Schwarzenegger-era real estate deal is focus of lawsuit
SACRAMENTO — Gov. Jerry Brown is embroiled in potentially costly lawsuit over a Gov. Arnold Schwarzenegger-era real estate deal gone bad.
At the center of the legal battle is the Golden State Portfolio, a collection of 11 state office buildings, including two in downtown Los Angeles, that Schwarzenegger agreed to sell to investors for $2.3 billion before leaving office at the end of 2010.
Schwarzenegger launched the deal to help fill a $25-billion deficit in the recession-racked state budget.
But Brown, who took over in January 2011, promptly canceled the sale. He called it a waste of money to sell valuable office space, only to lease back the same property.
Now, frustrated investors who thought they had a deal are suing in San Francisco County Superior Court They want the state to complete the sale and pay economic damages that they say are in the “hundreds of millions of dollars at a minimum.”
California First — a investment partnership of a Texas real estate company and a private equity firm in Irvine — won a procedural victory in the case three weeks ago, when a judge denied the state’s motion to dismiss the lawsuit.
“Brown wanted to distance himself from the sale,” California First lawyer Angela C. Agrusa said. “It was a politically motivated decision that left our client with a broken contract. In the world of law, a deal is a deal, even if it’s with the governor.”
The California Department of General Services, which hustled to complete the deal under the Schwarzenegger administration, now argues that the lawsuit has no merit. The sale never closed because another judge in a related case suspended the proceedings, forcing the buyers to miss a deadline for finalizing the sale.
Eric Lamoureux, a department spokesman, said the Brown administration “is confident that it will prevail.”
Only one bill is still alive in the Legislature that would regulate the controversial use of hydraulic fracturing to drill for new sources of oil and natural gas.
The measure, SB 4 by Sen. Fran Pavley (D-Agoura Hills), was substantially amended in June by a Senate committee. But it faces an uncertain fate in the Senate Appropriations Committee as early as this week.
Even if Pavley gets the bill through the Legislature, it’s uncertain whether Brown would sign it. Oil industry representatives testified this year that it made more sense to defer a law until new fracking regulations are issued by the state Department of Conservation.
Fracking involves the high-pressure pumping of a mixture of water, sand, chemicals and sometimes acid deep underground to tap potentially vast pockets of oil and gas. Environmental groups fear that it could contaminate drinking water supplies.
Pavley’s bill would provide essential information to people living near drilling operations. She said: “It’s strong on disclosure and accountability and transparency, which has been lacking.”