Earlier this week, SunCal sent a letter to the City of Alameda, requesting a 60-day “tolling period” regarding the Notice of Default that the City issued to SunCal on February 4th, after the Measure B election.
Alameda City Council will consider the request next week. Deputy City Manager Jennifer Ott has recommended that Council deny the request.
A tolling period is basically an agreement between two parties to a contract to waive a right to claim that a court should dismiss litigation by the opposite party due the expiration of a deadline or other statute of limitations. In this case, the two parties are SunCal and the City of Alameda, and the contract is the Exclusive Negotiating Agreement (ENA).
Legal experts Action Alameda News talked to suggested that by asking for the tolling agreement, SunCal may be trying to strengthen their position in advance of any lawsuit against the City of Alameda. Should the City sign such an agreement, and SunCal were to sue the City over the Notice of Default and the breach by SunCal of the ENA that the City alleges, the City would have limited their options to respond to the suit.
One way this might play out, experts told us, is that SunCal would sue the City over the Notice of Default or some other aspect of the Alameda Point deal, to stay in the game. The City might respond to the lawsuit by asking the courts to dismiss it, on the grounds that SunCal defaulted on the ENA, the City sent proper notice, and SunCal did not cure the default. If the City signs a tolling agreement, they would be basically giving up their right to ask the courts to dismiss SunCal’s lawsuit on the basis that SunCal did not cure the default in time.
As yet, there is no indication that SunCal is about to bring forth a development plan for Alameda Point that would cure the default. Previously, Action Alameda News reported that the deadline for SunCal to cure the Default was March 8th, based on statements made by the City Attorney in a Council meeting. However, that has been corrected to March 22nd, based on 45 calendar days (30 business days) from the notice date, in accordance with the ENA.
Another option for SunCal, experts say, is a strategic bankruptcy filing by SunCal for their SunCal Alameda Point, LLC special purpose entity. Such a move may tie the City, SunCal, and any plans for redeveloping Alameda Point, up in court for years as the bankruptcy winds down to an exit.
The ENA has a clause that identifies bankruptcy as an event that qualifies as a default of the ENA, thereby giving the City another avenue to terminate discussions with SunCal. However, one legal source told us that the clause is a meaningless “ipso facto clause” that would have no effect if SunCal declared bankruptcy. This is because section 541(c) of the Bankruptcy Code specifies that the estate of the bankrupt entity – SunCal’s local Alameda Point LLC in this case – inherits the interest in the contract (the ENA.) We were told that developers typically don’t bother negotiating these ipso facto clauses in contracts with City officials because they know they are meaningless, and they don’t want to spend the time educating municipal officials about arcane rules of bankruptcy court.
Alameda City Council will consider SunCal’s request on Tuesday evening, in Council Chambers, sitting as Members of the Alameda Reuse and Redevelopment Authority and as Members of the Community Improvement Commission.
A copy of SunCal’s letter is below.