CALL FOR INJUNCTION AND INVESTIGATION In a memo to Commissioners written the day before the December 5, 2017 Bahia Mar Commission meeting, City Attorney, Cynthia Everett, suggested the City could, should and apparently would “justify” approving the development proposal, under the lease terms and case law. However, the City Attorney’s Opinion was wrong based on both her interpretation of the Lease Terms and Case Law. First, approving or denying the Proposal were not the only choices. The Commission could also withhold or defer consent. Second, the role of the City Attorney is NOT to be an advocate of one side or another to “justify” approval. Her role is to analyze the Lease and the issues to protect the Public Interest. Third, she echoed the same argument as the Lessee’s Attorney (imagine that) that the Commission had to apply a “commercially reasonable” standard, and if they were to deny the developer’s request, they’d have to state a reason that meets that standard, such as asserting that development team lacks financial stability or would build a substandard project. However, “Commercial Reasonableness” is not the appropriate standard. Fiduciary and Trust Law recognizes three Standards of Duty: 1. Best Efforts 2. Reasonable Efforts 3. Commercially Reasonable Efforts “Commercially Reasonable” is the lowest bar and is almost NEVER applied in the realm of Private or Public Pension Fiduciary Standards. Elected Officials, in particular, are held to the highest Fiduciary Standard especially when the Public Trust is involved. The Bahia Mar property and its improvements were purchased and paid for by the Citizens of Fort Lauderdale through a Bond Issuance. It is an an investment like any other Public Pension Fund Asset. Trustees of Public Pension Funds are NOT held to a “Commercially Reasonable” Fiduciary Standard. The City Attorney and the Lessee’s Attorney based their argument on Article 24 of the Lease, that states the City “could not unreasonably withhold consent” to approve the Bahia Mar Proposal. This was their rational for wrongly interpreting the standard to mean “commercially reasonableness”. But the Lease language also obviously implies that consent can be withheld if there are “reasonable” grounds. The Memorandum from the City Auditor, the day before the Commission Meeting, provided plenty of “reasonable” grounds for deferring consent. First, the Auditor said the Proposal was only “conceptual” and “no Business Plan was available” to audit. Second, The Auditor quoted the Lessee’s own stunning admission that, the revenue projections and assumptions were not “accurate or binding”. Third, Jimmie Tate also wrote that the Lessee’s revenue projections were based on the assumption that “nearby construction” would result in a 25% decrease in Hotel Revenue and an 15% reduction in Marina Revenue which, by his own admission, is a failure to maximize revenue and a breach of the Lease. Seemingly proud of an accomplishment, the only explanations Jimmie Tate gave as to why the projected declines in revenue were not greater were: 1. “The buildings were relatively small”, and; 2. “The marina could be protected”. No other details were provided. Why didn’t the Mayor and the City Commissioners question these projections, assumptions and the two assertions? For example: What will be the total decline in gross revenue and how long will it take to recover that loss in revenue? What was the Lessee doing to insure that there would be no loss in Boat Show revenue? If there is a loss of Boat Show revenue what does Lessee intend to do to guarantee the same level of revenue to the City? Why wasn’t it asked why the Site Plan wasn’t designed in a way that the Hotel could remain in operation while a new Hotel was built in a different location on the Site? Why didn’t they ask what it meant that the “buildings were relatively small”’and what this had to do with the decline in revenues? Why didn’t they ask why revenues would decrease by only 25% if the Hotel was being torn down? Why didn’t they ask what measures were being taken “to protect the marina”? Why didn’t they ask for a market survey of current and prospective yacht owners docked at Bahia Mar as to whether they would continue to lease dockage during construction? Why didn’t they ask how many months the revenue would decline or disappear during the forecasted 7-year construction time? Why didn’t they ask how Marina revenues might be increased to offset the decrease in Hotel revenues? Given the Public testimony and evidence that Rental and Condo Sales demand has been declining the last 5 years on the Barrier Island, why didn’t they ask for market research and surveys from the Lessee to support adding 651 residential units to the Barrier Island inventory supply? Why didn’t they demand a cost-benefit analysis comparing the building of new residential units versus new hotel units? Why didn’t they demand that a Business Plan be required before granting consent? Why didn’t they insist on an up-to-date appraisal of the property? Why didn’t they require updated evidence of the financial capabilities of the Lessee as required by the Lease? Why didn’t they require proof of the Lessee’s ability to design, engineer and construct and operate a project of this size and complexity as required by the Lease? Why didn’t they ask why the Project should be constructed in phases over 7-10 years versus built simultaneously over 2-3 years? Why didn’t they ask what innovative construction techniques could be used to expedite the Project so as to minimize loss of revenue? (In fact, there are many ways to preserve and maximize Hotel and Marina revenues during a major construction project that the Lessee has not explored and, apparently, is not aware. These methods and alternative development scenarios will be the subject of a future Bahia Mar Update). All of these questions and more were necessary and sufficient reasons for the City Commission to defer or withhold its consent. Have Mayor Seiler and Commissioners Roberts and Mckinzie committed a breach of their “best effort duty” to uphold and enforce the Lease by ramrodding approval through at 3:30 in the morning? But even if “commercial reasonableness” was the standard, the Commissioners and the City Attorney are still WRONG based on case law. It would be reasonable to withhold or defer consent if there was reason to believe that performance of the contract was being negatively affected or that sufficient measures were not being taken to minimize negative performance. The standard of performance is found in the Lease’s Preamble: “...such improvements, if constructed should increase the gross revenues generated on the leased property, thereby affording additional revenues to the Lessor....” The “improvements” referred to are the original improvements to the “demised premises”. “Changes, alterations and additions” refer to modifications to the original improvements. The performance standard is again defined in Article 1.0 Section 6 Mutual Representations and Warranties as: the Lessee shall “operate” in the “greatest potential revenue producing capacity” The City Attorney’s Tuesday Memo reminded Commissioners that in her May legal opinion she advised them that Article 24 of the Lease “requires” development that provides “the greatest volume of business” (emphasis added). She misquoted the Lease. The operative word in Article 24 is “desirous”. The word “requires” never appears. That phrase is found in Article 24 Alterations and Additions: “However, both parties hereto being desirous of Lessee conducting its business in and upon the demised premises so as to provide the greatest volume of business, the Lessor agrees hereby to not unreasonably withhold its consent to changes and alterations that may be desired and proposed by the Lessee....” The “Greatest volume of business...” is what is “desired” but it is not the standard of performance by which the Lessee is being judged. “Greatest potential revenue” and “gross revenue” are not the same as “greatest volume of business”. Volume of business is a measure of “units” not “value or revenue”. Demand is a function of price. A high “volume of business” could be created by offering cheap rent but that would not create the greatest potential gross revenue. The City Attorney and the Lessee Attorney, again WRONGLY, argue that the Lessor-City Commission has an implied contractual duty to not withhold its consent. They refer to Article 24 in the Lease: “Lessor agrees hereby to not unreasonably withhold its consent to changes and alterations that may be desired that may be proposed by the Lessee, nor to exact or change any consideration for giving any consent.” It is true that in every contract there is an implied covenant of good faith and fair dealing by each party not to do anything which will deprive the other parties of the benefits of the contract, and a breach of this covenant by failure to deal fairly or in good faith gives rise to an action for damages. However, accepted case law reveals that the City Attorney and the Lessee’s Attorney misconstrued this concept as applied to the Bahia Mar Lease. First, the duty cannot expand a contract beyond its express terms or contravene terms of the agreement. See Metcalf Constr., 742 F.3d at 991; O’Tool v. Genmar Holdings, Inc., 387 F.3d 1188, 1195 (10th Cir. 2004). The Proposal contravenes the terms of the agreement to maximize revenue. Second, when a court applies the duty to a contract, the boundaries of a permissible application are defined by parties’ intent and their reasonable expectations in entering the contract. See First Nationwide Bank v. United States, 431 F.3d 1342, 1350 (Fed. Cir. 2005); Compass Bank v. Eager Rd. Assocs., LLC, 922 F. Supp. 2d 818, 825 (E.D. Mo. 2013). The Lease never contemplated 651 rental apartments. Third, courts have held that the duty is limited to contract performance and does not apply during negotiations. Scott Timber Co. v. United States, 692 F.3d 1365, 1372 (Fed. Cir. 2012); Market St. Assocs. L.P. v. Frey, 941 F.2d 588, 596-97 (7th Cir. 1991); Land O’Lakes v. Gonsalves, 281 F.R.D. 444, 453 (E.D. Cal. 2012). (Note: None of the exceptions to this doctrine that apply in government contract disputes have any application here). Also, if the City does withhold consent, the City cannot be accused of bad faith because it has not denied the benefit of the bargain originally intended by the parties which was to “operate the demised premises (Hotel and Marina) to as to maximize revenues .... Id. (quoting Zenith Ins. Co. v. Emp’rs Ins., 141 F.3d 300, 308 (7th Cir. 1998)). City officials have a presumption of good faith. Lessee would have to show that City engaged in bad faith during performance. The Lessor is not interfering or hindering the Lessee’s “operating” of Bahia Mar, only withholding or deferring “development” of Bahia Mar. The Lessee would have to show that the City tried to abrogate benefits the Lessee expected to obtain when it acquired the Leasehold. Since 651 apartment units were not contemplated in the original Lease. The Lessee has not been denied the benefit of its bargain. There was never an expectation that 651 rental apartments could be built. Is so, the prior Lessee would have never sold the Lease. It was the prior Lessee’s conclusion that the lack of a fee simple ownership was problematical to any form of major private development. Nor is the City trying to “re-appropriate” the Hotel and Marina. The Court of Federal Claims relied on Precision Pine, 596 F.3d 817, and denied the plaintiff’s claim because it failed to show that the Navy’s actions were “’specifically designed to reappropriate the benefits [that] the other party expected to obtain from the transaction, thereby abrogating the government’s obligations under the contract.’” Metcalf Constr. Co. v. United States, 102 Fed. Cl. 334, 346 (2011) (quoting Precision Pine, 596 F.3d at 829). What was promised in the Lease determines what is reasonable or not. It is not reasonable to expect that the Parties contemplated building 651 apartments on Bahia Mar. Therefore, it is not possible for the City to unreasonably withhold its consent to build something that wasn’t in the Lease or an existing part of the “demised premises”. Finally, the City Attorney really stretched when she made the incredulous argument that the City should not withhold consent because “the lease requires Tate to conduct a legitimate business”, she said, “and multi-family residential could meet that requirement.” The City Attorney must think the Public is stupid to not realize that this condition in the Lease is intended to prohibit illegal or dubiously legal activities. Conclusion The City Attorney (and the Attorney for the Lessee) were: Wrong about the Facts; Wrong about the Law, and; Profoundly Wrong about the Public Trust Does the advice and recommendations of the City Attorney constitute negligence and breach of trust? Did the Lessee’s Attorney, as an officer of the court in a quasi-judicial hearing before the public, commit a breach of the Implied Covenant of Good Faith and Fair Dealing and misrepresentation? And, what about the Mayor and Commissioners who voted to approve the Lease in the face of so much public opposition and ignoring so many compelling arguments against the Project? Bahia Mar is the most iconic and valuable public asset in the history of Fort Lauderdale. The current proposal has generated more controversy and more massive public opposition than any other issue in memory. If the Proposal is not stopped, the Hotel will be torn down which will cause irreparable harm to the City and to its Citizens and Taxpayers. If this Proposal is allowed to proceed, there are no adequate remedies or damages that can be provided to all the Citizens who are potentially harmed. It is more than likely that the Public will prevail in an underlying lawsuit to stop the Bahia Mar Proposal. Because of the massive amount of evidence thus far produced by the Public in opposition to this Project and the significant Public Interest in this Public Asset, the City of Fort Lauderdale and the Lessee-Tate/Rok/Rialto Group should be enjoined from proceeding with their Proposal. In light of the financial enormity and long term impact on the City of the decision, it is in the Public Interest that the City Commission’s recent action be rescinded until after the upcoming Municipal Elections. Then the newly elected Mayor and City Commissioners can reconsider the fate of Bahia Mar in the clear light of day.