City closes dark legal chapter: Half Moon Bay finalizes legal actions over Beachwood property, officials consider next steps

After years of lawsuits, both over the still undeveloped property and against insurance companies, Half Moon Bay recovered all but about $2.4 million and will essentially walk away owning the 24-acre property.

This month, the city announced it culminated arbitration on its final outstanding insurance claim after receiving $450,000, which brought its total recovery to $18.6 million. But prior to recouping losses, the lawsuit forced Half Moon Bay to tighten its belt, eliminate its police department while contracting with the Sheriff’s Office, and significantly downsize staff. While the city must still pay off a related bond through 2019, the years of financial upset appear to be moving further in the rearview mirror.

“I think now that we’ve come out the other end of this process, it’s time to take a look at what to do with the property,” said Mayor Debbie Ruddock, who noted Beachwood has “a long and twisted history.”

The root of the dilemma was sparked by a flawed city drainage project in the mid-1980s near the already wet property at the bottom of a hill locals used to call “hogs wallow.” In the 1990s, when the property owner proposed constructing 83 homes on the site, the City Council noted protected wetlands had formed and a project that extensive wouldn’t be feasible. Although some councilmembers may have considered a smaller project — the community has frequently been sensitive to large developments in its coastal-zoned city — the decision prompted the owner to sue, unraveling a flurry of related legal actions.

Despite the city’s success in San Mateo County and state appellate courts, the property owner eventually won a federal case that ended with an order for Half Moon Bay to pay nearly $41 million for the Beachwood site. Although it was able to negotiate it down to $18 million — the property owner couldn’t collect had the city gone bankrupt — the 2007 order aligning with the economic recession was a one-two punch to Half Moon Bay’s finances.

“It’s a very dark and murky tale,” said Deputy City Attorney Reed Gallogly.

Just when some thought all was lost, the city hired experts and uncovered a range of insurance policies from which it could potentially seek reimbursements, Gallogly said.

Over the course of several years and fastidious legal negotiations, the pieces began to come together. Half Moon Bay collected $5 million from the Association of Bay Area Governments’ risk-sharing pool; a $10 million and $3.15 million award from another insurance company; and most recently, a $450,000 award from the insurer for the contractor that did the original work resulting in wetlands, according to the city.

“It has a complicated procedural history to say the least,” said City Attorney Tony Condotti. “I think it’s fair to say that everyone at the city is pleased to have this litigation behind us.”

The city did not fully recoup all of its losses, which included related legal costs and bond interest, and Half Moon Bay essentially is out about $2.4 million. However, it now owns the Beachwood site and a neighboring property.

The city is also making about $1 million a year payments to settle the interest on the bonds it took out, which is expected to be fully settled in August 2019, according to the city’s finance director.

Still, marking the end of the related legal cases is a major accomplishment, Gallogly said.

“We’re very pleased to put that one to bed,” Gallogly said. “The silver lining is that the city now owns the Beachwood and Glencree properties. So it has this large piece of property it can now do whatever they want with it.”

The neighboring 11-acre Glencree property was donated to the city after the Beachwood litigation was resolved with the city now owning nearly 35 acres, according to Condotti.

Moving forward, one of the first things the city must do before considering potential opportunities at the property is conduct a thorough analysis of the environmentally sensitive habitats that are on the property, Ruddock said.

The only current member who was on the council during the beginning of the Beachwood issue, Ruddock said it’s unfortunate the city didn’t negotiate to keep the water connections as part of its keeping the property. Water connections are very valuable, running up to $70,000 a piece, and are required as part of any residential development.

Although there are a variety of ideas — including constructing housing, creating a park or considering a land swap — Ruddock said the storied history of Beachwood and the toll it took on the community makes outreach critical.

“We want to go through a process that allows the community to feel like they’re being heard,” Ruddock said, noting everyone not just neighbors should weigh in as “there’s been a big city investment in dealing with this issue.”

samantha@smdailyjournal.com

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