Santa Ana files lawsuit after company halts construction on homeless shelter

Santa Ana filed a federal lawsuit this week after a company halted construction on a crucial homeless shelter in the city.

The long-awaited Carnegie Avenue homeless shelter was nearing completion when the company that owns the property, Dyer 18 LLC, allegedly stopped working on it late last week. The city is now seeking an injunction ordering Dyer to continue construction on the homeless shelter.

The lawsuit comes just months after Orange County tallied the highest number of homeless deaths in a single year.

“Without the shelter, more than 200 unhoused individuals will lose access to temporary housing and potentially remain unhoused in and around Santa Ana,” the lawsuit says. “This is the consequence of Dyer’s actions ... Without court intervention, the shelter will remain unfinished, resulting in severe hardship to those depending on it.”

Following approval from the City Council, the city signed a long-term lease agreement with Dyer on March 1, 2021 to operate the shelter at the 29,000-square-foot building at 1815 E. Carnegie Ave.

The plan has been for the city to initially provide 200 beds at the Carnegie shelter before later adding another 100 beds. In the lawsuit, the city says that a major provision of the lease was that the city had the option to purchase the property for $9.2 million in the second year of the agreement — beginning on March 1 — for a period of five years.

“In a cunning ploy to strip the city of the option to purchase the Carnegie property and coerce the city into giving up this right, [Dyer] has alleged several breaches of the lease agreement by the city,” the lawsuit reads, “whereby [Dyer] claims that the purchase option is no longer available to the city and has threatened termination of the lease agreement.”

A homeless man at a former encampment at the Santa Ana Riverbed.

(Allen J. Schaben/ Los Angeles Times)

City officials found that construction has stopped on the property since at least Friday, though it was nearing completion and was expected to open later this month or in April, the lawsuit says. The city contends in a press release about the lawsuit that this seems to be guided by the belief of Dyer representatives Ryan and Jeremy Ogulnick that the Carnegie property is now “worth more than the purchase price agreed to with the city” and that they “desire to delay the sale for tax purposes.”

The city also claims in its lawsuit that Dyer may be retaliating in response to the city filing a state lawsuit earlier this month which made similar claims to the federal suit in order to get the company to abide by the terms of the lease agreement and allow the city to purchase the property.

Dyer representatives could not be reached by press time, and calls to a number listed as belonging to the company went to an unrelated business.

“Under the lease agreement, and at the city’s cost, [Dyer] is obligated to construct, furnish, and install within the Carnegie property all improvements to enable the city to operate the shelter,” the state lawsuit says.

According to the state lawsuit, Ryan Ogulnick reached out to the city in late October and said that the sale of the property to the city concerned him because it could have “severe tax implications for him.” He later provided an amendment of the lease agreement to the city that rescinded the city’s purchase option. The city didn’t agree to the proposed amendment.

“In response, Dyer began a series of ominous correspondences to the city alleging various defaults and breaches of the lease agreement by the city, including late payment of rent, late payment of costs for construction of the improvements Dyer was making for the shelter, and a lack of prior notice to Dyer of the IF Operator Agreement,” the state lawsuit says. “Not one of these alleged breaches were ever raised by Dyer prior to the city’s rejection of Mr. Ogulnick’s requested amendment to the lease agreement, and the city disputed them all. Dyer contends that, as a result of these alleged defaults and breaches, the purchase option in the lease agreement is no longer available to the city.”

In the federal suit, the city also noted that the Carnegie shelter is required as part of a settlement agreement in 2019 regarding a federal lawsuit launched by homeless advocates against a few cities after the removal of a tent city near Angel Stadium. In the wake of that lawsuit, several cities had to open emergency homeless shelters and Santa Ana pledged to open a 200-bed homeless shelter.

At that time, the city already had a 200-bed shelter, the Link, and the county-run, 425-bed shelter, the Courtyard. Both of those shelters have since shut down.

Currently, the city has 100 beds available at a shelter on Commonwealth Avenue in Fullerton and another 75 beds at the Salvation Army Hospitality House. Santa Ana city spokesman Paul Eakins said Tuesday that the city has an agreement with the county to receive priority access for 125 beds for Santa Ana residents in the county’s Yale Street shelter in Santa Ana, which has a capacity of 425. Eakins also said that the city has a family motel program for families in need of shelter.

However, there seemed to be a deficit of shelter beds last year in the city when a homeless encampment popped up in the parking lots of a Mexican cultural center, El Centro Cultural de México. Dozens lived in tents in front of the center until the city cleared the lots through an abatement order.

In the federal suit, the city also took umbrage with the fact that construction has halted despite the city recently approving more funding for the site.

The city says in the lawsuit that the lease agreement estimated the cost of construction to be about $8.5 million with an extra contingency cost of $850,000. However in January, Dyer told the city that it would need to use the contingency money and another $1.3 million to complete construction. The City Council then approved another $2 million for the project in mid-February. That increased the total allowable expenses for the project to more than $11.3 million.

“This is a shocking turn of events, and especially at odds with Dyer’s public claims of expertise in building homeless shelters in speedy and cost-effective fashion ...” the lawsuit says.

Support our coverage by becoming a digital subscriber.