In 1999, the City and AELD’s predecessor in interest settled litigation by an agreement that provided the City with an option to purchase AELD’s 14.7-acre property north of the runway. The agreement also said that if the City failed to develop the parcel with airport-related uses within five years, AELD could repurchase it. The City also agreed to protect the property from any event which might adversely affect its utility or value and, if AELD repurchased the parcel, to remove any constraint on industrial development resulting from the Airport Master Plan.
In making these commitments in 1999, the City expressly warranted that it had “the full legal right, power and authority to enter into and perform each and every one of its obligations...without the consent or approval of any other person, firm, governmental agency or other legal entity.” The City also gave specific assurances that the performance of each of its obligations under the agreement was within its powers and would not conflict with any provision of law.
The City admitted in its complaint against AELD, filed in November 2008, that at the time it entered into the 1999 settlement agreement, the City intended to use FAA grant funds to acquire the property. But the City knew at that time, from conditions attached to similar grants it had accepted in 1995 and 1996, that if it acquired property using FAA funds, FAA’s prior approval would be required if the property was later to be sold. Despite this knowledge, the City said that it had the authority to resell the property without the approval of any third party.
In 2002, the City applied for and accepted an FAA grant to acquire the land. At each point, the City certified to the FAA that there were no circumstances, including the existence of any “legal instruments,” which might make it impossible for the City to use the property for aeronautical purposes indefinitely in the future. The City also promised the FAA that it would “act promptly to acquire, extinguish or modify any outstanding rights” of others that would interfere with the City’s performance of its obligations under the grant conditions. In 2003, the City exercised its option and purchased the 14.7-acre parcel of land using FAA funds.
By agreeing in 1999 to resell the property if the City did not develop it within five years for airport-related uses, and then in 2003 using FAA funds to buy it, the City – as it admitted in its complaint against AELD – assumed conflicting obligations. The City could have eliminated this conflict by developing the property with airport-related uses by May 2008, or by modifying the settlement agreement to extinguish AELD’s option to repurchase the parcel, but the City failed to do either.
In May, AELD exercised the option to repurchase. The City acknowledged the validity of AELD’s option by jointly opening an escrow account to proceed with the transaction, and by providing AELD with evidence that the parcel is a legal lot, as it was required to do under the settlement agreement.
But then the City advised AELD that the FAA would not consent to the sale of the parcel to AELD. The City Attorney suggested that if AELD agreed to use the parcel for airport-related uses, perhaps FAA would give its approval. Because AELD’s predecessor had bargained for the right to use the property for industrial use, AELD was not interested in this alternative.
The City’s action, filed in federal court, asks the court to rescue the City from its conflicting contractual obligations, voluntarily entered into, with AELD’s predecessor and with the FAA, according to Evelyn Heidelberg, a partner at Procopio, Cory, Hargreaves & Savitch LLP and counsel for AELD. Even though AELD is not asking the Court to order Oceanside to sell the parcel to AELD, but rather is seeking only damages for breach of the City’s commitment to resell the property for industrial use (or alternatively for inverse condemnation of AELD’s option), the City has asserted that somehow the buyback provision of the settlement agreement is preempted by federal law. But the courts have rejected arguments that either the Federal Aviation Act or the Airport and Airway Improvements Act preempts claims for damages, said Heidelberg.
The City also asserts that it lacked the authority to commit to amend the Airport Master Plan to remove impediments to industrial development of the parcel and that, therefore, its commitment to do so was void. But having persuaded AELD’s predecessor to enter into the settlement agreement by specifically guaranteeing that it had the authority to perform each and every obligation, if the City indeed lacked such power, the City is liable to AELD for misrepresentation, according to Heidelberg.
A trial date has not yet been set.