San Simeon director accuses district of violating its own ordinance

October 6, 2022

OPINION by MICHAEL DONAHUE

An open letter to fellow directors, general manager and district counsel:

On Aug. 30, when I was out the country, during special closed session, the board authorized district counsel to proceed with settlement negotiations with the Cavalier Inn Corp. and V&H Holdings.  You also authorized Chair Kellas to sign this agreement without further board, public or outside legal counsel review.

After a month, and a failed request for a copy of the final settlement agreement and executed will serve letter from the general manager, I was able to view these documents that were provided to me by a concerned citizen of San Simeon.

To my surprise and disappointment, I see that on Aug. 31, the day following that closed session, a detailed settlement agreement was reached, and a will serve letter was issued five days later for 145 motel rooms, a 2,400 square foot restaurant, along with an exclusive allocation of 11.8-acre feet per year (AFY) of the district’s potable water supply which is unheard of for our community.

The 11.8 AFY, or 10,527 gallons per day, comprises 32% of the available water for new development.

My attention was drawn to this matter, when the nearly $678,000 V&H holdings deposit check appeared in the August financial statements as a deposit. Then I personally observed a water meter being installed on the V&H Holdings property. No mention of this important, potentially precedent setting, settlement and will serve letter was made at the most recent Sept. 20th board meeting.

The moratorium adopted in Ordinance 102, remains in place.

You are all aware that proposed Ordinance 124, which would have partially lifted the moratorium, did not successfully make it through its first reading and has not to this day. Enactment of Ordinance 124 requires two public hearings publication in a local paper of record, and a 30-day waiting period before it is effective.

Proposed Ordinance 124 has not been approved by the board and is not in effect at this time, nor was it in effect at the time Chair Kellas approved the settlement.

No hardship claim was made, or public hearing held for a hardship request for Cavalier and V&H Holdings to obtain will serve letter as required by Ordinance 102. This is the only option under the present Ordinance 102 to issue a will serve letter.

No lawsuit was filed in State or Federal Court. No settlement was approved by any court action taken requiring the district issue a will serve letter.

Additionally, the district ordinances and wait lists are based on equivalent dwelling units. Nowhere in the district policies and procedures or past ordinances related to the moratorium, is water allocated on an acre feet per year basis to parties or for projects.

Repeated requests were made to have independent outside counsel review proposed Ordinance 124 and any settlement or will serve letter. Demands were also made to review the capacity charges for water and sewer connections, because those charges appeared to be improperly calculated and severely understated.

Despite all of this, you proceeded denying final review by all the directors and withholding public disclosure and disclosure to myself, a director of the San Simeon CSD Board.

Ultimately, what you did by executing the settlement agreement and issuance of the will serve letter was a knowing and willful violation of the present district moratorium Ordinance. This is illegal. Government Code Section 61064 (a) is clear: “Violation of any rule, regulation, or ordinance adopted by a board of directors is a misdemeanor punishable pursuant to Section 19 of the Penal Code.”

Contracts made in violation of the law are void. What you have done calls into question the validity of the Cavalier Inn Corp. and V&H Holdings settlement agreement and will serve letter.

An independent legal review and investigation is demanded of what has happened here. In my opinion, it is highly likely that you committed a misdemeanor violation of State law during the making of this settlement agreement.  If so, as stated above, the settlement agreement and will serve letter are void ab initio.

Please consider this a formal complaint.

Michael Donahue is a San Simeon Community Services District director.