FEATURE |
By Royal Calkins
It might have seemed like a good idea two decades ago. A real estate deal that was supposed to save Monterey County government some serious rent money. But a surprising lack of diligence by the government agencies involved led instead to a backlog of repairs, misappropriation allegations and an expensive lawsuit bankrolled by taxpayers. And coming out on the short end, area charities that were supposed to benefit.
It involves the boxy Quadrangle Building at 1000 S. Main St., south of downtown Salinas. Since the late 1980s, it has mostly been occupied by the county Department of Social Services. It’s about 99,000 square feet of aging office space, file cabinets and conference rooms, social workers and benefits processors. It was once home to restaurants and a Sears store that drew shoppers from the Monterey Peninsula. Today, more than 400 people work there and many more visit.
Unfortunately for employees and guests, the roof leaks — and has for years, despite the landlord’s written promise to replace it. Some of the restrooms go in and out of service. The plumbing is prone to plugging. The county blames it on poor maintenance. The longtime landlord, Barnett Davis II of the Life Foundation, blames it on the clientele.
According to the receiver’s reports to the court, it sometimes takes as many as 20 garbage cans to collect leaks during storms.
Along with the rent, now more than $190,000 a month, the county has paid management and maintenance fees over the years, sometimes without knowing quite where the money was going, according to court records that reveal the building is now operating under supervision of a court-appointed receiver, Brent Waldman in Monterey. The receivership has essentially severed Davis’ ties to the building, but several legal issues remain unresolved.
Because Davis’ purchase of the 78-year-old building was financed by tax-exempt bonds, some of the rent money over the years has gone to legitimate local charities as required by the financing documents and city of Salinas decisions. But a chunk of the contributions went instead to a troubled Oregon yoga temple, national charities, parades and unidentified autism researchers. They also were supposed to be made in consultation with Salinas Mayor Dennis Donohue. It didn’t turn out that way.
SEE SIDEBAR: Local charities missed out when Life Foundation spread rent money elsewhere
For a time, it appeared that the heated lawsuit in Monterey County Superior Court might result in the county having no home for the Department of Social Services when the lease expires this summer. County officials involved in the litigation won’t comment on that either way, but others say privately that the county is not making plans for a move.
From the start nearly 20 years ago, the county has had an option to buy the building for $7 million when the lease expires in July. Recently, the Board of Supervisors has met in closed session several times to discuss the litigation and the purchase option. But because that was behind closed doors, the supervisors and other county officials feel they can’t say anything, anything at all about the building or its future. That’s an overly broad reading of state closed-door meeting law, but that’s how it goes.
The court documents don’t explain how the $7 million figure came about. It amounts to roughly a third of what Davis and his non-profit Life Foundation LLC paid in 2008.
Davis, a lawyer and self-proclaimed philanthropist, apparently divides his time between Southern California and Aspen. He got his law degree from Boston University after taking degrees from the University of Colorado and the U.C. Berkeley business school. He is said to be a decent skier and golfer. The Life Foundation’s website provides considerable information about Davis, the foundation and related foundations, but it doesn’t mention the Salinas venture or Davis’ unfulfilled promises to create similar real estate arrangements around the country.
The evolution of a deal
Here’s how this good idea was supposed to work and why the legal paperwork is piling up.
Davis’ purchase of the building was financed by the sale of $22 million in municipal bonds authorized by the city of Salinas. The city became involved because it wanted the Department of Social Services to stay in the Quadrangle Building, reasoning that it’s an economic anchor along South Main Street. The employees and clients help keep nearby stores and restaurants afloat. It’s also on bus lines and reasonably accessible to residents in most corners of the county.
Former department director Elliott Robinson told other county officials early in the process that he wanted to remain in the building largely because its location, appearance and mix of tenants meant that visiting the place wasn’t stigmatizing for clients on assistance.
The seller was Salinas property manager Tom Hilbert. Records at the county Recorder’s Office improperly obscure the purchase price, but it presumably was around $22 million. With both the county and Davis in no-comment mode, some aspects of the transactions and litigation can be hard to pin down.
County officials say their relationship with Davis became tense soon after the first lease was signed, partly because he had no experience running a large commercial building and, they argue in court papers, because he was siphoning money to himself.
In legal filings, Davis has repeatedly and sometimes angrily denied the allegations. He accuses the county of distorting the facts in order to get out of its commitment to buy the building later this year.
Despite considerable discussion chronicled in the court files, it isn’t clear why he hasn’t replaced the roof as he has agreed to more than once. The county says employees have to dodge buckets when it rains. According to the receiver’s reports to the court, it sometimes takes as many as 20 garbage cans to collect leaks during storms. With Davis somewhat out of the picture, the receiver recently signed contracts for a new roof.
Country officials also complained that the toilets failed often. Davis says in court papers that it’s because beneficiaries of social services stuff them with things such as sex toys. One former county official who visited the building years ago said he noticed that some toilets were mounted on bare bricks.
“The list of excuses offered by Life Foundation for failing to timely participate in discovery now includes: a sudden inability to locate or access a particular laptop.”
Davis declined to comment for this article, saying in one phone conversation that he would have his lawyers comment, and during a subsequent call that questions raised by Voices were “going down the wrong path.” He wouldn’t elaborate.
The receiver’s reports to the court detail a separate, current dispute between Davis and one of the banks involved in the bond issue, which accuses him of improperly withdrawing foundation money.
For several years, Davis has subcontracted the building’s management with well-known Monterey property manager Jeff Davi, of the A.G. Davi firm. His contract was canceled by the receiver on Feb. 2. In court papers, county lawyers contend that Davis and Davi worked together to misdirect money that should have been used for repairs and improvements. Both men have repeatedly denied that. Davi is not a defendant in the lawsuit, which accuses Davis of breach of contract, breach of the implied covenant of good faith, conversion and tortious interference. He has filed a cross complaint against the county.
It added a political element to the situation when Davis hired Davi’s property management firm to help run the building about 10 years ago. Davi is a bigwig in the local GOP and a former state real estate commissioner. He has long been active in both Peninsula and Salinas politics and has been a strong supporter of Mayor Donohue and other business-friendly City Council members. He denies the allegations made by the county and also declined to comment to Voices.
Nothing in the court files or the city’s files on the venture indicate that the city or county did anything to check Davis’ qualifications. Bond documents say Davis had done a similar project in Mississippi but fail to mention that it was pretty much over before it started. Los Angeles County court records publicly available when the arrangement began demonstrated that Davis was untested as a landlord.
The legal proceedings
At last count, more than a dozen lawyers were engaged in the legal maneuvers including most of the senior people from the county counsel’s office and a sizable bunch on Davis’ side from the LRG law firm in Salinas. Earlier this year, however, the LRG firm was mostly replaced by a San Francisco lawyer, Rene I. Gamboa, and Sacramento personal injury lawyer Alexander Gorman has just joined the Davis team.
In-house lawyers from the county counsel’s office, chief lawyer Susan Blitch and one of her deputies, Henry Bluestone Smith, appear to have done much of the heavy lifting for the county, but several other deputy county counsels also have been involved. The county also has consulted with an interesting outside figure, Sacramento attorney Mark Wasser, who has represented most of the farmers who sold property to the state to accommodate the troubled high-speed rail project in the Central Valley. He also has helped Monterey County with water and labor matters, both in court and behind the scenes.
Most of the legal proceedings have been presided over by Judge Tom Wills, a revered figure in local legal circles. But after Wills put the building into receivership at the county’s request, Davis accused him of bias, which resulted in his disqualification. He was briefly replaced by Judge Carrie Panetta, but she was recently shifted from the civil courts to the criminal side. Her replacement is Judge Ian Rivamonte, a Santa Clara County lawyer who was appointed to the Monterey County bench in 2023.
One of the county’s many court filings summarizes its position:
“The county complains of repeated breaches of long agreed to and unambiguous contractual provisions that (Davis) now seeks to rewrite or ignore. … (Lessor) wrongfully diverted building funds that were set aside for specific building purposes, and improperly threatened, and continues to threaten, to eject county employees from the building and to bar access to the leased space, thereby impeding the county’s ongoing provision of health and social services to the people of Monterey County.
“Plaintiff’s theory … is that as the time approaches for defendant to make good on its commitment to sell the building to the county at a contractually specified price in 2026, defendant has knowingly refused to adhere to its obligations to replace the entire roofing system, to perform necessary maintenance and improvements at the building, and to sufficiently fund building financial accounts. Plaintiff also alleges that defendant has manipulated building expense charges and has leveled unjustified demands for ever increasing amounts of money from the county so that when the county refuses to pay these excessive charges defendant can claim that the county is in contractual default and thereby refuse to sell the building as promised.”
Nothing in the court files or the city’s files on the venture indicate that the city or county did anything to check Davis’ qualifications.
Here’s a representative Davis response to the county’s assertions above, written by LRG lawyer Stephan Barber:
“County Counsel filed a complaint which is replete with misstatements, omissions of material facts the county is well aware of, and false and unsubstantiated allegations against the Life Foundation Monterey LLC and its executive director, Barnett Davis.
“County Counsel continuously tries to turn this into a tort case by insinuating that there is something improper about Mr. Davis’ compensation, that he has misappropriated funds, … that he may be subject to criminal prosecution, and that he has an unlawful contract with A.G. Davi for management of the building. None of these institutions (sic) have factual support and have nothing to do with the buyout price or terms. The foundation and its counsel will try to ignore these extortionist threats and focus on the business at hand.”
Cash diversions?
County lawyers allege that Davis diverted hundreds of thousands of dollars into his own pockets, partially by creating a partnership called Lotus RMD, whose only role appeared to be receiving a portion of county rent payments. (RMD is likely shorthand for the tax term “required minimum distribution”). Davis, however, argues that Lotus provided valuable, mostly unspecified services as a subcontractor to Davi’s property management operation. According to tax forms filed on behalf of his foundation, Davis for several years paid himself for managing the building while also paying management fees to Lotus RMD as well as Davi’s company.
According to LIFE Foundation tax forms, Davis paid himself $327,545 from the rental proceeds in each of the years 2009 through 2013 and paid Lotus $142,567 for the first two of those years plus $137,592 in 2011.
Davis took smaller payments for himself through 2022 before charging $297,000 in fees in 2023 and $104,000 in 2024.
In tax forms, Davis says his compensation package was unanimously approved by his board of directors and endorsed by compensation consultants at Price Waterhouse Coopers, the accounting giant.
Two agreements between Davis and the county give the government an option to buy the building this year, but county lawyers said at one point that the property’s poor condition and declining value had put that into question. County lawyers also wrote that Davis “has let the building fall into a state of total disrepair while refusing its financial obligations and improperly laying claim to ever more of the county’s money.”
In 2024 Davis billed the county $10,250 for legal work intended to prove that his billings were legitimate. It’s unclear whether the county paid.
The county contends that Davis tried to gouge it by charging extra rent money any time county workers used office space after hours or on Saturdays, and charging more than the actual cost of providing extra security or utilities. Those disputes have been settled by the receiver in the county’s favor.
‘It didn’t work out’
In many civil cases, much of the competition plays out in the provision of relevant documents, written declarations and an exchange of questions to the principals. It is referred to as discovery. In one of its recent filings, the county accused Davis of playing games to stall the process.
“The list of excuses offered by Life Foundation for failing to timely participate in discovery now includes: a sudden inability to locate or access a particular laptop; the desire to help friends recover from California wildfires; a paralegal’s family emergency; a claimed inability to work at a desk for prolonged periods of time; ‘limited manpower,’ and the absence of ‘technical resources with which to gather emails from defendant’s only e-mail account.’”
The legal paperwork doesn’t seem to say whose idea it was for the building to be owned and operated by a nonprofit foundation with no apparent experience managing property.
Before his Salinas venture, Davis worked briefly for one of Southern California’s largest property management companies, Sonnenblick Development. It owns numerous government-occupied buildings nationwide, including the Los Angeles County Department of Social Services and FBI and Homeland Security facilities in Southern California.
Company President Bob Sonnenblick said in a telephone interview that he was surprised to learn Davis had gone into a similar business.
“He didn’t know what he was doing,” Sonnenblick recalled. “He was only with us a short time. And he didn’t have a pot to piss in. He couldn’t cover his rent in a Hermosa Beach one bedroom.”
The relationship between Sonnenblick and Davis didn’t end well. After Davis left Sonnenblick’s company, he started a similar business in the Los Angeles area but soon went to court to allege he had been thwarted by collusion involving Sonnenblick. He alleged in a lawsuit that he lost out on a potential contract to run a Los Angeles County office building because of a county leasing official’s close relationship with Sonnenblick. Davis said in court papers that he had seen the county official with Sonnenblick in the Bahamas and on a Colorado ski slope. The official testified that both instances were merely coincidence. The lawsuit reportedly was settled out of court.
As part of Colorado litigation involving Davis, he testified that he had briefly worked for two large law firms before going to work for Sonnenblick. He indicated that the work didn’t suit him.
While working on buying the Quadrangle Building, Davis told local officials and the bonding agencies that he modeled his plan after one he used to help the small town of Pascagoula, Mississippi, recover from Hurricane Katrina. But there he only got as far as leasing a building and selling it to the city — shortly after he bought the Salinas building. Pascagoula officials wouldn’t discuss the matter except for a former city official who only said, “It didn’t work out.”
The bond documents for the Salinas venture, prepared and reviewed by numerous city and county officials, bankers, investment specialists and lawyers, put forth the Pascagoula plan as a reflection of Davis’s record of success, but the documents don’t mention the project’s early demise. The documents also said Davis had no assets other than whatever equity he could build in the Quadrangle Building.
In a deposition as part of the Colorado litigation in 2013, Davis suggested repeatedly that the Life Foundation was involved in acquiring and operating several buildings. But the lawyer for the other side pinned him down, getting him to acknowledge there was only the one, in Salinas.
Some of the most recent filings in the county’s lawsuit involve $156,300 that allegedly was misappropriated from the building’s reserve accounts. Davis seemingly had two responses. First, that he didn’t do it. And second, that the money was needed to make the monthly payment to the investors who provided the money in the first place.
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