Lawsuits and other legal moves are coming thick and fast amid claims of conflict of interest,but this isn’t a story about an election in Florida. It’s about a redevelopment effort in Huntington Beach.
Burlington Coat Factory and Montgomery Ward are facing an eminent domain vote this week by the City Council as they fight a plan to remake Huntington Beach Center into an outdoor retail entertainment center featuring trendy stores and restaurants.
The plan to take the center upscale, drafted by new owner Ezralow Retail Properties and the city, has no room for the two discount retailers, who have filed a total of seven suits against Ezralow and the city. Ezralow Retail Properties, a subsidiary of Carlsbad-based Ezralow Cos., acquired the center in 1999 from MaceRich Co. for $40 million. It wants to raze the bulk of the 1960s-era center and from its ashes raise a $150 million open-air Italian village-themed mall with cobblestone walkways, fountains and sculpture. The new 900,000-square-foot Crossings at Huntington would be another entry on OC’s growing list of outdoor entertainment-oriented shopping centers that includes top guns Irvine Spectrum Center and the Block at Orange.
Ezralow has found an ally in the city of Huntington Beach, which could get up to $2 million annually in sales taxes.
But Ezralow’s plan will push two of the center’s three anchor tenants out. An 82,000-square-foot Mervyn’s store would be retained. Ezralow also has letters of intent from more than a dozen potential tenants, including restaurants and retailers such as Century Theaters, Jillian’s, Bed, Bath & Beyond, Huntington Surf and Sport, Ruth’s Chris Steak House and California Pizza Kitchen.
But Burlington Coat Factory has filed five lawsuits against the city or the developer since March, and Montgomery Ward has filed two in the past three weeks.
The two discount chains are fighting to keep their stores in the 58-acre regional center, but the City Council plans to vote today on whether to use its eminent domain powers to force them out.
Attorneys for Burlington Coat Factory said an eminent domain vote could be litigated on conflict-of-interest grounds. City Council members Pam Julien and Tom Harman this year accepted campaign contributions totaling $1,800 and $1,500, respectively, from several Ezralow employees.
Huntington Beach City Attorney Gail Hutton said the allegations of a conflict are without merit because the contributions were given by individuals, not Ezralow as a corporation, and did not exceed the city’s $300-per-donor limit. Harman, she noted, was running for state Assembly, so the city’s statute doesn’t even apply.
Hutton said that both council members are expected to take part in the vote set for Monday.
However, Mayor Dave Garofalo plans to abstain from the vote because of his previous advertising business relationship with the mall’s owners.
Attorney Aviv Tuchman, of Tuchman & Associates in Los Angeles, represents Burlington Coat Factory and believes the council should table the vote for Dec. 4 when two new City Council members take their seats on the board and Harman leaves to become an assemblyman.
“There’s no emergency, this decision can wait two weeks,” Tuchman said.
Meanwhile, Burlington Coat Factory filed suit Nov. 2 to challenge the city’s approval of Ezralow’s plan for the center.
This comes on the heels of four other suits, including one filed in March to compel Ezralow to abide by an arbitration clause in Burlington’s lease contract. That was dismissed after Ezralow executives said it had not made a decision about the final project. A second lawsuit filed in May alleged breach of contract for unfair business practices, with the store claiming Ezralow planned to demolish the shopping center regardless of its lease agreement with Burlington. Burlington has also filed a federal suit alleging the city has interfered with its lease contract.
“We think the lawsuits are frivolous and our attorneys are defending them and think they will get thrown out of court,” said Gus Duran of the city redevelopment agency. “We plan to transform this mall from one that doesn’t work to one that does.”
The city filed its own petition against Burlington Coat Factory in September, in an effort to gain access to the store and inspect and evaluate the property for the proposed condemnation.
Burlington spent roughly $4 million to build its 133,500-square-foot store in April 1995 and signed a 30-year lease with the previous owners of the mall that included rights to redevelop its property in the future, Tuchman said, adding that annual sales are in the $14 million range. The store employs 120 people.
Montgomery Ward, which has been in the center since it opened in 1966, owns the 13-acre property its store is built on and is determined to remain a part of the new center. The retailer’s attorneys,Sheppard, Mullin Richter & Hampton LLP in Costa Mesa,filed lawsuits on Oct. 25 and Nov. 1 against the city and Huntington Center Associates.
Chuck Knittle, vice president of corporate communication for Montgomery Ward, said the retailer is a reluctant litigant.
“We filed the lawsuits because we have to protect our interests in the event we are not allowed to redevelop the property,” he said.
Montgomery Ward has proposed investing roughly $2 million to remodel its store. Knittle would not release the store’s sales figures, but did say, “The store had been very good for us many years ago, but the mall has been run down and has very few tenants and less foot traffic than we would like to have.”
Duran said the chain store’s willingness to remodel comes too late.
“Montgomery Ward has never done anything to improve its property,” Duran said. “In 1998, David Biggs (the city’s director of economic development) went to Chicago to meet with Ward to get them to do something with its property and they said no.”
Knittle said the company was willing to remodel the store at the same time as the center’s owners planned to remodel.
“We stayed and waited, while other retailers such as J.C. Penney left,” Knittle said.
The Huntington Beach mall site is the city’s main economic retail engine, Duran said. But the aging mall’s annual sales have declined from $150 million in 1990 to $85 million in annual sales in both 1998 and 1999, with the city getting 1% or $850,000.
The city hired a company called the Sedway Group to conduct a study that evaluated three proposals to redevelop the property. The development preferred in the report would relocate Montgomery Ward and Burlington Coat Factory to other locations in the city and retain Mervyns at the center. That project also would generate an estimated $177 million to $201 million in annual sales, the report said.
Tony Cherbak, a retail analyst at Deloitte & Touche LLC’s Costa Mesa office, said the city’s redevelopment of downtown Huntington Beach has done well, drawing people back to the city in a big way.
“Good concepts will attract their market and certainly the (Crossings at Huntington) is a reasonable concept given that Huntington Beach is an outdoors-oriented mecca,” he said. n
