PISMO BEACH COUNCIL AGENDA REPORT
Agenda Item #9.K
SUBJECT/TITLE:
SETTLEMENT AGREEMENT/AMENDMENT TO WATER PRE-SALE AGREEMENT
WITH CENTRAL COAST DEVELOPMENT COMPANY
RECOMMENDATION:
Adopt a Resolution approving a Settlement Agreement/Amendment to Agreement for Pre-sale of State Water, and authorizing the City Manager to execute the Agreement on behalf of the City.
BACKGROUND:
In 1992, the City entered into an agreement with Pacific Coast Homes for “pre-sale” of State Water. The City agreed to request an additional 140 acre-feet per year from the State Water Project, above its allocation of 1100 acre-feet per year, provided Pacific Coast Homes paid the costs for the additional water. The water was intended to be used on property at the northern boundary of Pismo Beach. Pacific Coast Homes later sold the land, and it was ultimately purchased by Gragg Canyon Ranch, LLC. In September 2005, the water presale agreement rights were assigned to Pismo-98, LLC, which then entered into an agreement in 2011 with Central Coast Development Company (CCDC) to assign 100 acre-feet of the 140 acre-foot allocation to CCDC. Pismo-98, LLC later assigned the remaining 40 acre-foot allocation to the City.
CCDC is a parent company of Pacific Harbor Homes, LLC, which was the developer of the Los Robles del Mar property on the southern end of Pismo Beach. Starting in approximately 2015, CCDC ceased reimbursing the City for the carrying costs of the 100 acre-foot water allocation CCDC acquired from Pismo-98. The City filed suit against CCDC in 2015 to recover the carrying costs, and the matter was set for trial in November 2022. All other litigation between the City and CCDC has previously been finally resolved.
The City and CCDC have agreed to resolve the lawsuit through a settlement agreement and modification to the water pre-sale agreement that will transfer 80 acre-feet of the CCDC allocation to the City permanently without cost to the City. The remaining 20 acre- foot allocation will remain with CCDC, but until CCDC requests to use the allocation, the City is free to use the allocation, and the City will be responsible for paying the fixed and variable costs associated with the 20 acre-foot allocation. If CCDC requests use of the water allocation, it will be responsible for obtaining all necessary approvals from LAFCO and any other governmental entities to use the water, and it will be responsible for constructing any infrastructure needed to facilitate delivery of the water. If CCDC fails to either use the water or transfer its rights to the water with City approval within 15 years, the remaining 20 acre-foot allocation will revert to the City without cost to the City.
The settlement agreement will end the litigation between the parties, and each side will bear its own attorneys’ fees.
9.K-1Council Agenda 10-4-2022
Conclusion and Recommendation
Staff recommends that the City Council adopt a Resolution (Attachment 1) approving, and authorizing the City Manager to execute, a Settlement Agreement/Amendment to Water Pre-Sale Agreement with Central Coast Development Company.
FISCAL IMPACT:
The fiscal impact of approving this agreement is anticipated to be neutral, in that the City has been paying for the State Water Project allocation continuously since 1992, and the City has incorporated the costs of the State Water Project water into water rates and the voter-approved special water tax since that time. In anticipation of CCDC not reimbursing the City for the $893,316 for these State Water Project costs, this amount has been recognized as not likely to be received and is already incorporated into the City’s Water Tax Fund and Water Enterprise Fund calculations and rates. The City will continue to pay the costs of the State Water Project water it has contracted to receive, but if CCDC uses the water allocation, it will be responsible for the fixed and variable costs of the 20 acre- foot allocation at that time.
The City will be giving up its rights to reimbursement for approximately $890 thousand in back carrying charges from CCDC by settling the lawsuit, but the City will obtain full control of 80 acre-feet of the CCDC Allocation. This will assist the City in ensuring its water supply into the future.
ALTERNATIVES:
1. Do not authorize the Agreement; provide staff with direction on how to proceed.
ATTACHMENTS:
1. Resolution
1.A. Exhibit A to Resolution: Settlement Agreement
Submitted By: Meeting Date: October 4, 2022
Dave Fleishman, City Attorney
City Manager Approval:
9.K-2Council Agenda 10-4-2022
RESOLUTION NO. R-2022-XXX
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PISMO BEACH,
CALIFORNIA APPROVING A SETTLEMENT AGREEMENT/AMENDMENT TO
WATER PRE-SALE AGREEMENT WITH CENTRAL COAST DEVELOPMENT
COMPANY, AND AUTHORIZING THE CITY MANAGER TO EXECUTE THE
AGREEMENT ON BEHALF OF THE CITY
WHEREAS, In 1992, the City entered into an agreement with Pacific Coast Homes for “pre-sale” of State Water in which the City agreed to request an additional 140 acre-feet per year from the State Water Project, above its allocation of 1100 acre-feet per year, provided Pacific Coast Homes paid the costs for the additional water; and WHEREAS, in September 2005, the water presale agreement rights were assigned to Pismo-98, LLC, which then entered into an agreement in 2011 with Central Coast Development Company (CCDC) to assign 100 acre-feet of the 140 acre-foot allocation to CCDC; and
WHEREAS, starting in approximately 2015, CCDC ceased reimbursing the City for the carrying costs of the 100 acre-foot water allocation CCDC acquired from Pismo-98; and WHEREAS, the City filed suit against CCDC in 2015 to recover the carrying costs, and the matter was set for trial in November 2022; and
WHEREAS, the City and CCDC have agreed to resolve the lawsuit through a settlement agreement and modification to the water pre-sale agreement that will transfer 80 acre- feet of the CCDC allocation to the City permanently without cost to the City, with CCDC retaining the rights to 20 acre-feet of the allocation for potential future use.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Pismo Beach hereby approves the Settlement Agreement/Amendment to Water Pre-sale Agreement substantially in the form attached hereto as Exhibit A, and authorizes the City Manager to execute the agreement on behalf of the City.
UPON MOTION OF Council Member , seconded by Council Member , the foregoing resolution was adopted by the City Council of the City of Pismo Beach this 4th day of October 2022, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
RECUSED:
Approved: Attest:
9.K-3Council Agenda 10-4-2022
Attachment 1
________________________ ________________________
Ed Waage, Mayor Erica Inderlied, City Clerk
9.K-4Council Agenda 10-4-2022
Attachment 1
12872-0006\2723624v1.doc
SETTLEMENT AGREEMENT/AMENDMENT TO AGREEMENT FOR PRE-SALE OF
STATE WATER
This Agreement (the “AGREEMENT”), dated October 4, 2022, is entered into by and between Pacific Harbor Homes, LLC, Pacific Harbor Homes, Inc., and Central Coast Development Company (“CCDC”) on the one hand, and the City of Pismo Beach (CITY) on the other hand, collectively the PARTIES, on the following terms and conditions:
RECITALS
A. On May 21, 1992 the CITY entered into an agreement with Pacific Coast Homes (“PCH”)––the Agreement for Pre-Sale of State Water (the “PCH AGREEMENT”). Under the PCH AGREEMENT, the CITY among other things, (i) agreed to obtain an additional allocation of State of California Water Project water (“STATE WATER”) in the amount of 140 acre-feet per year (the “ADDITIONAL ACRE-FEET ALLOCATION”), and (ii) granted to PCH an exclusive right to use the ADDITIONAL ACRE-FEET ALLOCATION on specific property subject to certain conditions.
B. Gragg Canyon Ranch, LLC (“GRAGG CANYON”), as successor to PCH, subsequently assigned all of its right, title, and interest under the PCH AGREEMENT to Pismo- 98, LLC, an Arizona limited liability company (“PISMO-98”). Concurrently with the CITY’s consent to the assignment, the CITY, GRAGG CANYON, and PISMO-98 entered into Amendment Number 1 to the PCH AGREEMENT dated as of September 5, 2005, pursuant to which certain real property owned by PISMO-98 was substituted for the real property described in the original PCH AGREEMENT.
C. In 2011, Pismo-98 assigned its right, title, and interest in 100 acre-feet of the Additional Acre-Feet Allocation (the “100 ACRE-FEET ALLOCATION”) to CCDC, CCDC agreed to assume PISMO-98’s obligations regarding the payment of fixed and variable costs associated with the 100 ACRE-FEET ALLOCATION, and real property owned by CCDC was substituted for the PISMO-98 property. The PCH AGREEMENT, Amendment No. 1, and the agreements regarding the assignment and assumption of obligations related to the 100 ACRE- FEET ALLOCATION are referred to herein collectively as the “STATE WATER AGREEMENTS.”
D. On November 24, 2015, the CITY filed a Complaint for Breach of Contract and Declaratory Relief against Pacific Harbor Homes, LLC, Pacific Harbor Homes, Inc., and CCDC (collectively “DEFENDANTS”) regarding payments the CITY alleged were due under the STATE WATER AGREEMENTS––City of Pismo Beach v. Pacific Harbor Homes, Inc., et al. (San Luis Obispo County Case No. 15CV0627) (the “LAWSUIT”).
E. DEFENDANTS and the CITY now wish to settle their differences with respect to the LAWSUIT, and amend their obligations under the STATE WATER AGREEMENTS.
NOW, THEREFORE, in consideration of the foregoing recitals and the promises, mutual covenants and warranties set forth herein, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:
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TERMS OF SETTLEMENT
1. Assignment of 80 Acre-Feet of the 100 ACRE-FEET ALLOCATION to CITY CCDC hereby transfers and assigns to CITY permanently and without cost, and the CITY hereby accepts, CCDC’s interest in 80 acre-feet of the 100 ACRE-FEET ALLOCATION.
2. CCDC Retains Right to 20 Acre-Feet of the 100 ACRE-FEET ALLOCATION
2.1. The remaining 20 acre-feet of the 100 ACRE-FEET ALLOCATION shall remain a CCDC asset (the CCDC ALLOCATION”). However, until CCDC notifies CITY under paragraph 3.1 below that CCDC intends to use the CCDC ALLOCATION (if and when the CCDC development is approved by the County of San Luis Obispo, or another agency), CITY may use the CCDC ALLOCATION as it sees fit, without notice or payment to CCDC.
2.2. All costs and obligations associated with the CCDC ALLOCATION shall be borne by the CITY, until such date as CCDC notifies the CITY under paragraph 3.1 below that CCDC intends to use the CCDC ALLOCATION, or any portion thereof. From that date forward, CCDC shall be obligated to pay both fixed and variable costs associated with the CCDC ALLOCATION, as contemplated in the STATE WATER AGREEMENTS.
2.3. If CCDC decides not to pursue development of its property, if another source of water is located, or for any other reason, CCDC may sell or transfer the CCDC ALLOCATION pursuant to the terms of the STATE WATER AGREEMENTS.
2.4. If CCDC does not, however, develop its property within fifteen (15) years of the date of this AGREEMENT, or for any reason fails to call for, sell, or transfer the CCDC ALLOCATION within that 15-year period, then all rights, title, and interest in the CCDC ALLOCATION shall automatically revert to CITY permanently, and at no charge to either party.
3. CCDC’s Use of the CCDC ALLOCATION
3.1. If and when CCDC wants access to the CCDC ALLOCATION for use on CCDC’s property, it must notify the CITY, in writing, before October 1st of the preceding year.
The notice must be in writing and delivered to the CITY clerk, with copies to the CITY’s City Attorney, City Manager, and Director of Public Works/City Engineer.
3.2. If and when CCDC notifies the CITY as described in paragraph 3.1, the CITY will make the CCDC ALLOCATION available to CCDC through use of the CITY’s existing infrastructure, as allowable by law. The PARTIES recognize that approvals from the San Luis Obispo Local Agency Formation Commission (“LAFCO”), or other agencies, may be necessary to allow delivery of the CCDC ALLOCATION to CCDC or its transferee. Any applications to LAFCO, or any other agency, shall be the sole responsibility of CCDC and at the sole cost of CCDC. The CITY shall not object or oppose any application to allow delivery of the CCDC ALLOCATION that is consistent with this AGREEMENT.
3.3. The PARTIES also recognize that additional infrastructure may be required to allow for delivery of the CCDC ALLOCATION. Any additional infrastructure that is
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needed to facilitate delivery of the CCDC ALLOCATION will be the sole responsibility of CCDC. The CITY will not construct, nor be responsible for the constructing, any additional infrastructure for the sole benefit of CCDC, or its successor in interest.
4. Waiver/Release
The CITY has alleged in the LAWSUIT that DEFENDANTS owe CITY past due amounts of fixed and variable costs of the 100 ACRE-FEET ALLOCATION. In response DEFENDANTS have alleged that the CITY used a portion of the 100 ACRE-FEET ALLOCATION without notice or payment to DEFENDANTS.
Effective as of the date of this AGREEMENT, the PARTIES waive any right to recover any amounts potentially owed to the other for costs associated with the 100 ACRE-FEET ALLOCATION through the date of this AGREEMENT. The PARTIES expressly waive any and all provisions, rights, and benefits conferred by California Civil Code section 1542 or any law of any state or territory of the United States, or principle of common law, which is similar, comparable, or equivalent to the provisions of California Civil Code section 1542, including that provision itself, which reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE
CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE
MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR OR RELEASED PARTY.
The PARTIES intend, in executing this AGREEMENT and doing the acts called for herein, that this AGREEMENT constitutes a full and final accord and satisfaction and settlement of and a bar to each and every item hereby released. In connection with such waiver, the PARTIES acknowledge that they are aware that they may hereafter discover facts different from or in addition to the facts they now know or believe to be true.
5. Dismissal With Prejudice
Within ten (10) court days of this AGREEMENT being fully executed by the PARTIES the CITY will request dismissal of the LAWSUIT, with prejudice.
6. Costs and Fees
Each party shall bear its own costs and attorneys’ fees.
7. Representations and Warranties
7.1. This AGREEMENT contains the sole and entire agreement and understanding of the PARTIES with respect to the entire subject matter of this AGREEMENT, and any and all prior discussions, negotiations, commitments, or understandings related to this AGREEMENT, if any, are merged in this AGREEMENT. No representations, oral or otherwise, express or implied, other than those contained in this AGREEMENT, have been or shall be
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deemed to have been made by any party. This AGREEMENT may not be amended, canceled, revoked or otherwise modified except by written agreement executed by all PARTIES.
7.2 The advice of legal counsel has been obtained by each of the PARTIES prior to the execution of this AGREEMENT. A responsible director, officer, board member or elected official of each party has read this AGREEMENT and understands the contents hereof.
Each party represents that it is fully able to comply with the terms of the AGREEMENT and will be remain able to comply with said terms for the foreseeable future. Each director, officer, board member or elected official executing this agreement on behalf of such party is empowered to do so and to thereby bind said party. Each of the PARTIES hereby executed this AGREEMENT voluntarily.
7.3 The PARTIES represent and warrant that no part of any claim or cause of action which it had, has, or might have, arising out of, or in any way related to, the matters that are the subject of this AGREEMENT, has been assigned or transferred in any manner to any other person or entity not a party to this AGREEMENT.
8. Enforcement of Settlement
In any proceeding to enforce any rights and/or construe any obligations under this AGREEMENT, the prevailing party in such proceeding shall be entitled to recover its reasonable attorneys’ fees and costs in connection therewith, including reasonable attorneys’ fees and costs relating to any and all appeals or petitions taken with respect to any such action or proceeding.
9. Interpretation
The various headings of the paragraphs of this AGREEMENT have been inserted for convenience of reference only and shall not affect the meaning or interpretation of this AGREEMENT or any of its provisions.
The Court shall retain jurisdiction to enforce the terms of this AGREEMENT, pursuant to Code of Civil Procedure section 664.6. This AGREEMENT shall be interpreted and enforced in accordance with the laws of the State of California, provided that no provision of this AGREEMENT shall be interpreted for or against a party because that party or parties’ legal representative drafted such provision, and that this AGREEMENT shall be construed as if jointly prepared by the parties.
10. Severability
If any part of this AGREEMENT is determined or adjudicated to be invalid, unenforceable, or void for any reason whatsoever, each such part shall be severed from the remaining parts, and shall not affect the validity or enforceability of such remaining parts.
11. Counterparts
This AGREEMENT may be executed in one or more counterparts, each of which shall be deemed an original. A facsimile or electronic signature shall be deemed to be the equivalent of
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the actual signature. All counterparts so executed shall constitute one AGREEMENT binding all the parties hereto.
DATED: October ___, 2022 LAW OFFICE OF K.M. NEISWENDER
By:
Kate Neiswender
Attorneys for Defendants Pacific Harbor Homes, Inc.,
Pacific Harbor Homes, LLC, and Central Coast
Development Company
DATED: October ___, 2022 Pacific Harbor Homes, Inc., Pacific Harbor Homes, LLC, and Central Coast Development Company
By:__________________________________
Darin Kruse
President of Pacific Harbor Homes, Inc., and Central
Coast Development Company
DATED: October ___, 2022 RICHARDS WATSON & GERSHON
A Professional Corporation
By:
David Fleishman
Attorneys for Plaintiff
CITY OF PISMO BEACH
DATED: October ___, 2022 CITY OF PISMO BEACH
By:
CITY OF PISMO BEACH
9.K-9Council Agenda 10-4-2022
Attachment 1A