Judge Denies Request from Pau for ‘Mini-trial’ in Sunnyvale Center Case

By Sharon Simonson

Peter Pau and his Sand Hill Property Co. will not be allowed to stage a full evidentiary hearing to vet the activities of a court-appointed receiver named to care for the Sunnyvale Town Center. But Santa Clara County Superior Court Judge Peter H. Kirwan said he still expects to hear oral arguments from attorneys and to receive legal motions, including sworn statements rendered in writing.

“I want a finish line here. This has gone on long enough. It is time to get this on the calendar and heard,” Kirwan said. He set the hearing for 2 p.m. May 17.

Pau is challenging receiver Jerry Hunt’s expenditure of more than $85 million at the Sunnyvale Town Center beginning in the fall of 2009. He is seeking to have set aside an August 2011 foreclosure sale of the 19-acre redevelopment and has repeatedly tried to buy the property from lender Wells Fargo & Co., which has refused to sell it to him.

Pau’s attorneys, Ron Rossi and Jill Fox, have sought to expand the review of the receiver’s so-called Final Accounting into a mini-trial with testimony from witnesses and cross-examination. Such a proceeding would be unusual in these circumstances, attorneys said. The receiver has tried since Nov. 4 to have his Final Account and Report approved by the court. Hunt was named the receiver of the Town Center in October 2009 after RREEF LLC stopped making mortgage payments to lenders Wells and Bank of America.

The Town Center has metamorphosed from a discarded asset only two years ago to a sought-after location by the likes of Apple Inc. and Nokia Inc. Both technology companies have leased full office buildings at the Town Center, which is adjacent to an all-important Caltrain station and is to have a mix of offices, retail and housing.

Kirwan told the attorneys at the start of the March 25 case management conference that he did not intend to allow Pau to stage the evidentiary hearing. Rossi, in a final bid to persuade the judge to rule otherwise, produced a copy of an April 25, 2011, email exchange between Hunt and Hunt’s business partner, Mike Parker.

Rossi said the exchange had come to light only in the last several days. The filing was a surprise to other attorneys in the case. The email is among the first pieces of discovery that have surfaced publicly in the case and is at least the second email message or email exchange that has figured in legal arguments and may prove significant to the conflict’s outcome.

In the exchange, Hunt and Parker refer to Pau’s Chinese heritage in a sarcastic way. In the first electronic message, Hunt tells Pau that he cannot accept an offer from him to buy the Sunnyvale Town Center because Hunt has already entered into a contract with another prospective buyer. Hunt copied Parker on the message to Pau. Parker responded to Hunt by saying, “Kung Pau!!!”

To which Hunt replied, “This is entertaining.”

Parker then responded: “Maybe we can discuss with them over lunch again, but I want to go to the best Chinese place in town, and I will order Kung Pau chicken, beef and shrimp!!! (in a coconut shell w/puffed pastry on top).”

The email illustrates the prejudice that Hunt has demonstrated against Pau throughout the receivership process, Rossi told the court. By not forcing witnesses to testify in person, the judge was being deprived of the opportunity to scrutinize their comportment for clues as to their credibility and truthfulness. “We have shown all along of the bias of the receiver toward our client,” Rossi said.

But Kirwan was unmoved, directing Rossi to submit the emails as part of the rest of his evidence. “If we turn this into an evidentiary hearing, it will turn into days and weeks,” Kirwan said. He assured the parties that he would review their filings carefully.

Pau originally sued the receiver along with the bank and RREEF but subsequently dropped the complaint against the receiver. But Fox and Rossi have still succeeded in forcing the receiver and RREEF LLC, Pau’s former business parter at the Town Center, to produce 230,000 emails and documents in discovery; another roughly 26,000 documents are to be delivered no later than April 10.

Eight attorneys filled Kirwan’s courtroom for the session: four representing Pau and four more representing the receiver, Wells Fargo and RREEF. Pau’s attorneys sat together at one table and the other attorneys sat together at a second. “The crowd at the tables keeps getting bigger,” Kirwan said as he entered the courtroom.

The bank sought to have Hunt appointed receiver in 2009. Hunt had never been a receiver before. Pau contends that Hunt has not been impartial in the execution of his duties, as required by law. For two years, “the receiver did not provide any monthly accountings required by Rule 3.1182, but gave reports to [the bank] almost daily,” Rossi said. “If the court finds that [the bank] was the force behind the attempted receiver’s sale, the receiver was not acting independently or neutrally but on behalf of [the bank] to thwart Mr. Pau’s rights in the property and efforts to pay off the loan and/or buy the property.”

The judge did not rule on a motion from the receiver to disqualify Pau’s counsel. Besides San Jose law firm Rossi, Hamerslough, Reischl & Chuck, Pau has retained as co-counsel Wendel Rosen Black & Dean LLP. A brouhaha has arisen surrounding attorney Kevin Brodehl, who joined Wendel Rosen from the former law firm Morgan Miller Blair. Morgan Miller Blair represented the receiver.

The receiver’s attorneys have raised the conflict and have sought not only to have Wendel Rosen disqualified from the case but also Rossi Hamerslough under the argument that Rossi Hamerslough has been contaminated by exposure to whatever knowledge of the receiver’s affairs that Brodehl had. Attorneys for Wendel Rosen said Brodehl’s involvement in the case had been minor, an assessment the judge echoed. Still, Kirwan said he was inclined to grant the request to disqualify Wendel Rosen, though not Rossi Hamerslough, in part because of the delay and additional expense it would cause.

West Coast Commercial Real Estate News