Thursday, May 10, 2012
First the real estate deal fell apart, and then so did the legal mediation that followed in its wake. As Salinas Mayor Dennis Donohue enters his final months in office, he faces a legal battle that’s opened the city to potential multi-million dollar liability, and the emails of powerful businessmen to scrutiny.
Father-and-son developers Bob and Curtis Leidig, whose Salinas Renaissance Partners planned a massive redevelopment of the city’s downtown core, claim Donohue strung them along while courting former San Jose Mayor Tom McEnery and powerful ag-businessman Bruce Taylor to take over the project.
The city pulled out of the Leidig partnership in 2009, and the Leidigs filed suit in 2010. In an amended complaint filed last week by Leidig attorney Bob Rosenthal, Donohue used the email account of his business, Royal Rose LLC, to communicate with McEnery’s team and Taylor about the development. While Donohue turned over a portion of his emails to Rosenthal under subpoena, emails subpoenaed from Taylor and McEnery reveal deeper communications.
Taylor Farms went on to buy one of those parcels from the city, the 100 block of Main Street, for $1.5 million and plans to break ground on headquarters there. Under the written agreement between the Leidigs and the the city, that parcel may not have been Taylors to purchase. The Leidigs maintain they had the right to first refusal on any development there.
The city and the Leidigs entered mediation this year, and Rosenthal deposed Donohue on Jan. 12. On Feb. 6, Donohue transferred the deed of his home to his wife. And on Feb. 24, he rocked the audience assembled for his annual state-of-the-city address by announcing he would not seek a fourth term in office.
Asked if the litigation impacted his decision, Donohue answers an emphatic no. The property transfer was for estate planning purposes; the decision to not run was for life-planning purposes. He says the deed has been transferred back.
The deal imploded when the Leidigs “elected not to follow the mayor’s strong suggestions to make a deal with McEnery,” says Rosenthal. According to the complaint, Donohue urged the Leidigs to partner with McEnery. When they met, though, McEnery was not willing to commit without being paid a considerable sum – $15,000 a month for two years – and even then, he was only willing to commit his name, not any capital.
“For that amount, he would introduce them to people who knew people,” Rosenthal says. “He was a good mayor for San Jose and has a great reputation, but he wasn’t willing to bring anything to the table other than his reputation.”
John McEnery, whose emails were subpoenaed and who works with his Uncle Tom’s development company, Urban Markets LLC, says he isn’t familiar with the lawsuit. Tom McEnery did not respond to email requests for comment.
“I have no idea what Mr. McEnery or Taylor knew with regard to the appropriateness of the discussions,” Rosenthal says. “We’re not alleging that either did anything wrong or had any knowledge.”
Donohue maintains the lawsuit has no merit.
“We’ve been in mediation for months and it seemed a resolution was imminent and then they decided to intensify their assault and attack the city,” Donohue says. “When the Leidigs lost their partner, we did try to help find new partners.”
Superior Court Judge Kay Kingsley will decide on June 1 if Rosenthal’s amended complaint will stand. If it does, Donohue will become a defendant in the suit; the city council agreed to indemnify him and pay his attorney fees.