It's not that I don't feel bad for the defendant in this case. I do. It turns out that it was the last holder in a game of hot potato.
But a deal's a deal. Even if it's a bad one. So it loses the property.
Shortened to its essentials, here's the deal:
There's a 15-acre plot of land in the City of San Marcos that's being used for a recycling center. The recycling center then closes, and the land is vacant for around a decade.
Eventually someone gets the bright idea to turn the place into a movie studio. So the property owner enters into a deal with the City in 2004 to (1) get a conditional use permit to allow the property to be used as a studio (rather than recycling center), in return for (2) payment of $2.3 million in mitigation fees for the improvement of roads, etc. around the property. The City doesn't demand payment of the $2.3 million immediately; nonetheless, it's a lien on the property, and various installment payments are due at the end of 2006. The deal's negotiated, signed, delivered, and all the parties are sophisticated and represented by attorneys. Fair deal.
Company A then buys the land from the original owner, fully aware of the deal and the liens on the property, for $8.75 million in February 2005. Company A's also no dummy. One year later, Company A sells 72% of the their interest in the property for $9 million to Company B. That's a quick million-dollar-plus profit in less than a year.
Companies A and B are still working on getting a movie studio in there. They ask the City for more time, and it give it to 'em, but the extra time runs out in early 2007. Then they ask the City for yet more time, and the City gives it to 'em again, and there's a whole formal extension deal signed. But there's still the $2.3 million due, and it's still a lien on the property, with a right to foreclose if it's not paid.
Company B's still trying to get a movie studio in there, but in the meantime, it uses the land for a commercial car photo shoot, and then rented as storage space several times. The City wants there to be a movie studio too, so it hobbles along with these interim arrangements. But in 2009, having still not been paid, the City essentially says "Enough. Pay us." But Company B doesn't.
So in 2010, the City exercises its right under the agreement to terminate the deal, and continues to demand its $2.3 million, but Company B still doesn't pay, so later that year, it files suit to foreclose on the land. Company B fights, claiming that the deal is unconscionable, illegal, etc. And I'm somewhat sympathetic to this view, since (as far as I can tell) the City's getting paid $2.3 million as mitigation fees for improved streets, etc. that it now doesn't actually have to do since there's not, in fact, going to be a movie studio there.
But a deal's a deal. So, in 2012, the trial court -- after a five-day bench trial -- rules in favor of the City. And today the Court of Appeal publishes its opinion affirming the trial court.
Don't make bad deals. And if you do, don't be surprised when you're held to them.
