The ruling, which was released Tuesday, is the culmination of a two-week trial, which was held at the Fremont Hall of Justice, and more than five years after the dispute arose. The trial was an appeal by the school district to render Signature and Standard-Pacific, which has largely deferred its legal involvement to Signature, responsible for funding the construction of Neal Elementary School in the Vineyard Corridor. The appeal was a response to an earlier ruling by a different judge, Ronald Sabraw, who ruled that the district erred in not putting the school construction project out for a public bidding process.
This week's ruling effectively makes an amended cooperative fee agreement signed seven years ago by the two feuding parties illegal and void, removing any obligation for the private developer to build what would be the city's 10th elementary school.
It was a big blow to the school district, which has been fighting to get the developers to pay for the school, spending $2 million in litigation costs to that end.
In a statement, school Superintendent John Casey said "the obvious impact of the ruling is to put the future construction of Neal Elementary School in jeopardy."
Reached by phone Wednesday, Casey said "I can't say much right now. The school board is going to be meeting at 2:30 next Tuesday to meet with our attorney to see where we go from here. We're disappointed in the decision by the judge."
Casey said the district has 10 days to respond to the judge's tentative ruling, and the court will then have 15 days to make this ruling final.
The district can appeal the ruling to a higher court, which in this case, would be the California State Supreme Court.
In breaking down the reasons for his ruling, Hernandez said "once the court determines that there is ambiguity in a contract, the court must engage in a three-step process to determine whether the court should consider extrinsic evidence to interpret the meaning of the contract."
If there was a conflict in the evidence, it would have been resolved in a jury trial, but that is not the case with this ruling.
"In this case, there were many witnesses but no material factual conflicts," Hernandez wrote.
Hernandez said the contract between the district and the developers was not a financial agreement, a chief claim of attorneys for the district have made, but an agreement to build a specific school. He said it was also not an agreement to cover the school district's shortfall obligations like an earlier agreement the parties had drafted, nor was it an agreement to finance a school to be built someday by the district.
Hernandez supported Signature's key argument that a secondary agreement, a construction agreement, needed to be in place to obligate the developers to build the school and for a determined amount of money--which was listed in the initial agreement as up to $8.5 million.
"There had to be a separate written agreement to determine the 'up to $8.5 million,'" he wrote.
Since the agreement the parties signed only said that the developer would advance that amount, Hernandez said there was no legal and enforceable obligation to fund and finance the school.
In terms of enforceability, Hernandez went on to say that if the agreement was in fact an enforceable contract, the school district violated it by delaying the targeted opening date of the school by not readying the infrastructure--installing water and sewer lines and realigning Vineyard Avenue. A press release sent out by the district in 2001 announcing that the school's opening date was to be delayed was in violation of a "time is of the essence" clause under the agreement, Hernandez wrote.
In citing this particular charge, Hernandez said "both the district and the cooperative fee developers (Signature and Standard-Pacific Homes) produced evidence that they knew when they entered into the amended cooperative fee agreement in June of 2001 that the cost of building schools increased every year."
"The term 'up to $8.5 million' in the amended cooperative fee agreement was dependent upon Neal Elementary School being built in August of 2002 as the district and the cooperative fee developers agreed. Any delay drove up the cost of construction."
Jim McKeehan, who was the executive vice president for Signature at the time the agreement was signed, said after the judge's tentative ruling becomes final, Signature plans to file a claim for legal fees.
"The decision in favor of the homebuilders subjects the district to a claim for attorney fees and court costs that are estimated to exceed $2.5 million," McKeehan said.
"The district's lawsuit was based on the misguided premise that the homebuilders had agreed to build whatever school was designed by the district for whatever it cost and only get repaid $8.5 million," he continued. "It defied logic to actually believe that anyone, let alone businessmen with substantial experience, would agree to such a blank check agreement."
Some of the costs that the developers will try to recoup include just under $500,000 that was advanced to the district for school designs.
"This is a classic example of what happens when small-minded politicians attempt to micromanage an issue that they don't understand or comprehend and run roughshod over the people on staff who do have the experience and knowledge to properly address the issue," he said.
McKeehan said he, nor Jim Ghielmetti, Signature's CEO, plan to sue the district for slander. The district had previously filed claims against the two executives for fraud and deceit, something both men deny and say hurt their reputation.
To view a copy of the 15-page ruling by Judge Hernandez, visit www.pleasantonweekly.com.
The school board will meet in closed session at 2:30 p.m. this Tuesday to discuss the ruling at the school district offices, 4665 Bernal Ave. The public will have an opportunity to comment afterwards.
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