Cudahy City Council
June 4, 2024

2. RELEVANT FACTS IDENTIFYING THE CITY’S CONTRACTUAL PROMISES

2.1 Agreements Guarantee Many Rights Including that the Project is Vested.

Shortly after the City adopted Ordinance No. 673 allowing commercial cannabis, Philip Kfoury, the cannabis operators principal, met with City officials about opening a cannabis manufacturing facility. After being assured that the facility would open within one year, they applied for a cannabis cultivation, manufacturing, and distribution facility at 4916 Cecilia.

The City moved quickly as it promised. On April 30, 2018, the planning commission held a public hearing and received an extensive presentation from its cannabis consultants. Two weeks later, on May 15, 2018, the City adopted resolutions approving the seven agreements. On June 5, 2018, the City executed development agreements with Cuper Development, Go Cudahy, Davina, Genius Distribution, Herbal Dragon, Daniel and Goliath, and 420 LLC (“operators”).

The development agreements comprise 41 pages, without exhibits, and were adopted as law in Ordinances No. 676 through 682. The development agreements confirm that the “City concluded that the pursuit of the Project will serve the best interests of its citizens and that the public health, safety, and welfare are best served by entering into this obligation.” (Dev.

Agmt. Recital M). The City “found that the Project” is “in the best interest of the City of Cudahy and its residents.” (Agmt. Recital P).

The development agreements identify that one of its main “purpose” is “to establish certain development rights” in the project “regardless of intervening changes” in order to “reduce the economic risk of development.” (Dev. Agmt. Recital A).

The City agreed that the development agreements “establish certain development rights” and “vest certain rights in the operator.” (Dev. Agmt. Recital B). “The City agrees the operator’s land use entitlements for the project shall vest” (Dev. Agmt Recital N), “the operator may operate cannabis-related activities” (Dev. Agmt. § 4(a)), and the “property may be used for commercial cannabis” cultivation, manufacturing, and distribution. (Id. § 1(c)).

2.2 The City Agreed to Proceed in Good Faith and Implemented the Agreement in Accordance with its Terms and to the Fullest Extent Permitted by Law.

The agreements include many provisions requiring the City to act in good faith. “If the operator disagrees with” cost recovery fees “the operator and the City shall work, in good faith to resolve operator’s written request. The dispute shall be decided in favor of operator if the City does not respond to the written request within thirty days of actual receipt.” (Dev.

Agmt. § 8(d)). If a citizen initiative imposes a cannabis tax, the “operator agrees to renegotiate in good faith the terms of this development agreement with the City.” (Dev. Agmt. § 9(b)).

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 6

If conflicting state or federal law impact the project the parties shall “meet and confer in good faith and attempt to modify this agreement to bring it into compliance with any such federal or state law.” (Dev. Agmt. § 23(o)). If an amendment is necessary to comply with conflicting state or federal law “the City shall cooperate with the operator in securing any City permits, licenses or other authorizations that may be required as a result of any amendment resulting from actions initiated by the City.” (Dev. Agmt. § 23(o)).

Contractually, the City promised to ensure the agreements remains in force: “The parties shall cooperate with each other and undertake such reasonable actions as may be appropriate to ensure this agreement remains in full force and effect and is implemented in accordance with its terms and to the fullest extent permitted by state or federal law.” (Dev. Agmt. § 23(c)).

Several actions taken by the City to terminate the agreement as a result of refusing to pay illegal fees are intended to terminate the agreement in bad faith in violation of the many promises made by the City in the development agreements.

2.3 Approved Plans Were Incorporate in the Agreements and the City Contractually Agreed Redesigning Approved Plans is Considered a Default.

Section 3 titled “Operator’s Site and Floor Plans” incorporate the site and floor plans as an exhibit: “The operator’s site plan and floor plan for the facility are attached hereto as Exhibit D and incorporated into the application.” (Dev. Agmt. § 3(a)). The “cannabis permit application” and its detailed construction plans were also incorporated. (Dev. Agmt. § 1(d)).

The development agreements confirm that “the Project will consist of a vertically integrated” facility providing “cannabis production, processing, and distribution.” (Dev. Agmt.

Recital I). The existing “industrial/warehouse building” comprising 68,000-square-feet will be divided into seven spaces. (Dev. Agmt. Recital I). Construction includes the “renovation or remodeling of existing buildings.” (Dev. Agmt. § 13).

The City contractually agreed that its “failure” to “perform any term or provision of this agreement” after “notice and cure period shall constitute a default.” (Dev. Agmt. § 14(a)). The City also agreed to provide “an extension of time” for “any default by City.” (Dev. Agmt. § 23(i)). The City contractually agreed that any redesign of approved plans would constitute a default and require fees during this period of delay to be extended, i.e., waived.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 7

2.4 City Agreed to Expedite Permits and Contractually Promised that Delays by the City in Expediting Permits is Considered a Default.

The City agreed that the “Operator shall receive priority processing for any corresponding City permits.” (Dev. Agmt. Recital F). The City “acknowledge[d] that changes to the project or development plans and related approvals may be appropriate and mutually desirable to carry out the intent and purpose of this agreement.” (Dev. Agmt. § 23(n)).

The City agreed if conflicting laws “require changes in plans, maps or permits approved by the City, this agreement shall remain in full force” and the parties shall “meet and confer in good faith and attempt to modify this agreement to bring it into compliance” and “the City shall cooperate with operator in securing any City permits.” (Dev. Agmt. § 23(o)).

The City contractually agreed that its “failure” to “perform any term or provision of this agreement” after “notice and cure period shall constitute a default.” (Dev. Agmt. § 14(a)). The City also agreed to provide “an extension of time” for “any default by City.” (Dev. Agmt. § 23(i)). The City contractually agreed that its failure to expedite construction would require fees during this period of delay to be extended, i.e., waived.

2.5 Construction Procedures Were Incorporated in the Agreements and the City Agreed Any Construction Delays by the City is Considered a Default.

Section 13 titled “Standard Conditions for Construction” incorporate the construction procedure as an exhibit: “During any on-site construction activities related to development of the project site and any buildings thereon, or renovation or remodeling of existing buildings, operator shall comply with all applicable terms and conditions of City’s standard conditions for construction, attached and incorporated as Exhibit F.” (Dev. Agmt. § 13).

The construction included dividing an existing 68,000-square-foot “industrial/warehouse building” into seven spaces. (Dev. Agmt. Recital I). The operator agreed to comply with the “construction requirements contained in the agreement.” (Dev. Agmt. § 1(d)).

The City agreed that its “failure” to “perform any term or provision of this agreement” after a “cure period shall constitute a default.” (Dev. Agmt. § 14(a)). The City agreed to provide “an extension of time” for “any default by the City.” (Dev. Agmt. § 23(i)). In effect, if the City required any construction procedure, other than the one attached to the agreement, it would be in default and any fees due would be extended, i.e., waived, during the period of default.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 8

2.6 Force Majure Delays Require an Extension for Local, State or National Emergencies and an Extension for Any Default by the City.

Section 23(i) titled “Force Majeure” provides “an extension of time” during delays due to “local, state or national emergencies” or delays due “any default by the City” as follows:
“23(i). Force Majeure. If delays are caused by unforeseen events beyond the control of the operator, such delays will entitle operator to an extension of time as provided in this section. Such unforeseen events (‘Force Majeure’) shall mean war, insurrection, acts of God, local, state or national emergencies, strikes and other labor difficulties beyond the party’s control, or any default by the City hereunder, which Force Majeure event substantially interferes with the development, construction or operation of the Project.” On March 19, 2020, Governor Newsom ordered all individuals to stay home at their place of residence, except the individuals working in critical infrastructure sectors identified in the order. The order restricted all non-essential travel and activities outside the home. On March 19, 2020, the County of Los Angeles issued a Mandatory Stay at Home Order. On March 23, 2020, the City of Cudahy adopted Resolution No. 20-06 which declared a Local Emergency due to the public threat caused by the coronavirus and shut down all non-essential businesses.

The City contractually agreed when it closed the operators’ construction for 15 months during coronavirus, this was a force majeure delay due to the “local, state or national emergencies” and all fees during this period were extended, i.e., waived. The City also contractually agreed that its “failure” to “perform any term or provision of this agreement” after a “cure period shall constitute a default.” (Dev. Agmt. § 14(a)).

The City also agreed that any City caused force majeure delay in redesigning approved plan (Dev. Agmt. §§ 1, 3(a)), or any City caused force majeure delay in failing to expedite permits (Dev. Agmt. Recital F), or any City caused force majeure delay with inspections or construction (Dev. Agmt. § 13) require that fees during this period be extended, i.e., waived.

The City agreed that its “failure” to “perform any term or provision of this agreement” after a “cure period shall constitute a default.” (Dev. Agmt. § 14(a)).

On April 18, 2022, Philip Kfoury, sent a letter to City Manager Noyola, documenting the “difficulties in obtaining approval” that City consultants restarted the “approval process from the beginning” that “COVID-19 pandemic created further delays” prohibiting construction work, and that these were “Force Majeure-related items and totally out of our control.” January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 9

City Manager Noyola responded in language repeated in many letters that he agreed the delays impacted their business during a portion of the time past due fees have accrued:
“You have provided the City with information and documentation of disruptions and difficulties with business development and/or operations caused by the COVID-19 pandemic. These difficulties appear to have impacted your business operations for a portion of the time past due fees have accrued.” However, City Manager Noyola did not comply with the City’s contractual promise that the documented force majeure delays entitled the operators to an extension of time, i.e., waiver of fees “for a portion of the time past due fees have accrued.” Instead, the City placed the operators in default, and stopped all construction, for refusing to pay disputed and illegal fees during the force majeure delays. The City’s demand for fees during the pandemic closure of construction is a breach of the City’s contractual promises under section 23(i).

2.7 The City Breached the Development Agreements by Placing the Operators in Default Status and Agreeing to Only Issue Conditional 90-Day Occupancy Permits, Only Renewable if Disputed and Illegal Fees are Current.

City Manager Noyola stated in many letters that the operators “will remain in default status on their development agreement until all past due fees have been paid” and once the fees are paid “the City will only issue a temporary certificate of occupancy for the site valid for 90 days. The temporary certificate of occupancy may be reissued if the Operator remains in compliance” with the fees. The default status by the City Manager prevented any construction work for failing to pay illegal fees and violated the development agreement.

The City contractually promised that the City Council would review the operators’ compliance and modify and terminate the agreement. (Dev. Agmt. § 19(a)). This did not occur in violation of the agreement. The City agreed that the procedure to place the operators in default required the procedure identified in § 14. This procedure was not followed, of course, refusing to pay illegal fees is not a default.

The City also promised that it may “modify this Agreement (except no modification shall increase Owner’s liability nor reduce Owner’s rights).” (Dev. Agmt. § 19). Denying construction for refusing to pay illegal fees is an un-permitted modification and a breach of the agreements. The parties agreed that only “minor amendments that do not affect a substantive provision of this Agreement may be approved by the City Manager on behalf of the City.” (Dev.

Agmt. § 23(a)). The default without construction permission is not minor, it major, and the City Manager placed the operators in default as a pretext to securing illegal fees, this violated the development agreements.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 10

The City believes that a business which has not yet opened for over five years, and is prevented from opening by the City, must pay operating fees to the City. Moreover, once the fees are paid, the City limit operations to a temporary occupancy permit lasting only 90 days.

In effect, it takes over fives to open, but the operations get a limited 90-day window. The operators are private landowners, they have rights, more importantly, their rights are agreed upon in the contract with the City. The attempt by City Manager Noyola to limit occupancy permits to ensure payment of illegal fees, in bad faith, its illegal extortion, and it’s a breach of the development agreements..

The agreements have no discussion about issuance of a “temporary occupancy permit.” On the contrary the agreements confirm that the agreement “vest certain rights in the operator.” (Dev. Agmt. Recital B). “The City agrees the operator’s land use entitlements for the project shall vest” (Dev. Agmt Recital N), “the operator may operate cannabis-related activities” (Dev.

Agmt. § 4(a)), and the “property may be used for commercial cannabis” cultivation, manufacturing, and distribution. (Dev. Agmt. § 1(c)). The City contractually agreed that the agreement “shall remain in full force and effect so long as the subject property is used for a commercial cannabis facility.” (Dev. Agmt. § 2). The City agreed that the “agreement remains in full force and effect and is implemented in accordance with its terms.” (Dev. Agmt. § 23(c).) The operators are not in default for refusing to pay disputed and illegal fees. In failing to set annual review hearings, the City denied the operators a forum to present force majeure delays. The City contractually promised that the operators could not “compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). City staff prevented a hearing before the City Council, and this allowed City staff to push illegal fees without review. There was no waiver by the operators in not addressing the illegal fees sooner. The failure to hold yearly review hearings was on the City, which breached the development agreement, municipal code and state law.

A the very minimum, the fees during the pandemic shut-down is flatly illegal. Assuming arguendo, that the operators are in default (they’re not) for refusing to pay illegal fees, the best that the City can do under the agreements is refuse to issue buildings: “No building permit shall be issued . . . after the operator is determined by the City to be in default . . . until such default thereafter is cured by the operator or is waived by the City.” (Dev. Agmt. § 14(f)).

The operators are in their 68th month in attempting to open. Building permits were issued years ago, and the permits vested. Since the operators are not seeking building permits and denying them the right to proceed with construction for already issued building permits, is a violation of the development agreements. Certainly, the City is aware that building permits are not the same as occupancy permits. The word “temporary occupancy permit” is missing from the agreements and not existent in the municipal code. The issuance of temporary occupancy permits for failure to pay illegal fees is in bad faith and a breach of the development agreements.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 11

2.8 City Correspondence Confirms the Scheme to Extort Illegal Fees, the City Contacted the State and Reported them in Default, the City Would Only Issue Temporary Operating Permits and Placing the Operators in Default.

In the scheme to secure dispute illegal fees, the City contacted the State and reported the operators as being in default with the City. This extortion scheme is explicitly documented in City correspondence. On April 8, 2022, a text message from building inspector Louis Morales to City Manager Noyola, noted operator, cupper development, owes $600,000 and he is aware of a “request from the State” and had an idea that will “get them to the table now.” The City was aware that after five years, one of the operators (Go Cudahy) was close to opening. Hence, the City accepted the scheme to “force them to the table” by contacting the California department of cannabis control and informed them, that cannabis operators, were in default with the City and therein jeopardized renewal of their state cannabis permit. The State permit was a requirement of the development agreement. The City’s bad faith is self-evident.

Inspector Morales and City Manager Noyola used fear of economic loss, and fear under color of law, to secure fees that were not owed, or at the very minimum were honestly dispute, to jeopardize the operators’ state permits, so that they will “get them to the table now” is in bad and supports a civil RICO claim for extortion. It also violates the development agreement by failing to follow the procedure for default under § 14 outlined in the agreement.

The operators learned that the City had reported to the State that they were not in good standing with the City, and therefore they could not renew their state license. The operators were blindsided by the City’s extortion in securing non-operating fees, at large majority of which were caused by City delays. This also was the first time the operators were told that the City would not be forgiving any fees for any reason.

On April 18, 2022, Philip Kfoury, sent a letter to City Manager Noyola, describing the unforeseen delays and the “difficulties in obtaining approval from the City to begin work.” That Willdan, the City’s consultants restarted the “approval process from the beginning.” That the “pandemic created further delays” and the State prohibited them “from continuing work.” The letter stated that these were “Force Majeure-related items and totally out of our control.” January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 12

The April18, 2022 letter stated that “the City reported to the State that these licenses were not compliant, resulting in the state denying them provisional state licenses.” He asked the City to communicate to “appropriate state agencies that the licenses are in compliance” so they can “receive a provisional license.” The letter asked for confirmation “that Go Cudahy LLC will receive a Certificate of Occupancy for its portion of the facility” so that it “can begin operations.” This is mandated by the agreement. The operators quickly learned they would only receive a temporary occupancy permit in breach of the agreements. On April 22, 2022, a text from inspector Morales to City Manager Noyola, stated he told the operators the “City’s position for payment for Cuper Development and their provision license issue.” It was later discovered that the plan to get the operators to pay disputed fees included that they would only receive temporary 90-day occupancy permits, and required them to return to the City for permits every 90 days, wherein the City would ensure they are current on their disputed fees. This scheme violates a plethora of the City’s promises under the agreements.

On April 22, 2022, Philip Kfoury, sent a letter to City Manager Noyola, asking him to inform the State that they are “working towards compliance” and that the operators could amortize what is owed over two years, but could not make substantial payments as requested.

The letter noted that it has been five years since they started and are still months from opening:

On May 2, 2022, City Manager Noyola, sent a letter stating that the City would not waive any fees, but the City “is willing to enter into a onetime, forbearance agreement” but the operators “shall remain in default status under its development agreement until all past due fees are paid in full.” The letter noted the operators need a certificate of occupancy to open and “the City will only issue a temporary certificate of occupancy” valid for 90 days, but the temporary permits are renewed if the operators are current with their fees:

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 13

On May 26, 2022, the operators asked once again for the City to inform the State that “Local Compliance is underway” and for further dialogue with the City on the non-operating fees. The letter noted that the “Operators were unable to move forward with the projects because of various delays outside of anyone’s control” in this passage:

On October 18, 2022, City Manager Noyola stated in a letter regarding Go Cudahy that it provided the City with documentation of difficulties with the business caused by the pandemic which impacted the business operations while fees accrued.

Instead of removing fees for City-caused delays, City Manager Noyola continued to demand the fees and used various illegal tactics noted above to extort these disputed fees. In the words of City Manager Noyola, the operators “will remain in default status on its development agreement until all past due fees... have been paid.” The default status prevented construction for failing to pay illegal fees and violated § 14(a), § 19(a), and § 23(i). § 4(a))..

The letter stated that “While in ‘default status,’ the City will only issue a temporary certificate of occupancy (a “TCO”) for the Site valid for 90 days. A TCO may be reissued if the Operator remains in compliance . . .”
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 14

The letter stated that “While in default status, the City will only issue a temporary certificate of occupancy for the site valid for 90 days. A temporary certificate of occupancy may be reissued if the Operator remains in compliance . . .” In effect, a business that has not been able to open for over five years, is given a gift, it can pay illegal fees for not being open, it can pay cost recovery fees which are magically the same amount, $3,954.66, for each month during the past year. As is apparent, the City seeks to secure payment of the fees, not by getting the facilities open, but by providing a temporary occupancy permit for a mere 90 days. The occupancy permit is held over its head to ensure the payment of illegal fees. This is not good faith, and it violates the development agreements.

The development agreements do not provide temporary occupancy permits if the operator defaults. The best that the City can do is deny a building permit. The development agreement provides: “No building permit shall be issued or building permit application accepted for any structure on the property after City determines operators to be in default of the terms and conditions of this Agreement until such default thereafter is cured by operator or is waived by City.” (Dev. Agmt. § 14(f)). The “failure to delay by either party to perform any term or provision of this Agreement beyond” a “cure period shall constitute a default.” (Id.) The City breached the development agreements by not complying with Section 14. Of course, the operators are not in default, and placing them in default was done in bad faith..

2.9 Three months ago, the City Demanded Immediate Payment of $200,000 From the Only Operator to Open Or Face Immediate Revocation.

On Sept. 6, 2023, City Manager Noyola demanded in a text message that Go Cudahy make an “immediate payment of $200,000" for overdue non-operating fees, allowing three days to pay, or the cannabis operator would be placed in default and face immediate revocation.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 15

The astounding demand in seeking “an immediate payment of $200,000" by City Manager Noyola is in a text message that confirms that failure to pay would result in the operator being sent “straight to a revocation hearing.” What is most ironic is that the the$200,000 was due since City Manager Noyola stated one year prior that he agreed that the “documentation of disruptions and difficulties with business development and/or operations caused by the pandemic impacted your business operations for a portion of the time past due fees have accrued.” The $200,000 was force majeure fees. Hence, the text demand violated the development agreement. See Dev. Agmt. § 14(a), § 19(a) and § 23(i).

Since the $200,000 demand by text message was not actually due, it was in bad faith and a clear example of extortion under the color of official right (City Manager) and constitute extortion under fear of economic loss (immediate revocation) and supports civil RICO claims.

The City demands $200,000 in illegal fees but is fully aware that the economic landscape has changed. The City’s economic development strategic plan 2023 stated that “rising industry taxes has led to cannabis-based businesses shutting down to diminishing profit margins...” On Nov. 15, 2023, the City stated in response to a Public Records Request that the cannabis operators have been billed by the City total non-operating fees of $5,404,282. The City has billed the cannabis operators as follows: $579,561 (2018); $1,396,975 (2019); $1,136,548 (2020); $941,915 (2021); $858,243 (2022); $491,037 (2023).

More facts displaying abuse include the October 17, 2023, letter from former federal prosecutor Daffodil Tyminski, who sought a hearing before the City Council. On October 24, 2023, attorney Paloma Perez-McEvoy responded for the City and stated the Mitigation Fee Act does not apply to development agreements. The city’s attorney’s letter stated: “the City Council considered your October 17 Demand and has decided not to negotiate the repayment of fees and to continue with the administrative process.”
More facts displaying the abuse include that one year ago the operators submitted revised floor plans for the building to City Manager Noyola for approval. Those plans have been pending for a year without approval. The City agreed the operator would “receive priority processing for any City permits. (Dev. Agmt Recital F). The City also agreed that “changes to the project . . . may be appropriate and mutually desirable.” (Dev. Agmt. § 23(n)).

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 16

3. THE CITY BREACHED THE AGREEMENTS BY REFUSING TO WAIVE FEES DURING THE PANDEMIC CLOSURE AS PROMISED IN SECTION 23(i).

The agreements provide that “unforeseen events,” including “local, state or national emergencies” which “substantially interfere with” the project, are defined as force majeure and “such delays will entitle the operators to an extension of time” (Dev. Agmt. § 23(i)).

City Manager Noyola agreed in many letters that “documentation of disruptions and difficulties with business development and/or operations caused by the COVID-19 pandemic” have “impacted your business operations for a portion of the time past due fees have accrued.” The operators were also shut down for 453 days (15 months), from March 19, 2020, when the shelter-in-place orders started (Executive Order N-33-20), through June 15, 2021, when they ended (Executive Order N-07-21). The City seeks $511,140 in fees non-operating fees of $28,560 per month for 15 months, and community benefit fees of $66,667 per year for

1.2 years during the 15 months the operators were shut down.

In many invoices, the City demanded fees during the time that the City was closed due to the pandemic. It was not the intention of the City for the operators to pay fees if they were delayed by the City or closed by the City, see § 23(i)). The City’s demand for fees during the pandemic closure is a breach of the City’s contractual promise under section 23(i).

4. THE CITY BREACHED THE AGREEMENTS BY FAILING TO EXPEDITE APPROVALS AND BY SEEKING FEES FOR DELAYS CAUSED BY THE CITY.

The City caused delays in redesigning the approved plan (Dev. Agmt. §§ 1, 3(a)), the City failed to expedite permits (Dev. Agmt. Recital F), and the City was responsible for delays with inspections and construction (Dev. Agmt. § 13). These delays are a breach of the City’s contractual promise that any “delay” to “perform” its promises “shall constitute a default.” (Dev. Agmt. § 14(a)). The City also agreed that “any default by the City” which delayed the project “will entitle the operators to an extension of time.” (Dev. Agmt. § 23(i)). The operators were entitled to a waiver of fees for delays by the City and its consultants.

Nonetheless, the City demanded fees notwithstanding its many delays. The warehouse is still not open 68 months after signing the development agreements, and this is impossible without City delays; after all, the operators have decades of construction experience. The reason that after 68 months six facilities are still not open is due to City consultants who redesigned the approved plans, changed the approved construction procedure, and delayed inspections.

These delays explain why the renovation of an existing warehouse is still not open 68 months after securing approval when the operators believed it would be open within one year.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 17

The “mutual intention of the parties as it existed at the time of contracting” (Civ. Code, § 1636) is that any “delay” by the City to “perform” its promises “shall constitute a default.” (Dev. Agmt. § 14(a)). Six operators are still not open because the City breached its performance by redesigning approved plans and delayed approval of the construction. Additionally, the City is in default for demanding any fees during these City caused delays.

The only procedure to document these reviews under the agreements was at the annual review hearing where the “operators shall document any request for an extension of the term due to delays beyond the control of operators (see Section 23(j), Force Majeure).” (Dev. Agmt. § 19(a)). By failing to hold any annual review hearings during the past 68 months, the City denied the operators a forum to present City caused delays. “The operator has no obligation to compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). Moreover, City staff prevented any hearing before the City Council, and this allowed staff to set illegal fees without review.

The fees due during City caused delays 68 months later fell on the City Council, who failed to review City caused delays by not holding annual review hearings. See Dev. Agmt. § 14(a), § 19(a) and § 23(i). The reasonable estimate is as follows. The parties anticipated it would take one year to open. Hence, the one-year falls on the operators. Deducting this one year from the 68 months leaves 58 months. Removing the 15 months during the pandemic further leaves 43 months. The operators suggest 30 months for the city-caused redesign and construction delays. This includes the fact that the City has illegally placed the project in default, halting any construction for over a year, and has even recently failed to return permits submitted over one year ago.

The fees during these 30 months of delays total $1,023,468 (community benefit fees of $66,667 for 2.5 years and non-operating fees of $28,560 per month for 30 months). The City is in default for its demand for fees during construction delays caused by the City.

5. CITY BREACHED THE AGREEMENTS BY DEMANDING NON-OPERATING FEES AS SHOWN BY THE PARTIES INTENT AT THE TIME OF SIGNING.

The City seeks operating fees from businesses that are not operating. The word “nonoperating fees” is not found in the development agreements, or the municipal code. On the other hand, community benefit fees are provided for in CMC § 5.20.020(16), which defines “development agreement” to means an agreement “which provides agreed-upon community benefits to the city.” The cost recovery fees are provided for in CMC § 5.20.070(6), mandating that the “development agreement” shall require the operators to “fully reimburse the city” for all costs, expenses and fees related to the commercial cannabis production. There is no provision in the municipal that a development agreements include operating fees.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 18

The development agreement in Section 7(c) titled “Operating Fees” defines the words premises, commercial cannabis activities, gross receipts, and production space, but does not define the word non-operating fees or the word operating fees. (Dev. Agmt § 7(c)). The definition of production space notes it excludes “non-operational common areas.” The word non-operating fees is not found in the agreements or the municipal code. The development agreement applies “operating fees” to a business that is “operating.” The agreement provides that the “production space” and “gross receipts” fees apply when a operator is open and operating. Accordingly, the word ambiguous and must be discerned from “the mutual intention of the parties as it existed at the time of contracting.” (Civ. Code, § 1636.)

5.1 Councilman Hernandez’s Recollection of the Intention of the Non-Operating Fees at the Time of Approval Confirms Non-Operating Feed Do Not Apply. “The mutual intention of the parties as it existed at the time of contracting” (Civ. Code, § 1636) is of high value from vice mayor Christian Hernandez, who spearheaded the cannabis policy and framework for the development agreements. He states from first-hand knowledge that he believed the City’s position of the non-operating fees at time of approval as follows:

Non-operational fees were included in the development agreements to prevent cannabis operators from holding licenses without opening. In 2018, the City was looking for serious cannabis businesses with a genuine desire to operate as soon as possible. The City was interested in new sources of recurring annual revenue for its general fund and community programs. In the cities of Lynwood, Palm Desert, and Coachella, cannabis licenses resold their licenses to operators who had no urgency to open. This was discussed at hearings, and fees for non-operations were incorporated to prevent license holders from flipping their licenses to operators who would not open rights away.

Naturally, non-operating fees were never intended to last in perpetuity, and they were not expected during natural disasters or other delays beyond the operator’s control. Otherwise, the operators would have to pay non-operational fees for delays beyond their control. Cannabis license holders were also expected to be operating within a year. The City expected its staff and consultants to expedite permits and inspections. Opening the cannabis facility was the City’s top priority.

Cannabis operators were paying recovery fees, so the City agreed to expedite their approval process. Since non-operating fees could only provide short-term revenue, they were not the City’s focus. As a result, the City focused on operating fees from the cannabis operators’ gross revenues since they yielded higher recurring revenues for the general fund.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 19

The City implemented the non-operating fees to mitigate the resale of cannabis licenses. Operators were incentivized to open within one year. It created a win-win scenario for the City and the operators. The operators benefitted by generating revenue, and the City benefited from the income they generated through operating fees.

In full disclosure vice mayor Christian Hernandez is a consultant with the operators when he saw the delays being foisted on them. His agreement does not impact his view of his recollection of the City’s position at the time of signing.

5.2 The Operators’ Recollection of the Intention of the Non-Operating Fees at the Time of Contracting Confirms Non-Operating Fees Do Not Apply.

Philip Kfoury, the cannabis operators’ principal, stated his belief of the intention of the parties at the time of contracting regarding the so-called non-operating fees as follows:

During the 2018 approval process, City officials focused on collecting revenue from gross receipts, and we agreed to pay operating fees based on gross revenue.

During the approval process, the City expressed concern about flipping the license to operators and not planning to open quickly. To remove this concern, we agreed to pay operating fees if we (or a future buyer) were allowed to open, but instead squatted on the license. According to my understanding, we would not be charged non-operational fees as long if we made efforts to open.

According to my understanding, the non-operational fees for not opening once we secured the right to open were set as a punishment for not opening. The non-operational fees were based on the total area, which is more than the production area, which is the default fee upon opening. However, we agreed to pay an operating fee based on gross revenues, which was more than the production area for squatting on the license. City officials focused on collecting revenue from gross receipts, not fees from closed businesses trying to open.

Because we expected to open within one year, the focus was on gross revenues, which provided much greater revenue than fees based on project area or production area.

According to our expectations, we would open within a year. In five years, six facilities still need to open. Many of the delays can be attributed to city staff and consultants redoing approved plans, and a portion of the delay is due to the fifteen-month closure during the pandemic. At no time were we able to open and January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 20

instead squatted on our license. During the approval process, it was explained that we would not be liable for non-operational fees if we consistently progressed to open. This was the city’s official position for four years until Alphonso Noyola was hired as city manager. After that, the City changed its position and demanded operating fees from us, even though we were not open because of the countless delays caused by the City, its staff, and its consultants.

Attorney Daffodil Tyminski, a former federal prosecutor, was present at all the hearings during the approval process, and already stated in a letter to the City on July 14, 2023:
“Non-operating fees were designed to be a penalty for squatting on licenses, not a fine for businesses trying to operate but being prevented from doing so by the City. We were consistently told that the City was not currently enforcing payment on those fees if we were progressing towards opening.”

5.3 Non-Operating Fees are Illegal Taxes (No Voter Approval).

The City demands a $1,913,520 ($28,560 x 68 months) non-operating fee for the past 68 months or a yearly operating fee of $285,600 (12 x $28,560 per month) for the time that the business is closed due to City delays. It's not a fee; the non-operating fee is a tax. The City's economic development strategic plan 2023 (Resolution No. 23-41) identified fees on the cannabis operators as a tax in this passage:
“Light industrial processing/warehousing refers to facilities involved in activities such as cultivation, processing, and distribution of cannabis products. These operations may include growing and harvesting plants, manufacturing products like edibles or extracts, and storing inventory. Taxes can be collected through licensing fees, permit fees, and taxes based on the volume or value of products.”
The City is correct, the $1.91 million non-operating fee is a “tax based on the volume.” (Resolution No. 23-41). However, because the “non-operating fee” was not approved by the voters it violates Cal Const Art XIII A §4. “No local government . . . may impose any general tax unless. . . approved by a majority of the voters voting in an election on the issue.” (Gov. Code § 53723.) “No local government may impose any special tax” without a “two-thirds vote of the voters voting in an election on the issue.” (Gov. Code § 53722.) The City was fully aware that a cannabis tax requires approval by the voters by submitting the recent retail cannabis tax to the voters for approval and enacted it in Chapter 5.30 after voter approval. Non-operating fee/tax are illegal taxes because there was no public vote.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 21

CANNABIS RETAILER TAX: Chapter 3.50 the newly enacted Cannabis Retailer Tax approved by the voters imposes “an annual cannabis retailer tax.” (CMC § 3.50.040(1)). The tax is imposed “upon cannabis retailers that engage in business in the city. This cannabis retailer tax is levied based upon business gross receipts.” (CMC § 3.50.010(1)). “The tax rate upon the effective date of this chapter shall be 15 percent of the gross receipts derived from the retail sale of adult-use cannabis or adult-use cannabis products.” (CMC § 3.50.040(3)(a)).

CITY BUSINESS TAX: The municipal code provides a tax on businesses in Chapter 5.08 titled “Business License Tax -- Particular Businesses.” However, it does not include cannabis business in that list. CMC § 5.04.330 lists the “taxes on businesses other than those described in Chapter 5.08" and requires “a license tax based upon gross annual receipts.” If “Gross Annual Receipts” are “$2,000,000 or more” the “Per Annum Fee” is “$2,000 maximum.” The maximum annual fee of $2,000 is far less than the $285,600 yearly fee (12 x $28,560 per month) demanded by the City for the privilege of not being open due to delays by the City.

5.4 Non-Operating Fees/Tax are Illegal Impact Fees (No Findings).

The Mitigation Fee Act (Gov. Code, § 66000 et seq.) limits fees on projects. When a fee is imposed as a condition of approval. Gov. Code § 66001(a) provides procedures to establish fees and requires four findings included that the “reasonable relationship between the fee’s use and the type of development project on which the fee is imposed.” Gov. Code § 66006(e) provides that the “improper allocation of development fees hinders economic growth and is, therefore, a matter of statewide interest and concern. It is, therefore, the intent of the Legislature that this section shall supersede all conflicting local laws and shall apply in charter cities.” Non-operating fees/tax are illegal if they are a fee.

CITY DEVELOPMENT IMPACT FEES: Chapter 15.40, titled "Development impact fees," provides for monetary exactions in connection with project approval. (CMC § 15.40.020(12)).

Chapter 15.40 requires the City to make five statutory findings to impose a legal impact fee, including the "reasonable relationship between the fee and the project." (CMC § 15.40.200).

The City failed to make the necessary findings to charge the operators $1.9 million when their business was closed, mainly because of City delays.

The non-operating fee/tax are illegal if they are a general or special tax because there is no public vote, and if they are a fee, the City failed to make the necessary findings to charge the operators a $1,913,520 ($28,560 x 68 months), or a$285,600 yearly fee (12 x $28,560 per month) during a period when their business is closed, mainly due to City delays. In either case, the non-operating fee/tax violates the agreements, municipal code, and state law.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 22

CITY’S DEVELOPMENT IMPACT FEE STUDY: Further support is found in the City’s development impact fee study, dated April 7, 2021. Under CMC § 15.40.020(19) the “development impact fee study by Willdan dated April 7, 2021" is used to determine an impact fee. The total one-time impact fee is $11,480 ($1,945 traffic fee, $7,480 gen. gov. gee, and $2,055 parking fee). The $11,480 impact fee is far less than the $1.91 million demanded for the privilege of being closed. The City is in default for demanding non-operating fee/tax, from the cannabis operators who were progressing to open.

5.5 The City’s Interpretation of the Non-Operating Fees Apply to Operators Progressing to Open but Unable to Open Is a Breach of the Agreement.

The City has interpreted the “non-operating fees” as being due even irrespective of City cause delays or closures. This files in the face of the “mutual intention of the parties as it existed at the time of contracting” that “delays” and “state or national emergencies” or “any default by City” will “entitle operators to an extension of time.” (Dev. Agmt. § 23(h)). And any “delay” to “perform” its promises by the City “shall constitute a default.” (Dev. Agmt. § 14(a)).

The intention to not collect fees if a facility is not operation is supported by the City’s promise it will not sue for damages for unpaid fees if “the property is not developed, for lost profits or revenues which would have accrued to the City as a result of the development of the property.” (Dev. Agmt. § 14(a)). Simply put, there are no lost profits if the property is not developed and not in operation. This certainly applies if the City causes the failure to open.

The City fails to “give effect to the mutual intention of the parties as it existed at the time of contracting.” (Civ. Code, § 1636). “The whole of a contract is to be taken together, to give effect to every part.” (Civ. Code, § 1641). Instead, the City gives the contract an interpretation that places the operators in breach, after investing $10 million and 68 months into the project.

The City is forcing the breach and fails to recognize that a “contract must receive such an interpretation as will make it lawful.” (Civ. Code, § 1643). The City must “undertake such reasonable actions as may be appropriate to ensure this agreement remains in full force and effect.” (Dev. Agmt. § 23(c)). This requires the City to waive all fees caused by City delays. “The contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates.” (Civ. Code, § 1647.) “Particular clauses of a contract are subordinate to its general intent.” (Civ. Code, § 1650.) The City fails to give effect to the fact that the parties entered into a contract for the development and opening of a cannabis cultivation, manufacturing, and distribution facility. (Dev. Agmt. § 1(c)).

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 23

The City’s interpretation that operating fees are due when the facility is not operating, and when the City caused delays or closures, violates the agreements, and must be rejected. “Words in a contract which are wholly inconsistent with its nature, or with the main intention of the parties, are to be rejected.”(Civ. Code, § 1653.) The City seeks to impose an absurd interpretation of its intent at the time of contracting. The City is in default for demanding non-operating fees, from the cannabis operators who were progressing to open.

6. THE CITY BREACHED THE AGREEMENTS BY PREVENTING THE
YEARLY REVIEW HEARINGS.

6.1 The City Breached the Development Agreements by Failing to Hold Yearly Review Hearings Breached which Prevented the Operators From Presenting Documentation of the City’s Force Majeure Delays.

Section 19 titled “Periodic Reviews” requires yearly review hearing to determine the operators’ compliance with the agreement, and for the operator to document any force majeure delays allowing an extension for delays beyond the control of operators control, as follows:
“19(a). City Council shall review this Agreement annually, on or before each anniversary of the effective date, in order to ascertain operator’s good faith compliance with this agreement . . . planning department will schedule a hearing on the periodic review of the development agreement on or following the anniversary of the effective date, but the operator has no obligation to compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held. The operator shall document any request for an extension of the term due to delays beyond the control of operator (see Section 23(i), “Force Majeure”).”
The fundamental purpose of Section 19 was for the City to review the operators’ compliance, but also for the operators to demonstrate force majeure delays by the City under section 23(i) which provided that “local, state or national emergencies” or “any default by the City” which delayed the project “will entitle the operators to an extension of time.” The agreement provides that “the City Council shall review this agreement annually, on or before each anniversary of the effective date, in order to ascertain operator’s good faith compliance with this agreement.” (Dev. Agmt. § 19(a)). The municipal code provides for “periodic review of an applicant’s compliance with the terms of the development agreement at least once every 12 months.” (CMC § 20.84.600). State law similarly requires “periodic review at least every 12 months” to “demonstrate good faith compliance.” (Gov. Code § 65865.1).

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 24

However, during the 48 months, the City did not review the agreement in violation of the municipal code and state law. This is important because under Section 19, the “the operator has no obligation to compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). The operators did not waive anything by not having the delays addressed sooner. This fell on the City who breached the agreement, the municipal code and state law for failing to hold yearly review hearings.

The City’s failure to hold yearly review hearings would have allowed the operators to address force majeure delays many years ago. The First Review was required 1,674 days (55 months) from today, the Second Review 1,309 days (43 months) from today, the Third Review 944 days (31 months) from today, the Fourth Review 579 days (19 months) from today, and the Fifth Review 214 days (7 months) from today. Instead the operators have to address delays during the past 68 months. This falls on the City which has contractually agree “no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)).

6.2 The City Breached the Development Agreements by Setting Review Hearing Before a Hearing Officer Instead of the City Council.

The development provides that “the City Council shall review this agreement annually.” (Dev. Agmt. § 19(a)). State law requires that development agreements “include provisions requiring periodic review at least every 12 months” before the local agency to “demonstrate good faith compliance.” (Gov. Code § 65865.1).

Notwithstanding this clear demand on the City to hold the hearing yearly, or before the City Council, the City recently sent out notice of hearing letters which give notice that the city manager appointed a “hearing officer for a review hearing” to determine compliance with “Section 19 of the agreement” to allow operators to demonstrate their “good faith compliance” with the development agreement. The handpicked hearing officer by the city manager is not the same as the City Council, and the notice of hearings violates the development agreements.

On December 14, 2023, the undersigned (Sebastian Rucci) emailed Senior Planner Madrigal-Gonzalez that this office “wished to present the cannabis operator’s position [at the review hearing], preferably at a hearing before the city council.” Former federal prosecutor, Daffodil Tyminski, sent a letter to the City on July 14, 2023, asking to appear before the City Counsel stating, “only City Council can resolve this dispute.” She later sent another letter on October 17, 2023, and on October 24, 2023, City attorney Paloma McEvoy responded: “Please be advised that the city Council considered [attorney January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 25

Daffodil Tyminski] October 17 demand [to appear before City Council] and has decided not to negotiate the repayment of fees and to continue with” the revocation hearings. Seldom is breach so openly stated in a letter. City attorney McEvoy is reminded that the City “shall cooperate” with the operators and “undertake such reasonable actions as may be appropriate to ensure this Agreement remains in full force and effect.” (Dev. Agmt. § 23(c)).

6.3 The City Breached the Development Agreements by Denying the Operators an Opportunity to Be Heard at the Review Hearing.

The City’s recent review hearing letters require the operators to submit “no later than ten days from the date of this Notice to confirm your appearance,” and if “we do not hear back from you by this date, we will assume you waive your right to present evidence at the hearing.” The conditional right to be heard at the hearing is a breach of the contractual promise that “at the time and place set for the review hearing, operator shall be given an opportunity to be heard.” (Dev. Agmt. § 19(d)). The right to be heard is at the time of the hearing, not before.

It is also noted that on November 14, 2023, Senior Planner Madrigal-Gonzalez received an email from the undersigned (Sebastian Rucci) stating he “wished to present the cannabis operator’s position [at the review hearing], preferably at a hearing before the city council.” One month later, on December 14, 2023, the undersigned emailed Senior Planner Madrigal-Gonzalez, transfer request forms (as she requested), adding our office as an additional point of contact for the seven cannabis operators. The email stated our office “intends to represent the cannabis operators positions before the City going forward.” On December 19, 2023, our office received a reply email stating that Philip Kfoury’s signature must be notarized; however, the transfer forms do not provide for notarized signatures.

On December 29, 2023, we received a letter from Senior Planner Madrigal-Gonzalez stating that the review hearing is scheduled for January 8, 2024; however, “as of today’s date, you have not confirmed your intent to appear or participate in the review hearing. Based on your failure to confirm your appearance at the review hearing, you have waiver your right to present evidence at and otherwise participate at the review hearings.” Seldom is an abuse so openly stated in a letter.

Our office represents the cannabis operators, and this does not require jumping through ad hoc hurdles, created to confuse and obfuscate the process. We notified the City we represent the operators, and we provided the requested form. Rather than putting the operators through unnecessary hurdles for refusing to pay disputed and illegal fees, the City should take a serious review of the many breaches identified in this Notice and move to correct its many breaches.

This is not just good business it is mandated by the development agreements.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 26

The City is using its demand for illegal fees to pressure the operators with revocation to get them to pay illegal fees, which they dispute. By failing to set annual review hearings, the City denied a forum for the operators to document their delays. The operator could not “compel [the yearly review] hearing” and the City agreed that “no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)).

City staff prevented any hearing before the City Council, and this allowed staff to set illegal fees without review. The City breached Section 19(d) by denying the operators “an opportunity to be heard” at the defective review hearing. The development agreements do not give the City unbridled power to discern a default. On the contrary, § 14 titled “Defaults” provides that the “party alleging [a] default or breach shall give the other party not less than thirty day notice in writing specifying the nature of the alleged default and the manner in which said default may be satisfactorily cured during any such thirty day period.”

7. THE CITY IS GIVEN NOTICE THAT THE DAMAGES FOR BREACH OF THE DEVELOPMENT AGREEMENTS ARE $26.4 MILLION.
“After notice and expiration of the thirty-day period, the other party to this Agreement, at its option, may institute legal proceedings pursuant to this Agreement.” (Dev. Agmt. § 14(a)).

Under the development agreements, the cannabis operators may “pursue any remedy at law or equity available for the breach of any provision” of the agreement including pursuing “damages from bad faith intentional acts, the grossly negligent or malicious acts of City and its officials, officers, agents, and employees.” (Dev. Agmt. § 14(a)).

Breach of the development agreement is established by proving (1) the existence of a contract, (2) cannabis operator’s performance or excuse for nonperformance, (3) breach by the City of Cudahy, and (4) damage to the cannabis operators as a result of the City of Cudahy’s breach. The City of Cudahy has demonstrated its intention not to be bound by the agreement.

It actively refused to cooperate and sought to have the cannabis operator’s rights revoked.

7.1 CONTRACT DAMAGES FOR BREACH OF DEVELOPMENT AGREEMENT.

The case of Mammoth Lakes Land Acquisition v. Town of Mammoth Lakes (2010), 191 Cal. App. 4th 435 is attached for your review. In that case a jury awarded $30 million for the City’s breach of a development agreement. In Mammoth Lakes the Town entered into a development agreement to make improvements to its airport and to build a hotel at the airport. (Id. at 440.) The “development agreement is an enforceable contract between the municipality and the developer.” (Id. at 442.)
In Mammoth Lakes, the Town was “claiming a willingness to move forward with the project” but Town officials “actively sought to undermine the developer’s rights under the contract.” (Id. at 466-67.) Cudahy similarly claims it is willing to move forward, but its officials, officers, agents and employees actively undermine the operator’s rights in the project.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 27

In Mammoth Lakes, the developer submitted an application for the hotel project which was placed on the planning commission agenda “with a recommendation from staff to deny the application.” (Id. at 447.) The Town “changed its priorities and no longer wanted the hotel project.” (Id. at 440.) “Town officials professed willingness to work with the developer to resolve the FAA issues. However, in private, the mood was not cooperative.” (Id. at 450.) Cudahy similarly claims it is willingness to move forward but is not cooperative.

In Mammoth Lakes, the hotel “made the development agreement economically feasible” for the developer. (Id. at 445.) The developer “requested assurances that the Town would proceed with the development agreement.” (Id. at 450.) The Town responded that the developer’s “need to resolve the FAA compliance issues as a prerequisite.” (Id.) The developer replied that it “appear to believe that it may freely disregard the express terms of the development agreement and withhold approvals and other cooperation required by that agreement to enable the developer to proceed.” (Id. at 450.) Cudahy similarly was asked to provide a full occupancy permit and responded it would provide a defective temporary 90-day permit. Cudahy similarly conditions opening on paying illegal fees, that violate the agreements.

In Mammoth Lakes, the agreement provided a procedure upon default and if “after delivery of written notice of default” the Town failed to cure the default, the developer could institute legal action against the Town. (Id. at 445.) The “developer served the Town with a notice of default under the development agreement. The notice demanded that the Town terminate its efforts inconsistent with the development agreement.” (Id. at 451.) The “developer demanded that the Town move forward with the hotel project as contemplated in the development agreement.” (Id. at 440.) Cudahy is similarly given notice of its default and demand to cure with provisions similar to those in Mammoth Lakes.

In Mammoth Lakes, the Town refused to cure its default and the developer filed a claim with for damages and “after the Town rejected the claim, the developer sued the Town, alleging a breach of contract.” (Id. at 452.) “Once the developer gave notice of default and the Town failed to cure the default” all that “remained was to determine whether the Town breached the development agreement and, if it did, what was the remedy.” (Id. at 455.) “The development agreement required the Town to act reasonably in moving the project along.” (Id.) In Mammoth Lakes, the “Town violated the development agreement by refusing to move forward with the hotel project” and the “remedy is a breach of contract action based on the Town’s executive decision not to move forward as required by a contract.” (Id. at 441.) “The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties . . . as it existed at the time of contracting.” (Id. at 458.) “To recover on a cause of action for breach of contract, the developer must establish (1) the existence of a contract, (2) developer’s performance or excuse for nonperformance, (3) the Town’s breach, and (4) damage to developer as a result of the Town’s breach.” (Id. at 463.) January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 28

“The developer’s theory of breach, upon which it prevailed at trial, was that the Town expressly repudiated the development agreement by refusing to move forward on the contract without resolving” an issued not in their agreement. (Id. at 464.) The jury was instructed if the “Town clearly and positively indicated, by words or conduct, that it would not or could not meet a requirement in the contract, then the Town breached the contract.” (Id. at 463.) The jury found that “(1) the Town and the developer entered into a contract, (2) the developer met all, or substantially all, its obligations under the contract, (3) the Town failed to perform under the contract or added extra contractual conditions to its performance, (4) the developer did not waive the Town’s failure to perform, and (5) the Town’s failure to perform damaged the developer. The jury set the amount of damages at $30 million.” (Id. at 453.) “The developer’s complaint is not that the Town denied an application to build the hotel project. Instead, the complaint is that the Town refused to move forward on the hotel project.” (Id. at 456.) Having given the Town a notice of default “the developer was legally entitled to go forward with a breach of contract action.” (Id. at 457.) The Town raised “the argument that this was a land use decision instead of a matter of complying with the terms of the development agreement.” (Id. at 466.) This was not a land use issue, “it was an executive decision on the part of the Town to refuse to comply with the terms of the development agreement.” (Id. at 457.)

7.2 LOST PROFITS ARE USED FOR BREACH OF DEVELOPMENT AGREEMENT.

In Mammoth Lakes, the “breach was of the development agreement,” which “supported the $30 million damages award.” (Id. at 441-42.) “While claiming a willingness to move forward with the project, town officials actually refused to move forward and actively sought to undermine the developer’s rights under the contract.” (Id. at 466-67.) “The Town demonstrated its intention not to be bound by the development agreement. It actively refused to cooperate and sought to have the developer’s rights terminated.” (Id. at 468.) “Damages consisting of the loss of anticipated profits need not be established with certainty. It is sufficient that it be shown as a reasonable probability that the profits would have been earned except for the breach of the contract.” (Id. at 470.) The developer presented evidence “that it would have realized a $30 million profit on the hotel project if the Town had not breached the agreement.” (Id. at 470.) We conclude “the developer sustained $30 million in damages as a result of the Town’s breach of the development agreement.” (Id. at 476.) The actions by the City of Cudahy are far more explosive than the facts in Mammoth Lakes. Cudahy sought disputed fees as an issue in withholding development, and has expressly repudiated the development agreement in writing. Cudahy has even moved to expressly revoke the development agreement. Cudahy has even prevented the right to be heard at the hearing.

Cudahy appears to believe that it may freely disregard the express terms of the development agreement and withhold approvals and other cooperation required by the agreement.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 29

Cudahy’s actions directly undermine its contractual promises, and a breach of contract action is clear under the simple reading of Mammoth Lakes. The actions by the City of Cudahy, its employees, and consultants pale in comparison to the facts in Mammoth Lakes. The City is given notice that the lost profits from for its breach of the development agreements are conservatively estimated at $26.4 million.

8. OPERATORS GIVE NOTICE TO CITY OFFICIALS, OFFICERS, EMPLOYEES AND CONSULTANTS OF INDIVIDUAL LIABILITY UNDER CIVIL RICO.

The Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961- 68, makes it unlawful for “any person employed by or associated” with any Civil RICO enterprise to “conduct or participate, directly or indirectly” in the RICO enterprise’s affairs through a pattern of racketeering activity (18 U.S.C. § 1962(c)).

Civil RICO liability requires the existence of an “enterprise” through which the illegal conduct occurs. An “enterprise” is defined broadly under RICO as “any individual, partnership, corporation, association, or other legal entity.” 18 U.S.C. § 1961(4). It is well-settled that a City may constitute a civil RICO enterprise. See U.S. v. Freeman (9th Cir. 1993) 6 F.3d 586, 596-97 (“government entity may constitute an enterprise within the meaning of RICO.”) Civil RICO has been approved in a land use context against city officials. See DeFalco v. Bernas (2d Cir. 2001) 244 F.3d 286 (city officials extorted plaintiff by blocking needed permits; civil RICO verdict upheld). However, the claims in Cudahy are garden variety RICO claims. See Sedima v. Imrex (1985) 473 U.S. 479 (civil RICO for fraud and breach of contract).

The RICO defendants consist of Cudahy officials, officers, employees, and consultants because they conducted Cudahy’s affairs “within the scope, or beyond the scope” of authority (Cedric Kushner v. King (2001) 533 U.S. 158, 166) and “participated in the operation or management” of the enterprise’s affairs. (Reves v. Ernst & Young (1993) 507 U.S. 170, 185.) Civil RICO prohibits conducting the affairs of an enterprise, the City of Cudahy, through a pattern of racketeering activity. (18 U.S.C. § 1961(5)). “Racketeering activity” is defined in 18 U.S.C. § 1961(1)(B) to include a slew of federal crimes, including extortion in violation of federal law (18 U.S.C. § 1951), and federal mail and wire fraud (18 U.S.C. §§ 1341, 1343).

8.1 Extortion Of Disputed Fees under Color of Official Right.

Extortion under federal law is a predicate act under RICO. See 18 U.S.C. § 1961(1)(B).

A person commits federal extortion by “obtaining of property from another, with his consent, January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 30

induced by fear, or under color of official right.” (18 U.S.C.§ 1951(b)(2)). The Supreme Court in a political protest case held that extortion did not have to “benefit the protesters financially” and “RICO contains no economic motive requirement.” (Nat’l Org. for Women. v. Scheidler (1994) 510 U.S. 249, 262). Extortion “in no way depends upon having a direct benefit conferred on the person who obtains the property.” (U.S. v. Green (1956) 350 U.S. 415, 420).

During the 68-month delay, Cudahy officials, officers, and employees demanded the operators pay the disputed fees, and in return, withheld permits, unless the disputed fees were paid. Cudahy officials, officers, employees, and consultants, imposed endless changes in violation of the City’s contractual promises 68 months earlier. The strategic delays forced the operators to undergo a five-year procedural gauntlet of ever-changing revisions and inspection criteria. The changes were fraught with delays and uncertainty.

Four years into the project, Cudahy officials, officers, and employees stepped up their demands regarding fees, when City Manager Noyola was hired, and during his tenure, the City placed the projects in default for not paying the fees. The City contacted the California Department of Cannabis Control and informed them the operators were not compliant with the City because their fees were outstanding. The State informed the operators their permit would not be renewed unless the issue with the City was resolved.

The City offered to remove the default status if the operators paid the disputed fees. After this did not produce payment of disputed fees, the City initiated revocation proceedings and offered to allow the facility to open if they paid all the disputed fees due. The City officials, officers, employees, and consultants, actions constitute extortion under the color of official right and constitute extortion under fear of economic loss, in violation of 18 U.S.C. § 1951.

After spending more than $10 million over five years, only one of seven facilities is open and only because it agreed to pay disputed fees under fear of economic harm. City Manager Noyola’s offer of a 90-day temporary occupancy permit in return for payment of disputed fees, is extortion by obtaining property from another, with his consent, induced by fear. The “term ‘fear’ may be of economic loss.” (Brokerage Concepts v. U.S. Healthcare (3d Cir. 1998) 140 F.3d 494, 503). Because City Manager Noyola sought fees under his official role as City Manager, these acts are also extortion by obtaining fees with consent “under color of official right.” (18 U.S.C. § 1951(b)(2).)
The retaliation by placing the operators in default, by refusing to allow them to continue construction while in default, and by initiating defective revocation hearings, and agreeing to halt these retaliations if the disputed and illegal fees were paid constitute extortion under color of official right and extortion under fear of economic loss in violation of 18 U.S.C. § 1951.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 31

The scheme to exact unlawful fees, identified in the text message by Building Inspector Morales to City Manager Noyola, seeks to secure payment of disputed fees, by informing the State that the operators are in default, and as the text message shows this was set in motion to “get them to the table now.” The threat by City Manager Noyola in his text demanding $200,000 for overdue fees is extortion under threat of economic harm, and extortion under color of official right. These demands are unlawful and extortion in violation of 18 U.S.C. § 1951.

8.2 Mail, Wire, and Telephone Used in Scheme to Defraud.

Civil RICO includes violation of federal mail and wire fraud (18 U.S.C. §§ 1341, 1343) as predicates that constitute racketeering activity. See 18 U.S.C. § 1961(1)(B). The mail fraud statute prohibits the use of the mail to execute any “scheme or artifice to defraud.” 18 U.S.C. § 1341. “Innocent mailings -- ones that contain no false information-- may” supply the mail element even if mailing is routine. (Sedima v. Imrex (1985) 473 U.S. 479, 715).

The Supreme Court approved mail and wire fraud for “presenting inflated bills, cheating [plaintiff] out of a portion of its proceeds by collecting for non-existent expenses.” (Sedima v. Imrex (1985) 473 U.S. 479, 484). Cudahy officials submitted countless invoices seeking illegal fees, these invoices also inflated fees due.

Cudahy officials, officers, employees, and consultants committed many acts of mail and wire fraud, by demanding disputed fees, and offering 90-day conditional approvals if the fees were current. The Court in Pelfresne v. Village of Rosemont (ND Ill. 1998) 22 F. Supp. 2d 756, 763 approved predicate acts of mail fraud based on a letter “stating that the Village was refusing to process his permit application” and a second letter “stating that the Village intended to file eminent domain to acquire his property.”
Cudahy officials, officers, employees, and consultants used retaliation to advance their scheme to exact unlawful fees from the cannabis operators. The scheme was intended to defraud the operators of their money and involved calculated efforts of abusive power to induce the operators to give up their money, or face delay, denial, retaliation, and possible bankruptcy.

During the past 68 months Cudahy officials, officers, employees, and consultants submitted countless documents by mail, and by email, sufficient to support mail and wire fraud.

8.3 Actions by Individual Actors Supports a Pattern of Racketeering Activity.

The heart of a civil RICO complaint is the allegation of a pattern of racketeering activity which requires at least two acts of racketeering activity within ten years. (18 U.S.C. § 1961(5)).

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 32

“To prove a pattern of racketeering activity a plaintiff . . . must show the racketeering predicates are related” and they either extended over “a substantial period of time” or “pose a threat of continued criminal activity.” (H.J. Inc. v. North. Bell Tel. (1989) 492 U.S. 229, 239, 242.) The widespread extortion activity spans 68 months and makes a proper closed-ended RICO violation. Cudahy officials, officers, employees and consultants used extortion to demand unlawful fees and committed many acts of extortion under color of official right, and under threat of economic harm against the cannabis operators. Besides the “multiple extortionate acts against the seven cannabis operators, there are many episodes of extortion against other cannabis operators under similar circumstances. Some of whom have already been forced out of business. The predicate act of extortion is related to the scheme to take unlawful fees, or face delay, denial, retaliation or possible bankruptcy.

Cudahy officials, officers, employees, and consultants predicate acts of mail and wire fraud are related to the scheme to take unlawful exactions, or face delay, denial, or retaliation.

The extortion is widespread and spans five years. The extortion against the seven cannabis operators spans seven separate entities over a 68 month period. Cudahy officials, officers, employees, and consultants have no intention of stopping the racketeering activity which “by its nature project[ed] into the future with a threat of repetition,’ thus satisfying RICO’s pattern requirement.” (H.J. Inc. v. North. Bell Tel. (1989) 492 U.S. 229, at 241.)

8.4 Individual City Actors Have Also Engaged in a Civil RICO Conspiracy.

The RICO conspiracy statute, § 1962(d), makes it “unlawful for any person to conspire to violate” § 1962(c). The conspirators “may divide up the work, yet each is responsible for the acts of each other.” (Salinas v. U.S. (1997) 522 U.S. 52 at 63-64). “If conspirators have a plan which calls for some conspirators to perpetrate the crime and others to provide support, the supporters are as guilty as the perpetrators.” (Id. at 64).

The RICO conspiracy statute, 18 U.S.C. § 1962(d), makes it “unlawful for any person to conspire to violate” § 1962(c). Therefore, under § 1962(d) it is unlawful to conspire to conduct the affairs of an enterprise through a pattern of racketeering activity. In Salinas v. U.S., 522 U.S. 52 (1997) the Supreme Court held that there “is no requirement of some overt act or specific act” in § 1962(d). Id. at 63. A “conspiracy may exist even if a conspirator does not agree to commit or facilitate each and every part of the substantive offense.” Id. at 63. The conspirators “may divide up the work, yet each is responsible for the acts of each other.” Id. at 63-64. “If conspirators have a plan which calls for some conspirators to perpetrate the crime and others to provide support, the supporters are as guilty as the perpetrators.” Id.at 64.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 33

Cudahy officials, officers, employees, and consultants conspired and agreed with each other to engage in the conduct stated, they conspired and agreed to aid each other in the commission of the acts of extortion, or of an attempt to commit extortion, and agreed to conduct or participate in the affairs of the City and agreed to commit acts of extortion, as their regular way of conducting the City’s affairs.

Cudahy officials, officers, employees, and consultants conspired, planned and schemed to use the City as a racketeering enterprise to extort money from the cannabis operators and conspired to conduct the affairs of the City using acts of extortion by demanding illegal fees as a condition of project opening.

Cudahy officials, officers, employees, and consultants combined, conspired and confederated with each other to commit” the racketeering activity, the objectives of the conspiracy is identified herein, and the many meetings between them and the operators provide sufficient evidence of the conspiracy, and that they were part of a fraudulent scheme. There is more than enough to satisfy the civil RICO conspiracy statute, 18 U.S.C. § 1962(d).

8.5 Civil RICO Claims Support Actions for Damages to the Operator’s Business.

Each act identified herein by Cudahy officials, officers, employees, and consultants was the proximate cause of the lost profits and the “lost business” was foreseeable. In (Sedima v.

Imrex (1985) 473 U.S. 479 the Supreme Court held that no special “racketeering injury” must be proved for a civil RICO plaintiff to recover beyond the ordinary harm suffered by the victims of the individual predicate crimes. (Sedima, 473 U.S. at 495).

Cudahy officials, officers, employees, and consultants engaged in a pattern of racketeering activity which injured the cannabis operators business, giving the operators claims under 18 U.S.C. § 1964(c) for damages. Cudahy officials, officers, employees, and consultants engaged in a pattern of racketeering activity that injured the operators in their business or property, giving the operators a claim for damages under 18 U.S.C. § 1964(c). See Pelfresne v. Village of Rosemont (ND Ill. 1998) 22 F. Supp. 2d 756, 765 (“filing of unjustified eminent domain proceedings has produced an immediate and concrete decrease in the value of their property.”)
Cudahy officials, officers, employees, and consultants are given notice that the damages for violating civil RICO are conservatively estimated at $26.4 million, and this sum will trebled to $79.2 million.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 34

9. CITY IS GIVEN NOTICE OF OPTION TO PROCEED UNDER THE DISPUTED FEE PROCEDURE AND POST A BOND OF PURPORTED FEES DUE.

Pursuant to Gov. Code § 66020, the cannabis operators protest imposition of the illegal fees. “Any party may protest the imposition of any fees, dedications, reservations, or other exactions imposed on a development project” by “meeting both of the following requirements:
(1) Tendering any required payment in full or providing satisfactory evidence of arrangements to pay the fee when due . . . (2) Serving written notice on the governing body of the entity, which notice shall contain: (A) A statement that the required payment is tendered or will be tendered when due, or that any conditions which have been imposed are provided for or satisfied, under protest. (B) A statement informing the governing body of the factual elements of the dispute and the legal theory forming the basis for the protest.” (Cal Gov Code § 66020, subd. (a)).
“Any party on whom a fee . . . or other exaction has been imposed, the payment or performance of which is required to obtain governmental approval of a . . . development project, may protest the establishment or imposition of the fee, tax” or “other exaction as provided in Section 66020.” (Cal Gov Code § 66021(a)).
“If the court finds in favor of the plaintiff in any action or proceeding” under this section “the court shall direct the local agency to refund the unlawful portion of the payment, with interest.” (Cal Gov Code § 66020(e)). If the court grants a judgment to a plaintiff “the court shall direct the local agency to refund the unlawful portion of the payment, plus interest. . .” (Cal Gov Code § 66020(f)(1)). The California Supreme Court noted in one case that:
“Subdivision (a)(1) of that section permits the protesting party either to pay the amount in full or ‘provid[e] satisfactory evidence of arrangements to pay the fee when due … .’ Obviously, if the protesting party does the latter, there will be no payment to repay or exaction to return. This does not make section 66020 self-canceling whenever the developer provides the required satisfactory evidence and does not make an actual payment. It just means that a remedy will not include repayment of a payment that was never made.” (Sterling Park, L.P. v. City of Palo Alto (2013), 57 Cal. 4th 1193, 1208.) The operators are prepared to bond the fees under protest. This allows them to proceed with construction. The operators seek documentation of the fee which the City seeks and they will post a bond, if they disagree with the fee, the will present a fee to the Court for approval.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 35

10. CITY IS GIVEN NOTICE TO CURE THE PLETHORA OF DEFAULTS AND OPPORTUNITY TO CURE THE SAME WITHIN 30 DAYS.

The development agreements provide in Section 14, titled “Defaults and Remedies,” that the “party alleging [a] default or breach shall give the other party not less than thirty-day notice in writing specifying the nature of the alleged default and the manner in which said default may be satisfactorily cured during any such thirty day period . . .” (Dev. Agmt. § 14(a)). “Subject to extensions of time by mutual consent in writing, failure to delay by either party to perform any term or provision of this Agreement beyond a reasonable notice and cure period shall constitute a default.” (Dev. Agmt. § 14(a)). “After notice and expiration of the thirty-day period, the other party to this Agreement, at its option, may institute legal proceedings pursuant to this Agreement.” (Id.)

11. CONCLUSION: CITY’S MUST CORRECT ITS PLETHORA OF BREACHES WITHIN 30 DAYS OR FACE LAWSUITS FOR DAMAGES AND CIVIL RICO.

It should be readily from the above that the operators’ payments to date amount to $3/4 million makes them current. It is time for the City to cure the plethora of defects identified in this Notice. The City can cure these defects by undertaking the following acts:
(1). The City must remove all non-operating fees if the facility is not open. (2). The City must waive all fees during the 15-month pandemic period. (3). The City must waive all fees during any delays caused by the City. (4). The City must waive all fees when the City was in default under the agreements. (5). The City must issue full, not temporary, occupancy permits. (6). The City must withdraw the defective review hearing with the hearing officer. (7). The City must expedite permits and proceed with the expedited opening of the facilities.

The operators will of course pay the operating fee, once they are operating, they will pay the community benefit fee, and cost recovery fee as they agreed. Nothing in this Notice modifies the development agreement, the operators are interpreting it exactly as they signed it.

This Notice seeks to bring the City’s actions into compliance with its contractual promises. The City must cure its default identified above. The City must “ensure this agreement remains in full force and effect.” (Dev. Agmt. § 23(c)). The City must correct the many violations identified in this Notice. The cannabis operators have worked on trying to open for 68 months. They have endured many violations, and enough is enough, and then some.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 36

I am available anytime to discuss the contents of this Notice, or make a full presentation before the City Council, or meet with City officials or City representatives.

Respectfully submitted,
LAW OFFICE OF SEBASTIAN RUCCI, P.C.

Sebastian Rucci
cc: cannabis operators
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 37

TABLE OF CONTENTS

1. INTRODUCTION OF CITY’S BREACH OF DEVELOPMENT AGREEMENTS . 2

2. RELEVANT FACTS IDENTIFYING THE CITY’S CONTRACTUAL PROMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2.1 Agreements Guarantee Many Rights Including that the Project is Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2.2 The City Agreed to Proceed in Good Faith and Implemented the Agreement in Accordance with its Terms and to the Fullest Extent Permitted by Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2.3 Approved Plans Were Incorporate in the Agreements and the City Contractually Agreed Redesigning Approved Plans is Considered a Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2.4 City Agreed to Expedite Permits and Contractually Promised that Delays by the City in Expediting Permits is Considered a Default. . . . . . . . . . . . . . . . . . . . . 8

2.5 Construction Procedures Were Incorporated in the Agreements and the City Agreed Any Construction Delays by the City is Considered a Default . . . . . . 8

2.6 Force Majure Delays Require an Extension for Local, State or National Emergencies and an Extension for Any Default by the City . . . . . . . . . . . . . . 9

2.7 The City Breached the Development Agreements by Placing the Operators in Default Status and Agreeing to Only Issue Conditional 90-Day Occupancy Permits, Only Renewable if Disputed and Illegal Fees are Current. . . . . . . . 10

2.8 City Correspondence Confirms the Scheme to Extort Illegal Fees, the City Contacted the State and Reported them in Default, the City Would Only Issue Temporary Operating Permits and Placing the Operators in Default. . . . . . . 12

2.9 Three months ago, the City Demanded Immediate Payment of $200,000 From the Only Operator to Open Or Face Immediate Revocation . . . . . . . . . . . . . . . . 15 January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 38

3. THE CITY BREACHED THE AGREEMENTS BY REFUSING TO WAIVE FEES DURING THE PANDEMIC CLOSURE AS PROMISED IN SECTION 23(i). . . . 17

4. CITY BREACHED THE AGREEMENTS BY FAILING TO EXPEDITE APPROVALS AND BY SEEKING FEES FOR DELAYS CAUSED BY THE CITY . . . . . . . . . . 17

5. CITY BREACHED THE AGREEMENTS BY DEMANDING NON-OPERATING FEES AS SHOWN BY THE PARTIES INTENT AT THE TIME OF SIGNING. . 18

5.1 Councilman Hernandez’s Recollection of the Intention of the Non-Operating Fees at the Time of Approval Confirms Non-Operating Feed Do Not Apply . . . . 19

5.2 The Operators Recollection of the Intention of the Non-Operating Fees at the Time of Contracting Confirms Non-Operating Fees Do Not Apply . . . . . . . 20

5.3 Non-Operating Fees are Illegal Taxes (No Voter Approval) . . . . . . . . . . . . . 21

5.4 Non-Operating Fee/Tax are Illegal Impact Fees (No Findings). . . . . . . . . . . 22

5.5 The City’s Interpretation the Non-Operating Fees Apply to Operators Progressing to Open, but Unable to Open Is a Breach of the Agreement . . . . . . . . . . . . . 23

6. THE CITY BREACHED THE AGREEMENTS BY PREVENTING THE YEARLY REVIEW HEARINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

6.1 The City Breached the Development Agreements by Failing to Hold Yearly Review Hearings Breached which Prevented the Operators From Presenting Documentation of the City’s Force Majeure Delays . . . . . . . . . . . . . . . . . . . 24

6.2 The City Breached the Development Agreements by Setting Review Hearing Before a Hearing Officer Instead of the City Council . . . . . . . . . . . . . . . . . . 25

6.3 The City Breached the Development Agreements by Denying the Operators an Opportunity to Be Heard at the Review Hearing . . . . . . . . . . . . . . . . . . . . . . 26

7. THE CITY IS GIVEN NOTICE THAT THE DAMAGES FOR BREACH OF THE DEVELOPMENT AGREEMENTS ARE $26.4 MILLION . . . . . . . . . . . . . . . . . . . 27

7.1 Contract Damages for Breach of Development Agreement . . . . . . . . . . . . . . 27 January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 39

7.2 Lost Profits Are Used for Breach of Development Agreement . . . . . . . . . . . 29

8. OPERATORS GIVE NOTICE TO CITY OFFICIALS, OFFICERS, EMPLOYEES AND CONSULTANTS OF INDIVIDUAL LIABILITY UNDER CIVIL RICO . . 30

8.1 Extortion Of Disputed Fees under Color of Official Right . . . . . . . . . . . . . . 31

8.2 Mail, Wire, and Telephone Used in Scheme to Defraud . . . . . . . . . . . . . . . . 32

8.3 Actions by Individual Actors Supports a Pattern of Racketeering Activity. . 33

8.4 Individual City Actors Have Also Engaged in a Civil RICO Conspiracy . . . 33

8.5 Civil RICO Claims Support Actions for Damages to the Operator’s Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

9. CITY IS GIVEN NOTICE OF OPTION TO PROCEED UNDER THE DISPUTED FEE PROCEDURE AND POST A BOND OF PURPORTED FEES DUE. . . . . . . . . . . 35

10. CITY IS GIVEN NOTICE TO CURE THE PLETHORA OF DEFAULTS AND OPPORTUNITY TO CURE THE SAME WITHIN 30 DAYS . . . . . . . . . . . . . . . . 36

11. CONCLUSION: CITY’S MUST CORRECT ITS PLETHORA OF BREACHES WITHIN 30 DAYS OR FACE LAWSUITS FOR DAMAGES AND CIVIL RICO 36 January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 40

Mammoth Lakes Land Acquisition, LLC v. Town of Mammoth Lakes Court of Appeal of California, Third Appellate District December 30, 2010, Filed
C059239
Reporter
191 Cal. App. 4th 435 *; 120 Cal. Rptr. 3d 797 **; 2010 Cal. App. LEXIS 2172 ***

MAMMOTH LAKES LAND ACQUISITION, LLC,
Plaintiff and Respondent, v. TOWN OF
MAMMOTH LAKES, Defendant and Appellant.

Subsequent History: Review denied by Mammoth
Lakes Land Acquisition v. Town of Mammoth
Lakes, 2011 Cal. LEXIS 3076 (Cal., Mar. 23, 2011)
Prior History: [***1] APPEAL from a judgment of
the Superior Court of Mono County, No. 15954,
Roger D. Randall, Judge. (Retired judge of the
Kern County Super. Ct., assigned by the Chief
Justice pursuant to art. VI, § 6 of the Cal. Const.)
Disposition: Affirmed.

Counsel: Law Office of Peter E. Tracy, Peter E.

Tracy; Morrison & Foerster, Edgar B. Washburn,
Maria Chedid, Shaye Diveley and Anton A. Ware
for Defendant and Appellant.

Meyers, Nave, Riback, Silver & Wilson, Steven R.

Meyers, Julia L. Bond and Peter S. Hayes for
League of California Cities and California State
Association of Counties as Amici Curiae on behalf
of Defendant and Appellant.

Quinn Emanuel Urquhart & Sullivan, Daniel L.

Brockett, John M. Pierce and Daniel H. Bromberg
for Plaintiff and Respondent.

Judges: Opinion by Nicholson, J., with Raye, P. J.,
and Scotland, J., concurring.

Opinion by: Nicholson
Opinion
[**802] NICHOLSON, J.—Defendant Town of
Mammoth Lakes (the Town) entered into a
development agreement with Terrence Ballas to
make improvements at the Town's airport and to
build a hotel [***2] or condominium project at the
airport. Ballas would initially lease the land for the
hotel/condominium project but would later have the
option to purchase it. Plaintiff Mammoth Lakes
Land Acquisition, LLC (Developer), later acquired
from Ballas the right to build the hotel or
condominium project.

The Town eventually changed its priorities and no
longer wanted the hotel/condominium project. The
Town sought help from the Federal Aviation
Administration (FAA) to eliminate the Developer's
ability to build the hotel/condominium project. The
FAA objected to the hotel/condominium project and
threatened to cut off federal funding for the airport.

However, the Developer demanded that the Town
move forward with the hotel/condominium project
as contemplated in the development agreement.

Despite the demand, the Town refused to move
forward unless the parties could resolve the FAA's
objections.

Claiming the Town repudiated the development
agreement, the Developer sued the Town for
anticipatory breach of contract. A jury found that
the Town breached the development agreement
and awarded $ 30 million in damages to the
Developer. Later, the trial court awarded $
2,361,130 in attorney fees to the Developer.

On [***3] appeal, the Town contends that the
judgment must be reversed because (1) the
Developer could not recover in a breach of contract
cause of action because it failed to exhaust its
administrative remedies, (2) even if contract
remedies are available, three clauses of the
development agreement give the [*441] Town a
complete defense, (3) the Developer failed to
establish a repudiation of the development

agreement, (4) the evidence of damages was too
speculative to support the verdict, and (5) the
attorney fees award must be reversed along with
the judgment. None of the Town's contentions has
merit.

The Developer was not restricted to pursuing the
administrative remedies available through the
Town's land use application process because the
Town violated the development agreement by
refusing to move forward with the
hotel/condominium project unless the FAA's
objections were resolved. Therefore, the judicial
remedy is a breach of contract action based on the
Town's executive decision not [**803] to move
forward as required by a contract, not an
administrative mandamus action to review a quasijudicial decision of the Town concerning a land use application. Also, a breach of contract action is
appropriate [***4] because damages for
anticipatory breach of the development agreement
are not available in an administrative mandamus
action.

With respect to the defenses asserted by the Town
based on the language of the development
agreement, none requires reversal of the
judgment. A clause excusing performance of the
development agreement because of governmental
restrictions is unhelpful to the Town because those
restrictions were under the Town's control. Another
clause requiring the parties to comply with the
rules and regulations of the FAA did not excuse the
Town from performing on the development
agreement because the FAA's objections were
based on grant assurances made by the Town to
obtain FAA funding, not on FAA rules or
regulations. And the third clause is likewise
unhelpful to the Town. It required the Developer to
provide funds matching the FAA's funding.

Contrary to the Town's assertion, providing
matching funds did not signal the Developer's
consent to the FAA restrictions because the
evidence established that the Developer neither
knew nor ought to have known about the
restrictions when providing the matching funds.

The Town asserts that the Developer failed to
establish a breach [***5] of the development
agreement because (A) the Developer failed to
establish a breach attributable to the Town; (B) the
evidence was insufficient to establish repudiation;
(C) the purchase option for the land under the
hotel/condominium project was a unilateral
contract not yet ripe for breach; and (D) the Town
retracted any repudiation. The Developer
established a breach attributable to the Town by
evidence of the actions of town officials, acting
within their authority. Those actions constituted
repudiation of the development agreement
because they insisted on resolution of the FAA's
objections before moving forward with the
development agreement, which resolution was not
a condition for performance in the development
agreement. Although the development agreement
included a purchase option for the land under the
hotel/condominium project, the breach was of the
development agreement, [*442] which was not a
unilateral contract. And, despite the claims of town
officials that they were willing to move forward with
the hotel/condominium project, their actions
established that they did not retract the repudiation
of the development agreement.

The evidence of damages in the form of lost profits
came [***6] from three sources: an experienced
appraiser of hotel and resort projects, one of the
investors in the Developer, and the town manager.

Considering the evidence in the light most
favorable to the verdict, the evidence of damages
was not too speculative to support the $ 30 million
damages award.

And finally, the Town's contention that the award of
attorney fees must be reversed is without merit
because the Town's sole argument for reversal of
the attorney fees award is that it was based on the
Developer's status as the prevailing party. The
award of attorney fees is valid because we do not
reverse the judgment and the Developer remains
the prevailing party.

We affirm the judgment and the award of attorney
fees.

HISTORY OF DEVELOPMENT AGREEMENTS
A development agreement is a statutorily
authorized agreement between a municipal
191 Cal. App. 4th 435, *441; 120 Cal. Rptr. 3d 797, **802; 2010 Cal. App. LEXIS 2172, ***3

government (here, the Town) and a [**804]
property owner for the development of the
property. (Gov. Code, § 65865, subd. (a).) One of
the main components of a development agreement
is a provision freezing the municipality's rules,
regulations, and policies governing permitted uses
of land and density of the land use, as well as
standards and specifications for design,
improvement, [***7] and construction. (Gov. Code,
§ 65866.) This provision allows a developer to
make long-term plans for development without
risking future changes in the municipality's land
use rules, regulations, and policies. (Santa
Margarita Area Residents Together v. San Luis
Obispo County Bd. of Supervisors (2000) 84
Cal.App.4th 221, 227 [100 Cal. Rptr. 2d 740]
(SMART).)
The development agreement must be approved by
ordinance and is, therefore, a “legislative act.”
(Gov. Code, § 65867.5, subd. (a).) Because the
development agreement is approved by ordinance,
it is subject to referendum, which allows the
electorate to overturn approval of the agreement.
(Ibid.) While, as a legislative act, a development
agreement can be disapproved by referendum, an
unchallenged development agreement is an
enforceable contract between the municipality and
the developer. Depending on its terms, it may
create vested rights in the developer with respect
to land use. (See SMART, supra, 84 Cal.App.4th at
p. 230 [development agreement creates
commitments to developers].)
[*443]
After approval by ordinance, the development
agreement is enforceable despite subsequent
changes in the municipality's land use laws. (Gov.

Code, § 65865.4.) The development agreement
[***8] may be amended or cancelled only by
mutual consent of the parties to the agreement.
(Gov. Code, § 65868.)
The Legislature enacted the development
agreement statutes in response to the California
Supreme Court's jurisprudence on vested rights.

Before 1976, developers in California faced
changes in land use laws and policies during the
course of long-term development of property.

When a change in the land use laws and policies
interfered with development already initiated, some
developers argued that they had a “vested right” to
complete the development despite the changes in
the land use laws and policies. It was “the rule in
this state and in other jurisdictions that if a property owner has performed substantial work and
incurred substantial liabilities in good faith reliance upon a permit issued by the government, he
acquires a vested right to complete construction in
accordance with the terms of the permit.
[Citations.]” (Avco Community Developers, Inc. v.

South Coast Regional Com. (1976) 17 Cal.3d 785,
791 [132 Cal. Rptr. 386, 553 P.2d 546] (Avco).)
In 1976, the California Supreme Court, in Avco,
decided that no right to complete the work vested
until the developer obtained a building permit, even
if the developer had [***9] already performed
substantial work and incurred substantial liabilities
on the project. (Avco, supra, 17 Cal.3d at p. 793.)
The court noted that any change in this common
law principle would have to come from the
Legislature. (Id. at p. 796.)
In 1979, the Legislature's enactment of the
development agreement statutes provided a way
for the municipality and developer to depart from
the common law rule of vested rights. The
Legislature declared that “[t]he lack of certainty in
the approval of development projects can result in
a waste of resources, escalate the cost of housing
and other development to the consumer, and
discourage investment in and commitment to
comprehensive planning [**805] which would
make maximum efficient utilization of resources at
the least economic cost to the public.” (Gov. Code,
§ 65864, subd. (a).)
The Legislature recognized that the newly
authorized development agreements would provide
benefits for both municipality and developer. The
agreements allowed the developer to proceed with
a project with the assurance that the project would
be approved based on rules, regulations, and
policies existing at the time the development
agreement was approved, even if those rules,
191 Cal. App. 4th 435, *442; 120 Cal. Rptr. 3d 797, **803; 2010 Cal. App. LEXIS 2172, ***6

[***10] regulations, and policies changed over the
course of the development project. (Gov. Code, §
65864, subd. (b).) In 1984, the Legislature added a
declaration that development agreements would
also allow [*444] municipalities to extract
promises from the developers concerning financing
and construction of necessary infrastructure. (Gov.

Code, § 65864, subd. (c); Stats. 1984, ch. 143, § 1,
p. 431.) This declaration makes it clear that the
scope of development agreements need not be
limited to freezing land use rules, regulations, and
policies but can include other promises between
the municipality and the developer. Thus, a
legislatively approved development agreement
gives both parties vested contractual rights.

FACTS 1
The Town's Acquisition of Airport and FAA Funding
The Town took over operation of the Mammoth
Lakes Airport (later known as the MammothYosemite Airport) in 1991 and annexed the property in 1995. The Town desired to improve the
airport to host commercial air service to enhance
the Town's appeal as a destination for visitors.

Beginning in 1992, the Town received grants from
the FAA under the Airport Improvement Program.

As a condition for receiving these federal funds,
the Town made assurances to the FAA that it
would meet any conditions placed on the funding
by the FAA. These grant assurances were made
1 The Town cites to documents in the appellant's appendix to support many of its statements of fact in its briefs. However, the Town does not indicate whether and when the documents in the appellant's appendix were admitted as evidence at trial.

This presents a problem on appellate review because some of the Town's contentions of error, such as the contention that the Developer failed to establish a breach of the Development Agreement, challenge the effect of evidence introduced
[***11] at trial. Although the Town fails to identify properly the evidence introduced at trial, we conclude that we may ignore this defect in the briefing because (1) there is no serious dispute concerning the facts and (2) the Town's contentions are without merit, even when viewing them in the light of the facts stated in the Town's briefing. (See Cal. Rules of Court, rule 8.204(e) [allowing court to disregard defects in briefing].) part of the funding agreements. One of the
assurances made by the Town to the FAA was that
the Town would not sell or lease any part of the
airport property without [***12] approval from the
FAA.

Proposed Development Agreement
In 1997, the Town proposed to enter into a
Development Agreement with Terrence Ballas,
who had experience in airport development.

The recitals at the beginning of the proposed
Development Agreement stated the Town's
purposes and goals: “[The] Town has determined
that a first-class Airport operation, including an
efficient fixed base operation, increased hangar
space, modern fuel facilities, a hotel or
condominium or residential condominium and
related amenities, and space for recreational
[*445] vehicles, will benefit the economy of the
Mammoth Lakes area and promote the goals set
[**806] forth in the applicable vision statements,
adopted by the Town, including the goal of
becoming a year around [sic] destination resort.”
The recitals also stated: “[The] Town has further
determined that the interests of its tax paying [sic]
citizenry can best be served by providing for the
funding of Airport operations and development
through private capital rather than taxpayer funds,
where reasonably possible, and through the
privatization of certain services provided at or in
connection with the Airport.”
The Development Agreement addressed the
procedure upon default [***13] of one of the
parties. It stated: “Failure by either party to perform any material term or provision of this Agreement
for a period of thirty (30) days after delivery of
written notice of default from the other party shall
constitute a default under this Agreement.” Upon
the offending party's failure to cure the default, the
Development Agreement allowed the offended
party to “institute legal action against the party in
default … .”
Under the Development Agreement, Ballas agreed
to make improvements to the airport at his own
191 Cal. App. 4th 435, *443; 120 Cal. Rptr. 3d 797, **805; 2010 Cal. App. LEXIS 2172, ***10

expense, including construction of hangars, a gas
storage building, and a terminal, as well as
remodeling of an existing terminal. These
improvements were designated as Phase I. In
Phase II of the airport development, Ballas would,
again at his own expense, build a restaurant
building, a gasoline station, and a recreational
vehicle park.

As part of Phase I, the Development Agreement
allowed Ballas to build a hotel or condominium
project (which came to be known as the Hot Creek
Project), described in the Development Agreement
as “time share or similar units, hotel or residential
condominium, or a commercial lodging facility for
transient guests of a minimum stay [***14] of sixty
(60) units to be constructed by Developer.” In later
phases of the development, Ballas would be
allowed to build additional hotel or condominium
facilities to a maximum of 250 total hotel or
condominium units. The hotel/condominium project
was to be built on a 26-acre parcel, adjacent to the
aeronautical services. In 2027, Ballas would have
an option to purchase that parcel. The construction
and operation of the hotel/condominium project
was a material part of the consideration for the
Development Agreement.

The option to purchase the parcel made the
Development Agreement economically feasible for
Ballas. He would make the improvements and
build the hotel or condominiums, initially leasing
the land from the Town, then exercising the option
to purchase the land.

The Development Agreement required the Town to
act reasonably in moving the project along. It
stated: “Town and its agents, employees and
[*446] contractors shall exercise any discretionary
approvals applicable to the Project reasonably, in
good faith, and in a timely manner.”
The Development Agreement incorporated other
documents, such as a commercial development
plan and leases. In the lease of the land for the
hotel/condominium [***15] project, the Town
warranted that “it has title to the premises free and
clear of liens and encumbrances, that it has the
right and power to enter into this lease, and that
this lease is made pursuant to the powers vested
in [the Town] by laws of the State of California.”
Events Leading to Signing of Development
Agreement
Before the Town entered into the Development
Agreement with Ballas, it sought approval from the
FAA for the agreement. William Manning, the
Town's airport director, [**807] sent
correspondence to the FAA with details of the
Development Agreement and the accompanying
leases. The FAA responded by fax: “We need to
review ‘options’; 55 yr lease creates problems with
FAA policy … .” The response also stated: “Under
current FAA policy and procedure guidance a
release of all federal obligations which encumber
the property must be obtained from the FAA prior
to the notice to sell/purchase the property. The
FAA should be given a copy of the option contract
for review and comment prior to recording the
document.”
The town council approved the Development
Agreement by ordinance. After the town council's
approval, Ballas and the Town's mayor pro tem
signed the Development Agreement on
[***16] August 21, 1997, just nine days after the
FAA made known to the Town its reservations
concerning the Development Agreement.

While the Town claimed that the Town's airport
director discussed the FAA's concerns with Ballas,
Ballas testified that the Town did not disclose to
him the FAA's concerns about the Development
Agreement until seven years later. On appeal, the
jury is deemed to have credited Ballas's testimony
in this regard. (Garlock Sealing Technologies, LLC
v. NAK Sealing Technologies Corp. (2007) 148
Cal.App.4th 937, 951 [56 Cal. Rptr. 3d 177].)
The Town also did not contact the FAA to discuss
its concerns. The Town's airport manager testified:
“I believed that [the FAA representative's] form of
correspondence was ridiculous. If he had issues or
comments that he wanted me to deal with, I
believe he would have sent me a formal FAA letter.

We correspond regularly with the FAA. This—the
191 Cal. App. 4th 435, *445; 120 Cal. Rptr. 3d 797, **806; 2010 Cal. App. LEXIS 2172, ***13

fax notes were highly irregular. I just felt like it
wasn't an official correspondence and I wasn't
obligated to respond to it.”
After signing the Development Agreement, Ballas
assigned his interest in the Development
Agreement to various other entities. He assigned
his right to [*447] develop, market, and sell the
hotel/condominium [***17] project to Mammoth
Lakes Land Acquisition, LLC, the plaintiff in this
case. Ballas retained a substantial interest in the
limited liability company.

Plaintiff, Mammoth Lakes Land Acquisition, LLC, is
also known as the Hot Creek Developer. We refer
to plaintiff in this opinion as the Developer.

Phase I Improvements
As part of Phase I of the Development Agreement
and within three years of signing the Development
Agreement, the Developer spent $ 15 million to $
17 million on improvements to the airport. It built
hangars, renovated an existing terminal, and
installed a new fueling system and water supply
system. The Developer also took over the airport's
general aviation operations.

Hotel/Condominium Complex
In 2000, after the airport improvements had been
made and were in operation, the Developer
formulated and submitted to the Town an
application with a plan for the hotel/condominium
project. The plan included residential
condominiums. In 2002, town staff raised
objections to the plan because it reflected a
residential orientation instead of one promoting
services to visitors. Town staff urged the Developer
to withdraw the application, which the Developer
refused to do.

The Developer's [***18] application was placed on
the agenda for a Town planning commission
meeting with a recommendation from staff to deny
the application. Even though the Development
Agreement allowed residential condominiums,
town [**808] staff stated that the plan was
“inconsisten[t] with entitlements that have been
granted to the applicant under the terms of a
Development Agreement, and with zoning
regulations applicable to the property.” In light of
the negative recommendation from town staff and
an assurance from staff that they would negotiate
with the Developer concerning the
hotel/condominium project, the Developer agreed
to withdraw the application from consideration at
the planning commission meeting.

After the Developer's application had been
withdrawn from consideration at the planning
commission meeting, the Town's community
development director sent Ballas a letter on April 1,
2002, about five years after the signing of the
Development Agreement, apologizing for the delay
in processing the application and recognizing the
Developer's right to construct a residential
condominium project under the Development
Agreement. The letter continued: “Since signing
the Development Agreement in 1997, major
changes [***19] in [*448] the Town's economic
climate have occurred; commercial air service is on
the horizon, housing prices have increased
significantly, and the village is under construction
with commercial tenants selected. With these
factors in mind, the Town believes that an
opportunity exists in a modified plan for a
centralized hotel or condominium facility for
transient guests surrounded by uses such as
residential condominiums which are designed and
located to conveniently utilize the resorts [sic]
amenities and to participate in a visitor rental
program at the individual owner's desire. We
believe that this type of project will be beneficial
financially to both the Town and the developer.”
At the suggestion of town staff, the Developer
worked with town staff to revamp the plan to have
multiple owners of each condominium with a
hospitality company to manage the joint ownership
and rent out the units when the owners were not
occupying them. In 2004, the Developer submitted
a revised plan to town staff for informal review. The
plan, however, was never submitted formally to the
Town for approval.
191 Cal. App. 4th 435, *446; 120 Cal. Rptr. 3d 797, **807; 2010 Cal. App. LEXIS 2172, ***16

FAA Objections and Town's Change of Priorities
In 1999, the Town began working to get
commercial air service [***20] into the airport. The
FAA approved an environmental assessment in
2000, which concluded that the commercial air
service, and the associated improvements to the
airport, would not have significant environmental
impacts. However, this assessment was
overturned by a federal court. (California v. U.S.

Dept. of Transportation (N.D.Cal. 2003) 260
F.Supp.2d 969.) In response to this loss in federal
court, the FAA reevaluated the hotel/condominium
project and concluded that it had not been
adequately subjected to environmental review.

In 2004, the FAA took the position that the grant
assurances given by the Town required the Town
to obtain the consent of the FAA before executing
a lease to use airport property for anything other
than an aeronautical use. The FAA asserted that it
had not given consent for the nonaeronautical use
of the airport property to build a hotel/condominium
project. The Town resisted this position, stating
that the FAA had approved the entire project,
including the nonaeronautical uses, in 1998.

Nonetheless, the FAA informed the Town that it
could either have expanded air service or the
hotel/condominium project, but not both.

Soon after this exchange between the FAA and the
[***21] Town, the Town changed its position with
respect to the hotel/condominium project. In early
May 2004, deputy town manager Charles Long told
the [**809] Developer that the hotel/condominium
project was the Town's top priority. However, later
the same month, Long stated that expanded air
service had become the Town's top priority. Robert
Clark, who was hired as town manager in June
2004, [*449] testified that the town council
“shared [the] sentiment” that expanded air service
was a higher priority than the hotel/condominium
project.

In light of the change in the Town's position, the
Developer began to feel less secure in its
relationship with the Town. The Developer
informed the Town that it was taking a “time-out”
from the discussion of issues arising from the
Development Agreement and would not be
attending any meetings concerning the issues. The
proposed length of the “time-out” was not stated.

On June 28, 2004, town officials, including deputy
town manager Long, met with officials of the FAA.

Long told the FAA officials that the Developer's
option to purchase the hotel/condominium project
was inconsistent with the Town's goals. Long said
that the hotel/condominium project might never be
built. He [***22] asked the FAA to help the Town
“get rid of Hot Creek,” referring to the
hotel/condominium project, because it interfered
with expanded air service. To obtain the FAA's
assistance in stopping the hotel/condominium
project, Long asked the FAA to put in writing its
objections based upon the grant assurances given
to the FAA by the Town.

On June 29, 2004, the day after the meeting with
the FAA, deputy town manager Long sent an email to the Developer. Because the Developer relies heavily on the e-mail to support its
repudiation argument, we quote the pertinent part
of the e-mail here:
“The FAA is primarily concerned about two issues
for your project: First, the compliance issues
remain paramount. They are concerned that the
airport will run out of land for aeronautical
purposes as a result of the land used by the nonaeronautical uses your project represents. They are also concerned about the purchase option. And
finally they are concerned about whether the
airport has enough land to accommodate
competing FBOs [(fixed base operators)]. … The
FAA intends to send us a specific itemization of
these compliance concerns in the next few weeks.

Until these issues are resolved, we will be unable
[***23] to move forward with your project.
“Second, the FAA is concerned that your currently
proposed development plan differs significantly
from the specifications in the [Development
Agreement] and needs NEPA [(National
Environmental Policy Act)] review since it occurs
coterminously with the EIS [(environmental impact
statement)] on the airport expansion. This
difference in project scope applies to CEQA
191 Cal. App. 4th 435, *448; 120 Cal. Rptr. 3d 797, **808; 2010 Cal. App. LEXIS 2172, ***19

[(California Environmental Quality Act)], as the
attached CEQA analysis makes clear. For the
Town to move forward with your project we will
need to conduct an Initial Study and to work with
you to bring your project within the parameters of a
possible Mitigated Negative Declaration.
“On both issues we are ready to work with you
when you re-enter the process.”
[*450]
The Developer, through Ray Johnson, one of the
principals, responded on July 1, 2004, with a letter
to Robert Clark, the town manager, seeking
clarification of Long's e-mail and requesting
assurances that the Town would proceed with the
Development Agreement. Clark responded that the
Town and the Developer “need to resolve the FAA
compliance issues as a prerequisite to … knowing
whether [the hotel/condominium project] complies
with FAA regulations. [***24] The need for the
project [**810] to comply with FAA review
requirements is specifically noted in Section 26 of
the lease. The Town is ready to proceed working
with you and the FAA to resolve the compliance
concerns that exist at FAA on your project.”
Through counsel, the Developer replied to Clark's
letter on August 10, 2004. Counsel stated that
“Clark and Long as authorized agents of the Town,
now appear to believe that the Town may freely
disregard the express terms of the Development
Agreement and withhold approvals and other
cooperation required by that Agreement to enable
Hot Creek to proceed with its entitled development.

As is more fully discussed hereafter, it is also
apparent that the Town has affirmatively taken
actions which threaten to directly undermine Hot
Creek's prior contractual and statutory rights and
promote other, more recent interests, such as the
proposed expansion of commercial air service
operations at the Airport.”
On October 4, 2004, the FAA sent the Town a
letter stating its concerns about grant assurances
and raising objections to the residential nature of
the hotel/condominium project. The letter stated:
“We are concerned that the Town may be in
violation of various [***25] [Airport Improvement
Program] Grant Assurances, a situation that
resulted from the Town executing a Development
Agreement with Hot Creek Aviation. This situation
will further aggravate if the Town proceeds to
execute leases with Hot Creek Aviation for certain
planned nonaeronautical development [at the
airport].” (Fn. omitted.) The FAA informed the
Town: “The Town has an obligation to act in
accordance with the Airport Improvement Program
(AIP) Grant Assurances. The Town needs to
determine whether the proposed Hot Creek
development is consistent with the Town initiative
to extend the runway and expand the airfield
infrastructure to accommodate commercial service
by Boeing 757 type aircraft.” (Fn. omitted.) The
FAA informed the Town that its federal funding was
in jeopardy.

In correspondence with the Developer, town
officials professed willingness to work with the
Developer to resolve the FAA issues. However, in
private, the mood was not cooperative. Taking
notes in a meeting of town officials discussing the
October 4 FAA letter, an assistant town manager
wrote: “Hammer Hot Creek—we will not approve
an inconsistent project and we will renegotiate land
disposal.”
[*451]
Town's [***26] Default
On February 7, 2005, the Developer served the
Town with a notice of default under the
Development Agreement. The notice demanded
that the Town terminate its efforts to obtain federal
funding for expansion inconsistent with the
Development Agreement. The Town and
Developer agreed to toll the notice of default while
further negotiations were held. Although some
progress was made, the FAA continued to insist
that (1) the hotel/condominium project could not be
used for permanent residences and (2) the
purchase option was unacceptable because it
might hinder future airport use of the land.

Town Manager Clark said to the FAA in a
September 2005 e-mail: “Our lease contains an
option for Hot Creek to purchase land under their
191 Cal. App. 4th 435, *449; 120 Cal. Rptr. 3d 797, **809; 2010 Cal. App. LEXIS 2172, ***23

condo hotel. I have advised them of the FAA's
objection to the clause and asked to renegotiate.

They indicate a very reluctant willingness to do so,
but only when they have certainty as to their
development rights and timing (which neither you
nor I can deliver at this stage). I believe that the
FAA and Town need to jointly investigate (with our
respective legal counsels) what means we [**811]
have to unilaterally eliminate this clause, along with
the legal and financial [***27] implications of doing
so.” (Original underscoring.)
Also in September 2005, Town Manager Clark sent
an e-mail to other town staff discussing
“alternatives to eliminate the Hot Creek option.”
Two of the alternatives presented were to (1) seek
declaratory relief in state or federal court or (2)
condemn the purchase option and compensate the
Developer. Concerning the value of the
hotel/condominium purchase option, Clark stated:
“Hot Creek estimates the market value of their
project at $ 400 million, which is $ 1.6 million per
unit based on fractional ownership, and the value
of the option at 5% of sales price [($ 20 million)].

Even if the value is half that amount it would cost $
10 million to acquire the option through negotiation.

They offered to have a mutually agreeable expert
determine the value. [¶] Since we don't have $ 10
to $ 20 million in spare change I am trying to come
up with some other way to compensate Hot
Creek.” The Town did not pursue the eminent
domain option.

In August 2006, Town Manager Clark informed the
Developer that the town council's position was that
the hotel/condominium project could not move
forward until the FAA issues were resolved. The
Developer's representative [***28] suggested that
the Town could go forward with the
hotel/condominium project under the Development
Agreement and deal later with any FAA fallout,
such as termination of funding from the FAA. Clark
responded that the town council would not do that
because it might derail approval of the expanded
air service, which was very important to the
council.
[*452]
From the time Clark became the town manager in
2004, through 2006, Clark met in closed sessions
many times with the town council concerning the
issues arising from the Development Agreement.

No council member ever told Clark that his actions
or Long's actions were not authorized by the town
council. Clark believed that all actions he took
concerning the issues arising from the
Development Agreement were either within his
authority as town manager or with the authorization
of the town council.

PROCEDURE
The Developer filed a civil claim with the Town on
September 1, 2006, for breach of the Development
Agreement, asserting it had been damaged “in an
amount not less than $ 150 million.” After the Town
rejected the claim, the Developer sued the Town,
alleging a breach of contract cause of action. As
remedies, the Developer sought damages, specific
[***29] performance, and injunctive relief. Later,
the Developer added a prayer for declaratory relief.

The Town demurred to the Developer's complaint.

It asserted that, among other things, the Developer
failed to exhaust administrative and judicial
remedies pursuant to Code of Civil Procedure
section 1094.5. The trial court overruled the
demurrer.

The Town filed a motion for summary judgment. It
argued, among other things, that the grant
assurances made by the Town to the FAA were
rules and regulations of the FAA as a matter of law
and, therefore, the Development Agreement
required compliance with the grant assurances.

The trial court rejected this reasoning and
concluded that whether the grant assurances were
rules and regulations of the FAA was a factual
matter to be submitted to the jury.

The Developer abandoned its prayers for specific
performance and declaratory relief, so the action
went to a jury trial on the Developer's claim for
damages as a [**812] result of the Town's
anticipatory breach of the Development
Agreement.

The trial court instructed the jury concerning the
breach of contract cause of action as follows:
191 Cal. App. 4th 435, *451; 120 Cal. Rptr. 3d 797, **810; 2010 Cal. App. LEXIS 2172, ***26

“This case involves a dispute between the Town
and the Hot Creek Developers. This [***30] is a
breach of contract case arising out of a
Development Agreement and a series of leases
between the Town and the Hot Creek Developers
that were executed in August of 1997. Generally
speaking, the contract required the Hot Creek
Developers to construct a series of improvements
at the Mammoth-Yosemite Airport. In return, the
Hot Creek [*453] Developers received among
other things the right to build and operate a hotel
and residential condominium project on
approximately 25 acres of land at the Airport and
an option to purchase those 25 acres.
“The dispute in this case centers around whether
the Town has breached the contract by refusing to
allow the Hot Creek Developers to actually
construct the hotel and residential condominium
project. The Town denies that it has breached the
agreement and maintains it stands ready to
perform the contract. Your job as the jury is to
resolve various factual disputes between the Hot
Creek Developers and the Town as to what the
parties intended when they agreed to certain
contractual provisions, and various factual disputes
as to whether a breach of contract has in fact
occurred. In doing so, you will reach a conclusion
as to whether or not the Town has breached
[***31] the contract.”
By special verdict, the jury found that (1) the Town
and the Developer entered into a contract, (2) the
Developer met all, or substantially all, its
obligations under the contract, (3) the Town failed
to perform under the contract or added
extracontractual conditions to its performance, (4)
the Developer did not waive the Town's failure to
perform, and (5) the Town's failure to perform
damaged the Developer. The jury set the amount
of damages at $ 30 million.

On the Developer's motion, the trial court awarded
the Developer $ 2,361,130 in attorney fees.

DISCUSSION
I
Availability of Contract Action
The Town contends that the trial court erred by
allowing the Developer to proceed with a contract
action. The Town argues that the Developer was
required to engage and exhaust the Town's
administrative process before seeking judicial
remedies. Based on this argument, the Town
asserts that (1) the Developer's action is unripe
because the Developer has not engaged and
exhausted the available administrative process and
(2), when the claim ripens, a petition for writ of
administrative mandamus will be the exclusive
judicial remedy.

The Town attempts to narrow the issue in its favor.

Quoting [***32] selectively from the complaint, it
states that the Developer's allegation is that “the
Town ‘failed and refused to … approve’ the
Developer's application for a [*454] conditional
use permit and subdivision map for the
hotel/condominium project.” If the dispute is simply
about the failure to approve a conditional use
permit and subdivision map, then it would appear
that administrative mandamus is the remedy.

However, the very paragraph of the complaint from
which the quote is taken also contains six other
allegations supporting the breach of contract
[**813] cause of action. 2 As the Developer notes
2 The paragraph states: “The Town has breached the
[Development Agreement] and Hotel/Condo Lease[] by[,]
among other things, (1) failing [***33] and refusing to act on, or approve, the Hot Creek Developers [sic] development plans submitted to the Town in October 2000 and again in 2004; (2) taking actions to pursue other Airport expansion projects that could have the effect of depriving the Hot Creek Developers of the benefits of the [Development Agreement] and Hotel/Condo Lease; (3) misrepresenting and failing to disclose material facts to the Hot Creek Developers concerning FAA approval of the Hot Creek Project; (4) seeking the assistance of the FAA to create a pretext for the Town not to approve the Hot Creek Project; (5) breaching the [Development Agreement]'s express and implied covenants of good faith and fair dealing; (6) writing to the Hot Creek Developers on June 29, 2004, stating that the Town ‘will be unable to move forward with your project,’ and insisting on the performance of conditions by the Hot Creek Developers that are inconsistent with the
[Development Agreement] and Hotel/Condo Lease; and (7)
telling the Hot Creek Developers in 2005 and 2006 that the Town would not allow the project to move forward without 191 Cal. App. 4th 435, *452; 120 Cal. Rptr. 3d 797, **812; 2010 Cal. App. LEXIS 2172, ***29

in response to the Town's argument, the theory
presented to the jury was whether the Town
breached the Development Agreement by refusing
to proceed with the hotel/condominium project
despite the FAA's objections to the project.

Accordingly, we consider whether the anticipatory
breach of the Development Agreement by the
Town's refusal to proceed with the
hotel/condominium project is unripe for judicial
review because the Developer failed to exhaust
administrative remedies.

The Town contends that the Developer could not
file a complaint in court and thereby avoid the
Town's administrative process for approving or
rejecting land use applications. The contention is
without merit because there was nothing for the
Town's administrative process to adjudicate.
(1) “This is the doctrine of ‘exhaustion of
administrative remedies.’ In brief, the rule is that
where an administrative remedy is provided by
statute, relief must be sought from the
administrative body and this remedy exhausted
before the courts will act.” (Abelleira v. District
Court of Appeal (1941) 17 Cal.2d 280, 292 [109
P.2d 942].) “[E]xhaustion of the administrative
remedy is a jurisdictional prerequisite to resort to
the courts.” (Id. at p. 293.) However, “[t]he
exhaustion of administrative remedies doctrine has
never applied where there is no available
administrative remedy. [Citations.]” (Tahoe Vista
Concerned Citizens v. County of Placer (2000) 81
Cal.App.4th 577, 590 [96 Cal. Rptr. 2d 880].)
[*455]
Here, there was no remedy available to the
Developer in the administrative process. The Town
concedes that relief pursuant to administrative
mandamus would have been limited [***35] to a
writ vacating a final decision by the town council on
a land use application and that damages would not
be available in such an action. However, once the
Developer gave notice of default and the Town
conditions and continuing to require the Hot Creek Developers to give up valuable contract rights (including [***34] their purchase option) as a condition of moving forward with the project.”
failed to cure the default, there was no longer a
proposed land use to adjudicate in the Town's
quasi-judicial administrative process. At that point,
all that remained was to determine whether the
Town breached the Development Agreement and,
if it did, what was the remedy. No administrative
remedy would have sufficed. (Tahoe Vista
Concerned Citizens v. County of Placer, supra, 81
Cal.App.4th at p. 590.)
The Town cites two cases in support of its
contention that the Developer failed to [**814]
exhaust administrative remedies. Both are
distinguishable.

The first case cited by the Town is Legacy Group
v. City of Wasco (2003) 106 Cal.App.4th 1305 [131
Cal. Rptr. 2d 460] (Legacy Group). In Legacy
Group, a developer and a municipality entered into
development agreements, as well as an agreement
for the municipality to purchase infrastructure
constructed by the developer. When the
municipality stopped purchasing the infrastructure,
the developer sued, asserting breach of contract,
among other causes of action. The trial
[***36] court entered judgment in favor of the
municipality, finding that the action was barred by
the statute of limitations applicable to actions
implicating the Subdivision Map Act (Gov. Code, §
66410 et seq.). (106 Cal.App.4th at pp. 1307–
1310.) In the published portion of the opinion on
appeal, the court concluded that most of the
allegations in the complaint did not implicate the
Subdivision Map Act; therefore, the longer statute
of limitations for contracts was applicable. The
court stated: “[W]e are reluctant to extend [the
Subdivision Map Act statute of limitations] to
breach of contract claims unless the gravamen of
the claim concerns acts that could have been
challenged as a violation of the [Subdivision Map
Act].” (106 Cal.App.4th at p. 1313.) Applying this
holding, the court found that only one of the
developer's breach of contract claims was subject
to the shorter limitations period because the acts
complained of “could have been challenged under
the [Subdivision Map Act] … .” (Id. at p. 1314.)
Citing Legacy Group, the Town states: “The
Developer's challenge to the Town's alleged failure
191 Cal. App. 4th 435, *454; 120 Cal. Rptr. 3d 797, **813; 2010 Cal. App. LEXIS 2172, ***33

and refusal to grant such discretionary approvals,
even though pled as breach of contract, remained
subject to the administrative exhaustion
[***37] requirement and other restrictions on
judicial relief applicable to such challenges.”
The Town's argument relying on Legacy Group is
unavailing for two reasons. First, it is premised
upon the suggestion that the Developer's action
[*456] is all about the Town's failure to approve
the Developer's land use application. We have
already rejected that suggestion; therefore,
attacking it does not show error as to the actual
breach of contract allegations tried to the jury. And
second, the Town's argument does not explain
how the Developer, through the administrative
process, could obtain the damages sought for the
Town's breach of contract. Instead, as noted, the
Town argues that those damages are unavailable.

The second case cited by the Town is Subriar v.

City of Bakersfield (1976) 59 Cal.App.3d 175 [130
Cal. Rptr. 853] (Subriar). In Subriar, the plaintiff
claimed that the municipality's requirements for
obtaining a permit to operate an ambulance
business were unconstitutional. The trial court
agreed and granted a permanent injunction against
enforcement of the ordinance. (Id. at pp. 180–181.)
The appellate court, however, concluded that the
plaintiff failed to exhaust his administrative
remedies because, after the [***38] city manager
failed to act on the permit, the plaintiff did not
appeal to the city council to overturn the city
manager's action. (Id. at p. 191.)
Subriar is distinguishable because an appeal to the
town council could have resulted in issuance of the
permit that the plaintiff sought. Here, engaging and
exhausting the administrative process promised no
prospect of obtaining damages for the Town's
breach of the Development Agreement.
(2) As tried to the jury, the Developer's complaint is
not that the Town denied an application to build the
hotel/condominium [**815] project. Instead, the
complaint is that the Town refused to move forward
on the hotel/condominium project, and refused to
cooperate, until the FAA's concerns were resolved,
which was not a condition in the Development
Agreement. The administrative process for
approving or rejecting land use applications was
not designed to address this breach by the Town.

Furthermore, having given the Town a notice of
default, as allowed by the Development
Agreement, the Developer elected not to pursue an
application but instead to pursue damages for
anticipatory breach. The administrative process
could not give these damages. (See Tahoe Vista
Concerned Citizens v. County of Placer, supra, 81
Cal.App.4th at p. 590 [***39] [exhaustion not
required when process cannot provide requested
relief].) Under these circumstances, the Developer
was not required to submit a land use application
to the Town and pursue the application through to
denial by the town council. 3
[*457]
Availability of Contract Remedies
The Town contends that, if the trial court had
required the Developer to pursue administrative
remedies, the Developer's exclusive judicial
remedy would have been a petition for
administrative mandamus under Code of Civil
Procedure section 1094.5. While this contention is
theoretically correct, it is inapt and unhelpful to the Town because the Developer was legally entitled
to go forward with a breach of contract action, as
the trial court found.
(3) Quasi-judicial determinations of a town council
are reviewed judicially by administrative
mandamus proceedings. (Code Civ. Proc., §
1094.5; [***40] Mola Development Corp. v. City of
Seal Beach (1997) 57 Cal.App.4th 405, 410 [67
Cal. Rptr. 2d 103].) Although, as the Town asserts,
the Development Agreement preserved the Town's
discretion to make quasi-judicial determinations
with respect to applications submitted by the
Developer as part of the development plan, the
3 The Town also contends that the Developer failed, as a matter of law, to establish futility of administrative review.

Because we conclude that a breach of contract action was proper and administrative review could not provide an
appropriate remedy, we need not consider further the
contention that the Developer failed to establish futility. 191 Cal. App. 4th 435, *455; 120 Cal. Rptr. 3d 797, **814; 2010 Cal. App. LEXIS 2172, ***36

Town's refusal to move forward with the
hotel/condominium aspect of the Development
Agreement was not a quasi-judicial determination.

Instead, it was an executive decision on the part of
the Town to refuse to comply with the terms of the
Development Agreement, ostensibly in order to
preserve its funding from the FAA. Since the
Developer did not challenge a quasi-judicial
determination, administrative mandamus is not the
exclusive remedy.

This is not to say that an action for contract
damages is the only remedy for a municipality's
breach of a development agreement. We are not
faced, in this case, with an administrative
mandamus challenge to a quasi-judicial
determination of the town council. Instead, we
conclude only that administrative mandamus is not
the exclusive remedy, under the circumstances of
this case, where there has been an anticipatory
breach of the Development Agreement not
involving [***41] a quasi-judicial determination. 4
[**816] II
Contract Defenses
The Town contends that three clauses of the
Development Agreement, each independently,
provide a complete defense to the Developer's
breach of [*458] contract action. We conclude that
the three clauses do not provide a defense to the
Town's breach of the Development Agreement.

Before we consider the three clauses, we
summarize the law regarding interpretation of
4 In a footnote, the Town states as an alternative argument that the Developer was required to file a petition for traditional mandate because town officials refused to perform their ministerial duties under the contract. This argument was not raised below and is barely noted and undeveloped here. We need not consider this newly conceived footnote contention. (See People v. Freeman (1994) 8 Cal.4th 450, 482, fn. 2 [34 Cal. Rptr. 2d 558, 882 P.2d 249] [issues mentioned but not developed as discrete contentions of error not properly raised]; Cal. Rules of Court, rule 8.204(a)(1)(B) [requiring appellant to state each point under a separate heading or subheading].) contracts.
(4) “The fundamental goal of contractual
interpretation is to give effect to the mutual
intention of the parties.” (Bank of the West v.

Superior Court (1992) 2 Cal.4th 1254, 1264 [10
Cal. Rptr. 2d 538, 833 P.2d 545].) [***42] “A
contract must be so interpreted as to give effect to
the mutual intention of the parties as it existed at
the time of contracting, so far as the same is
ascertainable and lawful.” (Civ. Code, § 1636.)
“The words of a contract are to be understood in
their ordinary and popular sense, rather than
according to their strict legal meaning; unless used
by the parties in a technical sense, or unless a
special meaning is given to them by usage, in
which case the latter must be followed.” (Civ.

Code, § 1644.)
(5) “The interpretation of a written instrument, even
though it involves what might properly be called
questions of fact [citation], is essentially a judicial function to be exercised according to the generally
accepted canons of interpretation so that the
purposes of the instrument may be given effect.
[Citations.] Extrinsic evidence is ‘admissible to
interpret the instrument, but not to give it a
meaning to which it is not reasonably susceptible’
[citations], and it is the instrument itself that must
be given effect. [Citations.] It is therefore solely a
judicial function to interpret a written instrument
unless the interpretation turns upon the credibility
of extrinsic evidence.” (Parsons v. Bristol
Development Co. (1965) 62 Cal.2d 861, 865 [44
Cal. Rptr. 767, 402 P.2d 839].)
A. [***43] Excuse Provision (Clause E)
Section XVII(e) of the Development Agreement
(clause E) stated that neither party would be in
default for a cause beyond the reasonable control
of the parties. It stated: “Neither party shall be in
default of this Agreement for delays in or failures of
performance due to war, insurrection, strikes,
floods, earthquakes, fires, casualties, acts of God,
governmental restrictions imposed or mandated by
governmental entities other than Town, enactment
of conflicting State or Federal laws or regulations,
judicial decisions, or similar bases beyond the
191 Cal. App. 4th 435, *457; 120 Cal. Rptr. 3d 797, **815; 2010 Cal. App. LEXIS 2172, ***40

reasonable control of the party excused.” (Italics
added.)
The Town asserts that, as a matter of law, the
emphasized portion of clause E excused it from
performing on the Development Agreement
because both [*459] the Town and the Developer
were required to comply with the FAA restrictions.

This assertion is without merit because the FAA's
restrictions were within the control of the Town.

The Town made grant assurances to the FAA in
exchange for funding for the airport. And the FAA
cited the grant assurances in insisting that the
hotel/condominium project, with its residential
character and option to purchase, was inconsistent
[***44] with preserving the airport property for
aeronautical purposes. If the Town had not made
grant assurances in the first place and later
encouraged the FAA to [**817] help the Town “get
rid of” the hotel/condominium project, there would
have been no impediment to the Town's
performance of the Development Agreement with
the Developer. The Town's own actions caused the
FAA to express reservations concerning the
hotel/condominium project. In other words, the
FAA's restrictions were within the reasonable
control of the Town. Therefore, the Town cannot
rely on clause E to justify its nonperformance.

B. Rules and Regulations of the FAA (Clause N)
Section XVIII(n) of the Development Agreement
(clause N) required the parties to comply with FAA
rules and regulations. It stated: “In carrying out this Agreement and otherwise operating the Airport in
accordance with the terms of the leases, the
parties shall comply with all applicable rules and
regulations of the FAA.”
In the trial court, the Town asserted that the grant
assurances given to the FAA were FAA “rules”
and, therefore, the Town's compliance with the
grant assurances could not constitute a breach of
the Development Agreement because the
Development [***45] Agreement required
compliance with FAA rules. The trial court rejected
this assertion, concluding that there was a question
of fact concerning the parties' intent with regard to
clause N. It therefore submitted the question to the
jury with the following instruction: “The Court has
found, as a matter of law, that the grant
assurances made by the Town to the FAA are not
rules or regulations of the FAA. They are
contractual promises made by the Town to the
United States government in exchange for the
federal funds the Town has received. However, a
question of fact remains as to whether the parties
intended the provision to include the Town's grant
assurances.”
On appeal, the Town contends that the grant
assurances were FAA rules for the purpose of
interpreting the Development Agreement and,
therefore, the trial court improperly found
otherwise, as a matter of law. We conclude that,
[*460] while grant assurances made by the Town
to the FAA may be considered “rules” of the FAA
by reference to federal statutes, the parties did not
consider that definition when entering into the
Development Agreement. The trial court properly
instructed the jury to determine the parties' intent
concerning the definition [***46] of FAA “rules.”
Instead of focusing on the parties' intent as to the
interpretation of clause N, the Town focuses solely
on federal law with respect to whether grant
assurances, in a technical sense, are “rules” of the
FAA. The Town cites the broad definition of a “rule”
in the federal Administrative Procedure Act, which
includes “an agency statement of general or
particular applicability and future effect designed to
implement, interpret, or prescribe law or policy … .”
(5 U.S.C. § 551(4).) The Town then notes that
grant assurances (1) are “ ‘agency statements of
general or particular applicability,’ ” (2) have “
‘future effect,’ ” and (3) “ ‘implement, interpret [and] prescribe law.’ ” The Town also notes that federal
law requires that, before the FAA can modify
assurances or require compliance with additional
assurances, it must give notice in the Federal
Register and provide an opportunity for comment
on the proposed change. (49 U.S.C. § 47107(h).)
(6) Even if the grant assurances fall within the
broad definition of a “rule” under the federal
Administrative Procedure Act, the task of
interpretation requires inquiry into the parties'
intent, not into a proposed technical interpretation
191 Cal. App. 4th 435, *458; 120 Cal. Rptr. 3d 797, **816; 2010 Cal. App. LEXIS 2172, ***43

[***47] of the term. (Civ. Code, §§ 1636, 1644.)
Because the court's task in interpreting a contract
is to ascertain the intent of the parties, federal law
[**818] concerning whether a grant assurance is
technically a rule of the FAA is relevant only if the
parties considered such federal law when they
entered into the contract. There is no evidence that
this was the case. Instead, the only evidence
concerning the parties' intent in this regard came
from the testimony of Terrence Ballas. He stated
that the Town inserted the provision concerning
FAA rules and regulations into the Development
Agreement. When Ballas asked town officials what
the provision meant, they stated that it was
boilerplate applicable only to the “air-side
operations of the airport.” Ballas was hesitant to
agree to clause N because he did not know what it
included, so the parties went through the specific
FAA rules applicable and included references to
those rules in the various leases executed along
with the Development Agreement. The Town never
mentioned its grant assurances in this discussion.

Thus, there is no evidence the parties intended to
include the Town's grant assurances in the term
“rules” [***48] in clause N of the contract.

Arguing against this interpretation, the Town states
that (1) the FAA expressed the opinion that the
grant assurances were FAA “rules” and the FAA's
opinion is entitled to deference and (2) we should
apply canons of [*461] statutory interpretation, not
contract interpretation, because the Development
Agreement was a legislative act. The Town is
wrong on both points.

In one of the letters to the Town concerning the
Town's compliance with the grant assurances, an
FAA official stated: “We view the Town's ability to
take corrective action to be fully within the scope of
paragraph N of Section XVIII of the Development
Agreement, which clarifies the Town's obligation to
comply with FAA rules and regulations.” Citing
authority that courts give deference to an agency's
interpretation of a statute if that statute governs the agency's powers and responsibilities (Ste. Marie v.

Riverside County Regional Park & Open-Space
Dist. (2009) 46 Cal.4th 282, 292 [93 Cal. Rptr. 3d
369, 206 P.3d 739]), the Town claims that we
should give deference to this opinion. To the
contrary, the FAA has no authority over
development agreements and no special expertise
in contract interpretation.

The Town also argues that, because adoption
[***49] of the Development Agreement was a
legislative act (Gov. Code, § 65867.5, subd. (a)),
we are required to apply canons of statutory
interpretation. This argument misconstrues the
“legislative act” language of the development
agreement statutes, which applies to the authority
of the municipality to enter into the agreement and
the power of the electorate to challenge the
agreement by referendum.
(7) “A development agreement is a legislative act
that shall be approved by ordinance and is subject
to referendum.” (Gov. Code, § 65867.5, subd. (a).)
A development agreement is treated as a
legislative act for the purpose of a challenge to the
agreement either (1) by referendum or (2) an
action concerning the municipality's authority to
enter into the agreement. In SMART, supra, 84
Cal.App.4th at pages 227 and 228, the court
summarized the effect of the “legislative act”
language. It said: “A development agreement is a
legislative act ([Gov. Code,] § 65867.5) and the
County's board of supervisors has the discretion to
determine what legislation is necessary and
appropriate. A reviewing court will not set aside a
legislative act unless it is arbitrary, capricious, or
unlawful.”
Here, the question [***50] does not concern the
validity of the Development Agreement as a
legislative act of the Town. Instead, this is an
action between the parties of the Development
Agreement concerning [**819] the interpretation of
the agreement. As to that question, the
Development Agreement is a contract between the
parties. Therefore, canons of statutory
interpretation do not apply.

C. Acknowledgement of FAA Funding (Clause B)
Section XVI(b) of the Development Agreement
(clause B) required the Developer to match FAA
funding. It stated: “[The] Town has received
191 Cal. App. 4th 435, *460; 120 Cal. Rptr. 3d 797, **817; 2010 Cal. App. LEXIS 2172, ***47

tentative [*462] commitments from the FAA for
grant funds … for the purpose of constructing
improvements at the Airport … . The terms of the
grant require that matching funds in the
approximate amount of ten percent (10%) of the
grant funds be put up by [the] Town. As further
consideration for this Agreement, Developer
agrees to and shall provide such matching funds
… .” Within one month after adoption of the
Development Agreement, the Developer supplied $
80,000 in matching funds.
“A voluntary acceptance of the benefit of a
transaction is equivalent to a consent to all the
obligations arising from it, so far as the facts are
known, or ought to be known, [***51] to the person
accepting.” (Civ. Code, § 1589.) The Town argues
that the Developer's acknowledgement of FAA
funding and participation in matching the funding
amounted to a consent to the FAA's restrictions.

This argument fails because there is no evidence
that, when entering into the Development
Agreement, or even when supplying the matching
funds, the Developer knew or ought to have known
of the grant assurances. Instead, the evidence
showed that the Town withheld from the Developer
knowledge of the FAA's reservations concerning
the Development Agreement. Under these facts,
the Developer did not consent to the grant
assurances.

III
Proof of Breach
The Town contends that the Developer failed, as a
matter of law, to establish that the Town breached
the Development Agreement. Stated differently,
the Town contends that there is no substantial
evidence to sustain the jury's verdict. The Town
asserts (A) the Developer failed to establish a
breach attributable to the Town; (B) the evidence
was insufficient to establish repudiation; (C) the
option was a unilateral contract not yet ripe for
breach; and (D) the Town retracted any
repudiation. After summarizing the law regarding
substantial evidence [***52] to sustain the verdict
finding anticipatory breach of contract, we discuss
the Town's four arguments and conclude that each
is without merit.

When we consider whether the evidence was
sufficient to support the jury's verdict, we review
the entire record in the light most favorable to the
judgment to determine whether there are sufficient
facts, contradicted or uncontradicted, to support
the judgment. (Campbell v. Southern Pacific Co.
(1978) 22 Cal.3d 51, 60 [148 Cal. Rptr. 596, 583
P.2d 121].) Substantial evidence is evidence that is
reasonable and credible. In evaluating the [*463]
evidence, we accept reasonable inferences in
support of the judgment and do not consider
whether contrary inferences may be made from the
evidence. (Kuhn v. Department of General
Services (1994) 22 Cal.App.4th 1627, 1632–1633
[29 Cal. Rptr. 2d 191].)
(8) To recover on a cause of action for breach of
contract, the plaintiff must establish (1) the
existence of a contract, (2) plaintiff's performance
or excuse for nonperformance, (3) defendant's
breach, and (4) damage to plaintiff as a result of
defendant's breach. (Regan Roofing Co. v.

Superior [**820] Court (1994) 24 Cal.App.4th 425,
434–435 [29 Cal. Rptr. 2d 413], disapproved on
another ground in Crawford v. Weather Shield
Mfg., Inc. (2008) 44 Cal.4th 541, 565 [79 Cal. Rptr.
3d 721, 187 P.3d 424].)
(9) “Anticipatory [***53] breach occurs when one
of the parties to a bilateral contract repudiates the
contract. The repudiation may be express or
implied. An express repudiation is a clear, positive,
unequivocal refusal to perform [citations]; an
implied repudiation results from conduct where the
promisor puts it out of his power to perform so as
to make substantial performance of his promise
impossible [citations].
“When a promisor repudiates a contract, the
injured party faces an election of remedies: he can
treat the repudiation as an anticipatory breach and
immediately seek damages for breach of contract,
thereby terminating the contractual relation
between the parties, or he can treat the repudiation
as an empty threat, wait until the time for
performance arrives and exercise his remedies for
191 Cal. App. 4th 435, *461; 120 Cal. Rptr. 3d 797, **819; 2010 Cal. App. LEXIS 2172, ***50

actual breach if a breach does in fact occur at such
time. [Citation.] However, if the injured party
disregards the repudiation and treats the contract
as still in force, and the repudiation is retracted
prior to the time of performance, then the
repudiation is nullified and the injured party is left
with his remedies, if any, invocable at the time of
performance. [Citations.]” (Taylor v. Johnston
(1975) 15 Cal.3d 130, 137–138 [123 Cal. Rptr.
641, 539 P.2d 425].)
As [***54] the jury was instructed in this case, “[a]
party can breach, or break, a contract before
performance is required by clearly and positively
indicating, by words or conduct, that they [sic] will
not or cannot meet a requirement of the contract,
or that they [sic] will not perform until additional
conditions not in the contract are met. [¶] If the Hot
Creek Developers prove that they would have
been able to fulfill the terms of the contract and
that the Town clearly and positively indicated, by
words or conduct, that it would not or could not
meet a requirement in the contract, then the Town
breached the contract.”
[*464]
The Developer's theory of breach, upon which it
prevailed at trial, was that the Town expressly
repudiated the Development Agreement by
refusing to move forward on the contract without
resolving the FAA's objections to the Hot Creek
Project. 5
A. Breach Attributable to Town
A 1989 resolution of the Mammoth Lakes town
council states that “no oral or written
communications or comments … by any member
of the Town Council or any other person
5 The Developer asserts that the Town breached the contract when it failed to provide requested assurances that it would meet its obligations under the contract. The Developer claims it is “hornbook law that the failure to provide reasonably requested assurances is a repudiation. [Citations.]” This assertion fails on appeal, however, because [***55] this theory was not presented to the jury by instructions at trial. (Daniels v. San Francisco (1953) 40 Cal.2d 614, 623 [255 P.2d 785] [appellate court cannot affirm based on theory not presented to jury].)
constitutes an action of the Town Council or an act
legally attributable to the Town … .” 6 Based on
this resolution, [**821] the Town claims that the
actions of town officials in repudiating the
Development Agreement cannot be attributed to
the Town. To the contrary, the actions of town
officials were an actionable repudiation of the
Development Agreement.

The Developer presented evidence that Deputy
Town Manager Long and, later, Town Manager
Clark stated, unequivocally, that the Town would
not proceed with the hotel/condominium project
until the FAA's objections to the project were
resolved. Long informed the Developer that, until
the FAA's objections were resolved, “we will be
unable to move forward with your project.” Later,
Clark again informed the Developer that the project
would not move forward without resolution of the
FAA's objections. When the Developer requested
that the Town proceed under the Development
Agreement and deal with the FAA's objections
later, Clark said that the town council would not
agree to proceeding that way because it might
derail FAA approval of expanded air service. The
Town offered no evidence to counter the
Developer's evidence that the town council
authorized the position taken by Long and Clark.

Despite this evidence, the Town maintains that any
repudiation by town officials was without force
because the town council did not vote on it. We
disagree. Neither the Town's resolution nor case
law concerning the authority [***57] [*465] of
municipal officials absolves the Town of liability for
its repudiation, even if accomplished through its
officials rather than by a vote of the town council.
6 Section four of Resolution 89-41 of the town council of Mammoth Lakes states: “The Town Council acts on behalf of the Town of Mammoth Lakes only by motion, resolution or ordinance duly adopted at a duly noticed meeting of the Town Council. Except for such a motion, resolution or ordinance, no oral or written communication or comments during the course of any Town Council meeting or at any other time by any member of the Town Council or any other person constitutes [***56] an action of the Town Council or an act legally attributable to the Town of Mammoth Lakes.”
191 Cal. App. 4th 435, *463; 120 Cal. Rptr. 3d 797, **820; 2010 Cal. App. LEXIS 2172, ***53

(10) “No government, whether state or local, is
bound to any extent by an officer's acts in excess
of his authority. [Citation.] [¶] One who deals with
the public officer stands presumptively charged
with a full knowledge of that officer's powers, and is
bound at his peril to ascertain the extent of his
powers to bind the government for which he is an
officer, and any act of an officer to be valid must
find express authority in the law or be necessarily
incidental to a power expressly granted. [Citation.]”
(Horsemen's Benevolent & Protective Assn. v.

Valley Racing Assn. (1992) 4 Cal.App.4th 1538,
1563–1564 [6 Cal. Rptr. 2d 698].)
Citing the town council's 1989 resolution, the Town
asserts that the town officials had no authority to
act on behalf of the Town. The Town states: “This
Resolution could not be more plain: Individual town
officials, including then-Deputy Town Manager
Long, have no authority to take final action on
behalf of the Town, and their written
communications, including Mr. Long's June 29
Email, are not legally attributable to the Town.”
[***58] This assertion reads too much into the
resolution. Taken to its logical extreme, this
assertion would mean that town officials cannot
buy paper clips on behalf of the Town without a
vote of the town council.
(11) We must presume the town council did not
intend an absurd result. (California School
Employees Assn. v. Governing Board (1994) 8
Cal.4th 333, 340 [33 Cal. Rptr. 2d 109, 878 P.2d
1321] [legislation interpreted to avoid absurd
results].) A more reasonable interpretation of the
resolution is that consistent with case law, which
holds that the legislative and quasi-judicial powers
of a municipality's governing council cannot be
undermined by statements of municipal officials.
(See, e.g., Katsura v. City of San Buenaventura
(2007) 155 Cal.App.4th 104, 109 [65 Cal. Rptr. 3d
762] [oral contract made by city employee not
binding on city]; Burchett v. City of Newport Beach
(1995) 33 Cal.App.4th 1472, 1479 [**822] [40 Cal.

Rptr. 2d 1] [statement of city official that owners
could obtain permit not binding on city].) The town
council adopted the Development Agreement by
ordinance. Logically and legally, the fulfillment of
the Town's duties under the Development
Agreement was left, for the most part, to town
officials. Any other conclusion would allow a
municipality to repudiate [***59] any contract by
the actions of its officials and suffer no
consequences unless the governing council voted
to repudiate.
(12) In any event, the Town's municipal code gives
further guidance concerning the authority of town
officials and supports a finding here that the town
officials acted within their authority. The executive
functions of the [*466] Town, including
cooperation with parties that have contracted with
the Town, are within the authority of the town
manager. According to the Town's municipal code,
the town manager is an executive officer, charged
with the duty to “see that all franchises, contracts,
permits and privileges granted by the town council
are faithfully observed.” (Mammoth Lakes
Municipal Code, § 2.08.060, subd. A.) Therefore,
compliance with the Town's duty to cooperate
under the Development Agreement was within the
explicit authority of the town manager. And the
refusal of the town manager and deputy town
manager to cooperate without resolution of the
FAA's objections was a repudiation of the contract.

Again raising the argument that this was a land use
decision instead of a matter of complying with the
terms of the Development Agreement, the Town
asserts that a town official [***60] cannot bind the
Town by representations concerning land use
applications. While the proposition may be true as
a theoretical statement of law (see Burchett v. City
of Newport Beach, supra, 33 Cal.App.4th at p.
1479), it is inapplicable here. The repudiation of
the contract did not result from a quasi-judicial
decision on a land use application. As noted
above, the repudiation occurred when the Town
refused to comply with the terms of the
Development Agreement to cooperate with the
Developer to achieve the ends of the Development
Agreement. While it is true that quasi-judicial
decisions on land use applications remained to be
made before the hotel/condominium project could
be completed, the Town's position, related through
town officials, was that the Town would not
191 Cal. App. 4th 435, *465; 120 Cal. Rptr. 3d 797, **821; 2010 Cal. App. LEXIS 2172, ***56

cooperate with the Developer in moving along the
hotel/condominium project without resolution of the
FAA's objections. That refusal constituted the
breach, not the exercise of any quasi-judicial
decisionmaking power. 7
B. Evidence of Repudiation
(13) The Town contends that the Town's actions
did not constitute a repudiation of the Development
Agreement. To the contrary, when viewed in the
light most favorable to the judgment, the evidence
was sufficient to establish an express repudiation.

While claiming a willingness to move [*467]
forward with the hotel/condominium project, town
officials actually refused to move forward and
actively sought to undermine the Developer's rights
under the contract.
[**823] (14) “[I]f a party to a contract expressly or
by implication repudiates the contract before the
time for his or her performance has arrived, an
anticipatory breach is said to [***62] have
occurred. [Citations.] The rationale for this rule is
that the promisor has engaged not only to perform
under the contract, but also not to repudiate his or
her promise. [Citation.]” (Romano v. Rockwell
Internat., Inc. (1996) 14 Cal.4th 479, 489 [59 Cal.

Rptr. 2d 20, 926 P.2d 1114].) “An express
repudiation is a clear, positive, unequivocal refusal
to perform. [Citations.]” (Taylor v. Johnston, supra,
15 Cal.3d at p. 137.) “Annexing an unwarranted
condition to an offer of performance is a refusal to
perform. [Citation.]” (Steelduct Co. v. HengerSeltzer Co. (1945) 26 Cal.2d 634, 646 [160 P.2d 804].)
7 At the end of its opening brief argument that the Developer failed to establish a breach attributable to the Town, the Town appends a two-sentence assertion that the trial court
“compounded its prejudicial [***61] error” by not instructing the jury using a Town-proposed jury instruction modeled after Resolution 89-41. This assertion makes no sense because the error of which the Town complains is lack of sufficient evidence, not some prejudicially erroneous action of the trial court. Because the Town makes no separate contention,
supported by authority and analysis, that the jury was
misinstructed, we need not consider further this statement in the opening brief. (See People v. Freeman, supra, 8 Cal.4th at p. 482, fn. 2; Cal. Rules of Court, rule 8.204(a)(1)(B).) Here, the Town refused to perform the
Development Agreement without prior satisfaction
of an unwarranted condition. But the Town asserts
that the way it responded to the Developer's
demands to perform the Development Agreement
did not amount to a repudiation for three reasons:
(1) compliance with FAA rules and regulations was
mandated by the Development Agreement in
clause N, (2) the Town offered to perform the
Development Agreement according to its own good
faith interpretation of the agreement, and (3) the
Town demonstrated its intention to be bound by
the Development Agreement. In connection with
this argument, the Town also claims [***63] that
(4) the trial court erred by allowing the jury to find
that the Town repudiated the Development
Agreement by entering into inconsistent contracts.

1. Compliance with FAA Rules and Regulations
We have already rejected the Town's first
argument. Clause N, relating to FAA rules and
regulations, was inapplicable to the grant
assurances the Town made to the FAA.

2. Good Faith Interpretation of Contract
The Town's second argument fails because the
theory was not proffered to the jury and the
evidence, properly viewed on appeal, does not
support it. The Town cites a federal court opinion
for the proposition that, as long as a party to a
contract offers to perform a contract according to
its own good faith understanding of the contract,
there is no repudiation, even if the party's
understanding is incorrect. (Pacific Coast
Engineering Co. v. Merritt-Chapman & Scott Corp.
(9th Cir. 1969) 411 F.2d 889, 894.) Citing other
federal authority, the federal court stated:
“Generally, when there is a [*468] disagreement
as to the meaning of terms in a contract, one
party's offer to perform in accordance with his
interpretation is not itself an anticipatory breach.

Lowenstein v. Federal Rubber Co., 85 F.2d 129
[***64] (8 Cir. 1936). If the offer appears to be
made in the good faith belief that the offeror's
interpretation is correct, that will be evidence of his continued adherence to the agreement. Mobley v.

New York Life Insurance Co., 295 U.S. 632, 638
191 Cal. App. 4th 435, *466; 120 Cal. Rptr. 3d 797, **822; 2010 Cal. App. LEXIS 2172, ***60

[79 L.Ed. 1621, 55 S. Ct. 876] (1935); Kimel v.

Missouri State Life Insurance Co., 71 F.2d 921,
923 (10 Cir. 1934); Milton v. H. C. Stone Lumber
Co., 36 F.2d 583, 588 (S.D.Ill. 1928), affirmed 36
F.2d 589 (7 Cir. 1929).” (Pacific Coast Engineering
Co. v. Merritt-Chapman & Scott Corp., supra, 411
F.2d at p. 894.)
(15) We reject the Town's reliance on this defense
of good faith contract interpretation because the
Town did not proffer this theory to the jury. (See
Panopulos v. Maderis (1956) 47 Cal.2d 337, 340–
341 [303 P.2d 738] [party may not raise [**824]
new theory on appeal]; Durkee v. Chino Land &
Water Co. (1907) 151 Cal. 561, 569 [91 P. 389]
[defendant cannot raise new theory of defense on
appeal].) In any event, the evidence does not
support the Town's claim that it desired to comply
with the Development Agreement in good faith.

While asserting that the Town was willing to abide
by the terms of the Development Agreement, town
officials were actively working with the FAA to
terminate [***65] the Developer's right under the
Development Agreement to build the
hotel/condominium project.

3. Intent to Be Bound by Contract
Likewise, the Town's third argument also fails
because it is not supported by the evidence,
properly viewed. The Town demonstrated its
intention not to be bound by the Development
Agreement. It actively refused to cooperate and
sought to have the Developer's rights terminated.

4. Repudiation Based on Inconsistent Contracts
The related argument that the trial court erred by
allowing the jury to find that the Town repudiated
the Development Agreement by entering into
inconsistent contracts finds no support in the
record.

The Town states: “The trial court committed
prejudicial error for a number of reasons when it
directed the jury to make a finding on an inapposite
theory of ‘inconsistent contracts,’ under which the
Town could be found liable for repudiating the
[Development Agreement] by virtue of having
accepted federal airport funding and thereby
subjected itself to FAA's grant assurance
requirements.”
[*469]
A more careful reading of the jury instruction at
issue reveals that the court did not allow the jury to
base a finding of repudiation on the Town's
formation of [***66] inconsistent contracts. Instead,
the instruction merely informed the jury that a party
cannot rely on its assent to one contract to justify
breach of another, inconsistent contract. 8 That is
not a theory of liability; instead, it is a limitation on a defense. Therefore, contrary to the Town's
assertion, the jury was not directed to base a
finding of repudiation on a theory of inconsistent
contracts.

C. Breach of Unilateral Contract
The Town contends that the Developer's argument
that the Town repudiated the purchase option for
the land on which the hotel/condominium project
would be built fails as a matter of law because a
purchase option is a unilateral contract to which
the theory of anticipatory breach does not apply.
(See Diamond v. University of So. California (1970)
11 Cal.App.3d 49, 53 [89 Cal. Rptr. 302]
[anticipatory repudiation does not apply to
unilateral [***67] contracts].) This is simply an
attempt by the Town to recharacterize the action
as one for breach of the purchase option rather
than breach of the Development Agreement—a red
herring designed to divert attention away from the
applicable theory of recovery. The attempt is
unsuccessful. The theory proffered to the jury was
that the Town repudiated the Development
Agreement, not just the purchase option. And the
Town makes no attempt to establish that the
Development Agreement was a unilateral contract.
[**825] D. Evidence of Retraction of Repudiation
8 The court instructed: “There are times when a party enters into two inconsistent or mutually exclusive contracts. This occurs when performance of one contract will by necessity require a breach of the other contract. In those circumstances, it is not an excuse to performance of one contract that the party chose to perform the other contract.”
191 Cal. App. 4th 435, *468; 120 Cal. Rptr. 3d 797, **823; 2010 Cal. App. LEXIS 2172, ***64

(16) The Town argues that, even if deputy town
manager Long's June 29, 2004 e-mail can be
considered a repudiation of the Development
Agreement, Town Manager Clark's letter two
weeks later retracted the repudiation. (See Sackett
v. Spindler (1967) 248 Cal.App.2d 220, 231–232
[56 Cal. Rptr. 435] [repudiation nullified if timely
retracted].) However, Clark's letter is not a clear
retraction. While it professes the Town's
willingness to work with the Developer on FAA
compliance issues, it does not offer to move
forward with the hotel/condominium project without
first resolving FAA compliance issues.
(17) Halfway through the single paragraph in the
Town's opening brief arguing that [***68] it
retracted any repudiation of the Development
Agreement, the [*470] Town claims that the trial
court also erred by not instructing the jury on
retraction. We need not consider this separate
argument appended as it is to another argument.
(Cal. Rules of Court, rule 8.204(a)(1)(B).)(18) In
any event, the Town fails to provide a citation to
the record where the Town requested what it
contends would have been a proper instruction on
retraction. (Null v. City of Los Angeles (1988) 206
Cal.App.3d 1528, 1535 [254 Cal. Rptr. 492] [to
complain of failure to instruct, party must have
requested proper instruction].) Therefore, the Town
forfeited review of this issue on appeal.

IV
Damages Award
After obtaining many benefits from the
Development Agreement, including the
Developer's airport improvements, the Town
repudiated the Development Agreement. The jury
awarded the Developer $ 30 million for the breach.

On appeal, the Town contends that evidence of
damages was too speculative to support the jury's
award. We conclude that the evidence was not too
speculative to support the jury's award.
(19) “ ‘Where the prospective profits are the natural
and direct consequences of the breach of the
contract they may be recovered. Profits are part
[***69] and parcel of the contract itself, entering
into and constituting a portion of its very element;
something stipulated for, the right to the enjoyment
of which is just as clear and plain as to the
fulfillment of any other stipulation. They are
presumed to have been taken into consideration
and deliberated upon before the contract was
made, and formed, perhaps, the only inducement
to the arrangement. [Citation.] Damages consisting
of the loss of anticipated profits need not be
established with certainty. It is sufficient that it be shown as a reasonable probability that the profits
would have been earned except for the breach of
the contract. [Citations.]’ ” (Nelson v. Reisner
(1958) 51 Cal.2d 161, 171–172 [331 P.2d 17],
quoting James v. Herbert (1957) 149 Cal.App.2d
741, 749 [309 P.2d 91].)
Under this standard, we must determine whether
the Developer presented evidence sufficient to
establish a reasonable probability that it would
have realized a $ 30 million profit on the
hotel/condominium project if the Town had not
breached the Development Agreement. In this
inquiry, we construe the evidence in the light most
favorable to the judgment. We draw every
reasonable inference and resolve every conflict in
support of [***70] the judgment. (Campbell v.

Southern Pacific Co., supra, 22 Cal.3d at p. 60.)
[*471]
A. Evidence of Damages

1. Town Manager's Estimate of Value of Purchase
Option
As noted in the facts above, Town Manager Clark
wrote an e-mail to town staff in [**826] which he
noted that the Developer valued the purchase
option at about $ 20 million. Even with the prospect
of litigation over the Town's breach of the
Development Agreement, Clark appears to have
rejected the alternatives of eminent domain
proceedings or negotiations with the Developer
because the Town, in Clark's words, did not have
“$10 to $20 million in spare change.” In testimony
at trial, Clark said that town officials “didn't know
how much it would cost, but we speculated it would
be in that range.”
191 Cal. App. 4th 435, *469; 120 Cal. Rptr. 3d 797, **825; 2010 Cal. App. LEXIS 2172, ***67

2. Part-owner's Estimate of Value
During the trial, Mark Rosenthal, one of the
investors in the Developer, testified. Rosenthal was
president of a company that participated in various
real estate ventures, including as developer,
manager, and owner. His experience included
development or redevelopment of several hotels.

When determining whether to purchase an interest
in the hotel/condominium project, Rosenthal
considered strategies to eventually exit the
[***71] investment. He believed that the
hotel/condominium project could be sold for $ 30
million to $ 40 million if the uncertainties with the
Town and the Development Agreement were
cleared up.

3. Expert Evidence Concerning Value of the
Hotel/Condominium Project in 2004
The bulk of the evidence concerning damages
came from Richard Maurice Robinson, an expert
retained by the Developer. Robinson is a certified
general real estate appraiser and has 20 years of
experience in appraising hotels and resorts. He
consults with municipalities to bring in high-end
hotels. In this process, he customarily makes
projections concerning the cost and profit of such
hotels. He teaches complex valuation techniques
at the University of California, Berkeley.

Based [***72] on the plans for the
hotel/condominium project and the bids from
architectural and construction companies,
Robinson assumed that it would cost about $ 168
million to build the hotel/condominium project. In
addition to the architectural and construction costs,
Robinson estimated that the Developer would incur
costs of about $ 45 million for sales and about $ 9
million for financing. Thus, his estimate for the total cost of the project was about $ 220 million.
[*472]
Robinson also estimated the amount of income to
be generated by the project. After studying other
similar projects, he calculated a likely price at
which the individual units would sell if marketed, as
the Developer intended, as a residential
development. He added a premium to the price for
the advantages of this particular property, but then
he discounted the price by 30 percent because of
its location at the airport. After taking into account
other characteristics of the project, such as the
fractional (timeshare) nature of the sales, the intent
to associate with a major brand, and the pace at
which the units would sell, Robinson estimated a
total selling price of $ 350 million for the entire
project.

Subtracting the cost of the [***73] project from the
income to be generated from the sale of the
condominium units, Robinson projected a total of
about $ 130 million in profit over the life of the
project.

In addition to this projected net profit from the sale
of the condominium units, Robinson estimated
that, once the project was fully built and stabilized,
it would generate $ 2.2 million net income per year
from the Developer's management of the property,
including renting units out when the owners were
not occupying them. He arrived at this number
using industry standards and guidelines for this
type of valuation and rental conditions specific to
the Mammoth area.
[**827] Robinson concluded that, over the life of
the project, the hotel/condominium would result in
about $ 160 million in total profits for the
Developer. To arrive at a current (“current”
meaning 2004, when the Town breached the
Development Agreement) value of the
hotel/condominium project, Robinson factored in
the risks of eventually realizing that profit from a
project that had not yet been built. Having done so,
Robinson estimated that the 2004 value of the
hotel/condominium project was $ 37 million to $ 48
million.

4. Order Denying Motion for New Trial
After [***74] the jury's verdict awarding $ 30 million
to the Developer, the Town moved for a new trial,
asserting, among other things, that the evidence
did not support the damages award. The trial court
denied the motion. However, in doing so, the court
stated: “[W]ere the question of damages
predicated solely on the testimony of Mr.
191 Cal. App. 4th 435, *471; 120 Cal. Rptr. 3d 797, **826; 2010 Cal. App. LEXIS 2172, ***70

Robinson, I would grant a motion for new trial
based on the issue of damages, not only for the
issues outlined by [counsel for the Town] but also
other concerns I had at the time as the testimony
came in. However, as is pointed out by [counsel for
the Developer], an owner of the property can opine
a value of property, and although Mr. Rosenthal
did insert a caveat in his discussion of the sale on
the order of $ 30 [million] to [*473] $ 40 million,
there was enough basis with that and the various
and sundry assessments made by the Town itself
as to a condemnation value to justify a jury verdict.

So although I would have reached a different
verdict, that is not the standard I use, and I do not
find there was a basis, therefore, for setting aside
the damages award. So the motion for new trial will
be denied.”
B. Analysis

1. Sufficiency of Evidence
Before we consider the Town's [***75] contention
that the evidence of lost profits was too
speculative, we must address an argument by the
Town concerning the presumption that the verdict
is correct. The Town asserts that the trial court's
comments on the evidence of damages made
during the hearing on the motion for new trial are
significant on appeal. The court stated that it would
have granted the motion for new trial had
Robinson's testimony been the only evidence of
damages. The Town claims that the court's
comments are entitled to “substantial deference.”
That is incorrect. We defer to the trial court's
factual determination when the court grants a
motion for new trial, not when the court denies
such a motion. When the court denies the motion,
we presume the jury's verdict is correct. (See Lane
v. Hughes Aircraft Co. (2000) 22 Cal.4th 405, 412
[93 Cal. Rptr. 2d 60, 993 P.2d 388] [presumption of
verdict's correctness replaced by deference to trial
court's factual determinations when court grants
motion for new trial].)
The Town asserts that the evidence does not
support a $ 30 million damages award. 9
9 The Town attacks the Developer for mentioning that the Concerning the expert testimony from Robinson,
the Town contends that his opinion of the 2004
value of the hotel/condominium project was too
speculative [***76] and fails to support the jury's $
30 million damages verdict because Robinson's
calculations involved too many assumptions and
contingencies. To the contrary, despite the
assumptions and contingencies stated in
Robinson's testimony, the evidence was [**828]
sufficient to show a reasonable probability that the
profits would have been realized except for the
breach of the Development Agreement. (See
Nelson v. Reisner, supra, 51 Cal.2d at pp. 171–
172.)
The Town argues that Robinson made the
following assumptions: (1) all necessary permits
would be obtained, (2) environmental review would
be completed, (3) estimated construction costs
provided by the Developer were accurate, (4) the
project would be built within the estimates, (5) the
[*474] Developer would successfully obtain
financing, (6) the Developer would successfully
associate with a major brand, and (7) the
[***77] mix of project units could be sold within the
timeframe and at projected prices.

The assumptions used by Robinson were
intentionally conservative. They were reasonable,
based on Robinson's knowledge of the industry
and experience in valuing hotel projects. ((1) &
(2).) The necessary permits and environmental
review were simply a matter of forging onward with
the project. There is no evidence that the
Developer could not obtain the permits and review.
((3) & (4).) The estimated costs of construction
were based on actual bids submitted to the
Developer. (5) There was evidence that the
Developer was in the process of successfully
obtaining the required financing. (6) Robinson
testified that associating with a major brand would
not be hard, saying “[b]rands love these projects.”
And (7), concerning the timeframe for selling all the
Developer spent $ 15 million to $ 17 million on airport improvements. The Town asserts that the Developer has been able to profit from those improvements. To be clear, the Developer is not claiming the $ 15 million to $ 17 million expended on airport improvements as damages in this case. 191 Cal. App. 4th 435, *472; 120 Cal. Rptr. 3d 797, **827; 2010 Cal. App. LEXIS 2172, ***74

units, Robinson looked at the rate at which similar
properties sold and then reduced it to give a
conservative estimate of seven years. This
evidence, though predictive, was not speculative.

The Town attacks the discounting of the total
estimated profits ($ 160 million) to determine a
current (2004) value of the project ($ 37 million to $
48 million). It contends that this [***78] process
merely “applied additional speculative assumptions
on top of Robinson's flawed lost profits
projections.” (Original italics, fn. omitted.) The
Town cites Parlour Enterprises, Inc. v. Kirin Group,
Inc. (2007) 152 Cal.App.4th 281 [61 Cal. Rptr. 3d
243] (Parlour Enterprises) to support this
contention. Neither the contention nor the citation
to Parlour Enterprises is persuasive.

Robinson applied accepted valuation principles,
factoring in the risks associated with a project yet
to be undertaken and reducing the profits projected
to be earned over the life of the project to arrive at
a current value. The Town's labeling of the
accepted practice as including “speculative
assumptions” is insufficient to establish that
Robinson's estimate of current value was
unreasonable.

In Parlour Enterprises, the appellate court reversed
the bulk of damages awarded in favor of a
franchisor who sued a franchisee for failure to
open ice cream parlors as required by their
agreement. (Parlour Enterprises, supra, 152
Cal.App.4th at pp. 283–284.) The court's opinion
does not reveal the extent of the experience and
expertise of the franchisor's damages expert. In
any event, the appellate court noted that the
franchisor's profit projections formed the basis
[***79] for the expert's analysis. (Id. at p. 285.)
Those projections, however, were unsupported by
the evidence. There was no evidence that whoever
made the projections had experience or expertise
in predicting income, expenses, or profits. (Id. at
pp. 289–290.)
[*475]
Here, unlike in Parlour Enterprises, there was
evidence to support the projections given to and
the assumptions made by Robinson. The costs to
build the project were based on bids and standard
costs. And the potential sales were based on
comparable developments, with the [**829] sales
adjusted down because of the specific
characteristics of this project. Therefore, Parlour
Enterprises is distinguishable because Robinson's
testimony was based on professional expertise
developed over two decades of hotel and resort
valuation, as well as reliable evidence and
assumptions.
(20) The Town also argues that Robinson's
testimony concerning the current value of the
project is insufficient to support the verdict because
there was no evidence that a willing buyer existed.

Such evidence, however, is unnecessary to
support a damages award in this context. Lost
profits may be proved by means other than the
value given by a willing buyer. Expert testimony,
alone, [***80] may be sufficient if it is supported by
substantial evidence and is not speculative. (Kids'
Universe v. In2Labs (2002) 95 Cal.App.4th 870,
885 [116 Cal. Rptr. 2d 158].)
Robinson testified at length concerning the
discount of the lost profits to estimate a current
value. In order to induce a buyer to take on the
risks of an unfinished project—risks such as cost
overruns, slow sales, or a drop in prices—it would
be necessary to set a current value well below the
amount of lost profits over the life of the project.

Robinson testified concerning the risks and
discounts associated with those risks. While he did
not testify that there was a ready and willing buyer,
he confirmed that the discounted price was a price,
in his experience, that “somebody would pay.”
Therefore, Robinson's testimony, giving the project
a current value of $ 37 million to $ 48 million, was
sufficient to sustain the $ 30 million damages
award. But his was not the only testimony
concerning damages.

As did the trial court, we recognize that evidence
concerning the amount of damages came from the
town manager and one of the Developer's
investors. However, the Town asserts that the
evidence from those sources also does not support
the $ 30 [***81] million damages award. We
191 Cal. App. 4th 435, *474; 120 Cal. Rptr. 3d 797, **828; 2010 Cal. App. LEXIS 2172, ***77

disagree. The testimony from the investor supports
the award, and the evidence of the town manager's
statement supports the award to the extent of the
statement ($ 20 million).
(21) An owner of property is generally considered
competent to estimate or offer a lay opinion of the
property's value. (Evid. Code, § 813, subd. (a)(2);
Sacramento & San Joaquin Drainage Dist. v.

Goehring (1970) 13 Cal.App.3d 58, 64 [91 Cal.

Rptr. 375].) “In stating an opinion as to the value of
his property, an owner is bound by the same rules
of admissibility as is any [*476] other witness.
[Citation.]” (Sacramento & San Joaquin Drainage
Dist., supra, at p. 65.)
Rosenthal was experienced in developing,
managing, and owning real estate and had
developed and redeveloped hotels. As a partowner of the Developer, he expressed his opinion that, based on his experience and his review of the
hotel/condominium project, the project could be
sold for $ 30 million to $ 40 million. This evidence
supported the jury's verdict.

Finally, the town manager apparently agreed with a
statement that the purchase option, alone, was
worth $ 10 million to $ 20 million. This was also
evidence that had a tendency to prove the value of
the project. [***82] Although it may not have been
sufficient by itself to support the damages award, it
helped to establish the reasonableness of the rest
of the evidence concerning the value of the project.

Accordingly, we conclude that there was
substantial, nonspeculative evidence that the
Developer sustained $ 30 million in damages as a
result of the Town's breach of the Development
Agreement.
[**830] 2. Forfeiture of Taxpayer Funds
(22) In an argument raised for the first time in its
reply brief, the Town claims that the damage award
amounts to an invalid forfeiture of taxpayer funds.

The Town forfeited this argument by failing to raise
it in a timely manner. (Murray Co. v. Occupational
Safety & Health Appeals Bd. (2009) 180
Cal.App.4th 43, 54, fn. 5 [102 Cal. Rptr. 3d 513].)
V
Attorney Fees
After judgment was entered, the trial court ordered
the Town to pay the Developer $ 2,361,130 in
attorney fees based on a provision of the
Development Agreement providing for attorney
fees to the prevailing party in a legal action. The
Town separately appealed the attorney fees
award.

The Town states that, if we reverse the judgment in
favor of the Developer, we must also reverse the
attorney fees award, which was based on the
Developer's status as the [***83] prevailing party.

Because we affirm the judgment, and the Town
makes no argument for reversing the attorney fees
award other than reliance on reversal of the
judgment, we also affirm the award of attorney
fees.
[*477]

DISPOSITION
The judgment and the order awarding attorney
fees are affirmed. The Developer (plaintiff) is
awarded its costs on appeal. (Cal. Rules of Court,
rule 8.278(a)(1).)
Ray, P. J., and Scotland, J.,* concurred.

Appellant's petition for review by the Supreme
Court was denied March 23, 2011, S190463.

End of Document
* Retired Presiding Justice of the Court of Appeal, Third Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
191 Cal. App. 4th 435, *475; 120 Cal. Rptr. 3d 797, **829; 2010 Cal. App. LEXIS 2172, ***81

1 From: Sebastian Rucci <[email protected]>
Sent: Monday, January 8, 2024 11:33 AM
To: Jessica Guillen
Cc: [email protected]; Daffodil Tyminski; [email protected]; Alfonso Noyola; Stephanie Arechiga; Juan Arauz; Joshua Calhoun; Cecilia Madrigal Subject: Re: Cuper Development LLC: 4916 Cecilia Street Unit A Follow Up Flag: Follow up
Flag Status: Flagged
Dear Senior Planner, Cecilia Madrigal-Gonzalez :

As I mentioned in my letter of January 5, 2024, you received a copy by email; the Cannabis Operators Gave the City Notice of Default and provided 30 days to cure the default. As noted in that letter, the review hearing scheduled today for January 8, 2024, is a breach of the development agreements.

Your prior email and letters that the “review hearings” by the City with a city manager appointed “hearing officer” to determine compliance with “Section 19 of the agreement” violated § 19, which requires that “the City Council shall review this agreement annually.” (Dev. Agmt. § 19(a)). The municipal code similarly provides for “periodic review of an applicant’s compliance with the terms of the development agreement at least once every 12 months.” (CMC §

20.84.600). State law similarly requires “periodic review at least every 12 months” to “demonstrate good faith compliance.” (Gov. Code § 65865.1).

The development agreements provide that “the City Council shall review this agreement annually.” (Dev. Agmt. § 19(a)).

State law also requires “periodic review at least every 12 months” before the local agency, i.e., the City (Gov. Code § 65865.1); notwithstanding this clear demand on the City to hold the hearing before the City Council, the City elected to set the first review hearing in 68 months but sent out notices of hearing letters which give notice that the city manager appointed a “hearing officer for a review hearing” to determine compliance with “Section 19 of the agreement” to allow operators to demonstrate their “good faith compliance” with the development agreement. The handpicked hearing officer by the city manager is not the same as the City Council, and the notice of hearings violates the development agreements.

As you may recall, on December 14, 2023, I emailed you that my office would “present the cannabis operator’s position [at the review hearing], preferably at a hearing before the City Council.” On December 29, 2023, I received your letter stating that the operator's “failure to confirm your appearance at the January 8, 2024 review hearing, you have waived your right to present evidence at and otherwise participate at the review hearings.” Setting aside that the hearing is patently defective, or that I emailed twice to state that I would represent the cannabis operator's position, the development agreement provides that “at the time and place set for the review hearing, the operator shall be given an opportunity to be heard.” (Dev. Agmt. § 19(d)). The right to be heard is at the time of the hearing, not before. Hence, this is a further breach of the development agreement.

These defects are most important because “the City Council shall review this agreement annually” to “ascertain operator’s good faith compliance with this agreement.” (Dev. Agmt. § 19(a)). The municipal code and state law also mandate this. The City overlooks that at the annual review hearings, the “operator shall document any request for an extension of the term due to delays beyond the control of the operator (see § 23(i) force majeure).” (Dev. Agmt. § Some people who received this message don't often get email from [email protected]. Learn why this is important Attachment JPage 3821 of 4584
2 operators a forum to present city-caused delays and closures and receive a waiver of fees for these delays. Sadly, the many delays caused by the City over the past five years have been overlooked, and the present defective review hearing appears to continue this.

The City promised to hold its first review hearing 55 months ago, the second 43 months ago, the third 31 months ago, the fourth 19 months ago, and the fifth seven months as of the date of this Notice. However, the City refused to hold a single hearing for 68 months, preventing any review of its delays in breach of §§14(a), 19(a), and 23(i).

As noted in my letter on January 5, 2024, the City contractually agreed that the operator could not “compel [the review] hearing” and further agreed that “no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). A defective hearing does not advance these many contractual promises before a city managerappointed hearing officer. By the way, the municipal code does permit hearings by a city manager-appointed hearing officer to review the permit. However, since the cannabis operators have been prevented from opening, there is nothing for the hearing officer to review regarding operations. Instead, the hearing officer is purporting to review the operator's compliance with illegal and disputed fees as a pretext for revocation. The implications of this are detailed in the January 5, 2024 letter.

So, if the City decides to proceed with the defective hearing today, please submit my detailed letter of January 5, 2024, as evidence of its defect. If the City has decided to withdraw the patently defective hearing, please forward a letter to me regarding that decision. I fully understand others are directing you to proceed as you did. However, as a senior official of the City, compliance with the development agreements falls on everyone at the City with authority. Thank you.

Respectfully submitted,
Law Office of Sebastian Rucci, P.C.

Sebastian Rucci
16400 Pacific Coast Highway, Suite 212
Huntington Beach, CA 92649
Phone: (562) 901-0199
Fax: (562) 249-6910
Email: [email protected]
On Fri, Dec 29, 2023 at 5:29 PM Jessica Guillen <[email protected]> wrote:

To whom it may concern:

Please find the attached letter regarding the scheduled Review Hearing on January 8, 2024.

Respectfully,
Jessica Guillen
Assistant Planner
City of Cudahy
5220 Santa Ana Street
Cudahy, California 90201
Tel: 323.773.5143 ext. 229
www.cityofcudahy.com
19(a)). The annual review hearings under § 19(a) incorporated force majeure delays under § 23(i), which gave the

2

LAW OFFICE OF SEBASTIAN RUCCI, P.C.
16400 Pacific Coast Highway, Suite 212
Huntington Beach, CA 92649
Phone: (562) 901-0199
Fax: (562) 249-6910
[email protected]
March 18, 2024
City of Cudahy Planning Commission
Krystal Markovich, Chair
Yessica Alvarez, Vice-Chair
Richard Corvera-Hernandez, Commissioner
Erica Dominguez, Commissioner
5220 Santa Ana Street, Cudahy, California 90201
RE: DEFECTS IN MAY 18, 2024 HEARING TO REVOKE DEVELOPMENT AGREEMENTS Dear Planning Commission:

Our office represents Daniel and Goliath, LLC; Genius Distribution, LLC; Davina, LLC and Herbal Dragon, LLC which are scheduled for an illegal revocation of their development agreements, as stated herein, it is suggested that you table this recommendation by your staff and refrain from taking any action to recommend revocation.

On January 5, 2024 our office sent a letter to the City of Cudahy to cure multiple defects of the City’s actions under the development agreements, including the illegal action to revoke the development agreements. After waiting 30 days, and without even a scintilla of a response, our office sent a letter on February 5, 2024, informing the City we were proceeding with litigation. Copies of both letters are attached. Since then, our office has prepared a draft complaint against the City and various individuals for breach of the development agreements.

At today’s hearing the Planning Commission is being asked to continue the breach of the development agreement by revoking the development agreement the City entered into with Daniel and Goliath, LLC; Genius Distribution, LLC; Davina, LLC; and Herbal Dragon, LLC.

Please make this letter part of the planning commission’s record of these proceedings. As explained below, considering the clear breach of any action by the Planning Commission you should table this issue until these issues are litigated in court. That is the procedure which the City contracted with in each of the development agreement, and nothing is gained by revoking the development agreements at this time. The Planning Commission’s actions proposed by your staff is itself a breach of the development agreements.

Attachment KPage 3824 of 4584
The Under Section 14, titled “Defaults and Remedies,” the City’s “failure” to cure within 30-days “shall constitute a default.” (Dev. Agmt. § 14(a)). “After notice and expiration” of the 30 days to cure, the cannabis operators “may institute legal proceedings.” (Id.) The City contractually agreed in the development agreements that its promises “shall survive beyond the terms of the present Council members, that this Agreement will serve to bind the City and future Councils to the obligations hereby undertaken.” (Dev. Agmt.

Recital M). The City also agreed “after notice and expiration of the 30 days” to cure its default, that the cannabis operators “may institute legal proceedings” and “nothing contained herein shall modify or abridge the operator’s rights or remedies (including its rights for damages, if any) resulting from bad faith intentional acts, the grossly negligent or malicious acts of the City and its officials, officers, agents, and employees.” (Dev. Agmt. § 14(a)).

The City contractually agreed 68 months ago not to charge fees if the City delayed the construction or shut the project down. The “Force Majeure” clause promised that unforeseen events, including “local, state or national emergencies” or “any default by the City” which “substantially interferes with the development, construction or operation of the project,” will entitle the operator to “an extension of time.” (Dev. Agmt. § 23(i)). There are no fees during any period of City caused delays or closures caused by the City.

The City also contractually agreed that any “delay” to “perform” its promises “shall constitute a default.” (Dev. Agmt § 14(a)). Therefore, under § 23(i), “any default by City” which “substantially interferes” with the project will entitle the operator to an “extension of time.” (Dev. Agmt. § 23(i)). The City is in default for its demand for fees for City-caused delays and closures caused by the City under § 14(a) and § 23(i).

The City contractually agreed that “the City Council shall review this agreement annually” to “ascertain operator’s good faith compliance with this agreement.” (Dev. Agmt. § 19(a)). The annual review hearings provided that at the hearing, the “operator shall document any request for an extension of the term due to delays beyond the control of operator (see § 23(i) force majeure).” (Dev. Agmt. § 19(a)). The annual review hearings under § 19(a) incorporated force majeure delays under § 23(i), which gave the operators a forum to present city-caused delays and closures and receive a waiver of fees for these delays.

The City agreed that the operators could not “compel [the review] hearing” and further agreed that “no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). During the past 70 months, since the development agreements were executed by the City, the City refused to hold a single hearing for 68 months, preventing any review of its delays in breach of §§14(a), 19(a), and 23(i).

March 18, 2024 Letter to Planning Commission (Illegal Development Agreement Revocation). . . . . . . . . PAGE 2

A brief example of the fees that are being imposed by the City include fees during the caronavirus pandemic. The Operators were shut down for 453 days (15 months) from March 19, 2020, when the shelter-in-place orders started, through June 15, 2021, when the shelter-in-place ended. For 15 months, the Operators could not perform any legal construction.

Nonetheless, the City demanded $511,140 in fees during the 15-month closure ($28,560 monthly for operating fees and $66,668 per year for community benefit fees). The City’s demand for fees during the closures is a patent breach of its contractual promises under section 23(i).

The imposition of fees during the pandemic closure is compounded by the lengthier delays by City consultants who revised approved plans in breach of the incorporated site and floor plans: “The operator’s site plan and floor plan for the facility are attached hereto as Exhibit D and incorporated into the application.” (Dev. Agmt. § 3(a)). The “cannabis permit application” and detailed construction plans were also incorporated. (Dev. Agmt. § 1(d)). These delays breached the agreement that the “Operator shall receive priority processing for any corresponding City permits.” (Dev. Agmt. Recital F). The City agreed the “project shall vest” (Dev. Agmt. Recital N) and the “Operator may operate cannabis-related activities.” (Id. § 4(a)).

The plan approval delays were compounded by construction delays by City consultants.

These delays are not found in the development agreements and therein constitute a breach of the agreements which incorporated the construction procedure: “During any on-site construction” for the “remodeling of existing buildings, operator shall comply with all applicable conditions of City’s standard conditions for construction, attached and incorporated as Exhibit F.” (Dev. Agmt. § 13). The operators agreed to comply with the “construction requirements contained” in the agreement. (Id. § 1(d)).

The City Council contractually agreed to review City caused delays. However, the City steadfastly refused. Since these reviews were being blocked by City staff, the operators wrote to City Manager Noyola and presented documentation of the delays. City Manager Noyola agreed that the “documentation of disruptions and difficulties with business development and/or operations caused by the pandemic impacted your business operations for a portion of the time past due fees have accrued.” Notice that “and/or” refers to delays and/or closures from the pandemic.

However, instead of removing fees for City caused delays, City Manager Noyola continued to demand the fees and used various illegal tactics to extort payment of these fees.

In the words of City Manager Noyola, the operators “will remain in default status on its development agreement until all past due fees . . . have been paid.” The default status prevented any construction work for failing to pay illegal fees and violated the agreements.

March 18, 2024 Letter to Planning Commission (Illegal Development Agreement Revocation). . . . . . . . . PAGE 3

Since the fees are not due, placing the Operators in default for any “delay” by the City to “perform” its promises “shall constitute a default.” (Dev. Agmt § 14(a)). The 90-day conditional occupancy permit for paying fees violates the promise that the agreements “vest certain rights in the operator.” (Dev. Agmt. Recital B), that “the operator’s land use entitlements for the project shall vest” (Dev. Agmt. Recital N), and that “the operator may operate cannabis-related activities.” (Dev. Agmt. § 4(a)).

It should be readily apparent if the fees during the pandemic closures, the fees for redesign delays and construction delays, are not owed, then the Operator’s payments makes them current. The City seeks to leverage a plethora of breaches to secure illegal fees. As explained in the attached letter to cure, any action by City officials, officers or personel will support civil RICO claims for individual liability and is permitted by the City’s agreement that the operators may pursue “damages from bad faith intentional acts, the grossly negligent or malicious acts of City and its officials, officers, agents, and employees.” (Dev Agmt § 14(a)).

The Planning Commission is being asked at its meeting on March 18, 2024, to make a finding that Daniel and Goliath, Genius Distribution, Davina, and Herbal Dragon, are in breach of the development agreements for their failure to pay fees. However, at no time prior to this date, has the City provided the annual review or listened to the Operators please that the fees are incorrect. After all, it takes little knowledge of the law to discern that the fees during the pandemic are improper. All of these issues over the fees will be addressed in court. The fact that the City is flatly wrong is best evident by its silence to addressing the opportunity to cure of the 30 day letter provided above. In my opinion, your best course of action is to table this matter until you are provided a definitive letter from the City’s attorney that you are indemnified by any actions in proceeding to a revocation that on its face is a breach of the very development agreement’s that you cite as a reason to make the very revocation you are being asked to make.

If you proceed, you will have to explain your actions in court as a defendant to a civil RICO claim. This is explained in detail the notice to cure letter, its an area of law in which our office specialized and said very simply, if you are revoking the development agreements because the City seeks illegal fees, then this is extortion, and supports predicate acts of mail fraud and wire fraud, permitting claims of civil RICO against you in your personal capacities.

Again, please make this letter, and the two attachments part of your record for the May 18, 2024 Planning Commission hearing. Thank you.

Respectfully submitted,
LAW OFFICE OF SEBASTIAN RUCCI, P.C.

Sebastian Rucci
March 18, 2024 Letter to Planning Commission (Illegal Development Agreement Revocation). . . . . . . . . PAGE 4

LAW OFFICE OF SEBASTIAN RUCCI, P.C.
16400 Pacific Coast Highway, Suite 212
Huntington Beach, CA 92649
Phone: (562) 901-0199
Fax: (562) 249-6910
[email protected]
January 5, 2024
City of Cudahy
5220 Santa Ana Street
Cudahy, California 90201
Mayor, Jose R. Gonzalez ([email protected])
Vice Mayor, Elizabeth Alcantar ([email protected]) Councilmember, Daisy Lomeli ([email protected]) Councilmember, Martin U. Fuentes ([email protected]) Councilmember, Dr. Cynthia Gonzalez ([email protected]) City Manager, Alfonso Noyola ([email protected]) Finance Director, Joshua Calhoun, CPA ([email protected]) Senior Planner, Cecilia Madrigal-Gonzalez ([email protected]) City Clerk, Richard Iglesias ([email protected]) Special Council, Glenn Ward Calsada ([email protected]) City Attorney Paloma Perez-McEvoy ([email protected]) City Attorney Stephanie Arechida ([email protected]) Community Development Director, Juan Arauz ([email protected]) Building Official, Raul Diaz ([email protected]) RE: NOTICE TO CURE BREACH OF DEVELOPMENT AGREEMENTS for 4916 Cecilia Street; Notice of Protest to Illegal Fees and Agreement to Post Bond Pending Outcome of Fee Dispute under Gov. Code § 66020.

Dear Mayor, Vice Mayor, Council Members, City Officials, and City Representatives:

Our office represents the seven cannabis operators with development agreements at 4916 Cecilia Street, see Ordinance No. 676 through 682. Under Section 14, titled “Defaults and Remedies,” the cannabis operators give the City notice of its “default” and “breach” of the development agreements, specifying “the nature of the alleged default and the manner in which said default may be satisfactorily cured.” (Dev. Agmt. § 14(a)). The City’s “failure” to cure within 30-days “shall constitute a default.” (Dev. Agmt. § 14(a)). “After notice and expiration” of the 30 days to cure, the cannabis operators “may institute legal proceedings.” (Id.)

The development agreements were approved on June 5, 2018, a total of 2,039 days (68 months or 5.6 years) from the date of this Notice. The City agreed its contractual promises “shall survive beyond the terms of the present Council members, that this Agreement will serve to bind the City and future Councils to the obligations hereby undertaken.” (Dev. Agmt.

Recital M). The City also agreed “after notice and expiration of the 30 days” to cure its default, the cannabis operators “may institute legal proceedings” and “nothing contained herein shall modify or abridge the operator’s rights or remedies (including its rights for damages, if any) resulting from bad faith intentional acts, the grossly negligent or malicious acts of the City and its officials, officers, agents, and employees.” (Dev. Agmt. § 14(a)).

Under Section 14, the Cannabis Operators Give the City Notice of Default and provide 30 days to cure the default, or they will file a lawsuit for breach of the development agreement. The operators prefer that the City comply with its contractual promises; however, if it does not cure its default, this Notice identifies “all claims for money or damages against local public entities” as required by Gov. Code § 905.

The Cannabis Operators also Give Notice to Proceed Under Protest and seek an “arrangement” to pay the disputed fees, under protest, by posting a bond, under Gov. Code § 66020. The operators identify the “factual elements of the dispute and the legal theory forming the basis for the protest.” (Cal Gov Code § 66020(a)). The operators Protest All Non-Operating Fees, they Protest All Fees for Delays by the City in redesigning approved plans and construction delays, and they Protest All Fees During the Coronvirus Closure.

City Officials, Officers, Employees, and Consultants Are Given Notice of Claims for Individual Liability if the defaults are not cured. As explained below, they are individually liable for damage under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-68. The development agreements expressly permit the operators to pursue “damages resulting from bad faith intentional acts, the grossly negligent or malicious acts of the City and its officials, officers, agents, and employees.” (Dev. Agmt. § 14(a)).

1. INTRODUCTION OF CITY’S BREACH OF DEVELOPMENT AGREEMENTS The operators paid over $750,000 in fees; however, 68 months after securing approval, six facilities are still not open for refusing to pay illegal fees. The City’s default include:
(1) City demands fees during the fifteen month closure due to the coronavirus pandemic (2) City demands fees caused by its delays in redesigning approved plans. (3) City demands non-operating fees from operators who progressed towards opening. (4) City’s temporary 90 day occupancy permit are conditioned on paying illegal fees. (5) Review hearings by hearing officer instead of City Council violate the agreements.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 2

Over five years ago, 2,039 days or 68 months ago, Cudahy approved seven identical development agreements. During the past 68 months, the operators paid $3/4 million in fees and invested over $10 million in renovating an existing warehouse; however, after 68 months, only one of the seven operators is open. The City issued one operator a 90-day temporary occupancy permit, violating its vested rights. The other six are facing revocation hearings for failure to pay disputed and illegal fees in full, a violation of many of their rights..

The City contractually agreed 68 months ago not to charge fees when the City delayed the construction or shut the project down. The “Force Majeure” clause promised that unforeseen events, including “local, state or national emergencies” or “any default by the City” which “substantially interferes with the development, construction or operation of the project,” will entitle the operator to “an extension of time.” (Dev. Agmt. § 23(i)). There are no fees during the period of City caused delays or closures caused by the City.

The City also contractually agreed that any “delay” to “perform” its promises “shall constitute a default.” (Dev. Agmt § 14(a)). Therefore, under § 23(i), “any default by City” which “substantially interferes” with the project will entitle the operator to an “extension of time.” (Dev. Agmt. § 23(i)). The City is in default for its demand for fees for City-caused delays and closures caused by the City under § 14(a) and § 23(i).

The City contractually agreed that “the City Council shall review this agreement annually” to “ascertain operator’s good faith compliance with this agreement.” (Dev. Agmt. § 19(a)). The annual review hearings provided that at the hearing, the “operator shall document any request for an extension of the term due to delays beyond the control of operator (see § 23(i) force majeure).” (Dev. Agmt. § 19(a)). The annual review hearings under § 19(a) incorporated force majeure delays under § 23(i), which gave the operators a forum to present city-caused delays and closures and receive a waiver of fees for these delays.

The City agreed that the operator could not “compel [the review] hearing” and further agreed that “no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). The City promised to hold its first review hearing 55 months ago, the second 43 months ago, the third 31 months ago, the fourth 19 months ago, and the fifth 7 months as of the date of this Notice. However, the City refused to hold a single hearing for 68 months, preventing any review of its delays in breach of §§14(a), 19(a), and 23(i).

Without any review hearing by the City Council, the developers turned to City staff and they blocked the operators from appearing before the City. City attorney Paloma McEvoy stated in a letter that the City Council considered your demand to appear before City Council and “has decided not to negotiate the repayment of fees and to continue with” the revocation hearings.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 3

The reference to the hearing is to the City’s recent notice of “review hearings” before an appointed “hearing officer” to determine compliance with “Section 19 of the agreement.” However, § 19 required that “the City Council shall review this agreement annually.” (Dev.

Agmt. § 19(a)). On December 29, 2023 the City stated in a letter that the operators “failure to confirm your appearance at the January 8, 2024 review hearing, you have waiver your right to present evidence at and otherwise participate at the review hearings.” However, the City promised that “at the time and place set for the review hearing, operator shall be given an opportunity to be heard.” (Dev. Agmt. § 19(d)). The right to be heard is at the time of the hearing, not before. This breached the agreement in multiple ways. This confirms that the City’s staff will prevent the City Council from ever hearing about the plethora of breaches by staff.

At a minimum, the purported fees during the pandemic caused delays are illegal. The Operators were shut down for 453 days (15 months) from March 19, 2020, when the shelter-in-place orders started, through June 15, 2021, when the shelter-in-place ended. For 15 months, the operators could not perform any legal construction. Nonetheless, the City demanded $511,140 in fees during the 15-month closure ($28,560 monthly for operating fees and $66,668 per year for community benefit fees). The City’s demand for fees during the closures is a patent breach of its contractual promises under section 23(i).

The imposition of fees during the pandemic closure is compounded by the lengthier delays by City consultants who revised approved plans in breach of the incorporated site and floor plans: “The operator’s site plan and floor plan for the facility are attached hereto as Exhibit D and incorporated into the application.” (Dev. Agmt. § 3(a)). The “cannabis permit application” and detailed construction plans were also incorporated. (Dev. Agmt. § 1(d)). These delays breached the agreement that the “Operator shall receive priority processing for any corresponding City permits.” (Dev. Agmt. Recital F). The City agreed the “project shall vest” (Dev. Agmt. Recital N) and the “Operator may operate cannabis-related activities.” (Id. § 4(a)).

The plan approval delays were compounded by consultants imposed construction procedure not found in the agreements in breach of the agreements which incorporated the construction procedure: “During any on-site construction” for the “remodeling of existing buildings, operator shall comply with all applicable conditions of City’s standard conditions for construction, attached and incorporated as Exhibit F.” (Dev. Agmt. § 13). The operators agreed to comply with the “construction requirements contained” in the agreement. (Id. § 1(d)).

It fell on the City Council to review City caused delays to the project. However, since these reviews were being blocked by City staff, the operators wrote to City Manager Noyola and presented documentation of the delays. City Manager Noyola agreed that the “documentation of disruptions and difficulties with business development and/or operations caused by the pandemic impacted your business operations for a portion of the time past due fees have accrued.” Notice that “and/or” refers to delays and/or closures from the pandemic.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 4

However, instead of removing fees for City caused delays, City Manager Noyola continued to demand the fees and used various illegal tactics to extort payment of these fees.

In the words of City Manager Noyola, the operators “will remain in default status on its development agreement until all past due fees . . . have been paid.” The default status prevented any construction work for failing to pay illegal fees and violated the agreements.

The City placed the operators in default, which shut down the construction. Since the fees are not due, this is a default of the City’s promise that any “delay” by the City to “perform” its promises “shall constitute a default.” (Dev. Agmt § 14(a)). The 90-day conditional occupancy permit is applying a word that does not exist in the agreements and violates the promise that the agreements “vest certain rights in the operator.” (Dev. Agmt. Recital B), that “the operator’s land use entitlements for the project shall vest” (Dev. Agmt. Recital N), and that “the operator may operate cannabis-related activities.” (Dev. Agmt. § 4(a)).

On Nov. 15, 2023, the City stated in response to a Public Records Request that the cannabis operators have been billed by the City total non-operating fees of $5,404,282. The non-operating fees from the operators total $1,913,520 ($28,560 x 68 months). Because the word non-operating is not found in the agreements, the non-operating fees must be discerned from “the mutual intention of the parties as it existed at the time of contracting.” (Civ.

Code, § 1636.) Firsthand account at the time of contracting is provided by former vice mayor Christian Hernandez who spearheaded the cannabis policy for the City, and by Philip Kfoury, the operators’ principal, who negotiated the development agreements for the operators.

They explain that at the time of the agreement, the City was focused on revenue from gross receipts, not fees from businesses under construction and trying to open. The City was concerned that the operators would squat on their license. This resulted in the sentence requiring operating fees “until the operator is operating.” It is important to note that this requires payment of operating fees while not operating. The word non-operating is not used in the development agreements or the municipal code. That sentence was included to alleviate the City’s concern about operators squatting on their license and does not apply if the operator is progressing to open. Otherwise, operators would have to pay operating fees while trying to open but while strategically delayed by the city, which is precisely what is happening. Support for this interpretation is found in the development agreements, municipal code, and state law.

It should be readily apparent if the $511,140 in fees during the pandemic closures, the fees for redesign delays and construction delays, and the $1.9 million non-operating fees are not owed. The operator’s payment of $3/4 million to date makes them current and shows that the City is leveraging its plethora of breaches to secure illegal fees. This supports civil RICO claims for individual liability and is permitted by the City’s agreement that the operators may pursue “damages from bad faith intentional acts, the grossly negligent or malicious acts of City and its officials, officers, agents, and employees.” (Dev. Agmt. § 14(a))..

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 5

2. RELEVANT FACTS IDENTIFYING THE CITY’S CONTRACTUAL PROMISES

2.1 Agreements Guarantee Many Rights Including that the Project is Vested.

Shortly after the City adopted Ordinance No. 673 allowing commercial cannabis, Philip Kfoury, the cannabis operators principal, met with City officials about opening a cannabis manufacturing facility. After being assured that the facility would open within one year, they applied for a cannabis cultivation, manufacturing, and distribution facility at 4916 Cecilia.

The City moved quickly as it promised. On April 30, 2018, the planning commission held a public hearing and received an extensive presentation from its cannabis consultants. Two weeks later, on May 15, 2018, the City adopted resolutions approving the seven agreements. On June 5, 2018, the City executed development agreements with Cuper Development, Go Cudahy, Davina, Genius Distribution, Herbal Dragon, Daniel and Goliath, and 420 LLC (“operators”).

The development agreements comprise 41 pages, without exhibits, and were adopted as law in Ordinances No. 676 through 682. The development agreements confirm that the “City concluded that the pursuit of the Project will serve the best interests of its citizens and that the public health, safety, and welfare are best served by entering into this obligation.” (Dev.

Agmt. Recital M). The City “found that the Project” is “in the best interest of the City of Cudahy and its residents.” (Agmt. Recital P).

The development agreements identify that one of its main “purpose” is “to establish certain development rights” in the project “regardless of intervening changes” in order to “reduce the economic risk of development.” (Dev. Agmt. Recital A).

The City agreed that the development agreements “establish certain development rights” and “vest certain rights in the operator.” (Dev. Agmt. Recital B). “The City agrees the operator’s land use entitlements for the project shall vest” (Dev. Agmt Recital N), “the operator may operate cannabis-related activities” (Dev. Agmt. § 4(a)), and the “property may be used for commercial cannabis” cultivation, manufacturing, and distribution. (Id. § 1(c)).

2.2 The City Agreed to Proceed in Good Faith and Implemented the Agreement in Accordance with its Terms and to the Fullest Extent Permitted by Law.

The agreements include many provisions requiring the City to act in good faith. “If the operator disagrees with” cost recovery fees “the operator and the City shall work, in good faith to resolve operator’s written request. The dispute shall be decided in favor of operator if the City does not respond to the written request within thirty days of actual receipt.” (Dev.

Agmt. § 8(d)). If a citizen initiative imposes a cannabis tax, the “operator agrees to renegotiate in good faith the terms of this development agreement with the City.” (Dev. Agmt. § 9(b)).

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 6

If conflicting state or federal law impact the project the parties shall “meet and confer in good faith and attempt to modify this agreement to bring it into compliance with any such federal or state law.” (Dev. Agmt. § 23(o)). If an amendment is necessary to comply with conflicting state or federal law “the City shall cooperate with the operator in securing any City permits, licenses or other authorizations that may be required as a result of any amendment resulting from actions initiated by the City.” (Dev. Agmt. § 23(o)).

Contractually, the City promised to ensure the agreements remains in force: “The parties shall cooperate with each other and undertake such reasonable actions as may be appropriate to ensure this agreement remains in full force and effect and is implemented in accordance with its terms and to the fullest extent permitted by state or federal law.” (Dev. Agmt. § 23(c)).

Several actions taken by the City to terminate the agreement as a result of refusing to pay illegal fees are intended to terminate the agreement in bad faith in violation of the many promises made by the City in the development agreements.

2.3 Approved Plans Were Incorporate in the Agreements and the City Contractually Agreed Redesigning Approved Plans is Considered a Default.

Section 3 titled “Operator’s Site and Floor Plans” incorporate the site and floor plans as an exhibit: “The operator’s site plan and floor plan for the facility are attached hereto as Exhibit D and incorporated into the application.” (Dev. Agmt. § 3(a)). The “cannabis permit application” and its detailed construction plans were also incorporated. (Dev. Agmt. § 1(d)).

The development agreements confirm that “the Project will consist of a vertically integrated” facility providing “cannabis production, processing, and distribution.” (Dev. Agmt.

Recital I). The existing “industrial/warehouse building” comprising 68,000-square-feet will be divided into seven spaces. (Dev. Agmt. Recital I). Construction includes the “renovation or remodeling of existing buildings.” (Dev. Agmt. § 13).

The City contractually agreed that its “failure” to “perform any term or provision of this agreement” after “notice and cure period shall constitute a default.” (Dev. Agmt. § 14(a)). The City also agreed to provide “an extension of time” for “any default by City.” (Dev. Agmt. § 23(i)). The City contractually agreed that any redesign of approved plans would constitute a default and require fees during this period of delay to be extended, i.e., waived.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 7

2.4 City Agreed to Expedite Permits and Contractually Promised that Delays by the City in Expediting Permits is Considered a Default.

The City agreed that the “Operator shall receive priority processing for any corresponding City permits.” (Dev. Agmt. Recital F). The City “acknowledge[d] that changes to the project or development plans and related approvals may be appropriate and mutually desirable to carry out the intent and purpose of this agreement.” (Dev. Agmt. § 23(n)).

The City agreed if conflicting laws “require changes in plans, maps or permits approved by the City, this agreement shall remain in full force” and the parties shall “meet and confer in good faith and attempt to modify this agreement to bring it into compliance” and “the City shall cooperate with operator in securing any City permits.” (Dev. Agmt. § 23(o)).

The City contractually agreed that its “failure” to “perform any term or provision of this agreement” after “notice and cure period shall constitute a default.” (Dev. Agmt. § 14(a)). The City also agreed to provide “an extension of time” for “any default by City.” (Dev. Agmt. § 23(i)). The City contractually agreed that its failure to expedite construction would require fees during this period of delay to be extended, i.e., waived.

2.5 Construction Procedures Were Incorporated in the Agreements and the City Agreed Any Construction Delays by the City is Considered a Default.

Section 13 titled “Standard Conditions for Construction” incorporate the construction procedure as an exhibit: “During any on-site construction activities related to development of the project site and any buildings thereon, or renovation or remodeling of existing buildings, operator shall comply with all applicable terms and conditions of City’s standard conditions for construction, attached and incorporated as Exhibit F.” (Dev. Agmt. § 13).

The construction included dividing an existing 68,000-square-foot “industrial/warehouse building” into seven spaces. (Dev. Agmt. Recital I). The operator agreed to comply with the “construction requirements contained in the agreement.” (Dev. Agmt. § 1(d)).

The City agreed that its “failure” to “perform any term or provision of this agreement” after a “cure period shall constitute a default.” (Dev. Agmt. § 14(a)). The City agreed to provide “an extension of time” for “any default by the City.” (Dev. Agmt. § 23(i)). In effect, if the City required any construction procedure, other than the one attached to the agreement, it would be in default and any fees due would be extended, i.e., waived, during the period of default.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 8

2.6 Force Majure Delays Require an Extension for Local, State or National Emergencies and an Extension for Any Default by the City.

Section 23(i) titled “Force Majeure” provides “an extension of time” during delays due to “local, state or national emergencies” or delays due “any default by the City” as follows:
“23(i). Force Majeure. If delays are caused by unforeseen events beyond the control of the operator, such delays will entitle operator to an extension of time as provided in this section. Such unforeseen events (‘Force Majeure’) shall mean war, insurrection, acts of God, local, state or national emergencies, strikes and other labor difficulties beyond the party’s control, or any default by the City hereunder, which Force Majeure event substantially interferes with the development, construction or operation of the Project.” On March 19, 2020, Governor Newsom ordered all individuals to stay home at their place of residence, except the individuals working in critical infrastructure sectors identified in the order. The order restricted all non-essential travel and activities outside the home. On March 19, 2020, the County of Los Angeles issued a Mandatory Stay at Home Order. On March 23, 2020, the City of Cudahy adopted Resolution No. 20-06 which declared a Local Emergency due to the public threat caused by the coronavirus and shut down all non-essential businesses.

The City contractually agreed when it closed the operators’ construction for 15 months during coronavirus, this was a force majeure delay due to the “local, state or national emergencies” and all fees during this period were extended, i.e., waived. The City also contractually agreed that its “failure” to “perform any term or provision of this agreement” after a “cure period shall constitute a default.” (Dev. Agmt. § 14(a)).

The City also agreed that any City caused force majeure delay in redesigning approved plan (Dev. Agmt. §§ 1, 3(a)), or any City caused force majeure delay in failing to expedite permits (Dev. Agmt. Recital F), or any City caused force majeure delay with inspections or construction (Dev. Agmt. § 13) require that fees during this period be extended, i.e., waived.

The City agreed that its “failure” to “perform any term or provision of this agreement” after a “cure period shall constitute a default.” (Dev. Agmt. § 14(a)).

On April 18, 2022, Philip Kfoury, sent a letter to City Manager Noyola, documenting the “difficulties in obtaining approval” that City consultants restarted the “approval process from the beginning” that “COVID-19 pandemic created further delays” prohibiting construction work, and that these were “Force Majeure-related items and totally out of our control.” January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . . . PAGE 9

City Manager Noyola responded in language repeated in many letters that he agreed the delays impacted their business during a portion of the time past due fees have accrued:
“You have provided the City with information and documentation of disruptions and difficulties with business development and/or operations caused by the COVID-19 pandemic. These difficulties appear to have impacted your business operations for a portion of the time past due fees have accrued.” However, City Manager Noyola did not comply with the City’s contractual promise that the documented force majeure delays entitled the operators to an extension of time, i.e., waiver of fees “for a portion of the time past due fees have accrued.” Instead, the City placed the operators in default, and stopped all construction, for refusing to pay disputed and illegal fees during the force majeure delays. The City’s demand for fees during the pandemic closure of construction is a breach of the City’s contractual promises under section 23(i).

2.7 The City Breached the Development Agreements by Placing the Operators in Default Status and Agreeing to Only Issue Conditional 90-Day Occupancy Permits, Only Renewable if Disputed and Illegal Fees are Current.

City Manager Noyola stated in many letters that the operators “will remain in default status on their development agreement until all past due fees have been paid” and once the fees are paid “the City will only issue a temporary certificate of occupancy for the site valid for 90 days. The temporary certificate of occupancy may be reissued if the Operator remains in compliance” with the fees. The default status by the City Manager prevented any construction work for failing to pay illegal fees and violated the development agreement.

The City contractually promised that the City Council would review the operators’ compliance and modify and terminate the agreement. (Dev. Agmt. § 19(a)). This did not occur in violation of the agreement. The City agreed that the procedure to place the operators in default required the procedure identified in § 14. This procedure was not followed, of course, refusing to pay illegal fees is not a default.

The City also promised that it may “modify this Agreement (except no modification shall increase Owner’s liability nor reduce Owner’s rights).” (Dev. Agmt. § 19). Denying construction for refusing to pay illegal fees is an un-permitted modification and a breach of the agreements. The parties agreed that only “minor amendments that do not affect a substantive provision of this Agreement may be approved by the City Manager on behalf of the City.” (Dev.

Agmt. § 23(a)). The default without construction permission is not minor, it major, and the City Manager placed the operators in default as a pretext to securing illegal fees, this violated the development agreements.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 10

The City believes that a business which has not yet opened for over five years, and is prevented from opening by the City, must pay operating fees to the City. Moreover, once the fees are paid, the City limit operations to a temporary occupancy permit lasting only 90 days.

In effect, it takes over fives to open, but the operations get a limited 90-day window. The operators are private landowners, they have rights, more importantly, their rights are agreed upon in the contract with the City. The attempt by City Manager Noyola to limit occupancy permits to ensure payment of illegal fees, in bad faith, its illegal extortion, and it’s a breach of the development agreements..

The agreements have no discussion about issuance of a “temporary occupancy permit.” On the contrary the agreements confirm that the agreement “vest certain rights in the operator.” (Dev. Agmt. Recital B). “The City agrees the operator’s land use entitlements for the project shall vest” (Dev. Agmt Recital N), “the operator may operate cannabis-related activities” (Dev.

Agmt. § 4(a)), and the “property may be used for commercial cannabis” cultivation, manufacturing, and distribution. (Dev. Agmt. § 1(c)). The City contractually agreed that the agreement “shall remain in full force and effect so long as the subject property is used for a commercial cannabis facility.” (Dev. Agmt. § 2). The City agreed that the “agreement remains in full force and effect and is implemented in accordance with its terms.” (Dev. Agmt. § 23(c).) The operators are not in default for refusing to pay disputed and illegal fees. In failing to set annual review hearings, the City denied the operators a forum to present force majeure delays. The City contractually promised that the operators could not “compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). City staff prevented a hearing before the City Council, and this allowed City staff to push illegal fees without review. There was no waiver by the operators in not addressing the illegal fees sooner. The failure to hold yearly review hearings was on the City, which breached the development agreement, municipal code and state law.

A the very minimum, the fees during the pandemic shut-down is flatly illegal. Assuming arguendo, that the operators are in default (they’re not) for refusing to pay illegal fees, the best that the City can do under the agreements is refuse to issue buildings: “No building permit shall be issued . . . after the operator is determined by the City to be in default . . . until such default thereafter is cured by the operator or is waived by the City.” (Dev. Agmt. § 14(f)).

The operators are in their 68th month in attempting to open. Building permits were issued years ago, and the permits vested. Since the operators are not seeking building permits and denying them the right to proceed with construction for already issued building permits, is a violation of the development agreements. Certainly, the City is aware that building permits are not the same as occupancy permits. The word “temporary occupancy permit” is missing from the agreements and not existent in the municipal code. The issuance of temporary occupancy permits for failure to pay illegal fees is in bad faith and a breach of the development agreements.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 11

2.8 City Correspondence Confirms the Scheme to Extort Illegal Fees, the City Contacted the State and Reported them in Default, the City Would Only Issue Temporary Operating Permits and Placing the Operators in Default.

In the scheme to secure dispute illegal fees, the City contacted the State and reported the operators as being in default with the City. This extortion scheme is explicitly documented in City correspondence. On April 8, 2022, a text message from building inspector Louis Morales to City Manager Noyola, noted operator, cupper development, owes $600,000 and he is aware of a “request from the State” and had an idea that will “get them to the table now.” The City was aware that after five years, one of the operators (Go Cudahy) was close to opening. Hence, the City accepted the scheme to “force them to the table” by contacting the California department of cannabis control and informed them, that cannabis operators, were in default with the City and therein jeopardized renewal of their state cannabis permit. The State permit was a requirement of the development agreement. The City’s bad faith is self-evident.

Inspector Morales and City Manager Noyola used fear of economic loss, and fear under color of law, to secure fees that were not owed, or at the very minimum were honestly dispute, to jeopardize the operators’ state permits, so that they will “get them to the table now” is in bad and supports a civil RICO claim for extortion. It also violates the development agreement by failing to follow the procedure for default under § 14 outlined in the agreement.

The operators learned that the City had reported to the State that they were not in good standing with the City, and therefore they could not renew their state license. The operators were blindsided by the City’s extortion in securing non-operating fees, at large majority of which were caused by City delays. This also was the first time the operators were told that the City would not be forgiving any fees for any reason.

On April 18, 2022, Philip Kfoury, sent a letter to City Manager Noyola, describing the unforeseen delays and the “difficulties in obtaining approval from the City to begin work.” That Willdan, the City’s consultants restarted the “approval process from the beginning.” That the “pandemic created further delays” and the State prohibited them “from continuing work.” The letter stated that these were “Force Majeure-related items and totally out of our control.” January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 12

The April18, 2022 letter stated that “the City reported to the State that these licenses were not compliant, resulting in the state denying them provisional state licenses.” He asked the City to communicate to “appropriate state agencies that the licenses are in compliance” so they can “receive a provisional license.” The letter asked for confirmation “that Go Cudahy LLC will receive a Certificate of Occupancy for its portion of the facility” so that it “can begin operations.” This is mandated by the agreement. The operators quickly learned they would only receive a temporary occupancy permit in breach of the agreements. On April 22, 2022, a text from inspector Morales to City Manager Noyola, stated he told the operators the “City’s position for payment for Cuper Development and their provision license issue.” It was later discovered that the plan to get the operators to pay disputed fees included that they would only receive temporary 90-day occupancy permits, and required them to return to the City for permits every 90 days, wherein the City would ensure they are current on their disputed fees. This scheme violates a plethora of the City’s promises under the agreements.

On April 22, 2022, Philip Kfoury, sent a letter to City Manager Noyola, asking him to inform the State that they are “working towards compliance” and that the operators could amortize what is owed over two years, but could not make substantial payments as requested.

The letter noted that it has been five years since they started and are still months from opening:

On May 2, 2022, City Manager Noyola, sent a letter stating that the City would not waive any fees, but the City “is willing to enter into a onetime, forbearance agreement” but the operators “shall remain in default status under its development agreement until all past due fees are paid in full.” The letter noted the operators need a certificate of occupancy to open and “the City will only issue a temporary certificate of occupancy” valid for 90 days, but the temporary permits are renewed if the operators are current with their fees:

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 13

On May 26, 2022, the operators asked once again for the City to inform the State that “Local Compliance is underway” and for further dialogue with the City on the non-operating fees. The letter noted that the “Operators were unable to move forward with the projects because of various delays outside of anyone’s control” in this passage:

On October 18, 2022, City Manager Noyola stated in a letter regarding Go Cudahy that it provided the City with documentation of difficulties with the business caused by the pandemic which impacted the business operations while fees accrued.

Instead of removing fees for City-caused delays, City Manager Noyola continued to demand the fees and used various illegal tactics noted above to extort these disputed fees. In the words of City Manager Noyola, the operators “will remain in default status on its development agreement until all past due fees... have been paid.” The default status prevented construction for failing to pay illegal fees and violated § 14(a), § 19(a), and § 23(i). § 4(a))..

The letter stated that “While in ‘default status,’ the City will only issue a temporary certificate of occupancy (a “TCO”) for the Site valid for 90 days. A TCO may be reissued if the Operator remains in compliance . . .”
January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 14

The letter stated that “While in default status, the City will only issue a temporary certificate of occupancy for the site valid for 90 days. A temporary certificate of occupancy may be reissued if the Operator remains in compliance . . .” In effect, a business that has not been able to open for over five years, is given a gift, it can pay illegal fees for not being open, it can pay cost recovery fees which are magically the same amount, $3,954.66, for each month during the past year. As is apparent, the City seeks to secure payment of the fees, not by getting the facilities open, but by providing a temporary occupancy permit for a mere 90 days. The occupancy permit is held over its head to ensure the payment of illegal fees. This is not good faith, and it violates the development agreements.

The development agreements do not provide temporary occupancy permits if the operator defaults. The best that the City can do is deny a building permit. The development agreement provides: “No building permit shall be issued or building permit application accepted for any structure on the property after City determines operators to be in default of the terms and conditions of this Agreement until such default thereafter is cured by operator or is waived by City.” (Dev. Agmt. § 14(f)). The “failure to delay by either party to perform any term or provision of this Agreement beyond” a “cure period shall constitute a default.” (Id.) The City breached the development agreements by not complying with Section 14. Of course, the operators are not in default, and placing them in default was done in bad faith..

2.9 Three months ago, the City Demanded Immediate Payment of $200,000 From the Only Operator to Open Or Face Immediate Revocation.

On Sept. 6, 2023, City Manager Noyola demanded in a text message that Go Cudahy make an “immediate payment of $200,000" for overdue non-operating fees, allowing three days to pay, or the cannabis operator would be placed in default and face immediate revocation.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 15

The astounding demand in seeking “an immediate payment of $200,000" by City Manager Noyola is in a text message that confirms that failure to pay would result in the operator being sent “straight to a revocation hearing.” What is most ironic is that the the$200,000 was due since City Manager Noyola stated one year prior that he agreed that the “documentation of disruptions and difficulties with business development and/or operations caused by the pandemic impacted your business operations for a portion of the time past due fees have accrued.” The $200,000 was force majeure fees. Hence, the text demand violated the development agreement. See Dev. Agmt. § 14(a), § 19(a) and § 23(i).

Since the $200,000 demand by text message was not actually due, it was in bad faith and a clear example of extortion under the color of official right (City Manager) and constitute extortion under fear of economic loss (immediate revocation) and supports civil RICO claims.

The City demands $200,000 in illegal fees but is fully aware that the economic landscape has changed. The City’s economic development strategic plan 2023 stated that “rising industry taxes has led to cannabis-based businesses shutting down to diminishing profit margins...” On Nov. 15, 2023, the City stated in response to a Public Records Request that the cannabis operators have been billed by the City total non-operating fees of $5,404,282. The City has billed the cannabis operators as follows: $579,561 (2018); $1,396,975 (2019); $1,136,548 (2020); $941,915 (2021); $858,243 (2022); $491,037 (2023).

More facts displaying abuse include the October 17, 2023, letter from former federal prosecutor Daffodil Tyminski, who sought a hearing before the City Council. On October 24, 2023, attorney Paloma Perez-McEvoy responded for the City and stated the Mitigation Fee Act does not apply to development agreements. The city’s attorney’s letter stated: “the City Council considered your October 17 Demand and has decided not to negotiate the repayment of fees and to continue with the administrative process.”
More facts displaying the abuse include that one year ago the operators submitted revised floor plans for the building to City Manager Noyola for approval. Those plans have been pending for a year without approval. The City agreed the operator would “receive priority processing for any City permits. (Dev. Agmt Recital F). The City also agreed that “changes to the project . . . may be appropriate and mutually desirable.” (Dev. Agmt. § 23(n)).

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 16

3. THE CITY BREACHED THE AGREEMENTS BY REFUSING TO WAIVE FEES DURING THE PANDEMIC CLOSURE AS PROMISED IN SECTION 23(i).

The agreements provide that “unforeseen events,” including “local, state or national emergencies” which “substantially interfere with” the project, are defined as force majeure and “such delays will entitle the operators to an extension of time” (Dev. Agmt. § 23(i)).

City Manager Noyola agreed in many letters that “documentation of disruptions and difficulties with business development and/or operations caused by the COVID-19 pandemic” have “impacted your business operations for a portion of the time past due fees have accrued.” The operators were also shut down for 453 days (15 months), from March 19, 2020, when the shelter-in-place orders started (Executive Order N-33-20), through June 15, 2021, when they ended (Executive Order N-07-21). The City seeks $511,140 in fees non-operating fees of $28,560 per month for 15 months, and community benefit fees of $66,667 per year for

1.2 years during the 15 months the operators were shut down.

In many invoices, the City demanded fees during the time that the City was closed due to the pandemic. It was not the intention of the City for the operators to pay fees if they were delayed by the City or closed by the City, see § 23(i)). The City’s demand for fees during the pandemic closure is a breach of the City’s contractual promise under section 23(i).

4. THE CITY BREACHED THE AGREEMENTS BY FAILING TO EXPEDITE APPROVALS AND BY SEEKING FEES FOR DELAYS CAUSED BY THE CITY.

The City caused delays in redesigning the approved plan (Dev. Agmt. §§ 1, 3(a)), the City failed to expedite permits (Dev. Agmt. Recital F), and the City was responsible for delays with inspections and construction (Dev. Agmt. § 13). These delays are a breach of the City’s contractual promise that any “delay” to “perform” its promises “shall constitute a default.” (Dev. Agmt. § 14(a)). The City also agreed that “any default by the City” which delayed the project “will entitle the operators to an extension of time.” (Dev. Agmt. § 23(i)). The operators were entitled to a waiver of fees for delays by the City and its consultants.

Nonetheless, the City demanded fees notwithstanding its many delays. The warehouse is still not open 68 months after signing the development agreements, and this is impossible without City delays; after all, the operators have decades of construction experience. The reason that after 68 months six facilities are still not open is due to City consultants who redesigned the approved plans, changed the approved construction procedure, and delayed inspections.

These delays explain why the renovation of an existing warehouse is still not open 68 months after securing approval when the operators believed it would be open within one year.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 17

The “mutual intention of the parties as it existed at the time of contracting” (Civ. Code, § 1636) is that any “delay” by the City to “perform” its promises “shall constitute a default.” (Dev. Agmt. § 14(a)). Six operators are still not open because the City breached its performance by redesigning approved plans and delayed approval of the construction. Additionally, the City is in default for demanding any fees during these City caused delays.

The only procedure to document these reviews under the agreements was at the annual review hearing where the “operators shall document any request for an extension of the term due to delays beyond the control of operators (see Section 23(j), Force Majeure).” (Dev. Agmt. § 19(a)). By failing to hold any annual review hearings during the past 68 months, the City denied the operators a forum to present City caused delays. “The operator has no obligation to compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). Moreover, City staff prevented any hearing before the City Council, and this allowed staff to set illegal fees without review.

The fees due during City caused delays 68 months later fell on the City Council, who failed to review City caused delays by not holding annual review hearings. See Dev. Agmt. § 14(a), § 19(a) and § 23(i). The reasonable estimate is as follows. The parties anticipated it would take one year to open. Hence, the one-year falls on the operators. Deducting this one year from the 68 months leaves 58 months. Removing the 15 months during the pandemic further leaves 43 months. The operators suggest 30 months for the city-caused redesign and construction delays. This includes the fact that the City has illegally placed the project in default, halting any construction for over a year, and has even recently failed to return permits submitted over one year ago.

The fees during these 30 months of delays total $1,023,468 (community benefit fees of $66,667 for 2.5 years and non-operating fees of $28,560 per month for 30 months). The City is in default for its demand for fees during construction delays caused by the City.

5. CITY BREACHED THE AGREEMENTS BY DEMANDING NON-OPERATING FEES AS SHOWN BY THE PARTIES INTENT AT THE TIME OF SIGNING.

The City seeks operating fees from businesses that are not operating. The word “nonoperating fees” is not found in the development agreements, or the municipal code. On the other hand, community benefit fees are provided for in CMC § 5.20.020(16), which defines “development agreement” to means an agreement “which provides agreed-upon community benefits to the city.” The cost recovery fees are provided for in CMC § 5.20.070(6), mandating that the “development agreement” shall require the operators to “fully reimburse the city” for all costs, expenses and fees related to the commercial cannabis production. There is no provision in the municipal that a development agreements include operating fees.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 18

The development agreement in Section 7(c) titled “Operating Fees” defines the words premises, commercial cannabis activities, gross receipts, and production space, but does not define the word non-operating fees or the word operating fees. (Dev. Agmt § 7(c)). The definition of production space notes it excludes “non-operational common areas.” The word non-operating fees is not found in the agreements or the municipal code. The development agreement applies “operating fees” to a business that is “operating.” The agreement provides that the “production space” and “gross receipts” fees apply when a operator is open and operating. Accordingly, the word ambiguous and must be discerned from “the mutual intention of the parties as it existed at the time of contracting.” (Civ. Code, § 1636.)

5.1 Councilman Hernandez’s Recollection of the Intention of the Non-Operating Fees at the Time of Approval Confirms Non-Operating Feed Do Not Apply. “The mutual intention of the parties as it existed at the time of contracting” (Civ. Code, § 1636) is of high value from vice mayor Christian Hernandez, who spearheaded the cannabis policy and framework for the development agreements. He states from first-hand knowledge that he believed the City’s position of the non-operating fees at time of approval as follows:

Non-operational fees were included in the development agreements to prevent cannabis operators from holding licenses without opening. In 2018, the City was looking for serious cannabis businesses with a genuine desire to operate as soon as possible. The City was interested in new sources of recurring annual revenue for its general fund and community programs. In the cities of Lynwood, Palm Desert, and Coachella, cannabis licenses resold their licenses to operators who had no urgency to open. This was discussed at hearings, and fees for non-operations were incorporated to prevent license holders from flipping their licenses to operators who would not open rights away.

Naturally, non-operating fees were never intended to last in perpetuity, and they were not expected during natural disasters or other delays beyond the operator’s control. Otherwise, the operators would have to pay non-operational fees for delays beyond their control. Cannabis license holders were also expected to be operating within a year. The City expected its staff and consultants to expedite permits and inspections. Opening the cannabis facility was the City’s top priority.

Cannabis operators were paying recovery fees, so the City agreed to expedite their approval process. Since non-operating fees could only provide short-term revenue, they were not the City’s focus. As a result, the City focused on operating fees from the cannabis operators’ gross revenues since they yielded higher recurring revenues for the general fund.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 19

The City implemented the non-operating fees to mitigate the resale of cannabis licenses. Operators were incentivized to open within one year. It created a win-win scenario for the City and the operators. The operators benefitted by generating revenue, and the City benefited from the income they generated through operating fees.

In full disclosure vice mayor Christian Hernandez is a consultant with the operators when he saw the delays being foisted on them. His agreement does not impact his view of his recollection of the City’s position at the time of signing.

5.2 The Operators’ Recollection of the Intention of the Non-Operating Fees at the Time of Contracting Confirms Non-Operating Fees Do Not Apply.

Philip Kfoury, the cannabis operators’ principal, stated his belief of the intention of the parties at the time of contracting regarding the so-called non-operating fees as follows:

During the 2018 approval process, City officials focused on collecting revenue from gross receipts, and we agreed to pay operating fees based on gross revenue.

During the approval process, the City expressed concern about flipping the license to operators and not planning to open quickly. To remove this concern, we agreed to pay operating fees if we (or a future buyer) were allowed to open, but instead squatted on the license. According to my understanding, we would not be charged non-operational fees as long if we made efforts to open.

According to my understanding, the non-operational fees for not opening once we secured the right to open were set as a punishment for not opening. The non-operational fees were based on the total area, which is more than the production area, which is the default fee upon opening. However, we agreed to pay an operating fee based on gross revenues, which was more than the production area for squatting on the license. City officials focused on collecting revenue from gross receipts, not fees from closed businesses trying to open.

Because we expected to open within one year, the focus was on gross revenues, which provided much greater revenue than fees based on project area or production area.

According to our expectations, we would open within a year. In five years, six facilities still need to open. Many of the delays can be attributed to city staff and consultants redoing approved plans, and a portion of the delay is due to the fifteen-month closure during the pandemic. At no time were we able to open and January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 20

instead squatted on our license. During the approval process, it was explained that we would not be liable for non-operational fees if we consistently progressed to open. This was the city’s official position for four years until Alphonso Noyola was hired as city manager. After that, the City changed its position and demanded operating fees from us, even though we were not open because of the countless delays caused by the City, its staff, and its consultants.

Attorney Daffodil Tyminski, a former federal prosecutor, was present at all the hearings during the approval process, and already stated in a letter to the City on July 14, 2023:
“Non-operating fees were designed to be a penalty for squatting on licenses, not a fine for businesses trying to operate but being prevented from doing so by the City. We were consistently told that the City was not currently enforcing payment on those fees if we were progressing towards opening.”

5.3 Non-Operating Fees are Illegal Taxes (No Voter Approval).

The City demands a $1,913,520 ($28,560 x 68 months) non-operating fee for the past 68 months or a yearly operating fee of $285,600 (12 x $28,560 per month) for the time that the business is closed due to City delays. It's not a fee; the non-operating fee is a tax. The City's economic development strategic plan 2023 (Resolution No. 23-41) identified fees on the cannabis operators as a tax in this passage:
“Light industrial processing/warehousing refers to facilities involved in activities such as cultivation, processing, and distribution of cannabis products. These operations may include growing and harvesting plants, manufacturing products like edibles or extracts, and storing inventory. Taxes can be collected through licensing fees, permit fees, and taxes based on the volume or value of products.”
The City is correct, the $1.91 million non-operating fee is a “tax based on the volume.” (Resolution No. 23-41). However, because the “non-operating fee” was not approved by the voters it violates Cal Const Art XIII A §4. “No local government . . . may impose any general tax unless. . . approved by a majority of the voters voting in an election on the issue.” (Gov. Code § 53723.) “No local government may impose any special tax” without a “two-thirds vote of the voters voting in an election on the issue.” (Gov. Code § 53722.) The City was fully aware that a cannabis tax requires approval by the voters by submitting the recent retail cannabis tax to the voters for approval and enacted it in Chapter 5.30 after voter approval. Non-operating fee/tax are illegal taxes because there was no public vote.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 21

CANNABIS RETAILER TAX: Chapter 3.50 the newly enacted Cannabis Retailer Tax approved by the voters imposes “an annual cannabis retailer tax.” (CMC § 3.50.040(1)). The tax is imposed “upon cannabis retailers that engage in business in the city. This cannabis retailer tax is levied based upon business gross receipts.” (CMC § 3.50.010(1)). “The tax rate upon the effective date of this chapter shall be 15 percent of the gross receipts derived from the retail sale of adult-use cannabis or adult-use cannabis products.” (CMC § 3.50.040(3)(a)).

CITY BUSINESS TAX: The municipal code provides a tax on businesses in Chapter 5.08 titled “Business License Tax -- Particular Businesses.” However, it does not include cannabis business in that list. CMC § 5.04.330 lists the “taxes on businesses other than those described in Chapter 5.08" and requires “a license tax based upon gross annual receipts.” If “Gross Annual Receipts” are “$2,000,000 or more” the “Per Annum Fee” is “$2,000 maximum.” The maximum annual fee of $2,000 is far less than the $285,600 yearly fee (12 x $28,560 per month) demanded by the City for the privilege of not being open due to delays by the City.

5.4 Non-Operating Fees/Tax are Illegal Impact Fees (No Findings).

The Mitigation Fee Act (Gov. Code, § 66000 et seq.) limits fees on projects. When a fee is imposed as a condition of approval. Gov. Code § 66001(a) provides procedures to establish fees and requires four findings included that the “reasonable relationship between the fee’s use and the type of development project on which the fee is imposed.” Gov. Code § 66006(e) provides that the “improper allocation of development fees hinders economic growth and is, therefore, a matter of statewide interest and concern. It is, therefore, the intent of the Legislature that this section shall supersede all conflicting local laws and shall apply in charter cities.” Non-operating fees/tax are illegal if they are a fee.

CITY DEVELOPMENT IMPACT FEES: Chapter 15.40, titled "Development impact fees," provides for monetary exactions in connection with project approval. (CMC § 15.40.020(12)).

Chapter 15.40 requires the City to make five statutory findings to impose a legal impact fee, including the "reasonable relationship between the fee and the project." (CMC § 15.40.200).

The City failed to make the necessary findings to charge the operators $1.9 million when their business was closed, mainly because of City delays.

The non-operating fee/tax are illegal if they are a general or special tax because there is no public vote, and if they are a fee, the City failed to make the necessary findings to charge the operators a $1,913,520 ($28,560 x 68 months), or a$285,600 yearly fee (12 x $28,560 per month) during a period when their business is closed, mainly due to City delays. In either case, the non-operating fee/tax violates the agreements, municipal code, and state law.

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 22

CITY’S DEVELOPMENT IMPACT FEE STUDY: Further support is found in the City’s development impact fee study, dated April 7, 2021. Under CMC § 15.40.020(19) the “development impact fee study by Willdan dated April 7, 2021" is used to determine an impact fee. The total one-time impact fee is $11,480 ($1,945 traffic fee, $7,480 gen. gov. gee, and $2,055 parking fee). The $11,480 impact fee is far less than the $1.91 million demanded for the privilege of being closed. The City is in default for demanding non-operating fee/tax, from the cannabis operators who were progressing to open.

5.5 The City’s Interpretation of the Non-Operating Fees Apply to Operators Progressing to Open but Unable to Open Is a Breach of the Agreement.

The City has interpreted the “non-operating fees” as being due even irrespective of City cause delays or closures. This files in the face of the “mutual intention of the parties as it existed at the time of contracting” that “delays” and “state or national emergencies” or “any default by City” will “entitle operators to an extension of time.” (Dev. Agmt. § 23(h)). And any “delay” to “perform” its promises by the City “shall constitute a default.” (Dev. Agmt. § 14(a)).

The intention to not collect fees if a facility is not operation is supported by the City’s promise it will not sue for damages for unpaid fees if “the property is not developed, for lost profits or revenues which would have accrued to the City as a result of the development of the property.” (Dev. Agmt. § 14(a)). Simply put, there are no lost profits if the property is not developed and not in operation. This certainly applies if the City causes the failure to open.

The City fails to “give effect to the mutual intention of the parties as it existed at the time of contracting.” (Civ. Code, § 1636). “The whole of a contract is to be taken together, to give effect to every part.” (Civ. Code, § 1641). Instead, the City gives the contract an interpretation that places the operators in breach, after investing $10 million and 68 months into the project.

The City is forcing the breach and fails to recognize that a “contract must receive such an interpretation as will make it lawful.” (Civ. Code, § 1643). The City must “undertake such reasonable actions as may be appropriate to ensure this agreement remains in full force and effect.” (Dev. Agmt. § 23(c)). This requires the City to waive all fees caused by City delays. “The contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates.” (Civ. Code, § 1647.) “Particular clauses of a contract are subordinate to its general intent.” (Civ. Code, § 1650.) The City fails to give effect to the fact that the parties entered into a contract for the development and opening of a cannabis cultivation, manufacturing, and distribution facility. (Dev. Agmt. § 1(c)).

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 23

The City’s interpretation that operating fees are due when the facility is not operating, and when the City caused delays or closures, violates the agreements, and must be rejected. “Words in a contract which are wholly inconsistent with its nature, or with the main intention of the parties, are to be rejected.”(Civ. Code, § 1653.) The City seeks to impose an absurd interpretation of its intent at the time of contracting. The City is in default for demanding non-operating fees, from the cannabis operators who were progressing to open.

6. THE CITY BREACHED THE AGREEMENTS BY PREVENTING THE
YEARLY REVIEW HEARINGS.

6.1 The City Breached the Development Agreements by Failing to Hold Yearly Review Hearings Breached which Prevented the Operators From Presenting Documentation of the City’s Force Majeure Delays.

Section 19 titled “Periodic Reviews” requires yearly review hearing to determine the operators’ compliance with the agreement, and for the operator to document any force majeure delays allowing an extension for delays beyond the control of operators control, as follows:
“19(a). City Council shall review this Agreement annually, on or before each anniversary of the effective date, in order to ascertain operator’s good faith compliance with this agreement . . . planning department will schedule a hearing on the periodic review of the development agreement on or following the anniversary of the effective date, but the operator has no obligation to compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held. The operator shall document any request for an extension of the term due to delays beyond the control of operator (see Section 23(i), “Force Majeure”).”
The fundamental purpose of Section 19 was for the City to review the operators’ compliance, but also for the operators to demonstrate force majeure delays by the City under section 23(i) which provided that “local, state or national emergencies” or “any default by the City” which delayed the project “will entitle the operators to an extension of time.” The agreement provides that “the City Council shall review this agreement annually, on or before each anniversary of the effective date, in order to ascertain operator’s good faith compliance with this agreement.” (Dev. Agmt. § 19(a)). The municipal code provides for “periodic review of an applicant’s compliance with the terms of the development agreement at least once every 12 months.” (CMC § 20.84.600). State law similarly requires “periodic review at least every 12 months” to “demonstrate good faith compliance.” (Gov. Code § 65865.1).

January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 24

However, during the 48 months, the City did not review the agreement in violation of the municipal code and state law. This is important because under Section 19, the “the operator has no obligation to compel such hearing, and no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)). The operators did not waive anything by not having the delays addressed sooner. This fell on the City who breached the agreement, the municipal code and state law for failing to hold yearly review hearings.

The City’s failure to hold yearly review hearings would have allowed the operators to address force majeure delays many years ago. The First Review was required 1,674 days (55 months) from today, the Second Review 1,309 days (43 months) from today, the Third Review 944 days (31 months) from today, the Fourth Review 579 days (19 months) from today, and the Fifth Review 214 days (7 months) from today. Instead the operators have to address delays during the past 68 months. This falls on the City which has contractually agree “no implication will be made to operator’s detriment if a hearing is not in fact held.” (Dev. Agmt. § 19(a)).

6.2 The City Breached the Development Agreements by Setting Review Hearing Before a Hearing Officer Instead of the City Council.

The development provides that “the City Council shall review this agreement annually.” (Dev. Agmt. § 19(a)). State law requires that development agreements “include provisions requiring periodic review at least every 12 months” before the local agency to “demonstrate good faith compliance.” (Gov. Code § 65865.1).

Notwithstanding this clear demand on the City to hold the hearing yearly, or before the City Council, the City recently sent out notice of hearing letters which give notice that the city manager appointed a “hearing officer for a review hearing” to determine compliance with “Section 19 of the agreement” to allow operators to demonstrate their “good faith compliance” with the development agreement. The handpicked hearing officer by the city manager is not the same as the City Council, and the notice of hearings violates the development agreements.

On December 14, 2023, the undersigned (Sebastian Rucci) emailed Senior Planner Madrigal-Gonzalez that this office “wished to present the cannabis operator’s position [at the review hearing], preferably at a hearing before the city council.” Former federal prosecutor, Daffodil Tyminski, sent a letter to the City on July 14, 2023, asking to appear before the City Counsel stating, “only City Council can resolve this dispute.” She later sent another letter on October 17, 2023, and on October 24, 2023, City attorney Paloma McEvoy responded: “Please be advised that the city Council considered [attorney January 5, 2024 Letter to City of Cudahy from the Seven 4916 Cecilia Street Cannabis Operators . . . . PAGE 25