PERSPECTIVE: Jason Hughes is a Piñata but Who’s Yanking the Rope?

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Arturo Castañares

Real estate broker Jason Hughes admitted last week that he received a previously-undisclosed $4.41 million fee from a local development company for helping it secure a long-term lease with the City in 2016 for the controversial 101 Ash Street building which has now sat vacant for over a year and a half due to exposure of asbestos materials.

Hughes, founder and CEO of tenant rep company Hughes Marino, had served as an unpaid volunteer advisor to the City since then-Mayor Bob Filner appointed him to help negotiate real estate deals in 2013.

Although he served without pay, Hughes was intimately involved in negotiating and advising the City on signing two 20-year leases with a local development company called Cisterra Development: the lease 101 Ash in 2016 and a nearly identical lease in 2014 for another building occupied by City staff, including the City Attorney’s office.

For over three years, Hughes had avoided publicly disclosing that he had earned nearly $10 million for his “volunteer” work for the City.

Last August, I received information from a trusted source that Hughes had netted a multi-million dollar payment after the City closed the 101 Ash deal. Another source independently confirmed the claim. The sources said Hughes made “about four and a half million dollars” but I just couldn’t believe he would’ve been so brazen as to get paid on a deal he had negotiated on behalf of the City. In my mind, it would be a clear violation of the state’s conflict of interest laws commonly known as Government Code Section 1090.

Not wanting to make such serious claims in an article without offering Hughes an opportunity to explain, I reached out to him several times by email, text message, and also spoke with his personal assistant to make sure he had received my messages. I specifically asked if he would confirm or deny whether he received any compensation from any party in the 101 Ash deal. He did not respond.

I even emailed his wife, Shay Hughes, who serves as President, COO, and Co-Owner of Hughes Marino, offering her an opportunity to comment. She never responded either.

I also contacted Cisterra several times seeking comments as to whether they paid Hughes, but no one from the firm responded.

So, on September 11, 2020, I wrote the first article that claimed that two sources close to the 101 Ash deal maintained that Hughes was paid a fee and that Hughes would not deny it. Other media outlets were reluctant to follow the story without their own sources backing up the claim, so the issue failed to gain traction. Other reporters asked Hughes for comments, but none of them printed the claim that he had been paid. La Prensa San Diego was criticized for making the claims, but we stood by our reporting.

We repeated the claim several times in subsequent articles, and each time offered Hughes the opportunity to comment. We even tagged him on Twitter, asking why he wouldn’t comment, then he abruptly deleted his Twitter account. What innocent person does that?

We also emailed City Attorney Mara Elliott’s office requesting details on the due diligence review she performed before signing the deal on December 19, 2016, but her office has never responded to any of our requests.

Now, after ten months of Hughes dodging our repeated questions about his compensation, he suddenly released a statement last Monday confirming he received a $4,410,000 fee related to the 101 Ash lease signed in 2016 and also a $5,023,872 fee for his work on the Civic Center Plaza lease signed in 2014.

The comments are an admission that Hughes, and more importantly, Cisterra, failed to disclose his financial interests in the City leases before and since the agreements were signed.

The payments to Hughes violate state and City conflict-of-interest disclosure laws created to prohibit self-dealing where someone has a financial interest in a public contract he helps to negotiate or votes to approve. So why the sudden admission?

The statement released by Hughes’ attorney argues that Hughes informed then-Mayor Kevin Faulconer and his Chief of Staff, Stephen Puetz, as well as other high-ranking City officials in 2014 that he intended to “seek compensation from the private sector for his role in these transactions“, but his vague comments were not a disclosure that he actually had a deal, who had agreed to pay him, or how much: all material facts he failed to disclose.

He was clearly laying the groundwork for a legal defense by claiming he told City officials. It would seem he anticipated something was coming, either a civil lawsuit or criminal charges.

In response to Hughes’ admission, City Attorney Mara Elliott filed lawsuits the next day seeking to cancel both of the leases and demanding the return of over $44 million in payments it made under the agreements, calling the two deals into question, and setting up the potential for a series of lawsuits between the City, the broker, the City’s landlord, financiers, and the former owners of the two buildings.

When Filner first appointed Hughes as an unpaid advisor, the then-Mayor touted Hughes’ role as a public service without compensation from anyone.

“I appreciate Jason’s commitment to public service in this advisory role, which he will perform without compensation from any party,” then-Mayor Filner wrote in an April 2013 press release. Hughes Marino also promotes itself as “tenant-only representation” but that clearly wasn’t true in these two cases.

Both deals were executed between the City of San Diego and Cisterra Development, a local real estate company that used the signed leases with the City to secure financing to purchase the buildings then continued to serve as the landlord for the two buildings. The Civic Center Plaza, known as CCP, houses City employees, including the City Attorney’s office. Cisterra is the City’s landlord on two of its biggest office leases.

The City’s new lawsuit claim that Hughes violated California Government Code Section 1090, a broad set of state laws that prohibit self-dealing by officials, staff, and even consultants, in government contracts. The law and past cases are clear that a consultant like Hughes, who is involved in negotiating and recommending the execution of a contract in which he has a financial interest in the outcome, has a conflict-of-interest.

But Cisterra’s failure to disclose Hughes’ fee derived from the 101 Ash Street lease is also a violation of the City’s Charter Section 225 which requires “a full and complete disclosure of the names and identity of any and all persons directly or indirectly involved in the application or proposed transaction and the precise nature of all interests of all persons” in any contract or concession signed with the City.

On October 6, 2020, I wrote that Cisterra refused to detail to the City where more than $14 million in the deal went, and to whom those funds were paid. We again outlined that Hughes may have been paid fees on the deal, and we detailed the disclosure requirements of Section 225 that seemed to have been violated. Again, no one paid any attention to our claims.

It wasn’t until April of this year that outside lawyers representing the City issued subpoenas in their lawsuit requesting documents from Cisterra, Hughes, the sellers of 101 Ash, and others in an attempt to figure out what really happened in the deal Elliott signed more than than four years earlier. Better late than never, but don’t tell me now that Elliott is the one breaking new ground in this investigation.

For months I have argued that it was City Attorney Mara Elliott’s duty to perform all legal due diligence in 2016 before she allowed her office to sign the lease. The duty to ensure compliance with Section 225 was Elliott’s responsibility, not the Council’s or the Mayor’s.

Under the City’s Charter, the City Attorney is the City’s chief legal advisor and is the only person who can legally bind the City in a contract. In fact, when the 101 Ash lease was signed by Elliott’s office on December 19, 2016, the City Council had already passed it and then-Mayor Kevin Faulconer’s signature was already on it, but the deal was still not binding without her signature.

It shall be the City Attorney’s duty to prepare in writing all ordinances, resolutions, contracts, bonds, or other instruments in which the City is concerned, and to endorse on each approval of the form or correctness thereof,” according to Section 40. (Bold added for emphasis)

Elliott has tried to define “as to form” to mean simply reviewing the document for errors, but the legal definition and practice is much more broad and onerous on her. As to “form or correctness” means that the City Attorney attests to the fact that a public contract is legal, valid, and binding, and that she has reviewed all legal requirements necessary to legally bind the City to the contract terms.

When the 101 Ash deal came under heightened scrutiny last year, Elliott deflected responsibility by claiming the deal was “approved” before she was elected City Attorney.

During a campaign endorsement interview with the San Diego Union-Tribune in October, Elliott said “My administration did not work on 101 Ash, this is a deal that happened months before I took office” and her office released a statement in December claiming that “As you know, Mara Elliott was not in office when this deal was approved.” Both statements are nuanced, if not lies.

By saying the deal was “approved” and “happened” before her, Elliott is referring to the votes by the City Council in October and the signing by Faulconer in November, but the final approval signature still needed to make the lease legal was hers.

Elliott was elected on November 8, 2016, sworn into office on December 12, 2016, and the lease was not signed until one week later on December 19, 2016. Clearly the last signature that “happened” and “approved” the deal was Mara Elliott’s.

It is now apparent that Elliott did not enforce the provisions of Charter Section 225 to confirm the names of all parties who would benefit from the lease agreement, and there are two clues that make it seem impossible that Elliott and her office were unaware of the requirements of 225.

First, an article published on August 2, 2016, by inewsource, a local online news outlet, detailed the history of Section 225 and how the City had failed to enforce proper disclosure in hundreds of existing city contracts, The story, titled “Long-ignored transparency law would reveal who’s doing billions in business with San Diego“, pointed out that Section 225 was passed by voters in 1992 after the City nearly bought two apartment complexes from a reputed mafia money launderer the year before. We need to know who we’re doing business with, the City claimed.

In response to that article, then-City Attorney Jan Goldsmith’s office prepared a 10-page Memorandum of Law on October 12, 2016, explaining the history and requirements of Section 225. The City Council’s Rules Committee then held a meeting on October 26, 2016, to discuss Section 225. (DOWNLOAD MEMO HERE)

All of this was happening as the 101 Ash lease was being voted on by the City Council and during the time it sat within the City Attorney’s office awaiting signature, yet Elliott’s office ignored Section 225 when they signed it. It’s hard to believe they were not aware of it.

But even worse, last August when the City Council held a meeting to discuss the disastrous 101 Ash deal, then-Councilwoman Barbara Bry asked Elliott to respond to several questions, specifically whether the requirements of Section 225 where complied with when Elliott signed the lease. Bry asked Elliott to submit her responses in writing.

Eight days later, Elliott submitted a letter to Bry and included that a disclosure from Cisterra made to staff (by phone) only listed the two owners of Cisterra: Steven Black and Jason Wood, but Elliott never asked Cisterra for full disclosure pursuant to Section 225 before she signed the lease.

Elliott also included in her memo the language of Section 225: “Every person or entity contracting with the City shall first disclose to the City the names and identities of all natural persons who will receive more than 10% of the contracted amount or who own more than 10% of the entity contracting with the City.”

The problem with Elliott’s response is that the language she quoted to Bry is Section 225 AFTER it was amended in 2018, not the language that existed in 2016 when she signed the lease. The language in 2016 required disclosure of all persons “directly or indirectly involved” in the contract, but the new language only requires disclosure of persons with a 10% interest or more, which would have excluded Hughes’ $4.41 million payment now, but not in 2016.

Why would Elliott give Bry the language that didn’t even exist in 2016 when she signed the lease? Why would she only provide the new language that would seem to exclude Hughes’ payment?

Knowing all of this, now we’re supposed to believe that Elliott’s office didn’t know about Section 225 when she was considering signing the lease, even though the City Attorney’s office had written a memo about it for a City Council meeting at the same time.

And we’re also supposed to believe that Elliott provided the new language of 225 to Councilwoman Bry last year to inform her of language that had no bearing on the issues of 101 Ash Street just to be helpful, but not to further hide the fact that she failed to require disclosures that would have revealed Hughes’ fee?

And lastly, should we not ask if the fact that Jason Hughes and his wife gave maximum political contributions to Elliott in 2016 affected her decisions?

Jason Hughes gave Elliott the maximum allowable contribution of $1,050 on July 28, 2016, as the lease was being approved by the City Council, and his wife Shay delivered another max contribution of $1,050 on October 31, 2016, after the Council approved the lease, but before Elliott signed it.

Now, even after filing two lawsuits last week claiming Hughes had a conflict of interest in the leases and is the cause of the City’s new efforts to cancel the contracts, Elliott has still not returned the Hughes’ two contributions (for that matter, neither has Todd Gloria, but that’s for another article!).

All this leads to the biggest question before us:

Why is City Attorney Mara Elliott not simply arguing that Cisterra and Hughes failed to disclose his backend fee and they therefore violated Section 225? Why sue over a 1090 violation when she could immediately claim the contract is void under Section 225?

The provisions of Section 225 state that failure to disclose information shall be grounds for forfeiture of rights and privileges granted under such contracts. Translation: the contract can be voided.

The problem for Elliott is that fighting over Section 225 disclosures would uncover her failure to perform her own legal due diligence before signing the agreement, expose her malpractice as the City’s chief legal advisor, and open the door for the lenders to argue that the City is trying to benefit from its own mistake by cancelling the 101 Ash and CCP leases after three years and five years, respectively.

Hughes was greedy for taking a fee from the other side of the City’s deal and seems to have violated state conflict-of-interest laws by benefitting from contracts he helped negotiate, but in the end, he’s just a sideshow.

It wasn’t his failure to disclose his fee that caused the problems with the 101 Ash building, it was Elliott’s failure to perform the kind of legal review that is standard in public contracts that allowed Cisterra to enter into a deal without making full and complete disclosures about fees and also about the true condition of the building.

There is a reason why the City’s lease could not have been enforceable without the signature of the City Attorney: She is the only person empowered by the Charter to bind the City in a contract and, in doing so, must certify that all legal requirements were met.

In this case, however, she failed to do so, and her failures has now left the City with an expensive building it can’t even occupy, and over $150 million in debt.

Some of us grew up attending kids’ birthday parties where the big show was the piñata, the candy-filled cardboard character dangled above blindfolded kids as a target to beat with sticks until candies fell out of it. It was fun to hit the piñata, but with blindfolds on we couldn’t see the person holding the rope and yanking the piñata up and down, purposely making it harder for us to hit it.

The muscle yanking the rope was the one controlling the piñata, deciding when to pull it away, and when to finally let someone break it open to end the game. The master manipulator was the one in charge. The piñata was just a cheap, throw-away character used to draw our attention.

Jason Hughes deserves the beating he’s now taking for playing both sides of the deal, but we should follow the rope back to see who is really behind the cheap entertainment. Mara Elliott has been yanking the rope, teasing us with the prize, and has now decided it’s time to break it open to distract us from her own actions and inactions.

Let’s not be distracted by the piñata. Let’s figure out why someone wants us to look there and not at who’s at the end of her rope.