Lawsuit Seeks to Invalidate Massive Hotel Subsidy

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Anaheim’s $158 million hotel tax subsidy — which triggered a contentious City Council split and a wave of political activism — is once again the target of a lawsuit that, if successful, could invalidate the deal.

The suit – filed last week by Orange County Communities Organized for Responsible Development (OCCORD) – claims four Anaheim City Council members violated conflict of interest laws by accepting over-the-limit campaign contributions that can be traced back to the hotel developer, Bill O’Connell, and then voting on the subsidy.

Council members named in the suit — Lucille Kring, Jordan Brandman, Kris Murray and Gail Eastman — engaged in a “quid-pro-quo” when they took the cash in exchange for voting in favor of the subsidy, the complaint alleges.

The suit also claims that a criminal conflict of interest was triggered when city officials hired a law firm, Rutan and Tucker, to defend the City of Anaheim against OCCORD’s previous lawsuit because the same firm was representing O’Connell’s partnership during the subsidy negotiations.

And a common law conflict of interest violation occurred because Murray and Eastman sit on the Support Our Anaheim Resort (SOAR) advisory board with O’Connell, the lawsuit alleges.

O’Connell and a representative of Rutan and Tucker did not return phone calls seeking comment.

The subsidy first sparked controversy when a former council cast a split, 3-2 vote to approve the deal on Jan. 24, 2012. The subsidy — which allowed an O’Connell partnership to collect 80 percent of the hotels’ generated room tax revenue over 15 years – was necessary to kick-start construction of two four-star hotels and create thousands of jobs, supporters said.

OCCORD activists argued the council had agreed to giveaway a huge tax revenue stream without negotiating community benefits – such as living wage jobs – in return.

That vote was also the beginning of a long running and often bitter split between Mayor Tom Tait and the rest of council, which is generally supportive of tax subsidies for corporate interests. Tait voted against the subsidy and led a public charge to overturn it.

If a court invalidates the subsidy based on OCCORD’s suit, it would be the second time that happens. An OCCORD lawsuit in 2012 alleged that the first approval of the subsidy was illegal because it wasn’t properly noticed under the state’s open meetings law.

A Superior Court judge agreed and voided the deal.

Council then approved the subsidy again at their May 15, 2013 meeting. This time O’Connell would collect 70 percent of the room-tax revenue over 20 years.

In an interview, OCCORD Executive Director Eric Altman said the idea for the suit started with questions about Kring’s flip flops over a ballot measure that would require citywide votes for future hotel tax subsidies.

Kring supported the measure during her election campaign. Then after she won, Tait motioned to place the measure on the ballot, but Kring let it die for lack of a second.

The lawsuit argues that campaign contributions influenced Kring to change her mind.

“In asking why, we found all of these campaign contributions, so that’s the genesis of the lawsuit,” Altman said.

Kring, Brandman, Eastman and Murray did not return phone calls seeking comment.

As Voice of OC reported last year, Kring changed her position on four key city policies while receiving thousands of dollars in campaign contributions from groups and businesses that lobbied for her change of heart, including those connected to O’Connell.

In “mid-April” last year, Kring met with O’Connell’s lobbyist and former Mayor Curt Pringle, O’Connell and his business partner Ajesh Patel to discuss the tax subsidy, Kring wrote in an email obtained by Voice of OC.

Then two weeks after the May vote to approve the subsidy, Pringle held a fundraiser for Kring at The Catch restaurant near Angel Stadium, campaign finance records show.

Kring had loaned her campaign $75,000, so at least some of the campaign contributions went to pay off that debt and therefore straight into her own pocket.

Generally, campaign contributions don’t create a conflict of interest as defined under California gov. code section 1090, the criminal conflict of interest law that OCCORD’s lawsuit alleges was violated.

However, if campaign contributions influenced the vote, then that could be a violation of the law, OCCORD argues.

OCCORD counsel Cory Briggs said that the circumstantial evidence is strong enough to convince a jury that campaign money corrupted the process.

“We only have to prove a conflict with one person for this thing to go down,” Briggs said. “All of them are going to have to persuade a jury that the only thing on their minds was the public interest. Given the money trail, it strikes me as something that will be difficult.”

Part of the lawsuit’s argument is that council members accepted contributions over the city’s $1,900 aggregate limit from entities and people connected to O’Connell.

Under the city’s law, which mirrors Orange County’s ordinance, contributions from entities controlled by the same person are combined and subject to the limit.

The suit claims that Kring illegally received $7,250 in contributions from Anaheim Park Place Inn, Orangewood, LLC, Stovall’s Inn, LLC and members of the Support Our Anaheim Resort (SOAR) advisory board, among others.

The allegation is similar to when Voice of OC revealed that former Councilman Harry Sidhu, who voted to approve the subsidy in 2012, received $1,700 over-the-limit by taking cash from two different entities controlled by O’Connell.

That article triggered a DA inquiry, which found Sidhu had broken the county’s campaign finance law. Sidhu was forced to pay $1,700 to the county as a result.

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