This week, the proposed Trackside Center has generated some interest and controversy, as the neighbors complained about both their perception of the building being too high as well as the lack of outreach by the developer. However, another aspect of the development is the fact that several dozen Davis residents are investors, including sitting Davis City Councilmember Lucas Frerichs.
Councilmember Frerichs told the Vanguard in a statement, “My wife Stacie, and I, are investors in the proposed Trackside infill proposal, along with many other Davis residents. As such, I am unable to participate in the planning/entitlement process because of a potential conflict of interest.”
He noted, “It is quite common for an elected official to recuse oneself if there is either a real or perceived conflict of interest. Numerous previous/current Davis city council members have had potential financial conflicts over the years (due to owning property, businesses, etc) and have recused themselves from the deliberation/voting process.”
“While I won’t be participating in this process at all, Stacie and I do try to ‘live our values’- which includes a record of being supportive of both infill housing, (having co-built an infill project where we currently live), as well as being supportive of investing in our amazing community,” Councilmember Frerichs concluded.
Back in January, Councilmember Frerichs, having acquired stock in the Trackside Center, asked City Attorney Harriet Steiner to “evaluate potential conflicts of interest associated with the LLC and [the Councilmember’s] investment.”
As the memo explains, “Trackside Center, LLC (‘Trackside’) is a Davis-based California limited liability company. Its primary purpose is to own and redevelop certain real property in the City of Davis, located at 901 through 915 Third Street. This property is referred to as the Trackside Center and is a retail/office complex of approximately 22,834 square feet of land.”
Trackside has three managers: BV64 (an entity managed by Michael Bisch), Kemble Pope, and Steven J. Greenfield.
“The managers have the authority to modify the purpose and business of Trackside. The managers hold all manager membership interests in the form of Class A membership interests. The managers also have the authority to approve individual subscriptions of Class B stock,” according to the memo.
“Trackside is governed by a three-manager board, which initially consists of the three managers noted above and which is defined to include two managers elected by the Class A members (currently BV64, Inc. and Kemble Pope) and one manager elected by the Class B members (currently Steven Greenfield), whose appointment is subject to the consent of the Class A members.”
In September 2014, Mr. Frerichs and his wife subscribed to Class B shares and Mr. Frerichs, as a Class B member, does “not have any voting, approval, consent, or other rights in Trackside except you may vote for the Class B Manager as well as certain transactions as enumerated in Section 7.4(b)of the Operating Agreement.”
Under the FPPC (Fair Political Practices Commission), a public official may have economic interests in six different types of financial interests.
Writes Ms. Steiner, “Based on the information you have provided us, you have invested $2,000 or more in Trackside. Trackside is a business entity that owns property and does business in the City of Davis. Thus, you will have a conflict of interest in any decision that comes before the City Council involving Trackside.”
She adds, “Additionally, you may also have a conflict of interest in a City decision if a ‘prudent person with sufficient information would find it is reasonably foreseeable that the decision’s financial effect would contribute to a change’ in Trackside’s value.”
For example, “A conflict of interest may occur under this standard, includ[ing] if a decision would increase or decrease the competition in the field in which the business entity is engaged or increase or decrease the products or services that the business entity supplies.”
She writes, “Thus, if a decision comes before the City Council that directly involves the Trackside Property or could affect its character or market value, you will likely have a conflict of interest in that decision.”
Finally, the city attorney notes, “As with all decisions that are before the City Council, you will have a conflict of interest in a decision that would cause your personal finances (and/or those of your wife’s) to increase or decrease by $250 or more.”
Councilmember Frerichs will not be able to participate in any decisions that involve Trackside. The city attorney writes, “If you have a conflict of interest in a decision that involves Trackside, an otherwise related business entity, and/or the Trackside property, you may not participate in the ‘making’ of that decision, which includes voting and committing the City to an action. If an item in which you have a conflict is before the City Council, you will be required to announce and describe your economic interest in the business and/or the property.”
In addition, the city attorney cites Government Code section 1090 that prohibits officers and employees from being financially interested in any contract made by them in their official capacity. It provides, in part, that “members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by anybody or board of which they are members.”
“The general rule is that members of a city council are conclusively presumed to be involved in the making of a contract,” Ms. Steiner writes. “This means that even if a councilmember disqualifies himself or herself from participating in the making of a contract, there is a conclusive presumption that the board member ‘made’ the contract.”
The bottom line here: “We are unaware of any contract at this time that will be coming before the City Council related to the Trackside property. However, you should be aware that should a contract be presented to the City Council involving the Trackside property, the City Council will not be able to act on the agreement without you either resigning from the City Council or divesting yourself from your Trackside investment. This prohibition will apply even if you recuse yourself from all participation and voting on the contract.”
However, for the most part, any decisions that come before council involving Trackside Property which would cause a conflict of interest can be handled simply by announcing the interest on the record and recusal. An actual decision involving a contract – which is not foreseen – would require either divestment or resignation.
—David M. Greenwald reporting