Crucial Court Decision Approaches For Sunnyvale Town Center

By Sharon Simonson

All eyes turn to receiver Jerry Hunt in the legal brawl to control the Sunnyvale Town Center. On March 15, Santa Clara County Superior Court Judge Peter Kirwan is expected to rule on what could be a decisive turning point in the long-contested case.

After months of pursuit by San Jose attorneys Ron Rossi and Jill Fox on behalf of Silicon Valley developer Peter Pau, Danville-based Hunt and his Quattro Realty Group have turned over an estimated 100,000 emails and other documents. Another 130,000 emails and documents from RREEF LLC, Pau’s former partner at the Town Center redevelopment, also have been produced.

The receiver now seeks to present to the court his final accounting of the Town Center receivership in a process that the receiver’s attorneys argue should be “routine.” If the report were accepted and the receiver discharged by the judge, the receiver’s actions would no longer be subject to legal challenge.

Instead, Rossi and Fox are seeking an evidentiary hearing to test the receivers’ expenditure of more than $80 million on the mammoth redevelopment. During an evidentiary hearing, attorneys for both sides may call witnesses and offer documents as evidence. They also are permitted to examine and cross-examine witnesses, who testify under oath. The receiver opposes such a hearing.

Three times during a Feb. 23 session with attorneys to manage the huge and complicated case, Judge Kirwan sought assurance from the receiver’s attorney Steven Holland that the receiver has delivered all documents responsive to Pau’s requests. Holland agreed to provide a sworn statement Feb. 27 to the court stating his belief that all discovery material had been rendered. Rossi expressed doubt that in fact the receiver has turned over all of the responsive materials.

Though the receiver has been dropped as a defendant in Pau’s lawsuits, his actions during the receivership remain at the center of Pau’s legal complaints. Pau is suing RREEF, Wells Fargo & Co. and First American Title Insurance Co. Pau, himself, is being countersued by RREEF. He seeks to set aside the August 2011 foreclosure sale of the Town Center to the bank.

The bank’s attorney, Katherine Ritchey of Jones Day, has complained to the court that the lawsuits have clouded title to the center.

Even before the sale, Pau sought an accounting from Wells Fargo of the $81 million in additional debt that had been added to the mortgage during the receivership. In one two-month period in spring 2011, $40 million in liens were recorded against the property. In one accounting from the bank, it said the costs included $15.9 million to general contractor Devcon Construction Inc., $32 million for the 156,000 square-foot lease to Nokia Inc., $3.7 million to the receiver and $28.3 million in project costs and project carry such as taxes, insurance and utilities.

Pau has sought for more than two years to buy the center with various investment partners. Pau claims that three legitimate offers, at market rates or above, including offers to top the highest rival bid the bank had otherwise received, have been ignored. He made three offers to the bank in February 2010, November 2010 and April 2011, according to court records.

Hunt was named the receiver for the Town Center in October 2009 at the request of Wells Fargo. Wells acquired the loan against the Town Center when it bought Wachovia Corp. the year before. Quattro is a real estate asset advisor and manager that Hunt, Mike Parker and two other Bay Area real estate veterans formed just more than two years ago to deal especially with troubled properties.

The proposed evidentiary hearing, dubbed a “mini-trial” in court documents, could flesh out for the first time allegations that the receiver, working with the financial backing of Wells Fargo, overstepped the boundaries of court directions and became a developer of the massive project rather than a steward.

Pau alleges that the bank used the receivership as a vehicle to prepare the Town Center for what it hoped would essentially be a private sale. The bank originally sought to have the receiver sell the property and never to foreclose, keeping the bank from the chain of title. The receiver, in fact, engaged in a months’ long process via commercial brokerage Eastdil Secured to select a buyer before Pau challenged the plan, and the court ruled with him. Eastdil is owned by Wells Fargo.

Pau did not contest the bank’s plans for the receiver initially in part because he believed the bank intended to foreclose on the property as fast as possible, giving him an opportunity to buy the center at auction. On Sept. 30, 2009, Peter Haley, a Wachovia managing director for real estate special assets, told Pau that the bank expected to take the property to foreclosure sale four months after filing the notice of default, which it had done one week before, according to an email to Pau from Haley attached as an exhibit to one of Pau’s complaints.

Elsewhere in the email, Haley asks Pau not to contest the receiver’s appointment, not to contest the auction and not to allow the borrower to file for bankruptcy. “Thank you again for your cooperation. Please give my regards to Susanna and I look forward to seeing you again soon on my next visit to California,” Haley tells Pau in closing. Susanna is Pau’s wife and business partner.

Instead, the bank delayed the foreclosure sale for more than two years, during which time the receiver incurred nearly $80 million in additional costs paid by the bank above the original $108.8 million loan.

The receiver and the bank say the actions of the receiver are protected by the court’s order. “In its motion to appoint the receiver, [Wells] expressly requested authorization for the receiver to borrow money to preserve and manage the property and for the lien securing those borrowings to have the same priority as the initial sum advanced under the deed of trust,” the bank argues in its filings.

“While Pau has variously speculated about a long list of grievances over decisions he wishes were made differently, Pau has not to date pled a single allegation that any of the receiver’s decisions or actions were not authorized by the appointment order or subsequent orders of this court,” Holland writes in one filing. “Until Pau does so, he should not be allowed to impose on this court, the receiver or the dwindling funds of the receivership estate, merely to serve Pau’s whim.”

The receiver has no personal liability for actions taken in compliance with court order, Holland notes.

The weight of the suits and countersuits has overwhelmed Kirwan, who soldiered through the Feb. 23 case-management session with a decidedly stoic air. In his opening sentences, the judge said in deadpan style that the case involves, “to put it mildly, a fair amount of moving parts we need to manage.” The parties have agreed to jointly finance the services of retired Superior Court Judge James Emerson to manage the discovery process.

Rossi has secured permission from Judge Emerson to depose Eastdil Secured’s Senior Managing Director Jeffrey Weber, Director Robb Wehmueller and Vice President Paul D. Nelson, all of whom were on the brokerage sales team that sought to sell the Town Center for the receiver. The receiver’s attorney opposed those depositions.

Now Rossi wants to depose RREEF executives Ashley Powell and Catherine Minor, managing director and project manager, respectively, for the RREEF entity that owned the Town Center, RREEF America REIT III. He also is seeking to depose two Wells Fargo workers. The bank’s attorney has objected.

Kirwan asked the attorneys to prepare five-page briefings on their legal arguments for and against the evidentiary hearing on the receiver’s final account. He demanded those be filed by end of day March 7. One week later, on March 15, Kirwan said, he plans to announce his decision.

Image courtesy of Dougherty Architectural Consulting

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