Material Breach of Public Trust - Elk Grove City Attorney Jonathan Hobbs airball's recovery of taxpayer money

October 19, 2018 |

Like many public projects, the City of Elk Grove's ballyhooed Aquatics Center has been plagued by a series of missteps that have not surprisingly delayed its opening.

The project, which was the vision of former Elk Grove Mayor Gary Davis had been many years in the planning, broke ground in May 2017. At that time the opening was supposed to be open by last May 28. 

The city has acknowledged those delays and pushed backed the opening date twice. According to published reports, the city now has delayed the opening until next spring, more than one year late.

Often construction delays on large-scale public projects end up generating litigation. While there has been no indication yet of litigation in the construction, the city has already been involved in litigation on the project during the planning stages, and it ended disastrously for taxpayers.

The critical legal phrase to remember in the whole debacle for taxpayers was the statement "they are in material breach of contract," a phrase uttered by Elk Grove City Attorney Jonathan Hobbs. That termed was said by Hobbs during an Elk Grove City Council meeting on September 10, 2014 when he was asked by a council member about a lawsuit the city would eventually file against the original contractor for the aquatics center, P3 International.

For readers who may not recall, early on in planning the aquatics center, the city solicited through a request for proposal (RFP) for an all-encompassing roadmap to develop the facility. The bid sought a company that not only could deliver designs, which at that time included plans for a water amusement park, identify an operator, and most importantly, provide a financing plan. 

The only bidder on the RFP was Jeroen Gerrese and his now-defunct company, P3 International. Almost by default, Gerrese won the $695,000 contract in October 2013.

Not surprisingly, Gerrese and P3 International failed to deliver as promised by June 2014. In response, the City of Elk Grove decided to file suit against Gerrese seeking to recover the $695,000.

During a now infamous city council meeting on September 14, 2014, when asked about the failure of Gerrese to deliver, city attorney Jonathan Hobbs said, without qualification, "are in material breach of contract." By offering this analysis, Hobbs was telling the city council, to paraphrase former CIA Director George Tenet and his assessment about weapons of mass destruction in Iraq, this was a slam-dunk-of-case.   

Following Hobbs' advice, the city subsequently filed suit seeking recovery. As often is the case when the city litigates, if farms the work out to Hobbs' former employer, Sacramento-based Kronick Moskovitz Tiedemann & Girard.

So whatever happened with this litigation? Thanks to the persistence of one Elk Grove resident, to continue with the basketball analogies, Hobbs' slam dunk was an air ball. 

According to a settlement agreement (see document below) - there was no litigation - instead of recovering the entire sum from Gerrese, the city recovered far less. The city recovered $52,000, or about 7.5-percent of the amount sum.

To make matters worse, since Hobbs farmed out this "slam dunk" to the firm where he was once a partner, KMTG, according to figures he provided, costs the city $45,524. In the end, Hobbs recovered only $6,476 of taxpayers money.

In his correspondence, Hobbs affirmed his conclusion that Gerrese was in material breach, but acknowledged other factors. Hobbs responded to the constituent saying "other factors to consider in deciding to settle this or any other lawsuit include the ability to prove-up damages with legal certainty, the cost of the litigation, the risk of loss (which exists in all litigation), and the cost and ability to collect on a judgment."

Put another way, Hobbs overestimated his assessment at the September 2014 city council meeting.

So as we await the delayed opening of the aquatic center, if litigation arises, beware of any proclamations from the staff of the city attorney's office. It could be yet another case of a material breach of public trust.