Editor’s Note: The Vanguard has been providing the public a chance to view critical documents regarding the DACHA case. We have posted in recent days the history of DACHA as prepared by DACHA in the Organizational Dissolution Plan, the 2006 Letter from John F. Gianola on DACHA, and now today by request, the 2009 Arbitration ruling.
This is a private contractual arbitration between Neighborhood Partners, LLC, a for-profit private consulting limited liability corporation (NP), and the non-profit limited equity housing cooperative, Davis Area Cooperative Housing Association (DACHA). By written agreement, dated December 20, 2002, the parties agreed to binding arbitration before an arbitrator. The undersigned was selected as the arbitrator.
The arbitration hearing took place on May 27-29 and June 2, 2009 at the arbitrator’s office in Sacramento, California. Present at the arbitration were David Thompson and Luke Watkins of NP and its attorneys, Steven Boutin and Adrienne Meredith. Present also were Stephanie Teague and Jessica Garcia, members of the Board of Directors of DACHA, and its attorney Geoffrey Goodman.
Several witnesses were called, sworn and gave testimony. Specifically, NP called David Thompson, Dallas Kassing, Ty Smalley, Juan Arredondo, Luke Watkins, Stephanie Teague and Jessica Garcia. DACHA called Stephanie Teague, Jessica Garcia, Danielle Foster and Larry Alamao. Documents were offered and admitted as evidence. All of the testimony of the witnesses and all of the documents were carefully read and considered by the arbitrator. At the conclusion of the hearing on June 2, 2009, the attorneys each made brief closing arguments. The matter was deemed submitted on June 2, 2009.
The attorneys who appeared and represented their clients are to be commended for their professionalism and for the presentations that they made on behalf of their clients.
NOW, THEREFORE, THE ARBITRATOR FINDS AND AWARDS AS FOLLOWS:
The story of the relationship between this Limited Equity Housing Cooperative housing venture in Davis, California and its consultant is long and, at times, tortured. It started well before its legal formation in 2003, as the brain-child of David Thompson, an individual with extensive and impressive experience in cooperatives and affordable housing, as well as a national reputation. Mr. Thompson was assisted by Luke Watkins, another individual with most impressive education and experience credentials in affordable housing and related fields. It was formed for the purpose of facilitating compliance with the ordinance of the City of Davis designed to require certain affordable housing with each new development. The ordinance was described as well-conceived and ground-breaking. Specifically, the ordinance requires that a certain percentage of all housing be made available at below-market rates to those who cannot afford market-rate housing units. Unfortunately, the history of the implementation of the ordinance had not been without peril, in that certain abuses have come to light. Specifically, it was reported that certain individuals have purchased units at below-market rates and then sold them at market rates, pocketing significant sums of money. More unfortunately, it was reported that some of these abuses involved actual employees of the City of Davis, who were intimately familiar with the workings of the ordinance.
DACHA was formed to purchase properties from new developments and then hold the properties in its own name, while allowing certain residents to pay monthly carrying charges (similar to rent) in return for enjoying an affordable home. The residents became members in DACHA by paying a member share. The members would receive their member share back with interest when they withdrew from DACHA. They were free to withdraw from DACHA at any time.
Initially, DACHA received a loan in the amount of $1,140,000 from the City of Davis for the purpose of purchasing the 7 Tufts units. It also received a loan of $100,000 from the City of Davis for the purpose of organization of the entity. In order to assist with the formation and the development of the units held by DACHA, it entered into a contract with NP for the purpose of consultation and efforts to obtain more units for DACHA. Initially, NP was to develop the first seven units and an additional thirty. NP would earn $8,000 for each unit obtained from a private developer and $12,000 for each unit developed through its own efforts. NP would be paid at close of escrow of the acquisition of the unit by DACHA.
At the time of its formation, NP had recruited various members of the public to serve as volunteer members of the Board of Directors (Board), including Dallas Kassing (a UCD employee) and Ty Smalley (an architect). The City of Davis observed the activities of DACHA by having an employee attend most of the Board meetings.
In order to successfully implement a Limited Equity Housing Cooperative, one has to understand the big picture and understand that this type of project requires a long-term commitment on the part of the members and the City of Davis. This is especially true with regard to this type of cooperative housing model. By its nature, DACHA would be most successful by the accumulation of many units. A certain economy of scale would be achieved by lessening the per capita costs of some expenses in this method. Therefore, the initial goal of 30 additional units made sense. In fact, after some time the Board agreed to add an additional 30 units, for a total of 67 units. NP planned to find these units and set about to accomplish this task. These clear marching orders from the Board made sense and would have eventually resulted in a very successful cooperative housing operation, to the benefit of its members.
During 2003 and 2004, NP acted in furtherance of its contract and took on new responsibilities, as requested by the Board. By 2005, there were a total of 20 units in DACHA with many others on the horizon. Specifically, there were nine units, consisting of 5 at Parque Santiago and 4 at Albany 2, which were ready for final approval from the City. The reports from NP show that there were quite a few other possible units at that time.
Complaints from Members in 2005
In 2005, some members complained that their carrying charges were too high and they complained of the cost of the consultant. These concerns and others were expressed in a letter dated May 16, 2005, which was signed by six of the then fourteen members and sent to the City Council. In that letter these six members expressed the clear desire to own their own homes so that they could refinance their houses for children’s college or even retirement.” (Exh. 35) They claimed that the expenses were too high and that they had no need for a consultant. Notwithstanding these concerns, there was very little member participation in the activities of DACHA, prior to the letter.
Later that year members voted the entire Board out and installed new members. The Bylaws required a change in Board membership to include more resident members and this change accomplished that goal. However, the lack of carry-over Board members left the new Board with very little institutional knowledge.
The Termination of the NP Contract
The new Board moved quickly to sever its relationship with NP. On November 11, 2005, the new president of the Board of DACHA wrote a letter to NP and stated in unequivocal terms, “Therefore, for the above reasons. DAHCA will not require any further services. Of any kind from Neighborhood Partners,” (Exh, I)
From that time on, the relationship between NP and DACHA went downhill. The new Board disavowed the previous contract with NP, operating on the mistaken and novel notion that it could simply undo actions taken by the previous Board. “It is common that new boards reverse decisions from previous boards.” (Exh, 155) “Current boards can reverse decisions by pervious boards”,” (Exh, 162) The old Board was no longer consulted or even asked what had happened on their watch. This most precipitous action was taken without the slightest reflection of the ensuing legal consequences, other than some vague recognition of the idea that “there might be legal action,” The evidence shows that the new members of the Board had not even read the consulting agreement. They were generally uninformed as to the history of DACHA and the role played by NP.
The stated purpose of the new Board was to somehow gain the ability to own their homes, so that they could achieve the benefit of the equity and thereby finance college education and retirement. Suffice it to say that such a goal is in direct contravention with the concept of the cooperative and with the affordable housing ordinance. The other purposes of the new Board were generally to lower their own costs as much as possible,
But just a few weeks after informing NP that DACHA would not honor its contract, on December 4,2005, the president of the Board learned from an attorney sitting on the Board (who was also the City of Davis’ new representative) that she may have overstepped the legal obligations to NP by violating their contract. “The contract that they have goes until December 20, 2006 … Therefore the consultants can continue their work on Par’que Santiago.” Exh.40 “David and Luke began work on those 9 homes by direction of the Board and therefore since we are still contractually obligated to them until December 20, 2006 we have to let them continue their work on those 9 homes … The previous Board approved those homes and we have to stand by that for now. So as of now David and Luke will continue to pursue the 9 homes and as of December 20, 2006 their contract will be terminated and we will not renewing it.” (Exh. 41)
In addition, the previous president (Dallas Kassing) and treasurer (Ty Smalley) wrote a letter to the new Board and advised them of DAHCA’s obligations to NP, including both the original consulting agreement, the amendment to add 30 additional units and the agreement that work by NP “not covered in the contract… should be compensated at $120 per hour.” (Exh. 27)
Notwithstanding this clear warning from an attorney-member of the Board and from the previous president and secretary of the Board, it does not appear that DACHA worked with NP in 2006 in order to facilitate the completion of its contract with NP. NP did continue to work on securing the Albany 2 units and another opportunity. (Exh. 91)
The Refusal to Support New Units
What is equally appalling is that the new Board actively worked to discourage any further growth of DACHA, in direct contravention with its contract with NP and, more importantly, with its own By-Laws, Articles of Incorporation and with the whole concept of cooperative and affordable housing. “The Board and the residents are in agreement that DACHA DOES NOT want go grow at this time …” (Exh. 39) The new Board “decided not to add any additional units to DAHCA at this time:’ (Exh. I) “DACHA is not acquiring homes at the present time and Stephanie is meeting with council members to advise.” (Exh.16) The new Board claimed that DACHA was experiencing vacancies that could not be filled and therefore acquiring more units did not make sense. No evidence was presented to support this claim and contrary evidence was submitted by NP. At the arbitration, some members of the new Board stated that their policy in 2005 was neutral, but the contemporaneous written documentation is contrary. Also, in this context, a neutral position is the equivalent of opposition, especially in light of the covenant of good faith and fair dealing.
Actions by the New Board as to Its Own Members
In addition, the new Board actually lowered its monthly carrying charges (by refinancing), thereby injuring DACHA financially and denying DACHA funds to meet its obligations, all for the personal gain of the members. The Board should have been focused on improving its reserves for vacancy, repair, capital and existing obligations. Also, the new Board forgave obligations to its members and did not pursue delinquencies, all of which worked to the financial detriment of DACHA. The new Board should have ensured that all members paid the same initial share fee and paid their delinquencies, but the forgiveness of obligations and the failure to pursue the delinquencies worked directly against this basic principle. The new Board allowed members of the Board to remain on the Board even though some of them were delinquent with their payments, in violation of its own Bylaws. (Exh. 173)
The Role of the City of Davis
What is curious is that representatives of the City of Davis were present throughout this entire time when the new Board took these untoward actions and they did little to discourage the Board. The response by the City of Davis to the complaints of the members was to conduct an audit, which took a long time and resulted in criticisms of this cooperative model, but which did not address the contractual obligations of DACHA to NP. The request for the audit served as a convenient reason to delay addressing the contractual relationship between DACHA and NP. However, once the audit report was received, the Board again took no action with regard to its contractual responsibilities to NP.
Status of DACHA in November of 2005
In November of 2005, at the time of the termination of the NP contract, DACHA was actually in pretty good financial condition. There were few vacancies and there was plenty of cash on hand to support future growth as well as to meet the obligations of DACHA. (Exhs. 173 and 174)
DACHA was well-served by the original Board, consisting of dedicated citizens of Davis, serving without pay, who sought only to make Davis a better city by implementing a sound affordable housing solution. Dallas Kassing and Ty Smalley are the kind of people that should be commended for their volunteer service. Their actions with DACHA were beyond reproach.
In addition, DACHA was well-served by NP and its two principals, David Thompson and Luke Watkins. These are seasoned veterans who understand the big picture. They understand the intricacies of implementation of the Davis affordable housing ordinance and a cooperative housing venture such as DACHA. They worked extremely hard on behalf of DACHA over several years only to be kicked aside when it came time to pay them for their services. It is hard to understand how individuals so dedicated and so hard-working can be treated in the shameful way that they were.
The Allegations of the Parties
NP alleges a breach of contract and breach of the covenant of good faith and fair dealing as to two contracts: 1) the original consulting agreement, dated December 20, 2002 (Exh. 9), as amended by the Board: and 2) the agreement by the Board to pay for additional services not included in the consulting agreement at the rate of $120 per hour. NP seeks a total of $500,680, consisting of $376,000 for the performance of its contract that it was not allowed to complete and $124,680 tor extra-contractual services. These allegations are further discussed below.
DACHA alleges that NP is not entitled to any compensation because its contract with DACHA is unenforceable as a violation of California’s Real Estate Licensing Law and the extra-contractual or administrative services were not properly documented of were themselves a violation of the same law. In addition, DACHA raises other issues and concerns with the actions of NP, all of which are discussed below.
There were many other allegations made during the course of this arbitration, but this arbitration is only concerned with the alleged contractual relationships between NP and DACHA.
Breach of Contract and Anticipatory Breach of Contract
NP established by a preponderance of the evidence that it was prevented from fulfilling its contract to bring 47 additional units (beyond the 20 that had been completed) into DACHA. There were more than enough units on the drawing board to meet this number, consisting of Parque Santiago (5 units), Albany 2 (4 units), Courts on Covell (75 units), Grande (6-8 units), Wildhorse (38-40 units), West Village (UCD/2S-75 units) and Woodbridge (13 units). Even the Covell Village (40-60 units) project, which was rejected by the voters, might be a future possibility, under a new configuration. When one party prevents another from fulfilling its contract, the party who is prevented from completing its obligations is entitled to the benefit of its bargain.
Extra-Contractual or Administrative Services
Also, NP established by a preponderance of the evidence that DACHA and NP made an agreement whereby it would be paid for certain work which was not part of its original consulting agreement and it established that it was not compensated for this work. Further, NP has established that it performed these services at the agreed-upon rate ($120 per hour) and was not paid for its work. The old Board of DACHA consistently recognized this obligation and was seeking a method of payment during the time of its existence. (Exhs. 15, 17, 18, 19, 20, 22, 23, 24 and 26) The new Board acted as if this agreement was not existent.
Covenant of Good Faith and Fair Dealing
In addition, NP established by a preponderance of the evidence that DACHA violated the covenant of good faith and fair dealing. This covenant exists in every contract in California and it requires that each party to a contract do nothing which will injure the right of the other party to receive the benefit of the agreement and to do everything that the agreement presupposes to accomplish the purpose of the agreement. In this case, the actions of certain members of DACHA and the DACHA Board were in clear and direct violation of this covenant, by the improper termination of the contract, the opposition to future growth of DACHA (in direct contravention to the agreement with NP), the refusal to pay NP for services rendered under its consulting agreement and the refusal to pay NP for extra-contractual services rendered at the request of and with the approval of DACHA.
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 these members appear to have been in serious arrears in their fees during times that they were members of the Board, in direct contravention to the Bylaws. (Exh. 173) However focused the new Board was on the future of DACHA, which is certainly commendable, they acted most irresponsibly in not facing the obligations of DACHA to NP and in not following the advice they received to honor these obligations. Instead, they ignored these obligations.
Promise of Home Ownership
Members of DACHA raise a general concern that DACHA never allowed them to obtain ownership of their homes. That is true. A cooperative such as DACHA does not provide for individual home ownership. Instead it provides for membership and ownership by the cooperative. The members gain many of the benefits of home ownership (tax deduction of interest and taxes) but they do not actually own their homes. They are free to leave at any time. This essential concept was known to all when they became members. Their desire to change the rules of the game after they became members is at the root of the problems experienced by the new Board and DACHA.
The allegation that they were actually promised home ownership is not supported by the record. And it makes no sense, in view of the nature of this cooperative. The evidence shows that they the members were promised many of the benefits of home ownership and this is what they received. There is a difference.
Notice of Extra-Contractual Expenses
DACHA raises a concern that it was not told of the amount of the expenses incurred by NP while they were incurred. While it is true that NP could have informed DACHA of the actual amount that it was incurring earlier than it did, this does not take away from the fact that it earned the monies that it is claiming. Certainly there was discussion of the fact that NP incurred significant expense for which it was not being paid in November of 2004. The Board chose not to address this issue with more specificity at that time because of the press of other issues, including the change in management company.
The Amendment to the Original Consulting Agreement
DACHA raises a concern that it is only obligated until December 20, 2006 for 30 additional units. Yet the Boards’ own minutes demonstrate that the contract was extended for 60 additional units with no time limitation. “Contract with NPLLC for 60 additional units rather than 30. AR/TS. Unanimous.” (Exh. 15, 17. 18, 19 et al.) The president and the treasurer of the Board confirmed the understanding that there was no specific time limitation, in their testimony and in contemporaneous writings. (Exh. 27) The new Board did not investigate or otherwise concern itself with this amendment and consistently viewed the contract in its original form.
The Contract for Extra-Contractual or Administrative Services
DACHA raises a concern that there was no contract tor certain extra-contractual or administrative work by NP. It is true that there was no such written contract, but the Board’s own minutes demonstrate with unmistakable clarity that such an oral contract was agreed and approved by unanimous vote. “Additional Contract Language tor Neighborhood Partners work tor turnovers and responsibilities which is not-unit related.” (Exh. 20) “The Board authorizes the President to sign an agreement reached between the Committee and NP for work done by NP on behalf of DACHA not covered by the contract. Approved unan.” (Exh. 24) “Discussion of DAHCA’s unpaid obligations to Neighborhood Partners.” (Exh. 26) “”The board accepted that NP was continuing to do work beyond that covered by the existing contract and that this work was necessary for DACHA to succeed. It was the intent of the board that NP was to be compensated for the additional tasks done from the beginning that were not covered in the contract.” (Exh. 27) Arguably, these writings could even be construed as a form of written contract. But the fact remains that a contract was made by DACHA and NP for these services.
Claim of Excessive Non-Contractual Charges by NP
DACHA raises a concern that the extra-contractual or administrative charges from NP are excessive and points out that NP is now charging tor some services that reasonably should have been part of its original contract, most notably attendance at meetings to describe actions taken by NP. DACHA also notes that as of September 2003, NP was not asking for additional compensation for extra activities and, to the contrary, indicated that the agreed-upon compensation in the consulting agreement was appropriate. (Exh. H-5) To some degree, these concerns by DACHA are valid. There are other activities which appear to be part and parcel of the original consulting agreement. Therefore, there shall be an appropriate deduction from the claimed amount of 50%.
The Other Projects Never Came to Fruition
DACHA raises another concern that the projects upon which NP was working at the time of its termination never were approved and therefore they are not properly the subject of compensation in this arbitration. The city representative testified that certain of the developments that were the subject of NP’s work never came to fruition. But this does not detract from the work that NP had accomplished and the further work that they were prevented from accomplishing by the actions of the new Board. The arbitrator finds this evidence not to be worthy of much weight in deciding the question of the breach of contract by DACHA.
The City of Davis Audit Report
DACHA has referenced the audit conducted by Gilbert Associates Inc. for the City of Davis. (Exh. N) The arbitrator has read the audit report, the staff report from the City of Davis, the response of the president of the Board of DACHA, the response from NP and the response from Madsen & Walton Properties. The bulk of the criticisms of the audit report are aimed at the accounting systems and procedures, which are not the responsibility of NP. As to the criticisms of the lack of adequate reserves, the use of interest-only loans, the lack of minutes and information to complete an audit and the non-viability of this type of cooperative housing model, the arbitrator finds that many of the conclusions in the audit report and the City of Davis summary are not established by the record. Instead, there are considerable differences of opinion. Both NP and the management company dispute most of the conclusions. There is an indication that significant issues raised by NP were not even mentioned in the audit report, including the alleged over-payment for homes from the City of Davis.
All of this having been said, this arbitration is only concerned with the relationship between DACHA and NP. It is not the task of this arbitrator to wade through years of history between the City of Davis, DACHA and all other interested parties to determine who is right and who is wrong, as to the viability of this model or the financial health of DACHA or any of the myriad other issues involving these parties. The City of Davis maintains a very commendable goal of affordable housing present. Along with this goal, there comes a host of problems which are not part of this arbitration. One thing is clear from the audit report and that is that the criticisms in the report do not negate the contractual obligations between DACHA and NP.
Requirement for Licensed Real Estate Broker
Lastly, DACHA raises a very serious challenge that NP is not a licensed real estate broker and therefore cannot collect any monies, pursuant to the law of the State of California. California regulates real estate transactions and requires that brokers and agents be properly licensed. (Exh. DO) DACHA does not claim that the work was not accomplished but claims that NP is prevented by law from recovery of any compensation, either under the consulting agreement or for its extra-contractual administrative services.
A witness called by DACHA, Larry Alamao, was a former Chief Counsel for the Department of Real Estate. He found that significant activities undertaken by NP were prohibited activities, in the absence of a valid real estate broker’s license. He based his opinions on a review of the consulting agreement, Mr. Thompson’s deposition and NP’s arbitration brief. Specifically, he found that activities relating to I) the acquisition of units for DACHA, 2) the financing of those units and 3) the acquisition of individuals who would become members of DACHA all were activities that would require the existence of a real estate license.
However, the case law is not as clear cut as the witness would indicate and requires a review of all of the facts of each subject transaction to determine if certain activities require the existence of a broker’s license. NP cites four cases (Marathon. Executive Landscape. Lindenstadt and Venturi) for this more detailed approach. Also, there is a “finder’s fee” exception to the real estate requirements (Lindenstadt and Tvrone vs. Kelley). In any event, it is important to look at the specific activities and separate out those that come under the licensing statute, if any, from those that do not. The blanket approach of denying all compensation, if there are some unlicensed activities, is not the law of this state and is inherently unjust and unfair.
From an overall standpoint, most of what NP did had nothing to do with real estate transactions and was more administrative in nature. As to the real-estate related work, at no time did NP hold itself out as a real estate broker or agent and in fact NP specifically stated that it was not. At no time did DACHA consider NP to be its broker or agent. There is no evidence that the City of Davis considered NP to be a broker or that it required that NP hold a broker’s license. The role of N P is clearly defined in the consulting agreement and in the paperwork surrounding the various real estate transactions and in no case is NP described as a broker or agent. NP was not to receive a commission in return for real estate activities, but was to earn a set sum which would be paid at the close of escrow. This provision described the method or timing of payment, not the condition of payment.
The evidence certainly does not establish that NP acted as a typical broker, as one might customarily see in the market place. The “acquiring” of units to be purchased by DACHA consisted of asking known developers which units they might make available to comply with the Davis ordinance which requires affordable housing. The list of developments and developers was made available by the City of Davis and consisted of matters of public knowledge. The developers knew that they had to comply with the ordinance and were undoubtedly looking for individuals who might assist them. The “negotiation” by NP was minimal, as the City of Davis set the prices of homes and established the parameters of income for the members, in order to comply with its affordable housing ordinance. The lending institutions were meeting their own legal requirements in funding affordable housing in the Davis area and they simply announced their lending rates and programs. The City of Davis actually funded the original transaction (Tufts) on its own. The “acquiring” of individuals who would become members involved advertising for those who might meet the City’s affordable housing requirements. These individuals did uot acquire real property but became members of an entity that owned the property. The activities would be more akin to a landlord advertising for renters.
Still, the Real Estate Licensing Statutes in this state are designed for the benefit of the consumer and strict compliance is required. In this case, the activities of NP were a mixture. Some activities arguably required the existence of a real estate license and for those NP will be denied compensation. For most of the activities, however, a real estate license is not required and for those NP will be compensated. Accordingly, the arbitrator finds that approximately 25% of the claimed fees under the consultation agreement and 10% of the extra-contractual or administrative services meet this criterion and the appropriate amounts shall be deducted.
Award of Damages
For all of these reasons, NP is awarded the sum of $282,000 for services rendered under its original contact, as amended, and is awarded the sum of $49,872 for extra-contractual or administrative expenses that it incurred at the request of DACHA, for a total of $331,872, along with interest at the rate of 10%, from the date of this award.
“The evidence certainly does not establish that NP acted as a typical broker, as one might customarily see in the market place. The “acquiring” of units to be purchased by DACHA consisted of asking known developers which units they might make available to comply with the Davis ordinance which requires affordable housing. The list of developments and developers was made available by the City of Davis and consisted of matters of public knowledge. The developers knew that they had to comply with the ordinance and were undoubtedly looking for individuals who might assist them. The “negotiation” by NP was minimal, as the City of Davis set the prices of homes and established the parameters of income for the members, in order to comply with its affordable housing ordinance. The lending institutions were meeting their own legal requirements in funding af10rdable housing in the Davis area and they simply announced their lending rates and programs. The City of Davis actually funded the original transaction (Tufts) on its own. The “acquiring” of individuals who would become members involved advertising for those who might meet the City’s affordable housing requirements. These individuals did uot acquire real property but became members of an entity that owned the property. The activities would be more akin to a landlord advertising for renters.
“NP was to be paid $ 8000 at the close of escrow…..”
Now I am confused. If the negotiation by NP was minimal, then for what service were they being paid $ 8,000 per unit ? Does this not seem somewhat excessive for “enquiring” from a publicly available list ? While this may be completely legal, does it seem to anyone other than me like a somewhat shady, hairsplitting business practice especially by well regarded experts in this field imposed on individuals who may very well not have had any knowledge of housing business practice ?
Like I have been saying, this whole started with some members wanting to take the DAcha homes for themselves and breach the contract with NP
The Yolo County case will go against the City
Who is he undersigned?
It appears the DACHA Board had a lawyer present. What was the info on yesterday’s post that the prior lawyer became a judge and the law firm did not participate?
Are the attorney closing arguments not part of this file?
With every new piece of info, the saga becomes yet more confusing.
To me, once again, I ask the city to hire an independent investigator and put this behind us all.
The left shoe to drop was the arbitration award against DACHA.
The right shoe is going to drop in Yolo County Superior Court, against the City for participating in what DACHA tried to do, and years of using public resources to cover it up.
Sue: please say you were duped, as you were. Just like you say you were duped by PERS and others in the 3% at 50 labor negotiations for police and fire retirement packages.
Mike
If the city proceeds to dissolve DACHA what happens to the suit? Isnt that one reason the city s taking this course?
While the Gianola report was devastating information about what was happening with DACHA in 2006, this arbitrator’s finding reflects devastating information about what was occurring with the co-op in 2009. It also answers any questions about whether both parties agreed to this arbitration and confirms that DACHA board members participated and were represented by an attorney.
It’s interesting to read what items Mr. Gianola and the arbitrator (“the undersigned,” whoever that is) agree upon and what they see differently.
That the new board intentionally violated the contract with NP seems pretty clear cut. If DACHA felt it had some rationale for violating the contract, it doesn’t come across here.
The arbitrator also deals with the odd contention that several members wanted to refinance properties they did not own in order to gain some personal windfall. It would be interesting to read Exhibit #35 to understand the arbitrator’s concern about these efforts against the co-op structure and how far they had advanced by that time. To suggest today that these people reasonably thought they had some right to do this isn’t at all credible and demeans them as idiots.
“If the negotiation by NP was minimal, then for what service were they being paid $ 8,000 per unit ? Does this not seem somewhat excessive for “enquiring” from a publicly available list ? While this may be completely legal, does it seem to anyone other than me like a somewhat shady, hairsplitting business practice especially by well regarded experts in this field imposed on individuals who may very well not have had any knowledge of housing business practice ?” –medwoman
I read this differently. The arbitrator was evaluating real estate broker type type services to determine whether real estate law was violated. He/she was not comcerned with other types of services might have been performed and included in the $8,000 payment. It certainly can’t be fairly characterized as shady for any reason suggested here.
After reading all the materials David G. considerately has posted and documents for which Sue and others have provided links, I’m feeling compelled to question the “nasty scam artist businessman crook vs. poor ignorant honorable victims” portrayal we’ve come to believe. If only this matter was so simple and clear cut….
[quote]In order to successfully implement a Limited Equity Housing Cooperative, one has to understand the big picture and understand that this type of project requires a long-term commitment on the part of the members and the City of Davis. This is especially true with regard to this type of cooperative housing model. By its nature, DACHA would be most successful by the accumulation of many units. A certain economy of scale would be achieved by lessening the per capita costs of some expenses in this method.[/quote]
In other words DACHA could be expected to be financially unsuccessful for a period of time before it is successful? It would take time to be successful, but everyone just should be patient? This sounds more like a long term investment scheme than a housing model. Were DACHA homeowners informed of this before they bought into this flawed model? Is this what they were told in the “sales pitch”? From Gianola’s letter:
[quote]The main marketing theme seemed to rely on a promise of affordable homeownership and not the benefits and responsibilities of living a cooperative lifestyle.[/quote]
[quote]In order to assist with the formation and the development of the units held by DACHA, it entered into a contract with NP for the purpose of consultation and efforts to obtain more units for DACHA. [/quote]
NP as developer of the project, consultant drawing up all the contracts and governing documents, and salesman all rolled into one; with a contract specifying more units were to be added whether the organization was solvent or not – none of which seemed to bother the arbitrator… he just says DACHA members and the City just have to be patient for this investment scheme to be successful…
[quote]At the time of its formation, NP had recruited various members of the public to serve as volunteer members of the Board of Directors (Board), including Dallas Kassing (a UCD employee) and Ty Smalley (an architect). [/quote]
Stacking the deck is always helpful…
We were of course quite pleased by the above analysis of the arbitrator. To this day, his is the only third party assessment of the situation by a knowledgeable legal professional that was agreed to by all parties involved.
I hope that Vanguard readers noted the following statement from the above report:
[i][b]The bulk of the criticisms of the audit report are aimed at the accounting systems and procedures, which are not the responsibility of NP. As to the criticisms of the lack of adequate reserves, the use of interest-only loans, the lack of minutes and information to complete an audit and the non-viability of this type of cooperative housing model, the arbitrator finds that many of the conclusions in the audit report and the City of Davis summary are not established by the record.
[/b][/i]
Neighborhood Partners has repeatedly asked for another third party investigation of this mess. So far the City of Davis has refused. They have not even required DACHA in the past six years to complete a second financial audit. Why?
The City of Davis really failed here in helping this Co-op survive. Someone should have responded to the initial letter from 6 members regarding wanting to solely own their homes to let them know that this would not happen. Only members in good standing should have been serving on the Board. From what is described here is clear that we are not dealing with low-income people. We are dealing with moderate income people who wanted to own a home and cash in on the refinancing bubble that was going on around them. They were not looking for a long-term home. They were looking at this as an investment that would pay out at a later time. These people misunderstood the purpose and the function of a co-op and what it provides for people. That DACHA was solvent at the time of the transition to the new Board is telling. The fault lays firmly at the feet of the new Board for their mismanagement and ultimate failure of the co-op, with the City staff who were responsible to monitor their activities holding a lesser responsibility.
[quote]Notwithstanding these concerns, there was very little member participation in the activities of DACHA, prior to the letter.[/quote]
Of course there wasn’t much participation in the “activities of DACHA” bc at that time there were almost no homeowners on the board, if any, and NP was running the show…
[quote]The evidence shows that the new members of the Board had not even read the consulting agreement. They were generally uninformed as to the history of DACHA and the role played by NP.[/quote]
Now whose fault was that? Were these residents ever told BEFORE they bought into DACHA about the consultant agreement?
[quote]The stated purpose of the new Board was to somehow gain the ability to own their homes, so that they could achieve the benefit of the equity and thereby finance college education and retirement. Suffice it to say that such a goal is in direct contravention with the concept of the cooperative and with the affordable housing ordinance. [/quote]
And who was it that planted the idea of home ownership into these folks heads?
[quote]Also, in this context, a neutral position [by the DACHA Board] is the equivalent of opposition, especially in light of the covenant of good faith and fair dealing.[/quote]
Seems to me the arbitrator is supposed to be neutral, no? A neutral position is equivalent of opposition? Really?
“In other words DACHA could be expected to be financially unsuccessful for a period of time before it is successful? It would take time to be successful, but everyone just should be patient? This sounds more like a long term investment scheme than a housing model. Were DACHA homeowners informed of this before they bought into this flawed model? Is this what they were told in the “sales pitch”?
From Gianola’s letter:
The main marketing theme seemed to rely on a promise of affordable homeownership and not the benefits and responsibilities of living a cooperative lifestyle.”
No, in other words, when you join a co-op, you can’t expect to walk away with in a couple years with the kind of windfall equity profits that those of us who bought houses could get because we took on the expense and risks that go along with purchasing a house. You’re maintaining a fiction every time you suggest these people thought that they were buying a house and gaining the capability to sell it or refinance it in order to make a profit during the housing bubble.
Furthermore, I think it’s clear that this wasn’t seen as a rental operation, with people jumping in and out willy-nilly, but an opportunity that required more than just a short-term tenant-type commitment.
What do you mean by the comment that “stacking the deck is always helpful…”?
What do you mean by the previous comment about several responsibilities being “all rolled into one”?
I get the idea that you want us to think that this innuendo means something must have happened wrong here. But, you don’t get around to claiming anything illegal or inappropriate happened. To what conclusions do you want us to jump?
[quote]What is equally appalling is that the new Board actively worked to discourage any further growth of DACHA, in direct contravention with its contract with NP and, more importantly, with its own By-Laws, Articles of Incorporation and with the whole concept of cooperative and affordable housing.[/quote]
What is equally appalling is that:[quote]DT increased share prices for later members to amounts greater than $20,000, – in direct violation of the City’s Regulatory Agreement governing affordable housing.[/quote]
The pdf I sent to the Vanguard was signed at the bottom by Ken Malavos and dated June 18, 2009
Mr Malovos was chosen from among a set of choices by both Mr. Goodman and Mr Boutin.
Here is his bio.
Ken Malovos
Mediator
Arbitrator
Special Master
Discovery Referee
Temporary Judge
Ken Malovos is a full-time Sacramento mediator and arbitrator, specializing in business disputes. He has been a trial lawyer and litigator in Sacramento for over 35 years, during which time he appeared regularly in state and federal courts, representing both plaintiffs and defendants. He has participated in hundreds of arbitrations and mediations.
Throughout that entire time, he has maintained a steady interest in the art of settlement. As a practical matter, the vast majority of cases do settle, it is only a question of when and on what terms. It is his strong belief that the best and earliest settlements come about through the use of a competent and interested mediator who has real litigation experience as an advocate.
Since 1988 he has served as a pro tem settlement judge and judicial arbitrator for the Sacramento County Superior Court. He has been selected as a member of the California Academy of Distinguished Neutrals. He serves as a neutral for the American Arbitration Association on their Construction, Commercial and Large Complex Case arbitration panels and on their Mediation Panel. In addition, he serves as an arbitrator for the Public Works Contract Program for the Office of Administrative Hearings, State of California. He has been admitted as a Fellow in the College of Commercial Arbitrators.
In 2006, 2007, 2008 and 2011, he was selected as a Super Lawyer in Northern California for Alternative Dispute Resolution. For the past 15 years, he has served as a neutral in over 500 cases. He is well versed in a wide variety of business disputes.
[quote]The response by the City of Davis to the complaints of the members was to conduct an audit, which took a long time and resulted in criticisms of this cooperative model, but which did not address the contractual obligations of DACHA to NP. The request for the audit served as a convenient reason to delay addressing the contractual relationship between DACHA and NP. However, once the audit report was received, the Board again took no action with regard to its contractual responsibilities to NP.[/quote]
Apparently this arbitrator wasn’t particularly concerned with the severe problems the audit showed, e.g the model was fatally flawed from inception…
[quote]In November of 2005, at the time of the termination of the NP contract, DACHA was actually in pretty good financial condition. There were few vacancies and there was plenty of cash on hand to support future growth as well as to meet the obligations of DACHA. (Exhs. 173 and 174)
DACHA was well-served by the original Board, consisting of dedicated citizens of Davis, serving without pay, who sought only to make Davis a better city by implementing a sound affordable housing solution. Dallas Kassing and Ty Smalley are the kind of people that should be commended for their volunteer service. Their actions with DACHA were beyond reproach.
In addition, DACHA was well-served by NP and its two principals, David Thompson and Luke Watkins. These are seasoned veterans who understand the big picture. They understand the intricacies of implementation of the Davis affordable housing ordinance and a cooperative housing venture such as DACHA. They worked extremely hard on behalf of DACHA over several years only to be kicked aside when it came time to pay them for their services. It is hard to understand how individuals so dedicated and so hard-working can be treated in the shameful way that they were.[/quote]
An arbitrator is supposed to remain neutral, not give what amounts to a sales pitch for one side…
[quote]2) the agreement by the Board to pay for additional services not included in the consulting agreement at the rate of $120 per hour.[/quote]
Now didn’t DT say on this very blog:
[quote]If you look at the DACHA records you will not see NP being paid $120 an hour for anything. You will only see NP being paid for each home added to DACHA.
[/quote]
[quote]Even the Covell Village (40-60 units) project, which was rejected by the voters, might be a future possibility, under a new configuration. [/quote]
Remember, this is the arbitrator saying this… if this doesn’t give readers pause, I don’t know what would…
[quote]Further, NP has established that it performed these services at the agreed-upon rate ($120 per hour) and was not paid for its work. The old Board of DACHA consistently recognized this obligation and was seeking a method of payment during the time of its existence. (Exhs. 15, 17, 18, 19, 20, 22, 23, 24 and 26) The new Board acted as if this agreement was not existent.[/quote]
Perhaps that is because the Board never received any invoices…
From having attended numerous depositions I can say that some of the most culpable DACHA board members are consistent in hiding from the truth and evasive as described below by Mr. Malavos.
As I showed on the Vanguard there are numerous material facts that are completely untrue in the DACHA Dissolution Report.
The DACHA pattern identified by Mr. Malavos is alive and well in the DACHA report submitted to the City Council for forwarding to the Attorney General.
“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 these members appear to have been in serious arrears in their fees during times that they were members of the Board, in direct contravention to the Bylaws.”
David Thompson, Twin Pines Cooperative Foundation
[quote]Members of DACHA raise a general concern that DACHA never allowed them to obtain ownership of their homes. That is true. A cooperative such as DACHA does not provide for individual home ownership. Instead it provides for membership and ownership by the cooperative. The members gain many of the benefits of home ownership (tax deduction of interest and taxes) but they do not actually own their homes. They are free to leave at any time. This essential concept was known to all when they became members. Their desire to change the rules of the game after they became members is at the root of the problems experienced by the new Board and DACHA.[/quote]
If DACHA members were led to believe they would actually own their homes through a misleading sales pitch then that would be more likely the root cause of the entire mess…
“The stated purpose of the new Board was to somehow gain the ability to own their homes, so that they could achieve the benefit of the equity and thereby finance college education and retirement. Suffice it to say that such a goal is in direct contravention with the concept of the cooperative and with the affordable housing ordinance.”
Elaine: “And who was it that planted the idea of home ownership into these folks heads?”
I’d guess nobody PLANTED in their heads. It’s most likely that these folks thought they saw an opportunity to grab ownership by taking control of the decision-making board and getting rid of NP. (Maybe Exhibit 35 would be enlightening. Have you read this? Apparently it influenced the arbitrator.)
Certainly it’s difficult to comprehend that NP drove the new board to this attempt–the board saw NP as “in the way” of this objective and dumped NP. Surely NP, the city and everyone else involved must have told this rebel group “no way this can be done” the first and every time anyone brought it up.
[quote]The allegation that they were actually promised home ownership is not supported by the record. And it makes no sense, in view of the nature of this cooperative. The evidence shows that they the members were promised many of the benefits of home ownership and this is what they received. There is a difference.[/quote]
Now does the arbitrator think a first time purchaser is going to understand the nuanced difference between the promise of home ownership and the promise of many of the benefits of home ownership? Really? And from this the arbitrator concluded the DACHA members somehow knew they were getting into a cooperative and would not be owning their homes? Especially home owners who speak English as a second language? Really? LOL And what documents are there to PROVE the sales pitch was not misleading – that there was full disclosure there would be no home ownership?
[quote]DACHA raises a concern that it was not told of the amount of the expenses incurred by NP while they were incurred. While it is true that NP could have informed DACHA of the actual amount that it was incurring earlier than it did, this does not take away from the fact that it earned the monies that it is claiming. [/quote]
“Could have informed”? How about SHOULD HAVE INFORMED!
Elaine, Instead of repeatedly copying snippets and making vague comments on them, it would be helpful if you actually posted an opinion that can be supported. I understand that you are on the side of the co-op members, but they have already lost in court and don’t come out well in this arbitrator’s report. DACHA was solvent when they took over and then ran it into the ground. The model may have had flaws, one being that a Board could destroy the Co-op through their irresponsible and illegal behavior as Board members.
What really started rubbing me the wrong way was when I learned that a Board member had money to expand her home, but not to pay what she owed the co-op.
[quote]DACHA raises a concern that the extra-contractual or administrative charges from NP are excessive and points out that NP is now charging tor some services that reasonably should have been part of its original contract, most notably attendance at meetings to describe actions taken by NP. DACHA also notes that as of September 2003, NP was not asking for additional compensation for extra activities and, to the contrary, indicated that the agreed-upon compensation in the consulting agreement was appropriate. (Exh. H-5) To some degree, these concerns by DACHA are valid. There are other activities which appear to be part and parcel of the original consulting agreement. Therefore, there shall be an appropriate deduction from the claimed amount of 50%.[/quote]
Hmmmm… There was supposedly an oral contract for $120 per hour for services rendered, with no invoices submitted and nothing that states the specific dollar amount, and admittedly some of what was being asked for was excessive … so on what basis did this arbitrator even come up with a dollar figure?
[quote]The bulk of the criticisms of the audit report are aimed at the accounting systems and procedures, which are not the responsibility of NP. [/quote]
But who suggested management?
[quote]As to the criticisms of the lack of adequate reserves, the use of interest-only loans, the lack of minutes and information to complete an audit and the non-viability of this type of cooperative housing model, the arbitrator finds that many of the conclusions in the audit report and the City of Davis summary are not established by the record. Instead, there are considerable differences of opinion. Both NP and the management company dispute most of the conclusions. There is an indication that significant issues raised by NP were not even mentioned in the audit report, including the alleged over-payment for homes from the City of Davis.[/quote]
It is my understanding that an arbitrator is supposed to remain neutral, and not take one side…
[quote]A certain economy of scale would be achieved by lessening the per capita costs of some expenses in this method. Therefore, the initial goal of 30 additional units made sense. In fact, after some time the Board agreed to add an additional 30 units, for a total of 67 units. NP planned to find these units and set about to accomplish this task. These clear marching orders from the Board made sense and would have eventually resulted in a very successful cooperative housing operation, to the benefit of its members.–[b]Private Arbitrator[/b][/quote]This particular arbitrator accepted Neighborhood Partners’ fiscal analysis, and repeated it.
(I should add that many consumer rights groups do not like binding arbitration because they feel it is biased toward the “repeat customer” and it eliminates the right of appeal of flawed decisions.)
I don’t agree with his fiscal analysis. First of all, the city had not agreed to provide 67 units. I would never have voted for this project if we had. DACHA would probably have required almost all, or exceeded, our affordable housing resources if we had. And I don’t see how even this would have guaranteed survival of of DACHA.
But, after giving his opinion that expansion to 67 units would solve DACHA’s fiscal problem, the arbitrator concludes by saying: [quote]All of this having been said, this arbitration is only concerned with the relationship between DACHA and NP. It is not the task of this arbitrator to wade through years of history between the City of Davis, DACHA and all other interested parties to determine who is right and who is wrong, as to the viability of this model or the financial health of DACHA or any of the myriad other issues involving these parties. The City of Davis maintains a very commendable goal of affordable housing present. Along with this goal, there comes a host of problems which are not part of this arbitration. One thing is clear from the audit report and that is that the criticisms in the report do not negate the contractual obligations between DACHA and NP.–[b]Private Arbitrator[/b][/quote]So he has taken a narrow view of the contractual obligation. Yes, there is a contract. That is all he is saying.
He chooses not to look at the circumstances of the contract, i.e., that Neighborhood Partners, acting as consultant and developer both, signed a binding contract with an early board of members that they themselves had picked, and expanded that contract with later boards of consisting of a minority of members, which bound future boards to expand to 67 units and to pay Neighborhood Partners a fee for each unit expanded regardless of the economic circumstances and regardless of whether or not the city was willing to provide these units.
This contract created a huge liability for the co-operative. It is not clear to me whether or not members who joined the co-op were aware of this liability or its potential implications for their carrying costs.
But the award is what it is, and the co-op is insolvent. All of this having been said, this arbitration is only concerned with the relationship between DACHA and NP. It might not be the “the task of this arbitrator to wade through years of history between the City of Davis, DACHA and all other interested parties to determine who is right and who is wrong, as to the viability of this model or the financial health of DACHA”, but it is our task to do so, and that is what we are doing.
[quote]Still, the Real Estate Licensing Statutes in this state are designed for the benefit of the consumer and strict compliance is required. In this case, the activities of NP were a mixture. Some activities arguably required the existence of a real estate license and for those NP will be denied compensation. For most of the activities, however, a real estate license is not required and for those NP will be compensated. Accordingly, the arbitrator finds that approximately 25% of the claimed fees under the consultation agreement and 10% of the extra-contractual or administrative services meet this criterion and the appropriate amounts shall be deducted.[/quote]
So admittedly NP engaged in illegal activity. Now what was the arbitrator’s basis for deciding what was a real estate activity and what wasn’t? And was the arbitrator neutral and without bias when making such a distinction? Let’s see, the arbitrator lauds the expertise and community standing of NP & company; ignores an audit that underscores real problems with the flawed DACHA model; admits NP committed illegal acts – but decides to award NP anyway…
“Perhaps that is because the Board never received any invoices…,If DACHA members were led to believe they would actually own their homes through a misleading sales pitch then that would be more likely the root cause of the entire mess….”
Elaine, I think it’s way too late for “perhaps” and “if” to have any impact or to try for reasonable doubt. This is a preponderance arena, and there’s way too much on the record to ignore.
It also doesn’t seem practical or appropriate to attack the integrity of the arbitrator and the arbitration process this way when both parties agreed with and participated in a process conducted by a person upon which both agreed. Just because a judgment is made for one side doesn’t mean that the arbitrator didn’t start out neutral.
All of the information provided to prospective members made it clear that it was a limited equity housing cooperative and that you did not own the home.
We even went as far to say that if a member moved out and wanted to join a “first time home buyer program they could because they had never owned a home.
Here is from a Q & A provided to members. I don’t know how much clearer we can be when we say,
When you are asked, “do you own a home”? Your answer is “no!
“Can I still qualify for a first time home buyer program?
Yes you can! In a cooperative you are the owner of a share in the cooperative corporation which means you own for example 1/20th of all the homes (if there are 20). However,neither you, nor any member of the cooperatives is the owner of a specific home. When you are asked, “do you own a home”? Your answer is “no! You are therefore eligible for
all first time home buyer programs.
David Thompson, Neighborhood Partners, LLC.
“The allegation that they were actually promised home ownership is not supported by the record. And it makes no sense, in view of the nature of this cooperative. The evidence shows that they the members were promised many of the benefits of home ownership and this is what they received. There is a difference.”
“Now does the arbitrator think a first time purchaser is going to understand the nuanced difference between the promise of home ownership and the promise of many of the benefits of home ownership? Really? And from this the arbitrator concluded the DACHA members somehow knew they were getting into a cooperative and would not be owning their homes? Especially home owners who speak English as a second language? Really? LOL And what documents are there to PROVE the sales pitch was not misleading – that there was full disclosure there would be no home ownership?
We have only you and Sue to believe that the DACHA members were so stupid, uneducated, unprotected, unenlightened, unsophisticated, etc., that thy thought they were engaginging in a traditional house-buying contract when they joined the co-op. We have only your word that they continued along blithely in this ignorant manner about their basic situation for years as they worked with the city staff, Mr. Gianola, NP, their own attorney and many others and as they engineered a coup against NP–until they showed up somehow on the doorstep of the arbitrator.
The arbitrator found that this allegation “is not supported by the record,” a record that was built with evidence provided by DACHA itself. You continue to offer nothing to support this degrading stereotype of the DACHA members. We can care about their plight without painting them as such inadequate victims.
Now you want documents to prove something DIDN’T happen when you haven’t provided any advertising that even hints that it did. You’re protesting too much and offering up too little.
From the dissolution plan:
“Several articles of correspondence authored by DT and 2004-2005 City Block Grant Application show DT stated repeatedly DACHA would provide “affordable home ownership.”
From John Gianola’s letter:
“The main marketing theme seemed to rely on a promise of affordable homeownership and not the benefits and responsibilities of living a cooperative lifestyle.”
And by the way, the actual document with a main marketing theme of home ownership is part of the dissolution plan – Attachment #1…
Here is another piece provided to members.
“What is the Davis Area Cooperative Housing Association (DACHA)?
DACHA was created in 2002 to provide a low cost entry into affordable home ownership in Davis. DACHA is modeled after the Dos Pinos Housing Cooperative on Sycamore Lane. Dos Pinos is the most successful permanently affordable home ownership program in Davis. DACHA is a limited equity housing cooperative registered as a nonprofit corporation under California law.”
In our description to the members both in writing and orally we talked of the Dos Pinos model. As in the other piece we told people you owned a share in a cooperative you did not own the home. We explained how Dos Pinos worked and that you get the tax advantages of home ownership but did not own the home.
Under Section 216 of the IRS Code cooperative housing is provided with the same tax advantages as other forms of home ownership such as deduction of the mortage interest and property taxes.
This was all explained to members. Most members benefitted annually from the deductions they obtained.
Cooperatives are regarded by the IRS as a form of home ownership.
David Thompson, Neighborhood Partners.
[quote]We have only you and Sue to believe that the DACHA members were so stupid, uneducated, unprotected, unenlightened, unsophisticated, etc., that thy thought they were engaginging in a traditional house-buying contract when they joined the co-op.–[b]Just Saying[/b][/quote]I never said that.
[quote]DACHA was solvent when they took over and then ran it into the ground. The model may have had flaws, one being that a Board could destroy the Co-op through their irresponsible and illegal behavior as Board members.–[b]Ryan Kelly[/b][/quote]According to the auditor, when the DACHA members took over the DACHA board, carrying costs as high or higher than market rate rents, there were increasing vacancy problems, the books were a mess. There were no invoices for large consulting fees that David Thompson and Luke Watkins later claimed they were owed, and to my knowledge, neither was the enormous liability of the developer fees owed to David Thompson and Luke Watkins for obtaining the large number of units that the earlier, non-member board contracted for even though the city had not agreed to provide them. The interest accruing to the member shares was unaccounted for, etc., etc.
How can you say that DACHA was solvent and the board consisting of members “ran it to the ground?”
You say you heard something you didn’t like about one member. From what I have seen of the DACHA members, they are a true cross-section of moderate income Davis residents. They seem very nice. I believe that they all want the co-op dissolved, even though they will lose their investment.
Something needs to be done about City Staff acting this way?
Where was the accountability when this was provided to the City.
Citizens of Davis have now paid $2.4 million for the continued coverup.
Are they allowed to condone a borrower of Davis public funds breakings its bylaws? The City loan documents required DACHA to follow its bylaws and state law.
The City staff know that DACHA is breaking its bylaws and they blithely continue to ignore DACHA breakings its bylaws even when a document is filed with the Yolo Superior Court that shows that the bylaws are being broken and the Arbitrator points out that City Staff “did little to discourage the board”.
On June 19, NP immediately sends this report to the City Council, City of Davis and the report would go to the City Manager and City Attorney.
What did the City Council, City Attorney, City Manager and City Staff do on seeing this reference in a Yolo Superior Court document? Nothing!
Given the requirements of the loan documents did City staff send any notice to DACHA that they are breaking the bylaws? No!
Did City Staff continue to work with the two board members (President and Treasurer) who were by the bylaws required to be automatically removed from the board? Yes City Staff did!
No mention in subsequent DACHA minutes of the bylaws being broken.
On June 18, 2009, the Arbitrator files his report.
“What is curious is that representatives of the City of Davis were present throughout this entire time when the new Board took these untoward actions and they did little to discourage the Board.”
“The new Board allowed members of the Board to remain on the Board even though some of them were delinquent with their payments, in violation of its own Bylaws. (Exh. 173)”
“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 these members appear to have been in serious arrears in their fees during times that they were members of the Board, in direct contravention to the Bylaws. (Exh. 173)”
This whole conduct of City staff makes you think of the City of Bell!
Why Sue you are okay with a borrower of Davis public funds being allowed to break its bylaws and state law I do not know!
David Thompson, Neighborhood Partners.
[quote]”You say you heard something you didn’t like about one member. From what I have seen of the DACHA members, they are a true cross-section of moderate income Davis residents. They seem very nice. I believe that they all want the co-op dissolved, even though they will lose their investment.”[/quote]Thanks for this description of DACHA’s membership. It is contrary to the poor, non-English-speaking, unsophisticated victims I grown to picture from reading the [u]Vanguard[/u] items and comments–and the first time anyone has portrayed them in this positive way. I’d appreciate it if I was one of them.
I wonder why they all would want the co-op dissolved, leaving them with no structure to carry on against the city or against NP? I can’t imagine the city’s dissolution decision will end this. I do see why the current person who ended up stuck with representing DACHA against his will wants out.
[quote]This whole conduct of City staff makes you think of the City of Bell! Why Sue you are okay with a borrower of Davis public funds being allowed to break its bylaws and state law I do not know!–[b]David Thompson[/b][/quote]These kind of comments don’t address the issue. I will respond that you presented the city with a business model for a co-op that did not require any additional houses from the city and that would be a good deal for the members.
The members trusted that their carrying charges would be affordable and that you would make good on your guarantee that they could leave and receive their initial investment plus interest with only 60 days notice, as promised. You said that there would be no financial risk to the members.
It didn’t turn out that way. Carrying costs went above market rate rentals. Vacancies started to rise. You started to lobby to change the “money back in 60 days” promise, hoping to require members to keep paying for their units unless they could find a replacement (See David Thompson’s response in auditor report).
It turns out that you had entered into binding contracts with the board that you appointed to expand the co-op by many units with a fee going to yourself for each unit, even though the city had not agreed to provide these units.
You sued the co-op for the “developer fees” for these units that had not been added and that the city had not agreed to provide. You levied the co-op account for these fees, and now it is insolvent.
I am sure that I could come up with many disparaging analogies with which to describe this scenario, but they would not involve the city of Bell.
Let’s just all agree to support the dissolution of the co-op.
[quote]”I believe that they all want the co-op dissolved, even though they will lose their investment.”[/quote]And, haven’t they already lost their investments? Are you confident that the DACHA folks won’t lose future standing if their co-op organization is dissolved? I’d hate to seen them end up losing out yet again.
Why would anyone want to be DACHA’s lawyer after what they do to their
lawyers?
This story will have you smell the coffee.
Their first lawyer works for them for a long time pro-bono
The illegal DACHA Board at an illegal quorum vote to ask the City to allow them not to pay their mortgage so they can start to pay their pro bono lawyer
The City staff recommends to the Council that DACHA be allowed to forebear on $110,000 of repayment of public funds to the City.
At the time, the DACHA members owe DACHA about $30,000. Does the City staff ask the DACHA members to pay their debts? NO!
At the end of the forbearance period, DACHA uses the cash flow to increase their own delinquencies to DACHA to about $75,000. (Not a bad deal)
Were the $110,000 funds used by DACHA to pay their lawyer? Seemingly not?
At the time Goodman leaves the law firm, DACHA owes him $90,000 for his services.
I’ve asked City staff to investigate what was done with $110,000 of public funds? It sure smells?
And look how kind DACHA was to Goodman in the Dissolution Report. Was what they said about Goodman in the Dissolution Report true? After all he did for DACHA did Goodman deserve to be trashed by DACHA? Can someone from DACHA answer?
David Thompson, Neighborhood Partners, LLC.
You have not answered my question.
Why Sue you are okay with a borrower of Davis public funds being allowed to break its bylaws and state law I do not know!
David Thompson, Neighborhood Partners
Second lawyer for DACHA unpaid and attacked?
So the next lawyer for DACHA from Nossaman takes over the case. He is professional in his conduct, appears at all the right places and I think follows the instructions of his client.
For whatever reason, the firm decides they no longer want to represent DACHA and they ask the Court to be allowed to leave the case.
DACHA owes their law firm $93,000.
In their Dissolution Report, DACHA trashes his role but is what they say about him true?
If it is then DACHA should pursue a claim but the claim in the Dissolution Report by DACHA needs to be true.
Could someone from DACHA confirm that what they wrote about the next lawyer is true?
David Thompson, Neighborhood Partners, LLC.
Why Sue you are okay with a borrower of Davis public funds being allowed to break its bylaws and state law I do not know!
David Thompson, Neighborhood Partners
[b]Re: Allegations that DACHA members households earned $90,000 a year.[/b]
I have waited to respond to the allegations that DACHA members made $90,000 a year until I could get the facts.
These are the figures that staff sent me:[quote]When initially qualified, in 2003-2006, household incomes ranged from [b]$36,500-$64,000[/b]. In 2007, household incomes incomes ranged from [b]$31,000 to $68,000[/b].
With the downturn in the economy the last few years, some members have had 1-2 adults in the household lose their job. Some have even had to leave due to negative impacts on their household income. All of the members were income-qualified as low-moderate income households initially and all of them lost over $6,000 to DACHA.-[b]Information from City Staff[/b][/quote]
Sue?
As you have not replied am I to take it that you are okay with borrowers from the City breaking their bylaws and state Law?
Where is your accountability for the misuse of public dollars?
David Thompson, Neighborhood Partners, LLC.
Thank you David Greenwald for posting the above arbitration ruling by Ken Malavos. And thank you Vanguard readers for taking the time to read what is a key document in this dispute.
I have read more than once on these blog comments that this should just be decided by a judge through the legal system, instead of the constant she said/he said back and forth going on in this blog over the years.
Mr. Malavos was essentially that judge. Both sides agreed to his role and to be bound by his decision. Why? He has impeccable credentials.
Mr. Malavos did something that neither the auditor nor Mr. Gianola felt an obligation to do. He accepted testimony from both sides of the dispute, and asked them for documents to prove their position. And then he cited those documents in his report.
Mr. Gianola wrote his much quoted letter to the city council without ever asking us for our views on the DACHA auditor’s report. Not even a phone call.
Before the audit was released, David and I met with Bill Emlen to discuss the process of completing the audit. We asked that a draft be provided to all of the involved parties before its public release, with enough time to provide the auditor with additional information that might correct any mis-information in the audit that could be easily corrected. We thought that Mr. Emlen agreed to our request. However that did not happen. Instead we were presented with a copy of the final audit, and when we pointed out errors, and indicated that we had copies of the board meeting minutes that the auditor claimed were missing, we were told that it was too late. The two management agents involved in DACHA’s accounting records were also not given an advance copy of the audit; they each submitted a letter to the city council indicating that they had provided the auditor with a cd containing the documents that he said were not available; eventually he actually admitted that he did not look at their cds. The final audit did not even include financial statements, which was the product that the firm was contracted with to provide. He never in his report documented that the DACHA financials showed any kind of negative cash flow for the organization.
The DACHA Dissolution Report makes numerous innacurate statements. Look at this one;
“The replacement attorney from Nossaman, LLP neither negotiated nor researched DT’s preference for arbitrator,allowing DT’s selection to stand without challenge.
Neither did the replacement attorney dispute assertions made by NP during the arbitration.
As a result the judgment was in NP’s favor, with an award of $331,872.”
Did the Nossaman Attorney truly neglect the choice of Arbitrator?
Did the replacement attorney truly not dispute our assertions?
Was DT’s selection allowed to stand without challenge?
Did NP truly win our $331,872 award through favoritism and incompetence?
This has been said in a publc document to go to the Attorney General.
It is a sorry way to portray a judgement fairly won under requirements set by both DACHA’s lawywer and our lawyer.
And what is more I do not think it is true.
David Thompson, Neighborhood Partners, LLC.
[quote]Sue: “How can you say that DACHA was solvent and the board consisting of members “ran it to the ground?” [/quote]
Per the arbitration report, DACHA was solvent at the time the new Board was elected. Look at it now.
Did members ever bring their accounts current, or do they still owe?
Down to the wire, and I figure we’ve gotten to read every thing of significance. My own impressions have changed, thanks to the [u]Vanguard’s[/u] posting of all of the background documents and reading all of the opinions in response.
In some ways, the dissolution decision is a difficult one for the council. The setting is one of “sides” facing off against each other. Either way, the council will be be perceived as selecting a “winner” when there’s no winner coming out of this one.
In other ways, the dissolution decision is an easy one for the council. Whatever they decide doesn’t really matter because the actual decision will end up getting made at the state government level.
The city staff has put together a package that is quite mysterious and may be designed to provide the council some cover for the city in the lawsuit arena. “Out of an abundance of caution,” staff says, it applied rules (817.2) that it claims don’t apply. Once applied, it’s fine–until we come to a situation in which is isn’t desirable to apply them. Then, we don’t, abundance of caution or not.
The staff report says DACHA history isn’t a consideration, avoiding the need for the nasty back and forth that appears in DACHA’s dissolution papers and NP’s numerous filings. Of course, that doesn’t mean that the two parties won’t try to go at it as much as the mayor allows them too.
The staff report says it’s concentrating on whatever state and federal requirements apply, then claiming nothing applies, then applying some things and ignoring others.
What evaluation the city is required to accomplish is unclear, which is fortunate in some ways and disturbing in others. What the staff definitely doesn’t to have happen is for the discussion to slide into anything that might jeopardize the pending lawsuits.
The history–which supposedly isn’t a consideration tonight–is full of charges and counter-charges without apparent support. The best accounting, in my opinion, is the arbitration finding. Everyone got a say and the opportunity to present evidence as well as to advocate their positions. The arbitration came at the end of the disaster, providing the largest amount of history and documentation upon which to base an unbiased judgement.
The other “reports” we’ve read are either angry diatribes, incomplete reviews or an outdated audit. Because of the arbitration’s legal setting, I fear for the city when it comes time to account for what we’ve done (or not done) on this project.
Whether dissolution serves anyone won’t get a fair hearing tonight because the staff has put the question in a pro forma setting. No one apparently has considered whether it really helps the DACHA people themselves (except for the one principle whose understandably tired of the whole thing).
Since the state government is ready to refuse dissolution if it isn’t appropriate given the state of investigations and lawsuits, who cares if the city council even considers those issues?
[quote]Per the arbitration report, DACHA was solvent at the time the new Board was elected. Look at it now.–[b]Ryan Kelly[/b][/quote]As I have summarized, the auditor’s report said that at the time the new Board was elected, DACHA was fiscally unsustainable and its finances were in disarray.
Please read the auditor’s report, here is the link: [url]http://cityofdavis.org/meetings/councilpackets/20060627/11_DACHA_Audit.pdf[/url]
Funny you should ask?
According to the records that DACHA had to provide to Yolo Superior Court the present residents of DACHA are delinquent to DACHA for unpaid rent etc in the amount of over $47,267.68 and have been since June of 2010.
There are 13 residents who are still delinquent in this amount.
Of the 13 who are delinquent 8 of them are former board members.
As ar as we know City staff have not taken any effort to collect the delinquencies and most of the residents while still owing DACHA are living at below cost in the DACHA homes.
And people in Davis wonder about mismanagement of public funds?
David Thompson, Neighborhood Partners, LLC
Dear Sue: Your unwillingness to answer my question is telling!
As you have not replied am I to take it that you are okay with borrowers from the City breaking their bylaws and state Law?
Where is your accountability as a Council member for the misuse of public dollars?
David Thompson, Neighborhood Partners, LLC.
David, I wonder if you think this is doing your cause any good? I urge you to consider that the approach you are taking on the Vanguard may be backfiring and causing some harm to the position you are advocating. I, for one, am very put off by it.
Don, I thank you for your comment and understand why you might say it.
However, if a borrower from the City has been operating for six years with an illegal board, taking actions in meetings that do not have a legal quorum and borrowing and using $4 million dollars and being assisted by City staff then I believe that I should have the comfort of knowing that the one Council Member attacking at every turn will at least uphold the law.
David Thompson, Neighborhood Partners. LLC.
Don: David has suffered alot. Give him some slack
Don Shor: [i]”I, for one, am very put off by it.”[/i]
I find David T.’s approach vaguely annoying, but what I am ‘put off’ by is the notion that it is somehow OK to misuse public funds; something that has apparently been commonplace with the City’s low/moderate income housing program. Why are recipients of the City’s largesse being allowed to walk off with windfall profits from the sale of homes they had previously purchased at below market rates? How is this not taking money from one group (Developers) and giving it to a select few individuals – some of whom were/are City employees? That, in my mind, is what needs to be independently investigated, and what our elected officials should be answering to. David T. may be annoying at times, but Sue Greenwald (and the rest of the Council) needs to answer the question.
The co-op members should pay any money that they owe. They shouldn’t have been allowed to let this large amount accumulate. If this debt is not collected, then the amount should be reported to the IRS as income for these people.
I think this will be the end of the City of Davis facilitating low income housing in Davis. What a waste of effort and money. If these people didn’t want to be part of the co-op, they could have left and gotten their money back and let people who understood take their place.
[quote]Why are recipients of the City’s largesse being allowed to walk off with windfall profits from the sale of homes they had previously purchased at below market rates?-[b]-Mark West[/b][/quote]This is totally, completely outrageously incorrect. The DACHA members didn’t buy houses, they didn’t sell houses, and they certainly didn’t make any profits. The DACHA members actually lost their investment in the property.
The level of vicious slander against DACHA members is incredible.
Sue, it’s obvious Mark is talking about the city’s housing program other than the DACHA project when he talks about walking off with windfall profits.
He’s clearly refering to projects in which the “few select individuals (some of them city employees)” sell their houses (some even before they’re permitted to) with city staff in charge of the affordable housing program doing nothing as the houses were advertised at $200,000 more than their affordable price and the illegal deeds consummated.
As Mark suggests, this has gone on uninvestigated and unpunished for years in several projects, including all the time you have served. The extent of the city’s failure can be determined by totalling the number of “affordable” units established over the years by city programs with below-market sales prices or favorable financing schemes and subtracting that from the number of price-capped units in the inventory today.
It’s clear Mark wasn’t referring to the DACHA members whom everyone knows (INCLUDING THE MEMBERS THEMSELVES!) “didn’t buy houses….”
Since I’m sure you must be aware of the fraud and mismanagement in the projects to which Mark obviously is referring, I can only guess that you must have misread his comment.
There’s no doubt that there was nothing “totally, completely outrageously incorrect” about DACHA in his comment; to charge Mark with “vicious slander” is, well, you know….
Sue: “This is totally, completely outrageously incorrect. The DACHA members didn’t buy houses, they didn’t sell houses, and they certainly didn’t make any profits. The DACHA members actually lost their investment in the property.
The level of vicious slander against DACHA members is incredible.”
Sue – I did not refer to DACHA residents so get off you high horse. I am upset about the history of problems with the entire program, not just one co-op. David T. has presented plenty of evidence that indicates an improper use of public funds going to private parties due in part to poor oversight by the Council and Staff. That is what I think you need to answer for, and frankly what needs to be investigated.
As is suggested by Ryan’s comment, any undeserved “windfall profits” for DACHA members would have to come, not from selling units the knew they did not own, but from debts they owe their own co-op. One would think these now have become “accounts collectible” for the city.
What’s the status of these, Sue? It’s probably a little awkward since the city’s foreclosure action is responsible for their current status. I’m also curious what happens to the membership shares the DACHA folks owned as of the foreclosure. When you wrote that “they actually lost their investment in the property,” do you mean their investments in the co-op organization itself?
Does this mean that the people who were deliquent in their payments to the co-op will make out better than those who faithfully met their responsibilities? Would that unfair treatment–added to the other projects’ financial cheating–give you any pause about the future for affordable housing projects in Davis?
It would be very helpful if David or Luke would post their original document which explained DACHA to prospective members.
It’s pretty clear to me that the city of Davis should [i]completely[/i] get out of the affordable housing business. If they want to mandate affordable housing, density zoning is the way to do it.
[quote]Here is another piece provided to members.
“What is the Davis Area Cooperative Housing Association (DACHA)?
DACHA was created in 2002 to provide a low cost entry into affordable home ownership in Davis. DACHA is modeled after the Dos Pinos Housing Cooperative on Sycamore Lane. Dos Pinos is the most successful permanently affordable home ownership program in Davis. DACHA is a limited equity housing cooperative registered as a nonprofit corporation under California law.”
David Thompson, Neighborhood Partners.[/quote]
Notice how “homeownership” is cleverly threaded throughout this sales pitch…
[quote]”Notice how “homeownership” is cleverly threaded throughout this sales pitch…”[/quote] I don’t know how clever it is, but the word is there, as well as “cooperative” is. An advertisement does not stand alone. Major life decisions do not evolve from a few words. The sales pitch might have piqued their interest, but the process goes on from that point. They’re not casually buying a Dacha Candy Bar.
I’m not sure how it benefits DACHA or its dissolution to keep hinting that co-op members thought they were buying a house and kept thinking that way in the face of overwhelming contradictory evidence hitting them in the face for more than five years.
You cannot state two terms in a sales pitch that are contradictory, period. It leads the consumer to believe they will be able to own their own homes…