Does Councilmember’s Role in Trackside Represent an Inherent Conflict?

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Councilmember Lucas Frerich has a Class B investment in the proposed Trackside Development.
Councilmember Lucas Frerichs has a Class B investment in the proposed Trackside Development.

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

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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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26 thoughts on “Does Councilmember’s Role in Trackside Represent an Inherent Conflict?”

  1. Tia Will

    David,

    An actually decision involving a contract – which is not foreseen – would require either divestment or resignation.”

    For clarity, can you give an example of what such a contract with the city might entail ?

     

    1. David Greenwald Post author

      The only thing I could think of would be some sort of contract for services, but that would seem to be beyond the scope here.

      1. hpierce

        The two most probable ‘contracts’ that could be envisioned would be  a Development Agreement (atypical for what seems to be proposed), or if it is proposed as a “condo” project (like the Roe Building), a Subdivision “improvement agreement”.  It is not clear whether the project, as appears to be proposed, would be a subdivision of land which might require such an agreement.  So, a definite “maybe”.

        1. Davis Progressive

          interesting point.  i’m curious as to whether you believe the indirect influence that a councilmember has on staff has bearing on this case?

        2. hpierce

          “… whether you believe the indirect influence that a councilmember has on staff has bearing on this case?”  Too many variables to form an opinion.

          If the staff member is truly a professional, “no”.

          Not sure what an “indirect influence” is.  I could see a staff member have a range of ‘subtle biases’ including “indifference”, “antagonism” or “favoritism” depending how professional the staff person is, and how they view such a member of the CC.

  2. Jim Leonard

    There may not be a legal conflict of interest but there is an ethical one. There’s plenty of leverage a city council member can muster even if he isn’t voting on an item. This project reinvents the nature of the downtown and heralds in an era where downtown real estate is drastically more expensive; isn’t reasonable to expect that arrangements will be made with current council members to indirectly (and legally) line their pockets. No council member should invest in the downtown, most particularly, and, maybe, the rest of Davis should be off limits as well.

    1. hpierce

      OK… Greenwald, Harrington, Asmundson (both Ruth and Vigfus), Wagstaff (?), and many others should have never served on the CC.  Perhaps we should only elect folk who live in, say, Sri Lanka, Mars (PA), Lebanon (also PA).

  3. Davis Progressive

    i have to agree with jim leonard here.

    factors that are not considered in this legal opinion:

    1. planning staff and the city manager answer to the city council

    2. will that tacit relationship impact the judgment of staff

    3. appearance of impropriety – the councilmember is now involved not only in a project, but a controversial one where he has direct authority.  this appears to be much closer to the situation of the contract than not

    4.  there are a number of potential policy issues including infill policy, height restrictions, and transitional zone guidelines that now indirectly impact the councilmember’s project

    5.  will having this project impact the councilmember’s views on competing sites?  he was critical of 12 unit paso fino?  how will he react to the apartments on fifth street?  other infill projects that arise before his project comes on the market?  does he need to recuse himself from all because they might in some way compete with his own project?

    6.  he says quite accurately, “It is quite common for an elected official to recuse oneself if there is either a real or perceived conflict of interest.”  but when it’s an existing project it seems less likely that there will be ongoing conflicts with unrelated proposals.  this is very different.  has there ever been a councilmember who has a direct financial investment in a pending project while they are on the council?

  4. #me

    Here is a primer on the relevant legal issues from BB&K (Harriet Steiner’s law firm).

    The important point is that Frerichs is a part owner of the the project proponent (if an application is filed without a change in the ownership structure).

    Under the section entitled “A Conflict for One is a Conflict for All” …

    The basic rule under Section 1090 states that the making of a governmental contract in which the official has a financial interest is illegal. When the public official with the proscribed financial interest is a member of a public body or board, the prohibition of Section 1090 extends to the entire body or board. This means that even if the board member discloses his or her financial interest and disqualifies from participating or voting on the matter, the remaining board is still prohibited from entering into the contract in question. Thus, contracts approved under such circumstances are void and unenforceable even if the financially interested member refrains from participating in making the contract.

    The city cannot enter into a Development Agreement with Trackside Center LLC unless Frerichs and his wife vacate their financial position in the corporation. Would be very interesting to understand why Steiner thinks otherwise.

    I believe illegal means felony in this instance.

    A project of this scope in downtown Davis without a DA. Not going to happen. Given the way this is playing out (COI’s, controversy, lack of outreach, traffic impacts, scope, precedent, etc.) a Negative Declaration (mitigated or othersise) is probably inappropriate as well.

     

    1. #me

      Correction: Missed part of the article. My bad. Steiner acknowledges that Frerichs would have to resign or divest before the city could enter into a contract (like a DA).

    1. Frankly

      Depends on timing I think.  If the DA is executed before she formally declares her candidacy, then it should not be a problem.

      I like the fact that Michele would be investing in a real estate project… it helps diversify her “save the world from trash” platform.

      1. hpierce

        Perhaps, to amplify… perhaps we should be less concerned about “investing” in the community, whether it be owning a house, business, etc., and looking at actions that disproportionally affect those interests.  Else, we should allow no City employee, commissioner, or CC member from having ANY financial interest anywhere in the City.  I always liked the model that all those involved in City government and operation SHOULD have a “vested interest in the community” — as long as they don’t base their actions on uniquely personal benefit.

        I kinda’ like the idea that employees want to make sure the City has a reliable, safe water (sewer/drainage/transportation) system because they, their spouse and children use and depend on that [a ‘conflict of interest?].

      2. hpierce

        Got thinking more, Frankly.. do you have a good concept of how much building materials are wrapped in plastic?  Total construction waste, including the materials that would come from demolition of the existing structures, etc., etc.?  Not meant to you directly, Frankly, but the irony hit me…

        1. Frankly

          What is the connection here hpierce?  I’m not sure I understand it.

          I think there is some room to improve the packaging of building materials, but in general the waste per ton is much less than are consumer goods.   Many small items are packaged large just to prevent theft.

  5. Gunrocik

    Much clearer standard for employees than for Council member. From the City Manager’s contract:

    No Conflict. Employee shall not engage in any employment, activity, consulting service, or other enterprise, for compensation or otherwise, which is actually or potentially in conflict with, inimical to, or which interferes with the performance of Employee’s duties. Further, Employee shall not, during the term of this Agreement, individually, as a partner, joint venture, officer or shareholder, invest or participate in any business venture conducting business in the corporate limits of the City of Davis (except for stock ownership in any company whose capital stock is publicly held and regularly traded) without prior approval of the City Council. For and during the term of this Agreement, Employee further agrees, except for a personal residence or residential property acquired or held for future use as Employee’s personal residence, not to invest in any other real estate property improvements within the corporate limits of the City without the prior consent of the City Council.

  6. #me

    DG: Your article raises some interesting issues –

    (1) Frerichs made his investment in Trackside Center LLC in Sept 2014 … roughly the same time Pope left the Davis Chamber of Commerce. This raises the question of whether Pope was putting this deal together while employed as the executive director. Does this project account for his abrupt departure from the DCOC? Any responsible board member would have demanded his resignation if he was working on this as ED.

    (2) The managing partners of Trackside Center – Pope, Bisch, Greenfield – were also the nucleus of the DCOC PAC during the last two election cycles. A sitting council member running for reelection investing in a real estate development project managed by the leadership of the chamber PAC?? Really??

    Based on the management structure + nature of the local investment syndicate, this smells like an effort to use political influence to get favorable entitlement processing. Rumors of staff grousing have started to circulate.

    This reads like a political remake of Dumb and Dumber.

    1. Jim Frame

      This reads like a political remake of Dumb and Dumber.

      I’m more inclined to view it as unforeseen complications rather than a grand conspiracy. The contract thing may yet pose a problem for Lucas, but I don’t see anything nefarious there.

      Disclosure: I did the pre-design survey for the project, and was given an opportunity to invest, which I considered but declined.

  7. hpierce

    I agree with Jim that it doesn’t appear to be nefarious, but can’t get my hands around why Lucas did not see potential problems.

    I struggle with the “unforeseen” part…

  8. Jim Frame

    I struggle with the “unforeseen” part…

    I’m speculating that the project owners didn’t know about the contract provision of the conflict of interest statute when they invited Lucas to invest.  Lucas may not even have known about it.   I certainly didn’t — I thought recusal would  be sufficient.

    Or maybe everyone knew and didn’t — perhaps still don’t — foresee a contract as likely.

     

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