have been at odds over how to handle the revelation that a broker hired by the commission to help it purchase hotels for conversion into low-income housing made a significant financial investment in one of the sellers before negotiating the acquisition, according to both documents and comments from those involved in the dispute.

And last month, after City Attorney Mara Elliott filed a lawsuit against the broker, she and representatives for the Housing Commission — including the agency’s long-time legal counsel — had a tense exchange over each of their handling of the case, letters and legal memos obtained by Voice of San Diego show.

The city attorney and lawyers for the Housing Commission are quarreling over details and procedures, but the exchanges reveal a significant lack of trust between the two legal departments which both have a role overseeing the city’s low income housing efforts. Elliott has also alleged that the Housing Commission did not immediately provide documents on the case after that she and her lawyers had requested.

Rick Gentry, president and CEO of the Housing Commission, acknowledged in an interview there has been tension between the agency, its board, the city attorney and the City Council in recent months, but stopped short of calling it a conflict.

“Conflict is when there is a fight,” Gentry said. “Tension is when there’s more than one legitimate issue at hand, and you need to solve one without harming the other. When the tension might harm any one of three or four or five players, how could you not have tension? Tension is not a bad thing.”

The conflict — or tension — has shined a light on the peculiar arrangement of the Housing Commission, which is an independent agency, created by the city to handle low-income housing issues, with its own board that oversees many of its decisions, but which still answers to the City Council, which convenes as the San Diego Housing Authority when it does. The Commission has its own legal counsel, but the Housing Authority gets its legal advice from the city attorney.

The City Council is investigating ways to reform the agency. That pursuit, it turns out, follows months of infighting between the city attorney and the commission’s legal counsel, and laborious attempts by the Housing Commission’s board and the Housing Authority to ensure they were all hearing the same information on a case that has revealed institutional problems at a normally quiet agency.

The issue came to a head in early August, when Elliott — after the City Council voted to put her office in charge of the issue — alleged in court filings that the broker, Jim Neil of Kidder Matthews, made fraudulent misrepresentations to the city and violated state conflict-of-interest laws. He responded, saying the Housing Commission knew of his activities.

Then, Chuck Christensen, the Housing Commission’s outside legal counsel, sent Elliott a memo disputing a claim by her spokeswoman, Hilary Nemchik, in a Union-Tribune story. Nemchik said the city attorney’s office “never signed off” on the Housing Commission’s purchase of the Residence Inn Mission Valley, which the commission purchased for $67 million last November, based on an appraisal backdated to peg the value prior to the onset of the COVID-19 pandemic. By then, Neil had already purchased 50,000 shares of stock in the company that sold the hotel.

“The ‘sign off’ portion of the statement is not accurate,” Christensen wrote to Elliott. “The hotels could never have been purchased without the Housing Authority General Counsel’s sign off. The matter is being addressed in a memo rather than by releasing it to the press, to address the matter in a direct way among the public officials involved.”

He argued that the city attorney’s office is the legal counsel for the City Council, whose members make up the Housing Authority, and that the hotel acquisitions were approved by the Housing Authority in October. Because the city attorney has a role in reviewing any item heard by the Housing Authority before it becomes a resolution, the city attorney’s office necessarily signed off on the purchases when they were approved by the Housing Authority, Christensen wrote.

“The statement referenced above, that the city attorney did not ‘sign off’ on the acquisitions is not accurate which is proven by the attached resolution, and the fact that the matter was heard before the Housing Authority after approval for docketing by the city attorney,” he concludes. “Further, no issues were raised by the city attorney when they attended the Housing Authority meeting where the hotel acquisitions were ultimately approved.”

Days later, Elliott responded to Christensen’s letter, “writing to express a deep concern with how narrowly it describes the general counsel’s legal and ethical obligations to the city of San Diego.”

In her letter, Elliott argued that the city has already delegated considerable responsibility to the Housing Commission, giving it the ability to deal directly with brokers, developers and lenders and to execute significant real estate transactions, often without the approval or knowledge of its own board.

But when the commission is engaged in that real estate activity, Elliott writes, it’s Christensen’s job to make sure the commission follows its own policies, along with local, state and federal law.

“In his memorandum, general counsel to the Housing Commission indicates that when Housing Commission acquisition approval is sent to the Housing Authority for ratification, the Housing Authority should not and cannot rely on the general counsel’s work, but rather should have its own counsel conduct a separate, independent and time-consuming review of each stage of those same contracts, dealings, reviews, approvals and executions so it can be satisfied that the Housing Commission acted lawfully,” Elliot wrote.

In an email, Nemchik said Gentry has assured Elliott that the commission will follow new protocols in the future, in response to her Aug. 16 letter. Now, any time the Housing Commission sends an item to the Housing Authority, it will also provide documents like contracts, appraisals, reports, emails and text messages “that are necessary to understand the totality of the Housing Commission action.” Those documents, she said, will explain why the issue needs to be ratified by the Housing Authority and will include a signed statement by the Housing Commission’s general counsel affirming that it has done a full legal review and a written description of the legal work performed.

“These new protocols are intended to ensure the Housing Commission and its legal counsel perform appropriate due diligence before an item is presented to the Housing Authority for action,” Nemchik wrote.

Gentry said the Neil case has simply exposed holes in the city’s arrangement with the Housing Commission that no one was aware of previously.

“There are no relationship issues that I’m aware of, but there are processes and procedures we’re creating through this case,” he said. “And again, in light of litigation, everyone is careful not to have conversations that could bite us later. There is a care being taken to make sure the record reflects the reality, rather than getting into a sidebar issue.”

A former Residence Inn in Mission Valley / Photo by Adriana Heldiz

Tensions have not just been limited to a dispute over legal review on Housing Commission actions, though. Elliott, in a separate letter to Gentry in August, alleged that he had failed to provide all of the documents and information her office needed in the case against Neil.

“My office has now made several requests of San Diego Housing Commission staff on behalf of the Housing Authority that have gone ignored,” she wrote. “In the future, my office will transmit all requests of the Housing Commission directly to you as its president and CEO. We request prompt acknowledgment and production of all requested information and documents. This information is essential to our analysis of risk and to defend the interests of the city” and both housing agencies.

A week after announcing the lawsuit against Neil — and a day after Neil issued his first public statement on the matter — Elliott demanded that Gentry hand over a complaint the commission filed with the California Department of Real Estate against Neil, a record of all transactions for which Neil or Kidder Matthews acted as brokers for the commission, copies of sales agreements on those transactions, staff reports on those deals provided to the commission’s board or the Housing Authority, documentation on any bids for services that Neil won, and its policies and procedures for hiring consultants.

“We encourage the Housing Commission to be as forthcoming as possible about the transactions that involve the Housing Commission and its real estate brokers,” she concluded.

Gentry said said the Housing Commission, to his knowledge, has turned over everything Elliott requested.

Nemchik said that the city attorney had been assured after sending the letter that her requests would be answered promptly.

“Production is ongoing,” she wrote in an email.

Tension Inside the Commission, Too

Before some of the tensions between the city attorney and Housing Commission turned into hostile exchanges between the two sides, there was a separate struggle between the Housing Commission’s staff, its board and the Housing Authority this spring.

On March 5, the Housing Commission’s board in closed session heard from legal counsel regarding anticipated litigation. The readout from that meeting doesn’t go into detail, but a letter obtained by Voice of San Diego indicates that was the first time the board learned of the Neil issue.

Before the next meeting, two commissioners — Ryan Clumpner and Dion Akers — wrote a letter to the board chair, Stefanie Benvenuto, stating that what they heard on March 5 was “surprising and deeply troubling, a sentiment you no doubt share.”

After contemplating the implications, they said, they had additional questions and wanted another closed session discussion as soon as possible. Akers is no longer on the Housing Commission’s board. He vacated his seat when he accepted a job in Mayor Todd Gloria’s administration.

But more importantly, they said, the Housing Commission shouldn’t be handling the issue alone. They asked that the Housing Authority and city staff be briefed and requested that the briefing occur in a joint session between both agencies “so that both bodies may be privy to the same information, the same questions and answers, and provide clear direction.”

At the next meeting, again in closed session, the Housing Commission board unanimously voted to send the matter to the City Council president to schedule a closed session hearing for the Housing Authority.

Gentry conceded that those meetings were direct, but said it’s because they’re dealing with an unprecedented issue, and it was not always clear how it should be handled.

“There were a number of frank and candid conversations among commissioners, staff and authority board members in closed session, all addressing this issue,” he said. “If this had arisen before, where there’s a sharing of responsibility, then maybe we would have had a guide. But this is plowing new ground. So, retroactive speculation about why someone did what they did is inappropriate.”

A month later, on April 13, the City Council convened as the Housing Authority and met in private. That caught the attention of people who work in housing issues in the city because the Council rarely meets behind closed doors as the Housing Authority. But it was at that meeting that the Council learned about the scandal for the first time.

The Housing Authority then saw a written summary and legal analysis of the Neil issue, prepared by the Housing Commission’s legal counsel. Two sources familiar with the matter said the Housing Authority then learned the Housing Commission’s board had not yet seen the written summary, and voted to direct staff to provide the board with the document.

This back-and-forth within closed sessions of two separate boards, both with different and overlapping roles overseeing the Housing Commission, is the context behind the public hearing this summer in which the City Council and city attorney discussed the background of the unique governance arrangement for the agency, and the possibility of reforming it.

That meeting, and the briefing by the city attorney, had been requested by Councilmen Chris Cate and Sean Elo-Rivera, with Elliott providing a written memo on the topic on July 16. The Council at that meeting asked the city’s independent budget analyst to review other arrangements in the state, which could serve as a basis for reforms in the future.

Disclosure: Mitch Mitchell, a Housing Commission board member, also serves on Voice of San Diego’s board of directors.

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