In the never-ending saga of DACHA (Davis Area Community Housing Association), the non-profit Twin Pines Cooperative Housing Foundation has filed a claim against the City of Davis, claiming a misappropriation of public funds, intentional (or negligent) interference with contract and/or prospective economic advantage, and civil conspiracy.”
As President of Twin Pines Cooperative Foundation David Thompson told the council on Tuesday night, “By trying to cover up the DACHA scandal, city staff has now spent about one million dollars in public funds. The million dollars covers City Attorney expenditures; deferred payments or released funds from city staff to DACHA to pay for their legal expenses, city staff costs, lack of due diligence and mismanagement of the DACHA loan and property due to the non-collection of loan payments and delinquencies, etc.”
In a long string of events that the Vanguard has documented, DACHA was formed as a low-equity affordable cooperative living facility in the early part of the last decade.
From the start, the project was beset with a number of problems including complaints from residents that they were misled as to the nature of their investment and the unaffordability of the $22,000 original buy-in cost and the $1800 monthly carrying charges. Many of the resident were forced to borrow the money, putting them into debt. The refinance allowed them to get out of their debts.
Responding to these complaints in 2008, the City of Davis, through the Redevelopment Agency, loaned the cooperative $4 million of taxpayer money which allowed for a comprehensive refinancing that would allow the buy-in cost to be reduced to $6000 with a reduction of the carrying charges.
However, in the process, they directly refunded existing residents the difference between what they had paid in and the revised price – a practice the city says is proper but Twin Pines and Neighborhood Partners allege is contrary to state law.
In 2006, Neighborhood Partners would sue DACHA for breach of contract. The case would go to binding arbitration in June of this year, and Neighborhood Partners were awarded just under $350,000 from DACHA.
When payment arrangements were not made, Neighborhood Partners put a levy on DACHA assets which led to them missing payments on their debt.
The city then opted to foreclose on the property and has now assumed control.
The claim alleges “that the foreclosure of the homes and assets of DACHA are the final act, in a series of unlawful acts by Respondent, designed to devalue and divest DACHA of its property and assets, leave it defunct and valueless, and deny Claimant of all rights, interests and claims therein.”
These chains of events are laid out. First, they charge that the city “unlawfully skewed the financial results of an independent audit of DACHA in 2006” which they argue created “a perception to the Davis City Council and the public that the limited-equity housing cooperative model was financially infeasible.”
Second, they claim that in “2008 Respondent executed a plan to allow it to take all of the property and assets of DACHA and deprive Claimant of any right or claim therein.” This had to do with the reduction of carrying charges, which they argue devalued DACHA by over $2 million.
Third, they argue that the city “executed an unlawful plan with members of DACHA to distribute public money directly to DACHA’s members in violation of State law and DACHA’s governing documents.” This is their well-established claim that the refund amounted to a redistribution of assets in contravention to state law.
In so doing, the claim argues that city employees “counseled certain members of DACHA on how they could direct these public funds to DACHA’s members.”
Fourth, they claim that the city perpetrated fraud “by executing and enforcing rights under legal agreements, which it knew (or should have known) to be invalid because the Board was not properly constituted or authorized to approve legally-binding agreements on behalf of DACHA.”
This goes to the claim that DACHA Board members were not eligible to serve on the Board and therefore were making decisions that should not have been binding. They write in the suit, “virtually all of the purported resident Directors were ineligible to serve as Directors because their rent payments were delinquent (i .e., according to the Bylaws any Director delinquent in payments to DACHA must be automatically removed as a Director), residents improperly occupied Director positions reserved for non-resident sponsor Directors, and/or obtained loans from DACHA without the approval of the California Attorney General, which disqualified them from serving on the Board.”
Thus they write, “Due to these aforementioned defects, the Board could not procure a quorum of properly qualified Directors and Respondent knew (or should have known) that the Board was not authorized or empowered to approve any agreement with Respondent (e.g., loan agreements).”
As David Thompson argued on Tuesday, “According to our transcript of the October 20, 2009, City Council meeting, the City Attorney told City Council that ‘we had the evidence of the membership vote.’ What the City Attorney did not share with the Council was that almost all of the members were also ineligible to vote and therefore DACHA had no legal quorum.”
Fifth, the suit claims that the city “knowingly and intentionally (or negligently) interfered with Claimant’s contractual rights and prospective economic advantage in DACHA.”
Specifically, the city “loaned public money to DACHA, part of which, as discussed above, was given directly to DACHA’s members, in exchange for, among other things, requiring DACHA to change its charitable beneficiary to Respondent in violation of its government documents.”
From the start, David Thompson and Luke Watkins have called for an independent investigation into this matter. Now they will have their points of contention litigated.
They argue that the city has spent more than $1 million on legal fees dealing with this matter, in addition to the money that was loaned to DACHA through the redevelopment agency.
The city had no response as this is considered an ongoing legal matter.
David Thompson argued , “It is a growing scandal that a local nonprofit foundation in pursuit of the upholding of California law finds itself being aggressively opposed by city staff using one million dollars of public funds.”
“It is time for the Council to put a stop to the blank check being used by the City Attorney,” he told council on Tuesday. “It is time for an independent investigation into the city staff role in the DACHA affair and other evidences of the costly mismanagement of housing programs by city staff.”
While David Thompson and Luke Watkins have consistently argued that numerous state laws appear to have been broken including Cooperative Law, Nonprofit law, Corporations law and the Davis Stirling Act for starters, the city has steadfastly denied any such claims.
City Attorney Harriet Steiner has previously argued that the conditions warranted a refinance, and that among the other allegations presented by David Thompson and Luke Watkins of Twin Pines, the issue of being behind on payments was due primarily to the very high carrying charges. Without the refinance, the cooperative would fail.
She argued that she did not believe the law to be so restrictive as to preclude any attempts to stabilize the cooperative by reducing the share costs.
Where does this process end up? It is unclear. At this point it seems unlikely that this claim goes anywhere, but it does bear watching if only to get a better understanding of the city actions in this case that will now have to be laid bare during the legal proceedings.
—David M. Greenwald reporting
dmg: “David Thompson argued , “It is a growing scandal that a local nonprofit foundation in pursuit of the upholding of California law finds itself being aggressively opposed by city staff using one million dollars of public funds.””
And now bc of this lawsuit, the city is going to have to spend thousands more dollars defending itself against this suit, thousands of dollars in public funds… Is this case really about the waste of public funds, or more about saving the reputation of those who filed the lawsuit against the city? I suspect neither side is going to come out smelling like a rose in this debacle, but it will be interesting to see what comes of this lawsuit. My hope is that the city staff/City Council will be far more cautious when setting up affordable co-op housing. I have never been able to understand how a buy-in of $22,000 and monthly carrying charges of $1800 would be considered in any way “affordable”… what was the city thinking? This reminds me of the whole Zipcar episode, where the city does not properly do its homework when entering into contracts and then engages in all sorts of crazy coverups when they get caught out in their mistakes…
Will they ever learn?
Dr. Wu: “Will they ever learn?”
“The answer my friend is blowin’ in the wind…”!!!
[quote]Third, they argue that the city “executed an unlawful plan with members of DACHA to distribute public money directly to DACHA’s members in violation of State law and DACHA’s governing documents.” This is their well-established claim that the refund amounted to a redistribution of assets in contravention to state law.— David Greenwald[/quote]Just curious, David, as to what you mean when you say “their well-established claim”? Are you just saying that they have claimed that this distribution is legal before, or are you saying that it is well-established that the share stabilization program was illegal?
By well-established, I mean, repeated quite a few times and reported on here numerous times.
DV “City Attorney Harriet Steiner has previously argued that the conditions warranted a refinance, and that among the other allegations presented by David Thompson and Luke Watkins of Twin Pines, the issue of being behind on payments was due primarily to the very high carrying charges.”
Sorry Harriet but from the City records you should know that not to be true. The City set carrying charges/rents at 80% of median. Although none of the members were eligible and none were qualified to receive that unwarranted sizable reduction given by city staff. As the city lost income of thousands of dollars a month was this not a gift of public funds?
Within one year of the refinance 13 of the 20 DACHA members once again were delinquent to DACHA to the amount of $22,063.47. If all the residents paid their full payments it would be $22,248. So within twelve months of the refinance the members were delinquent to the co-op the same amount as the monthly income. How would you like to live in a single family home in Lake Alhambra Estates for $953 and not seemingly be penalised for being delinquent over a four year period?
Month after month the DACHA members were once again delinquent. Then a number stopped paying and city staff did nothing. The President of DACHA said she asked city staff for funds to evict nonpaying members and the city staff refused.
The history of delinquency is the history of the DACHA members and is not as Harriet would have you beleive “the issue of being behind on payments was due primarily to the very high carrying charges”
There is a long history of questionable management of housing projects by City staff and DACHA is but one example.
David Thompson, Twin Pines Cooperative Foundation
ERM: The $22,000 share price and the $1,800 monthly payment that DACHA members who moved into three bedroom units in 2005 paid is consistent with the federally established definition for “affordable moderate income housing”. Prior to DACHA acquiring these homes, the city staff approved this share price and monthly charge amount.
If these homes had not been purchased by DACHA, they would have been sold to first-time homebuyers through the city’s inclusionary housing program. The $22,000 share price is equivalent to a less than 10% downpayment. The $1,800 monthly charge is simply what it cost to pay for the loan payment, taxes, insurance, city utilities, maintenance and other expenses involved in purchasing and having a household occupy that three bedroom house. Remember, this program is designed to serve moderate income households, as it is a part of the city’s affordable ownership housing program that requires private developers to sell a portion of their single family homes at a below-market price.
All of the households that chose to join DACHA were income qualified, and it was determined that they could “afford” to pay the monthly charge assigned to their unit. If their circumstances changed after occupancy, they could simply give 60 days notice, and DACHA would arrange for some other family to buy their share and occupy their unit. This happened a number of times in the DACHA units.
For whatever reason, some of the DACHA residents came to believe that they could dissolve the organization, and eventually own their homes outright. And it appears that the city staff may have encouraged this notion. However it would be against state law for that to happen. Knowing that, we believe that city staff came up with a clever way to circumvent the law by foreclosing on the DACHA properties, so that the city could take possession and then re-sell them to the residents. This may have been clever, but it was also an illegal civil conspiracy that has cost the tax payers possibly around $1 million in legal fees, staff time and misappropriated funds. Meanwhile the majority of these households have shown a pattern of frequent delinquency on their monthly payments to DACHA. Why would the city continue to go through all of these machinations so that they could achieve the policy goal of turning these households into fee simple homeowners, when most of them haven’t even paid their payments to DACHA on time? A number of them should have been evicted a long time ago, including many of the board officers who were months behind in their payments.
CALIFORNIA FALSE CLAIMS ACT GOVERNMENT CODE
SECTIONS 12650-12656
12650.
(a) This article shall be known and may be cited as the False Claims Act.
(b) For purposes of this article:
(1) “Claim” includes any request or demand for money, property, or services made to any employee, officer, or agent of the state or of any political subdivision, or to any contractor, grantee, or other recipient, whether under contract or not, if any portion of the money, property, or services requested or demanded issued from, or was provided by, the state (hereinafter “state funds”) or by any political subdivision thereof (hereinafter “political subdivision funds”).
(2) “Knowing” and “knowingly” mean that a person, with respect to information, does any of the following:
(A) Has actual knowledge of the information.
(B) Acts in deliberate ignorance of the truth or falsity of the information.
(C) Acts in reckless disregard of the truth or falsity of the information. Proof of specific intent to defraud is not required.
(3) “Political subdivision” includes any city, city and county, county, tax or assessment district, or other legally authorized local governmental entity with jurisdictional boundaries.
(4) “Prosecuting authority” refers to the county counsel, city attorney, or other local government official charged with investigating, filing, and conducting civil legal proceedings on behalf of, or in the name of, a particular political subdivision.
(5) “Person” includes any natural person, corporation, firm, association, organization, partnership, limited liability company, business, or trust.
12651.
(a) Any person who commits any of the following acts shall be liable to the state or to the political subdivision for three times the amount of damages which the state or the political subdivision sustains because of the act of that person. A person who commits any of the following acts shall also be liable to the state or to the political subdivision for the costs of a civil action brought to recover any of those penalties or damages, and may be liable to the state or political subdivision for a civil penalty of not less than five thousand dollars ($5,000) and not more than ten thousand dollars ($10,000) for each false claim:
(1) Knowingly presents or causes to be presented to an officer or employee of the state or of any political subdivision thereof, a false claim for payment or approval.
(2) Knowingly makes, uses, or causes to be made or used a false record or statement to get a false claim paid or approved by the state or by any political subdivision.
(3) Conspires to defraud the state or any political subdivision by getting a false claim allowed or paid by the state or by any political subdivision.
Davis MunicipalCode CHAPTER 2 ADMINISTRATION*
2.03.020 Powers and duties.
Subject to policy prescribed by the city council, the city manager shall have the power and it shall be his duty:
d)To see that the ordinances of the city and the applicable laws of the state are enforced.
(e)To appoint, discipline and remove all officers and employees of the city under his jurisdiction.
(g)To investigate the operations of departments and other agencies of the city, and of all contracts to which the city is a party, and to assure proper performances.
(Ord. No. 379, § 1.)
David Thompson, Twin Pines Cooperative Foundation
The pattern of the DACHA members is one of constant delinquencies.
The million dollar cover up continues!
Delinquencies by DACHA members were clearly a pattern before the refinance in June-Sep 2008.
However, after the refinance, which staff said would cure the delinquency problem DACHA members were up to the same tricks all over again. Six months after reducing all the homes to carrying charges/rents far below the average apartment rents in Davis, 18 of the 20 DACHA members appear to be once again delinquent to the tune of $22,087.87.
I obtained these figures from the records of DACHA. This is the level of delinquencies owed by DACHA members since 2007.
Delinquencies Members Quarter/Year
22,063.47 D 13 of 20Sep 30 2009
18,582.34 D 17 of 20Jun 30 2009
22,087.87 D 18 of 20Mar 31 2009
10,436.50 D 6 of 20Sep 30 2008
Refinance using $4 million in public funds
64,713.32 D 18 of 20June 30 2008
54,239.14 D 19 of 20March 30 2008
54,123.35 D 16 of 20Dec 30 2007
44,090.23 D 16 of 20Sep 30 2007
39,356.07 D 16 of 20June 30 2007
D = From the records appear to be Delinquent
In June of 2010 we estimate the DACHA members were delinquent to the amount of over $100,000. It could be up to $140,000. How much did DACHA owe the city at that point? How much in public funds were not repaid by DACHA just this year?
City staff ran DACHA from November of 2009. How much did DACHA members owe the city since then, how many DACHA members were delinquent?
As the City staff were legally responsible for running DACHA did City staff take actions to manage DACHA as a diligent manager? Did city staff take any action against delinquent members, were any three day notices, given, were any eviction actions taken?
As soon as we have that information I will share with the public.
I just wish city staff was willing to let citizens know about the likely misuse of public funds.
The million dollar cover up continues!
David Thompson, Twin Pines Cooperative Foundation
Does the DACHA Audit appear flawed and slanted?
TPCF believes a number of serious questions are raised by the audit and the communication between city staff and the auditor.
On June 21, 2006 City of Davis staff released their 84 page report on the DACHA Audit which included the DACHA audit of the years 2004 and 2005.
But plug in delinquencies and nothing comes up.
Yet DACHA’s own records show that for every month of 2005 over half of the DACHA members were behind in their carrying charges/rent to the tune of an average of $18,000;
December, 2005, $19,165.17
September 2005, $17,317.85
June, 2005, $15,323.42
March, 2005, $19,003.00
For an organization like DACHA to be carrying $18,000 in delinquencies every month would appear to be a problem that would be flagged in an audit. Yet, all the delinquencies of the members and the board were not flagged.
Much of what was owed to DACHA by the members was owed by the board of directors and the board officers.
In most accounting circles loans to and delinquencies or accounts receivables from members and board members would be highlighted as Related Party Transactions.
The Audit made no reference to Related Party Transactions. City staff had a great deal of influence over what was covered in the audit.
Interesting that the month after month of $18,000 in member and board delinquencies were left out.
Loans to members of a board of a public benefit corporation require approval by the Attorney General and none of the loans by DACHA to its board members were approved.
The Audit made no reference to this illegal activity.
Funny how some things were covered in the Audit and others were not?
David Thompson, Twin Pines Cooperative Foundation
Earlier Sue had asked about the distribution of $230,000 of public funds by DACHA to its members.
The City of Davis and DACHA were provided by TPCF with a legal opinion that the distribution was illegal under California law. The City and DACHA received that legal opinion in 2007 and again in 2008, well before the City allowed DACHA to distribute those public funds to the members.
You can see that document at the following web site.
hlttp://sites.google.com/site/itsthelawdacha/home
It is part of the original suit against DACHA.
You can see also California Corporations Code Section 5237
(a) Subject to the provisions of Section 5231, directors of a
corporation who approve any of the following corporate actions shall
be jointly and severally liable to the corporation for:
(1) The making of any distribution.
Not only that but the City Attorney told the City Council on October 20, 2009 that DACHA could make that distribution as there were no encumbrances in place.
This is not true. The loan from the City replaced the encumbrances of the previous lenders in a simultaneous transaction. However, the funds were distrbuted to the members from the loan it received from the city and the checks were made out in September of 2008 well after the old encumbrances had been replaced by the new encumbrances. Only when DACHA had the funds from the new city loan in its bank could it send $230,000 of those received public funds to the members.
Sue, I am happy to show you all the legal and signed documents (by Bill Emlen) I obtained from the title company and from my public records search. Call me at 757-2233 and I will come to your office to show you the individual checks made out the the DACHA members. They are public record.
The City Council needs to an independent investigation of what happened.
Luke Watkins: “All of the households that chose to join DACHA were income qualified, and it was determined that they could “afford” to pay the monthly charge assigned to their unit.”
If all the households that chose to join DACHA were supposedly “income qualified” and could “afford” these homes, then why were so many of them ultimately unable to pay? Did they really understand what they were getting into? Anecdotal evidence suggests otherwise – that a misleading sales job was foisted on them. Perhaps the city needs to rethink its guidelines as to what is “affordable” to those with “moderate income”; and needs to be very clear to potential buyers what they are getting into? I have heard that many who buy affordable housing in Davis do not fully understand the terms of the contract they sign. If not, why not? As an elder law/consumer advocate attorney, I am very concerned when consumers do not fully understand the terms of any contract they sign, bc they believe a misleading sales pitch, instead of making sure to read the fine print on a contract. I suspect there was a lot of fault to go around in this situation…
Elaine.
Any member who wished to leave DACHA could with a 60 or 90 day notice.There were hundreds who applied for the housing. There is a two to three year waiting list for Dos Pinos.
Even after city staff brought the monthly costs down to 80% of median income. Even after the lowest rent for one of the homes was now $953 and the cost of living at DACHA was less than apartment living in Davis the members were still delinquent.
Six months after the fix (August 2008 costly to us citizens) that City staff provided DACHA residents were once again using DACHA like a bank that gave the members non-interest loans of our public funds.
By March of 2009 the members owed DACHA $22,087.87.
No housing project in the City has been so badly managed and badly supervised.
When NP advised the board there were very few delinquencies. Once residents took control of the board the winks, nods and self dealing transactions began.
Arbitration Award filed with the Yolo County Superior Court on June 18, 2009.
Quotes by Kenneth M. Malovos, the attorney jointly chosen by DACHA and Neighborhood Partners and approved by the Yolo County Superior Court.
“What is curious is that representatives of the City of Davis were present throughout the entire time when the new Board took these untoward actions and they did little to discourage the Board”. (Page 5 of Arbitrations Award)
“The testimony by three members from DACHA who appeared at the arbitration can only be described as cavalier. For the most part their testimony was characterized by failures of memory, contradictions and a certain inability to admit even their own written words. Two of theses members appear to have been in serious arrears in their fees during times that they were members of the Board, in direct contravention of the bylaws”. (Page 7 of the Arbitration Award)
David Thompson Twin Pines Cooperative Foundation
David Thompson’s letter to the editor, Davis Enterprise, Nov. 17, 2010: [url]http://search.davisenterprise.com/display.php?id=71624[/url]
Some DACHA residents didn’t have enough money for their share.
How many loans did David make with DACHA residents to cover their
share balance?
How much was the original principal of each of
those loans?
What were the various interest rates that David charged to
different residents for his share loan?
How much share interest did DACHA pay to David as the share owner?
What was the resident delinquency rate on David’s loans each year?