OCTOBER 18, 2005 STATUS REPORT ON PERFORMANCE BONDS FOR VISTA PACIFICA, TRACT NO. 39673 OCTOBER 18, 2005 STATUS REPORT ON PERFORMANCE BONDS FOR VISTA PACIFICA, TRACT NO. 39673 OCTOBER 18, 2005 STATUS REPORT ON PERFORMANCE BONDS FOR VISTA PACIFICA, TRACT NO. 39673E>

TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: CITY ATTORNEY

DATE: OCTOBER 18, 2005

SUBJECT: STATUS REPORT ON PERFORMANCE BONDS FOR VISTA PACIFICA, TRACT NO. 39673

RECOMMENDATION

Receive and file the report from the City Attorney regarding the status of the performance bonds for common area improvements.

SUMMARY

The City of Rancho Palos Verdes has a long-standing agreement to cooperate with the Vista Pacifica Homeowners’ Association to enforce the terms of a performance bond relating to the Vista Pacifica project. The intent of the agreement was to attempt to collect some amount of the proceeds of the bond to reimburse the Homeowners’ Association for costs they incurred in completing the project when the developer defaulted. Although the City Attorney’s office has attempted to contact the original bonding company, which is no longer in business, and its successor in interest, we have not been able to obtain any funds from those entities. The Homeowners’ Association, through its attorney, has requested that the City initiate litigation.

BACKGROUND

The Vista Pacifica project has a troubled history. Before final occupancy was granted in the late 1980’s and early 1990’s, the City was forced to litigate against the developer and the surety to enforce compliance with subdivision improvement agreements and other obligations. The developer, Tumanjan and Tumanjan, ultimately defaulted on all its obligations and went into bankruptcy. While Mr. George Tumanjan apparently is still a presence in Southern California, the legal entity with which the City had a contract no longer exists. The City settled both pieces of litigation after significant expense on both sides.

The settlement agreement for the second of the two cases (copy attached) required Tumanjan to, among other things, prepare and submit for the City’s and the Homeowners’ Association’s approval a set of landscaping plans that complied with the conditions imposed by the City on the approval of the tract map. The Homeowners’ Association claims Tumanjan defaulted on that obligation. In fact, according to City staff at the time, Tumanjan did submit a landscaping plan, which was approved by Staff in the Planning Department. However, the Homeowners’ Association did not approve the landscaping plan because they wanted plantings that were different from the drought tolerant plants that were required by the conditions of approval of the project. The case went dormant at that time due to Tumanjan’s bankruptcy, and the City never officially released the final performance bond on the project. We are informed that the Homeowner’s Association sued Tumanjan for alleged construction defects, and received a settlement or default judgment, but was never able to collect on the judgment due to the bankruptcy.

In 1998, the Homeowner’s Association requested that the City cooperate with it in trying to collect on the remaining performance bond, in an amount of approximately $400,000.00. The City Council approved an agreement (copy attached) under which the City would cooperate, and allow the Homeowner’s Association to bring a legal action in the City’s name to collect on the bond, if necessary. In that regard, Section 6 of the Agreement states:

"6. The City agrees, at the expense of Vista Pacifica, to permit any action to be brought in its name against Tumanjan and/or Developers [the bonding company] for enforcement of the Agreement or the Bond. Although counsel for Vista Pacifica shall conduct the litigation, such counsel [shall] consult with the City Attorney with regard to major developments and tasks in the litigation. Vista Pacifica shall not finalize any settlement agreement in the City’s name without the prior written consent of the City, which consent shall not be unreasonably withheld. The City Attorney shall promptly respond to all such required communications."

Vista Pacifica has not filed an action against Tumanjan or the surety on this bond in the City’s name. Following approval of the Agreement, we did declare the bond in default. Over the years, we have periodically attempted to elicit some affirmative reaction from the surety company. Developer’s Insurance, the original surety company, no longer exists. We have been pursuing the entity we believe to be the original surety’s successor in interest, but have been stonewalled by that surety. Thus, unfortunately, we have had no success in this matter and the Homeowner’s Association understandably is frustrated with that lack of a result, as are we.

Several months ago counsel for the Homeowner’s Association asked Mr. Steele if the City would consider bringing litigation at the City’s expense. Mr. Steele informed him that we would not recommend that course of action to the City Council, for various reasons, and suggested instead that we would assist in making a complaint to the Insurance Commissioner regarding the surety’s failure to respond to our inquiries and meet its obligations. We believe attempting to reach some resolution of the matter through those channels is the better course of action in this situation.

Respectfully submitted,

Carol Lynch

City Attorney

Reviewed by,

Les Evans

City Manager

Attachments:

1991 Compromise and Release Agreement

1998 Agreement Re: Enforcement of Bond Rights