The developer who won a $41 million lawsuit against the city of Half Moon Bay has made payments to a company that is lobbying for the city. This apparent conflict has upset Sen. Leland Yee, D-San Francisco, a one-time supporter of legislation sought by the city to validate its settlement agreement with the developer.
However, a principal with the firm, California Strategies, said it had separate agreements with the city and developer Charles "Chop" Keenan. Both Keenan and the firm's Jason Kinney said California Strategies did no lobbying for Keenan, and the firm is no longer working for him.
California Strategies is a multi-faceted public relations, political consulting, and lobbying firm that is one of the most influential in California.
The payments by Keenan to the firm came to light at a meeting of the Half Moon Bay City Council on Tuesday night. In a Wednesday story in the Half Moon Bay Review, city councilman Jim Grady was quoted as saying he was "uncomfortable" with Keenan paying "$20,000 a month" to California Strategies. The firm has been retained by the city to push for the passage of AB 1991, a bill designed to get around regulatory barriers to the settlement. According to the news report, Keenan was paying half of the city's $40,000 a month lobbying bill.
This allegation drew a sharp rebuke from Yee. Yee said "you could paint a pretty picture" about how the city and Keenan are now working together to pass a bill that will work in both of their interest. He said he was troubled that California Strategies lobbyist Rusty Areias met with him in May and June without disclosing that the firm also was being paid by Keenan.
"I was shocked and dismayed that something like that would have happened," Yee said. "At the very least, you would think that California Strategies would reveal their potential conflict of interests."
Kinney said it was inaccurate to say that Keenan was paying the city's lobbying bills. He also said that both sides were aware of the lobbying and consulting operations surrounding the issue.
"I understand the confusion, because the early media report mischaracterized the nature of these separate agreements," Kinney said.
California Strategies is split into three businesses — a consulting arm, a communications arm, and a lobbying firm employing nine registered lobbyists. Areias and other lobbyists have been working to ensure the passage of AB 1991, Kinney said. Meanwhile, the settlement agreement with the city required Keenan to work to make sure the settlement is successful. His development company signed a separate agreement with the consulting side of California Strategies. Kinney said they talked to Keenan about the "legal principles" of the agreement and what "would pass policy muster." City officials knew about the contract with Keenan, Kinney said.
"Our advocates are lobbying on behalf of the city, and the city only, and we are proud to represent them through this fiscal crisis," Kinney said. "Separate and apart from that, our consulting firm had an agreement to provide strategic consulting advice to the developer. We're talking about different clients, different contracts. No one at this firm has ever lobbied for Mr. Keenan, nor has Mr. Keenan attended any lobbying meetings."
Keenan confirmed Kinney's version of his deal with California Strategies. He contracted for two and a half months of consulting services at $20,000 a month, for a total payment of $50,000. The deal expired on July 1. Lobbyist filings on the Secretary of State's website disclose no lobbying payments from Keenan to California Strategies.
"It's in the city's interest to get AB 1991 passed," Keenan said. "It's also in my interests. We have a community of interest. The way Jason characterized it is exactly right." When asked why he needed consulting services, Keenan said, "I'm just really not clear on how thing works up there. I felt I needed guidance."
Yee was quoted in a Review story posted late Thursday saying the disclosure that California Strategies had worked for both Keenan and the city an "atomic bomb" that threatened the firm's credibility. Yee's office said that even if Keenan was paying a separate division of California Strategies, he still sees a conflict of interests.
"In every field you can imagine, there is always the general principle that you cannot serve two masters," Yee told the Capitol Weekly. He added: "If this conflict of interest was not a big issue, then why not reveal it?"
Yee's concerns were echoed by Mike Ferriera, a pro-environmental former mayor of Half Moon Bay who lost his reelection bid in 2005 by eight votes.
"It's been clear that this isn't going to go through the Senate without some changes," Ferriera said. "Whose interest is Areias representing? There is a clear divergence there."
Both Kinney and a spokesperson for Senate Pro Tem Don Perata, D-Oakland, confirmed that there were intense negotiations going on to amend AB 1991 into something that would be palatable for the city, Keenan, and environmental opponents. Perata's office said the bill was put onto the Senate Rules Committee suspense file to keep it from being killed off by bill deadlines that are coming due as session nears its conclusion.
AB 1991 was introduced by the area's Assemblyman, Gene Mullin, on Valentine's Day. It was written to smooth the way for a settlement between the city and Keenan that would allow him to build on two parcels, including one that has been the subject of legal wrangling between the two sides since the 1990s. In return, Keenan will drop his financial claims against the city. If AB 1991 does not pass, the settlement calls for the city to buy the land from Keenan for $18 million.
As the state senator representing the area, Yee had originally agreed to be the Senate co-author for the bill. However, after several environmental groups and the California Coastal Commission came out against the bill on the grounds that it would set a precedent that could allow other cities to skirt state environmental laws, Yee dropped his support. The bill passed the Assembly on a 46-18 vote on May 28.
It now sits in the Senate Rules Committee. Yee said the bill likely will have to be amended in order to get out of the Senate. That means that Keenan and the city cannot yet be considered on the same side, Yee said, because changes in the bill could make for a better or worse situation for both the city and the developer.
The settlement came in response to a Nov. 28 ruling by U.S. District Judge Vaughn Walker. Walked ruled that work done by the city had caused water to drain into the 24-acre property controlled by Keenan. Walker, who is known for applying novel interpretations of property rights in his rulings, ruled that this constituted an illegal "taking" by the city. The award — $41.1 million, including attorneys' fees — amounted to four times the city's annual budget.
Neither Grady nor the city's law firm, Orrick Herrington & Sutcliff LLP, had returned calls seeking comment as of press time.