Jason Hughes, the volunteer adviser to San Diego mayors who collected almost $10 million for his work on two lease-purchase agreements, has cited a City Attorney’s Office memo to explain why he did not previously disclose that compensation.
In a formal answer to a lawsuit filed by City Attorney Mara Elliott that accused Hughes of a financial conflict of interest, lawyers for Hughes said their client repeatedly told city officials he expected to be paid for his services.
The court filings say Hughes worked with three mayoral administrations — Bob Filner, Todd Gloria and Kevin Faulconer — without being directed to file what’s called a Statement of Economic Interest.
Gloria, a former council member who stepped in as interim mayor after Filner resigned in mid-term, was elected mayor last fall.
The legal documents Hughes filed also include screenshots of internal emails that he says indicate city officials were aware as early as 2013 that Hughes may need to file state-required financial disclosures.
The documents also quote from a 2007 legal memo signed by then-City Attorney Michael Aguirre that suggests it was the city’s job — not Hughes’ — to make sure disclosure rules are complied with.
“At all times, the city understood that the responsibility for determining whether an informal adviser like Hughes had any sort of disclosure obligations laid with the city, not Hughes,” his lawyers wrote.
The City Attorney’s Office said the emails and a 14-year-old memo do not relieve Hughes of his duty to follow the law.
“Jason Hughes’s use of select emails will not fool the court or absolve him from his obligation to report income in the manner and form required by state law,” Elliott spokeswoman Hilary Nemchik said by email.
“The fact remains that his secret commissions from Cisterra were not disclosed until he was subpoenaed by City Attorney Elliott,” Nemchik wrote.
Elliott sued Cisterra Development and its financier, Wilmington Trust, in October, asking a judge to validate former Mayor Kevin Faulconer’s decision to stop paying for a high rise the city acquired from them in a 2016 lease-purchase deal.
The 19-story office tower at 101 Ash St. was unable to be occupied due to asbestos and other issues, but the city paid more than $23 million in rent for the vacant property before suspending the $535,000 monthly payments.
As a result of the lawsuit, city lawyers learned earlier this year that Cisterra paid Hughes $4.4 million for arranging the Ash Street transaction and $5 million for a similar agreement for the nearby Civic Center Plaza high rise in 2015.
Cisterra was the seller in both transactions. Hughes, Faulconer and other public officials for years had represented Hughes’ consulting work for the city as a volunteer effort.
In late June, Elliott announced she was adding Hughes to the lawsuit as a defendant and seeking to void the Ash Street and Civic Center Plaza leases due the conflicts of interest posed by the undisclosed payments to Hughes.
Nemchik noted that the 2007 memo Hughes cites also says consultants have a legal obligation to alert the city when they learn of possible conflicts that could require public disclosures.
“That duty was obviously triggered once Jason Hughes negotiated $9.4 million from Cisterra while representing the city as its exclusive negotiator,” she said.
The Statement of Economic Interest, also known as California Form 700, is required to be filed by elected and appointed officials on a yearly basis so the public is aware of their investments, gifts and other holdings.
If Hughes had submitted a Form 700, the payments from Cisterra would have been known to the public years ago.
Even so, Elliott accused Hughes of violating the state Government Code section that prohibits officials — including consultants — from personally benefitting from deals in which they participate.
But lawyer Michael Attanasio, who represents Hughes, said the city’s decision not to label his client a consultant or contractor is proof that he was not within the definition of people covered by Government Code Section 1090.
“Section 1090 applies specifically to city officers and employees,” Attanasio said in an email.
“There are cases extending Section 1090’s scope to include independent contractors formally retained by a municipality, but Jason’s role as an informal adviser to Mayor Faulconer and his senior team is not covered by any of these definitions.”
Faulconer and two of his senior aides have all said they did not know about Hughes’ multimillion-dollar payments from Cisterra.
Aguirre, now in private practice and representing a San Diego resident who filed a separate lawsuit over the city’s Ash Street lease, said his 2007 memo does not mean Hughes was not supposed to disclose his commissions.
“There are dual responsibilities,” he said. “The consultant must comply with the law and the designation official ensures compliance.”
The former city attorney likened the situation to a motorist and a law enforcement officer.
“A driver must obey the speed limit,” Aguirre said. “A police officer ensures compliance.”
The 8-page memo from 2007 spells out how the state Fair Political Practices Commission determines who must file public financial disclosures and under which circumstances.
Specifically, the state law says anyone serving in a “staff capacity” may be required to disclose their economic interests, the 2007 memo states.
Such work includes “preparing or presenting any report, analysis or opinion, orally or in writing, which requires the exercise of judgment on the part of the official and the purpose of which is to influence a governmental decision.”
Emails previously released by the city show that Hughes was directly involved in negotiations between the city and Cisterra related to the Ash Street lease.
The Fair Political Practices Commission also has determined that a “real estate investment consultant” may be considered a consultant responsible for disclosing his or her financial interests, the 2007 memo states.
Hughes’ legal position rests on the assertion that his work for the city was never formalized in a contract or agreement.
In his report from July, City Auditor Andy Hanau noted that the Mayor’s Office never required Hughes to sign a contract, an arrangement that raised questions about the real estate broker’s obligations.
“If the adviser had had a contract with the city, the contractor’s duty of loyalty to the city would have been clearer,” the auditor’s report said.
General contract terms say contractors are subject to federal, state and local laws, and that they must establish safeguards against using their positions for personal financial gain, the audit also said.
“However, because the Mayor’s Office did not ensure the adviser was under contract, the adviser was not subjected to these contract conditions, again placing the city at risk,” Hanau concluded.
In announcing her lawsuit against Hughes, Elliott said the city would no longer make monthly lease payments on the Civic Center Plaza because the contract was illegal.
She reversed course two weeks ago, after the lender filed an eviction case. The lawsuits over the Ash Street and Civic Center Plaza leases are pending in San Diego Superior Court.
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Broker in Ash Street, Civic Center Plaza deals responds to conflict-of-interest allegations - The San Diego Union-Tribune
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