response to osc re preliminary injunction

8/8/2019 Response to Osc Re Preliminary Injunction

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914972.05/OCFACILITIES MANAGEMENT WEST, INC. AND OC FAIR AND EVENT CENTER'S

RESPONSE TO ORDER TO SHOW CAUSE RE: PRELIMINARY INJUNCTION

LAW OFFICES

en Matkins Leck GambleMallory & Natsis LLP

ALLEN MATKINS LECK GAMBLEMALLORY & NATSIS LLP

THOMAS E. GIBBS (BAR NO. 93819)STEPHEN R. THAMES (BAR NO. 106406)NICHOLAS S. SHANTAR (BAR NO. 228980)1900 Main Street, Fifth FloorIrvine, California 92614-7321Phone: (949) 553-1313Fax: (949) 553-8354E-Mail: [email protected]

[email protected]@allenmatkins.com

Attorneys for Real Parties in Interest and Plaintiffs inIntervention FACILITIES MANAGEMENT WEST, INC.and OC FAIR AND EVENT CENTER, L.P.

SUPERIOR COURT OF CALIFORNIA

COUNTY OF ORANGE

ADVANCED REAL ESTATE SERVICES,INC., et al.,

Petitioners and Plaintiffs,

vs.

The DEPARTMENT OF GENERALSERVICES of the State of California, et al.,

Respondents and Defendants.

FACILITIES MANAGEMENT WEST, INC.,et al.,

Real Parties in Interest andPlaintiffs in Intervention,

vs.

ADVANCED REAL ESTATE SERVICES,INC., et al.,

Defendants in Intervention andPetitioners and Plaintiffs.

Case No. 30-2010-00424923

Date: December 15, 2010Time: 1:30 p.m.Dept: C31

RESPONSE OF REAL PARTIES ININTEREST AND PLAINTIFFS ININTERVENTION FACILITIESMANAGEMENT WEST, INC. AND OC

FAIR AND EVENT CENTER, L.P. TOORDER TO SHOW CAUSE RE:PRELIMINARY INJUNCTION

[Filed concurrently with Declarations of Guy Lemmon and Stephen R. Thames; Objections to Evidence Cited in Declarations of Teller and Meier and Request for Judicial Notice in Support of Opposition]

Petition Filed: November 12, 2010


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TABLE OF CONTENTS

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I. INTRODUCTION ................................................................................................................ i

II. PERTINENT FACTS .......................................................................................................... 1

A. Brief History Of The Property ................................................................................ 1

B. The Legislature Adopts "Urgency" Legislation Authorizing DGS ToSell The Property To Address California's Financial Crisis ................................... 2

C. The First Competitive Bidding Process DGS' First "Request ForProposals" Which Resulted In DGS Rejecting All Bids .................................... 3

1. Due Diligence Information .......................................................................... 3

2. The Bidders ................................................................................................. 4

D. Measure C And The Preservation Of The Fair ....................................................... 5

E. The Second Competitive Bidding Process The City Of CostaMesa's Unsuccessful Effort To Buy The Property .................................................. 5

1. The City Negotiates With Its First Choice, The Petitioners,Which Negotiations Fail Apparently For Financial Reasons ...................... 6

2. The City's Proposed Purchase Does Not Proceed Because Of The Legislature's Failure To Pass Enabling Legislation ............................. 6

F. The Third Competitive Bidding Process DGS' Second "RequestFor Proposals" Requiring More Money For Less Property ................................ 7

G. Of The Four DGS Bids Received, Including Bids From Petitioners,FMW's Bid Offered The Highest And Most Certain Return .................................. 9

H. DGS Provides The Statutorily Required 30-Day Report To TheLegislative Fiscal Committee Chair ...................................................................... 10

I. The State And FMW Are Prepared To Close The Sale, And FMW IsCommitted To Hiring Current Fairground Employees AndContinuing The Fair, Swap Meet And The Other Activities AndEvents .................................................................................................................... 11

J. Petitioners Wrongfully Attempt To Block DGS From LawfullySelling The Property To OC Fair and Event ......................................................... 11

III. LEGAL STANDARDS ..................................................................................................... 11

A. "Probability Of Success" Is The Standard For Such "DrasticRemedy." ............................................................................................................... 11

B. Petitioners Bear The Burden Of Proof, By Admissible Evidence ......................... 12


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IV. PETITIONERS HAVE FAILED TO MEET THEIR BURDEN OFPROVING A REASONABLE PROBABILITY OF SUCCESS ON THEMERITS ............................................................................................................................ 12

A. Petitioners' Primary Challenge That RFP II Favored FMW IsAbsurd On Its Face ................................................................................................ 12

1. Petitioner's Claim That RFP II Was A "Sham" Because It"Mirrored" The City Proposal Is Both False And Illogical ....................... 13

2. RFP II's 38-Day Due Diligence Period Did Not Favor FMWOver Petitioners ......................................................................................... 14

B. Sections 3884.1 And 3884.2 Are Not Unconstitutional ........................................ 15

1. Prop. 60A Does Not Apply Because the Property WasPurchased From Special Fund Monies, Not From General

Fund Revenue ............................................................................................ 15

2. The Property Is Not "Surplus State Property" Governed byProp. 60A .................................................................................................. 16

C. DGS Followed The Procedure Set Forth In RFP II And Reported AllRequired Information To The Legislature ............................................................ 17

1. DGS Gave The 30-Day "Approval" Notice To TheLegislature Required By The Statute; No AffirmativeLegislative Approval Is Required ............................................................. 17

2. DGS Gave All Required Information To The Legislature ........................ 19

D. DGS Lacked Jurisdiction To Hear Petitioners' "Protests." ................................... 20

E. Petitioners' Claims Regarding "Uncertainties" Over Title AndOwnership Rights In The Property Are Without Merit ......................................... 21

1. Petitioners' Title Claim Does Not Present A JusticiableControversy And Is Unfounded In Any Event .......................................... 21

2. RFP II Does Not Contemplate The Sale Of Personal Property ................. 22

3. Section 3884.2 Controls Over Any Conflicting General Food& Agriculture Statutes ............................................................................... 23

4. The City's Priority Right Is Unfounded, And Petitioners Lack Standing To Assert It ................................................................................. 23

V. A BOND IS MANDATORY ............................................................................................... 23

A. A Bond Is Mandatory Under Code of Civil Procedure Section 529 ..................... 23

B. Given The Severity Of Harm To Real Parties, The Bond Should BeAt Least $500,000 ................................................................................................. 24


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VI. CONCLUSION ................................................................................................................. 25


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I. INTRODUCTION.

To address the serious "fiscal crisis" facing the State, our elected Legislature, by an over-

whelming majority vote of 109 to 3, enacted emergency legislation directing the Department of

General Services ("DGS") to sell the Orange County fairgrounds property (the "Property") through

"a public bidding process designed to obtain the highest, most certain return for the State from a

responsible bidder." DGS then conducted an open and eminently fair, if not aggressive, competi-

tive bidding process spanning over a year in which all competitive bidders were on equal footing.

The bidders included (1) Petitioners American Fairs and Festivals, Inc., ("American Fairs") and Tel

Phil Enterprises, Inc. ("Tel Phil"), both run by Petitioner Jeffrey Teller as President and owner;

(2) Petitioner Advanced Real Estate Services, Inc. ("ARES"); and (3) Real Party Facilities

Management West, Inc. ("FMW"). FMW's bid demonstrably was the highest and best, and was

accepted by DGS. FMW and the State are prepared to close the sale as directed by the Legislature.

Petitioners, unsuccessful bidders, now seek to block the sale, not for the public interest as

determined by the Legislature, but for their own pecuniary interests so Petitioners can purchase

the Property for a lower price and/or so Jeffrey Teller can continue to reap enormous profits from

operating the swap meet by killing the sale. To do so, they have fundamentally miscast what

occurred, and have asserted a litany of claims, not one of which has any merit whatsoever. As willbe explained, DGS' sale process was fair and in full compliance with the law, and should be

allowed to conclude in the public interest.

II. PERTINENT FACTS.

A. Brief History Of The Property.

In 1949, the State's 32nd District Agricultural Association ("District 32") purchased the

Property from the federal government using special funds belonging to the State; no general funds

were used. McKinnon Decl., 9-10, Exs. A-B. 1 Over the years, the Property has been used for

the Orange County Fair, a swap meet, Centennial Farms, an equestrian center and other events.

1 "McKinnon Decl." refers to the Declaration of Robert McKinnon In Opposition To OSC Re PreliminaryInjunction filed concurrently herewith by Respondent and Defendant The Department of GeneralServices of the State of California.


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B. The Legislature Adopts "Urgency" Legislation Authorizing DGS To Sell The

Property To Address California's Financial Crisis.

On July 1, 2009, Governor Schwarzenegger issued a proclamation declaring a "fiscal emer-

gency" in the State, and calling for a special session of the Legislature to address the crisis. RJN,

Ex. 1. 2 In response, by an overwhelming 98% margin, the California Legislature passed ABX4 22

calling for the sale of the Property the vote: Senate 37 ayes/0 noes; Assembly 76 ayes/3 noes.

RJN, Ex. 2. The bills' preamble states: "This bill, . . . addresses the fiscal emergency declared by

the Governor," and Section 10 provides that it is "an urgency statute," and that "[i]n order to

provide for the speedy resolution of the State's fiscal crisis, it is necessary that this Act take effect

immediately." RJN, Ex. 3. The Governor signed the legislation and it was enacted as Food and

Agricultural Code sections 3884.1 and 3884.2. 3 To implement its important legislative purpose,

Section 3884.2 contains the following directives.

1. District 32a. Section 3884.1 created a new State Agricultural District 32a

"which consists of all of that real property that is a portion of District 32 that is commonly known

as the Orange County Fair," effectively transferring the Property to District 32a's ownership,

jurisdiction and control for the eventual sale.

2. DGS' Direction to Sell. Section 3884.2(b) directs and empowers DGS to"sell all or any portion of" the Property, with the net proceeds of the sale to be transferred into the

State's General Fund. Section 3884.2(g).

3. Public Bidding Process. Section 3884.2(c) directs that the sale proceed by

"a public bidding process designed to obtain the highest, most certain return for the State from a

responsible bidder, and any transaction based on such a bidding process shall be deemed to be the

fair market value for the Property." The statute leaves to DGS the discretion to determine the

bidding process, ascertain the highest, most certain return and negotiate the purchase agreement.

2 "RJN" refers to the Request for Judicial Notice in Support of Opposition to Preliminary Injunction filedconcurrently herewith.

3 Throughout this brief, Section 3884.1 and Section 3884.2 shall refer to those sections of the Food andAgricultural Code.


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4. 30-Day Due Diligence. Section 3884.2(c) provides that notice of the bid-

ding process must be posted on DGS' Internet website for "at least 30 days prior to the sale of" the

Property, to give bidders time to perform due diligence.

5. DGS Report to Legislature. Section 3884.2(d) provides that "thirty days

prior to executing a transaction" to sell the Property, the Director of DGS

"shall report to the chairs of the fiscal committees of the Legislatureall of the following: (1) The financial terms of the transaction.(2) A comparison of fair market value for the real property andterms listed in Paragraph (1). (3) Any basis for agreeing to termsand conditions other than fair market value."

This notice is to give the Committee Chair the opportunity to review a transaction and, if

objectionable, to take appropriate action to stop the sale. Section 3884.2 does not require any affir-

mative legislative approval of the sale; therefore, unless the Legislature acts within the 30 days,

DGS is empowered to execute a purchase agreement and sell the Property.

C. The First Competitive Bidding Process DGS' First "Request For

Proposals" Which Resulted In DGS Rejecting All Bids.

On October 7, 2009, DGS issued its "Request for Proposals Orange County Fairgrounds,

Costa Mesa, CA" ("RFP I"), inviting competitive bids from all interested purchasers of the Prop-

erty. RFP I gave interested parties until January 8, 2010 (93 days) to prepare and submit writtenbids. Kalemba Decl., 2, Ex. A, p. 10. 4

1. Due Diligence Information.

RFP I provided bidders with comprehensive information concerning the Property to

conduct due diligence, including internet links to title reports, real property inventory, capital

improvements, environmental impact reports, and detailed financial information. Id., pp. 4-9;

Lemmon Decl., 5. 5 Additionally, on December 30, 2009, DGS posted a current 427-page Phase I

Environmental Report for the Property. Kalemba Decl., 5, Ex. C; Lemmon Decl., 5. RFP I also

4 "Kalemba Decl." refers to the Declaration of Dave Kalemba In Opposition To OSC Re PreliminaryInjunction filed concurrently herewith by Respondent and Defendant The Department of GeneralServices of the State of California.

5 "Lemmon Decl." refers to the Declaration of Guy W. Lemmon In Support of Response of Real Partiesin Interest's Response to Order to Show Cause Re: Preliminary Injunction filed concurrently herewith.


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invited bidders to physically inspect the Property and to submit written questions, detailed answers

to which DGS posted online. Kalemba Decl., 2-4, Ex. B; Lemmon Decl., 5. All this provided

potential bidders ample information to conduct due diligence and make their best bids.

2. The Bidders.

RFP I called for a two-step bidding process: first, bidders would submit written bids by

January 8, 2010, and second, DGS would conduct an auction during which bidders could increase

their bids. Kalemba Decl., Ex. A. DGS received bids from seven separate parties, including the

following:

(a) Petitioner Tel Phil . This entity, owned by Petitioner Jeffrey Teller, leases a

portion of the Property to operate a swap meet for which it pays 35% of its gross revenues. See

lease attached to Petitioner's motion, Ex. 5. The lease has been enormously profitable to Tel Phil;

if its claim to have paid the State more than $108 million in rent is correct, Tel Phil would have

received in excess of $308 million in gross revenue. However, the lease gives the State the right to

terminate upon sale of the premises. Id. For this reason, to preserve its enormous profits, Tel Phil

does not want the Property sold, at least to a third party. Tel Phil submitted a bid of $1,000.

Kalemba Decl., 8, Ex. E.

(b) Petitioner ARES . As reflected on its website (www.advancedonline.com),this entity is a specialty developer of apartment properties in Southern California, claiming a port-

folio of over 7,000 units. Apparently viewing the Property as an opportunity for development of

more apartments, ARES initially bid $17 million, which it increased to $56 million during the

auction. Id., 9, Ex. F.

(c) FMW . FMW is a local firm owned by Kenneth Fait whose family has lived

in Orange County for generations. Planning to improve and continue the operation of the fair and

other activities, FMW submitted a bid in the amount of $55 million, the highest bid received by the

January 8, 2010 deadline. FMW did not increase its bid during the auction phase. Lemmon Decl.,

3-7, Ex. 1; Kalemba Decl., 7, Ex. D.

The highest bid at the auction was $56.5 million. Kalemba Decl., 10. DGS evaluated all

bids and determined that the State would not obtain the "highest and most certain" return for the


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Property from any of the bids. Accordingly, on March 17, 2010, DGS publicly announced that it

was rejecting all bids submitted in response to RFP I. Id., 11.

D. Measure C And The Preservation Of The Fair.

Faced with the State's planned sale, the City of Costa Mesa ("City") was concerned, and

investigated various ways to preserve the fair and other current uses. To accomplish this, the City

of Costa Mesa sponsored "Measure C" which prevents any change in the use of the Property from a

fairgrounds event center without a majority vote of the electorate. RJN, Ex. 4. Measure C was

passed by the voters on June 8, 2010 and is binding on any purchaser of the Property, including

FMW. 6 Id., Ex. 5.

E. The Second Competitive Bidding Process The City Of Costa Mesa's

Unsuccessful Effort To Buy The Property.

After DGS rejected all bids, the City attempted to purchase the Property. The State agreed

to exclusively negotiate with the City for a short period of time, but set a minimum purchase price

of $96 million. RJN, Ex. 6, pp. 1-2. Moreover, because Section 3884.2 requires a public bid pro-

cess, not a negotiated sale, new legislation was needed for the City to acquire the Property. Indeed,

the City's April 1, 2010 press release states "it is expected that successful negotiations between the

City and State will require State legislation." RJN, Ex. 7. Contrary to Petitioner's claims, allparties, including Petitioners, knew from the outset that enabling legislation would be required.

Because the City lacked the necessary funds to buy the Property, it needed a "public/

private partnership" with a solid financial partner who would fund the entire purchase. DGS gave

the City until April 21, 2010, later extended to May 21, 2010, to find that partner and submit an

offer. RJN, Ex. 6, p. 2, Ex. 11, p. 2.

The City promptly conducted its own "RFP" process in the form of written letters dated

April 7, 2010, which required that any bidder commit to the "preservation of the OC Fair and Event

Center activities, and the community programs currently operating at the site." RJN, Ex. 6, p. 2 &

Exs. 8-9, Lemmon Decl., 9, Ex. 2. The City received two written proposals in response: (1) a

6 Measure C does not bind the State who could develop the Property in any way it chooses, but wouldbind and restrict FMW's use of the Property.


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joint proposal from Petitioners American Fairs (also a Jeffrey Teller company) and ARES 7; and

(2) a proposal from FMW. RJN, Exs. 10, p. 3, Ex. 11, p. 1; Lemmon Decl., 10, Ex. 3. At a

special meeting on May 10, 2010, the Costa Mesa City Council ranked Petitioners' joint proposal

"first." RJN, Ex. 10, p. 3.

1. The City Negotiates With Its First Choice, The Petitioners, Which

Negotiations Fail Apparently For Financial Reasons.

Although Petitioners' papers fail to mention their joint proposal (or even their involvement

with the City), it was Petitioners who first proposed "assuming 100% of the financial responsibil-

ity" for the City's purchase of the Property on the following terms: a purchase price of $96 million,

with 20% down and the balance in the form of a 40-year note at 5% interest. RJN, Ex. 11, pp. 4-5.

In fact, unbeknownst to FMW, Petitioners apparently had gotten that proposal pre-approved by the

State, through the City! Id. Under Petitioners' "deal" the City would then lease the Property to the

Petitioners through which they would make the payments required for the City's purchase. Id. The

City proceeded to negotiate with Petitioners on their proposal; however, within a week the negotia-

tions failed apparently because the Petitioners lacked the financial resources to back up their bid.

RJN, Ex. 12, p. 3; Ex. 13, p. 3. As a result, on May 19, 2010, the City issued a press release

announcing that it had selected FMW for exclusive negotiation. Id., Ex. 14.2. The City's Proposed Purchase Does Not Proceed Because Of The

Legislature's Failure To Pass Enabling Legislation.

Contrary to Petitioner's claim, there was no "back room" deal between the City and FMW.

Rather, when it approached FMW, the City proposed the same lease arrangement and financial

terms as initially bid by the Petitioners ($96 million price, 20% down, 40-year note at 5% interest)

(the "City Proposal"), and FMW was interested. Lemmon Decl., 11. The City and FMW signed a

written Memorandum of Understanding ("MOU") which also expressly committed FMW to

operate the Orange County Fair, swap meet, Centennial Farm, the Equestrian Center and other

7 While Petitioners have not revealed the compact among themselves, it must certainly preserve Tel Phil'slucrative swap meet franchise and give ARES the ability to pursue apartment development.


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community activities. Id., 11, Ex. 4 (5A-D & G). FMW signed the MOU because its plan is to

continue and improve those uses.

The City and FMW then proceeded to negotiate the City's purchase agreement with the

State which, unlike RFP I, included in the sale not only the real property, but also all valuable

personal property on-site, trademarks (including the name "Orange County Fair"), and goodwill.

Id., 12, Ex. 5 (PSA, Rec. A & 1.1) The purchase was expressly subject to the California State

Legislature enacting legislation authorizing the sale to the City. Id., (PSA, 3.6(A)(6)).

But by August 24, 2010, the required legislation had not been adopted. Shortly thereafter,

on September 7, 2010, Assembly Member Jose Solorio publicly announced that he was dropping

his support for the legislation, effectively killing the City's efforts to purchase the Property. Id.,

13. The City's purchase agreement was never finalized or signed. Id.

F. The Third Competitive Bidding Process DGS' Second "Request For

Proposals" Requiring More Money For Less Property.

With the City's efforts failing, DGS decided again to put the Property out for competitive

bidding. Contrary to Petitioner's wild claim that this decision resulted from a "back room deal"

(for which it presents absolutely no supporting evidence), FMW had no involvement whatsoever in

that decision or prior knowledge of RFP II. Id., 14; Kalemba Decl., 12. On August 23, 2010,DGS issued its "Request For Proposals, II - Orange County Fairgrounds" ("RFP II") which, also

contrary to Petitioners' claims, is far from a "mirror image" of the terms proposed by the City.

Kalemba Decl., 12; Lemmon Decl., 14. Instead, RFP II required a minimum bid that is for more

money and for less property. Nor was RFP II in any way a "sham" as Petitioners contend rather,

it was an open and transparent public request for competitive bids to which all interested parties

could and did respond. 8

Significant terms in RFP II include:

1. The Property. Unlike the failed City purchase, RFP II offered to sell only the real

property, stating: "the transaction will not include any personal property, goodwill, or any other

8 Attached as Exhibit 8 to the Lemmon Declaration is a bid matrix, explaining the significant differencesbetween the City's proposal, RFP II and FMW's bid submitted in response to RFP II.


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element reflective of the Property's going-concern use by the 32nd DAA." Kalemba Decl., 12,

17, Ex. G, p. 10.

2. Minimum Bid Term. RFP II specified the minimum bid terms as follows: (i) bid

price $96 million; (ii) down $20 million; (iii) annual payments "not to exceed" 40 years, with

the "[f]ixed annual payments as determined by the bidder"; and (iv) the net present value "of the

fixed annual payments must be equal to the face value of the note" using a "6%" discount rate.

Kalemba Decl., 12, Ex. G, p.8. To maintain a net present value using a 6% discount rate effect-

tively requires the note be at 6% interest. However, the note on the failed City Proposal was only

at 5% interest and otherwise provided the State a significantly lower yield. In fact, the net present

value, and thus yield, to the State from the RFP II minimum bid requirements (using a 6% discount

rate as mandated by RFP II) is $96 million, whereas the net present value to the State from the

City Proposal is $84 million a whopping $12 million more. Lemmon Decl., 15, Exs. 6-7.

Thus, RFP II represents a demand for significantly more money for less property. Moreover, and

importantly, these were "minimum requirements" which the State certainly hoped would be

exceeded in the public bidding process (as indeed they were). Kalemba Decl., 12, Ex. G, p. 10.

3. Due Diligence. All interested bidders had ample time and information to conduct

full due diligence during the preceding RFP I and the City RFP processes described above. On topof this, RFP II gave all bidders from August 23, 2010, when it was issued, to September 30, 2010,

the bid submission date a total of 38 days which is more than the 30 days specified in Section

3884.2(c) to conduct additional due diligence and put together bids. Kalemba Decl., 15-16.

Of course, Petitioners required no additional due diligence because they had been bidders since the

outset of RFP I, and indeed Petitioner Jeffrey Teller and his companies knew the Property better

than anyone as they had been operating a swap meet there since 1969. Teller Decl., 6. RFP II

offered web links to the same comprehensive documents (including environmental and financial)

that were included in RFP I, plus soil reports and a hazardous materials survey. Lemmon Decl.,

17; Kalemba Decl., 14. As before, RFP II allowed all prospective bidders the opportunity to

inspect the Property and submit written questions. Lemmon Decl., 17; Kalemba Decl., 15-16,

Exh. H.


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4. Key Dates. RFP II gave various "Key Dates" with the express qualification: "The

Department reserves the right to modify the above projected dates at its sole discretion prior to and

after the Final Bid Submission Date." Kalemba Decl., 12, Ex. G, p. 7. Indeed, it made several

changes in Addendum No. 3, issued on October 13, 2010. Lemmon Decl., 18, Ex. 9. In the

Addendum, the RFP II included the following projected dates:

October 14, 2010 "Final Selection and Notice to Bidders"

October 20, 2010 "Escrow Opened" and "Notice to the Legislature"

November 18, 2010 "Department Execution of Purchase Contract"

December 2010 "Estimated Close of Escrow"

G. Of The Four DGS Bids Received, Including Bids From Petitioners, FMW's

Bid Offered The Highest And Most Certain Return.

Documents recently released by DGS 9 reveal that the State received bids from four bidders:

Petitioner American Fairs (Jeffrey Teller's company), Petitioner ARES, City Ventures and FMW.

Kalemba Decl., 18-21, Exs. I-K; Thames Decl., 10-13, Exs. 2-5. 10 As can be seen from the

State's summary spreadsheets (Thames Decl., Ex. 6 11), each bid reflects careful consideration of

the economics by the bidder, and their best offer. Petitioner American Fairs' bid offered the lowest

"face amount" at $97 million, followed by City Ventures at $98 million, with the highest by FMWand Petitioner ARES at $100 million. Thames Decl., 14, Ex. 6, p. 2. All four bids offered

$20 million down and the remainder by a promissory note. Id. Importantly, the terms of the note

are what further separates the bids, and in fact made Petitioner's bids the two weakest.

First, FMW offered substantial payments on the note commencing in year 2, whereas the

Petitioners' bids called for absolutely no payments until 6 and 8 years, respectively. Id. Second,

FMW offered substantial payments through the whole term of the note, with no balloon payment,

whereas all the other bids call for significantly smaller payments with an enormous balloon

9 On November 24, 2010, DGS produced to all parties the documents Petitioners had requested in theirOctober 8, 2010 California Public Records Act request. Thames Decl., 9, Ex. 1.

10 "Thames Decl." refers to the Declaration of Stephen R. Thames In Support of Response of Real Partiesin Interest's Response to Order to Show Cause Re: Preliminary Injunction filed concurrently herewith.

11 This summary is authenticated and included in Exhibit L to the Kalemba Declaration, and for theCourt's convenience, is individually attached to the Thames Declaration as Exhibit 6.


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payment at the end of the 40-year term indeed Petitioners' proposed annual payments resulted in

tremendous negative amortization and balloon payments far in excess of the notes' original princi-

pal amount ($173 million and $510 million, respectively). Id. Third, FMW offered a 35-year note,

whereas all the other bids offered a 40-year note, and unlike all the other bids, FMW offered per-

sonal guaranties by Kenneth Fait and David Pyle both high-net-worth individuals. Id.; Lemmon

Decl. 19; Kalemba Decl., 24-25.

As reflected in Exhibit L to the Kalemba Declaration, DGS performed a thorough and

objective financial analysis of the various offers, with the analysts making the following correct

evaluations among others: (1) "[U]nder the FMW bid, the State receives all of the payments

sooner and without depending upon a large balloon payment"; (2) the "AFF and ARES payments

schedules are back-loaded in that the bulk of their repayment is made in the latter years of the

note;" and (3) the "AFF and ARES balloon payments are higher than the face value of the note . . .

as these payment schedules fail to pay down any principal of the note over the loan term." Thames

Decl., 15, Ex. 7, pp. 1, 3, 5. Kalemba Decl., 24, Ex. L; . Based on this analysis, DGS prudently

chose FMW's bid. Kalemba Decl., 27; Lemmon Decl., 20, Ex. 11.

H. DGS Provides The Statutorily Required 30-Day Report To The Legislative

Fiscal Committee Chair.On October 19, 2010, DGS sent a letter to the Honorable Denise Moreno Duchny, Chair of

the joint legislative budget committee, providing the report required under Section 3884.2(d) for

the sale of the Property to FMW. McKinnon Decl., 11, Ex. C. Attachment A to the letter speci-

fies the financial terms of the transaction as required by Section 3884(d)(1). The letter also reports

the fair market value comparison as required by Section 3884.2(d), by stating in Attachment A:

"Fair Market Value: Purchase Price and terms presented represent the Fair Market Value as per

Food and Agricultural Code 3884.2(c)." Section 3884.2(c) provides that "any transaction based on

such a bidding process shall be deemed to be the fair market value for the Property." Id. This

makes perfect sense; public competitive bidding is the best method to determine fair market value.

DGS has not received any questions, concerns or objections from the Legislature regarding

the proposed sale to FMW. Id., 14.


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I. The State And FMW Are Prepared To Close The Sale, And FMW Is

Committed To Hiring Current Fairground Employees And Continuing The

Fair, Swap Meet And The Other Activities And Events .

DGS and FMW are prepared to execute the purchase agreement and close the sale in accor-

dance with FMW's bid and the DGS' report to the Legislature. Lemmon Decl., 21. Moreover,

FMW's Kenneth Fait along with David Pyle, whose family also are multi-generational Orange

County residents, created OC Fair and Event Center, LP ("OC Fair and Event") to take title to and

manage the Property. OC Fair and Event is committed to offer employment to current fairground

employees and continue to operate the Fair, the swap meet, Centennial Farm and the equestrian

center. Not only are such uses the highest and best historical use for the property, they comply

with Measure C which OC Fair and Event fully supports. Lemmon Decl., 2. All of Petitioner's

doomsday claims to the contrary, made both in this proceeding and publicly, are self-serving and

false.

J. Petitioners Wrongfully Attempt To Block DGS From Lawfully Selling The

Property To OC Fair and Event.

As explained above, Petitioners are three-time unsuccessful bidders, and have filed the

present action to block the sale of the Property to the successful bidder. Their obvious purpose hasnothing to do with the public interest, but everything to do with their own pecuniary interests, whe-

ther that be to buy the Property at a cheaper price (e.g., like their prior unsuccessful bids on RFP I,

the City's RFP and RFP II) or to protect Petitioner Tel Phil's enormous profits from its operating

the swap meet at the fairgrounds. None of their pot-shot claims have any merit whatsoever.

III. LEGAL STANDARDS.

A. "Probability Of Success" Is The Standard For Such "Drastic Remedy."

A preliminary injunction is a "drastic remedy," requiring "great caution and sound discre-

tion, and rarely, if ever, should it be exercised in a doubtful case." Ancora-Citronelle Corp. v.

Green (1974) 41 Cal.App.3d 146, 148-50 (citing cases). In determining whether to issue a prelim-

inary injunction, a court must consider both (1) "the likelihood the moving party will succeed in the

litigation on the merits of its claim," and also (2) "the relative interim harm to the parties if the


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injunction is granted, or not granted." O'Connell v. Sup. Ct. (2006) 141 Cal.App.4th 1452, 1468.

Regardless of the alleged harm, however, the movant must show a "reasonable probability " of

success on the merits. San Fran. Newspaper Printing Co. v. Sup. Ct. (1985) 170 Cal.App.3d 438,

442.

B. Petitioners Bear The Burden Of Proof, By Admissible Evidence.

The burden of proof falls squarely on the party seeking relief. Fleishman v. Sup. Ct. (2002)

102 Cal.App.4th 350, 356. ("The plaintiff bears the burden of presenting facts establishing the

requisite reasonable probability.") Further, such burden can only be carried by competent , admis-

sible evidence. Code Civ. Proc. 527(a); Carsten v. City of Del Mar (1992) 8 Cal.App.4th 1642,

1655 (reversing a preliminary injunction because movant presented conclusory statements instead

of "competent evidence"). As set forth in FMW's "Objections to Evidence," Petitioners lack

competent evidence to support their Motion, which should be denied on that basis alone.

IV. PETITIONERS HAVE FAILED TO MEET THEIR BURDEN OF PROVING A

REASONABLE PROBABILITY OF SUCCESS ON THE MERITS.

A. Petitioners' Primary Challenge That RFP II Favored FMW Is Absurd

On Its Face.

Section 3884.2(c) requires DGS to sell the Property by "a public bidding process designedto obtain the highest, most certain return for the state from a responsible bidder." Section

3884.2(c). Responsibility for designing the "public bidding process" is left squarely to DGS,

subject only to the 30-day notice requirement in Section 3884.2(c). In California, a "public agency

is afforded considerable latitude in setting bid specifications, and these will be upheld if substantial

evidence shows they are in furtherance of legitimate government interests." Schram Construction,

Inc. v. The Regents of Univ. of Cal. (2010) 187 Cal.App.4th 1040, 1054-55 (emphasis added)

(citing cases). The party seeking to establish "favoritism" by a public agency has the burden of


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actions; far from illegal, DGS' RFP II was prudent, in compliance with the law and designed to

achieve the highest return for the public good.

2. RFP II's 38-Day Due Diligence Period Did Not Favor FMW Over

Petitioners .

Remarkably, Petitioners complain that the due diligence period under RFP II (which they

erroneously claim is 30 days when it is 38 days ) unfairly favored FMW because "Plaintiffs could

not possibly do [their due diligence] within the allotted 30 day time," and "FMW, however, had

already enjoyed an earlier opportunity to begin due diligence through its Private Agreement and

MOU" with the City. Brief, 8:18-22. Utter nonsense.

In truth, Petitioners had more than ample time to conduct all required due diligence dating

back to when RFP I was issued over a year ago on October 9, 2009, and certainly did so prior to

their bid on RFP I, and did so again prior to their bid to the City, and did so once again prior to

their bid on RFP II. Not surprisingly, Petitioners point to no specific area of due diligence they

were denied. Nor do they present any explanation much less evidence of any particular due

diligence advantage FMW received during its negotiations on the City Proposal, and indeed there

is none.

The truth is that all interested parties were provided ample time and information to conductdue diligence and make their highest and best bids. Under RFP I, all interested bidders were

afforded a 93-day due diligence period (over three times what Section 3884.2(c) required) under

RFP I, plus financial, environmental and other documentation, and the right to inspect the Property

and ask questions, the answers to which were all posted online. Under RFP II, all potential bidders

were given another 38-day due diligence period to again review the documentation and inspect the

Property. And, as before, RFP II invited potential bidders to submit questions, but neither

Petitioners nor anyone else did so. Nor do Petitioners even attempt to explain what additional due

diligence they or other bidders would have performed given more time or how the lack of such

information or time favored FMW.

In sum, Petitioners and all other potential bidders had more than enough time and

opportunity to conduct due diligence on the Property and submit their best bids.


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B. Sections 3884.1 And 3884.2 Are Not Unconstitutional.

Petitioners argue that the statutes authorizing sale of the Property violate Article III,

section 9 of the California Constitution ("Prop. 60A") because sale proceeds go to the General

Fund instead of paying down bond debt. 13 This argument fails for at least two independent

reasons: (1) Prop. 60A does not apply because the Property was not purchased with General Fund

monies; and (2) the Property does not meet the definition of "surplus state property" covered by

Prop. 60A in any event.

1. Prop. 60A Does Not Apply Because the Property Was Purchased From Special

Fund Monies, Not From General Fund Revenue .

Property "purchased with revenues described in Article XIX or any other special fund

monies " is specifically exempted from Prop. 60A. Cal. Const. Art. III, sec. 9 (emphasis added).

The State's Legislative Analyst put it this way in the "Official Voter Information Guide" for

Prop. 60A:

"The measure does not apply to properties acquired with specifiedtransportation funds or other special fund monies. In other words,the measure only applies to those properties that were purchased with General Fund revenue or bonds secured by the General Fund."

RJN, Ex. 16 (California Official Voter Information Guide ) (emphasis added).

Here, uncontroverted government records from the Statewide Property Inventory show the

property was purchased from the federal government in 1949 with funds from the "DAA Enterprise

Fund," a subaccount of Fund No. 0191, legally known as the "Fair and Exposition Fund," a special

fund administered under "the Department of Food and Agriculture, Division Affairs and

Exposition." See McKinnon Decl., 9-10, Exs. A-B. Notably, the California State Auditor's

Report for the year ended June 30, 2009 ("State Audit") classifies district agricultural associations

as "discretely presented component units" that are "legally separate from the primary government

13 Proceeds from property sales under Prop. 60A were directed to pay down bonds authorized by thevoters that same year (March 2, 2004) under the Economic Recovery Bond Act, designed to finance pastbudget deficits. Cal. Const. Art. 3, sec. 9; RJN, Ex. B (Official Voter Information Guide, Analysis byLegislative Analyst).


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and mostly provide[s] services to entities and individuals outside the primary government." Id.,

Ex. 18 (State Audit), pp. 60-63.

Thus, "enterprise funds" such as the "DAA Enterprise Fund," are not included in the broad

category of "Governmental Funds," such as the "General Fund" which is the main operating

governmental fund of the State. Id., p. 64. Instead, " enterprise funds are categorized separately as

'proprietary funds' and are intended to "record business-type activity for which a fee is charged to

external users for goods and services" (such as fairs and expositions). Id., p. 65. In short,

enterprise funds, such as were used to purchase the Property, are "special fund monies," not

"General Fund revenues." As such, because the Property was initially purchased by the State with

"special fund monies" Prop. 60A simply does not apply to the State's sale of the Property.

2. The Property Is Not "Surplus State Property" Governed by Prop. 60A.

Prop. 60A also does not apply because the Property is not "surplus state property" under

any definition much less the definition contemplated by the State Legislature when it put Prop.

60A on the Ballot by passing of Senate Constitutional Amendment No. 18. Cal. Sen. Const.

Amend. 18, 2003-2004 2nd Reg. Sess. 2 (June 24, 2004). Petitioners wrongly assume and

disingenuously argue that the Legislature put Prop. 60A on the ballot in a semantic vacuum

("the ballot summary, arguments, and analysis for the Prop. 60A do not indicate that the word'surplus' was to be given any special or technical meaning"). Brief, pp. 10-12. But this is

demonstrably false.

First, the "Analysis by the Legislative Analyst" that appeared on the very first page after the

Prop. 60A summary, in the Official Voter Information Guide informed the voters that "surplus state

property" was a term of art already addressed in existing state law:

"Surplus State Property . Current state statutes generally require astate agency to review annually its real property holdings (land andfacilities) and determine what, if any, is in excess of its foreseeableneeds . . .

Once real property has been identified as surplus, the state attemptsto sell the property, or dispose of it in some other manner such as bygiving it to a local government."

RJN, Ex. 16 (emphasis in original and added).


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Indeed, the Legislative Analyst was correct: under Government Code Section 11011 et

seq., which long pre-existed Prop 60A, state property does not become "surplus" automatically or

by meeting somebody's version of a debatable dictionary definition. Instead, each state agency is

called upon to annually review the state properties within its jurisdiction, determine "what, if any,

land is in excess of its foreseeable needs" and then to make a report of such lands to DGS. Gov't

Code 11011(a). "Jurisdiction of all land reported as excess " is then to be transferred to DGS,

which "shall report to the Legislature annually, the land declared excess . . .." Gov't Code

11011(b)-(c). Then, it is up to the Legislature to declare such excess property as surplus ("surplus

state property" is "real property declared surplus by the Legislature and directed to be disposed of

by the Department of General Services . . ..") Gov't Code 11011.1(a).

In fact, the Property has never been identified as "surplus state property" or even "excess" at

any level, much less by the Legislature: No state agency, including District 32, has ever reported

the Property was "in excess of its foreseeable needs" under (Gov't Code 11011(a)). DGS has

never reported the Property as excess or surplus land under Government Code section 11011(b) in

any of its annual reports to the Legislature; nor has the Legislature ever declared the Property to be

"surplus." Cal. Gov't Code 11011.1(a). McKinnon Decl., 8. Rather, the Property has and con-

tinues to be used by the State, for which it receives revenues. It is only selling the Property now,not because it is surplus, but to raise funds critically needed to deal with the State's "fiscal crisis."

C. DGS Followed The Procedure Set Forth In RFP II And Reported All

Required Information To The Legislature.

1. DGS Gave The 30-Day "Approval" Notice To The Legislature

Required By The Statute; No Affirmative Legislative Approval Is

Required.

Petitioners argue that this Court should enjoin the sale because DGS failed to obtain

affirmative legislative approval before executing the purchase agreement with FMW. Its argument

is not based on Section 3884.2 which contains no such approval requirement, but on a single out-

of-context phrase lifted from page 12 of RFP II:


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"Subject to Department and legislative approval, the Departmentintends to execute a Purchase and Sale Agreement with the suc-cessful bidder." Kalemba Decl., 12, Ex. G, p. 12 (emphasis added).

But Petitioners ignore the context of the immediately-preceding sentence:

"A 30-day notification period to the California legislature is requiredbefore the Department can execute a Purchase and Sale Agreement."Id., p. 11.

Contrary to Petitioner's claim, "legislative approval," in context, accurately reflects the

Legislature's opportunity to disapprove afforded by the 30-day notice requirement in Section

3884.2(d). In other words, failure to object amounts to a "tacit approval" after the 30 days. The

RFP II Key Dates schedule (RFP II, p. 7) confirms this intent: the schedule lists no date(s) for an

affirmative legislative approval, but instead schedules November 18, 2010 (30 days after DGS'

notice to the Legislature) as the date for DGS to execute a binding purchase agreement. Id., p. 7.

Even if the whole of the RFP II language were susceptible to differing interpretations

(which it is not), this Court should not interpret the "legislative approval" phrase to impose an

affirmative legislative approval requirement that is found nowhere in Section 3884.2, the governing

statute. Rather, this Court can and should read the phrase in harmony with the "tacit

approval" concept in Section 3884.2(d), i.e., unless the Legislature objects within 30 days after

DGS reports the terms of sale, DGS has the authority to proceed. See Civil Code section 3541 ("aninterpretation which gives effect is preferred to one which makes void"); Klay v. Tryk (1986) 177

Cal.App. 3d 119, 128 (Section 3541 applied by Court to reconcile agency regulation with arguably

inconsistent statute).

Finally, even if DGS could impose its own requirement for affirmative legislative approval,

it is entitled to forego that requirement at its discretion. Such discretionary decisions by DGS, as

an administrative agency charged with state government contracting, are entitled to great judicial

deference. See Gov't Code 14600, 14670 (DGS generally manages California's business and

property functions); Arnold, 125 Cal.App.4th at 507 (finding that DGS is entitled to deference on

matters of "state government contracting process"); see also In re Dikes (2004) 121 Cal.App.4th

825, 833 (An agency's exercise of discretion "is entitled to great weight and deference, and will

ordinarily not be disturbed unless it is plainly erroneous or inconsistent with the regulation").


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Petitioners, however, argue that DGS does not have the discretion to forego a self-imposed

legislative approval requirement in the RFP, citing Konica Business Machines U.S.A., Inc., v. the

Regents of the University of California (1998) 206 Cal.App.3d 449. Brief, p. 12. But Konica is

wholly inapposite. In that case a party was awarded a contract to supply the University with copier

machines meeting certain specifications in its "Request for Quotation," based on a bid that did not

meet those specifications. An unsuccessful bidder challenged the award, claiming it violated the

governing statute, Public Contract Code, Section 10507, which specifically required the University

to purchase goods and materials only from the "lowest responsible bidder meeting specifications,

or else reject all bids." The Court invalidated the award because the statute expressly required the

successful bid meet the product's specifications, which it did not. Unlike the statute in Konica,

however, here Section 3884.2 does not require legislative approval, and of course says nothing

about "specifications," which relate to procurement contracts under The Public Contract Code in

any event. Indeed, the Public Contract Code does not apply to RFP II at all. See page 14, fn. 13,

supra.

2. DGS Gave All Required Information To The Legislature.

Equally unavailing is Petitioners' argument that DGS' 30-day notice did not include all

information required by Section 3884.2. Brief, 12:16-25. Section 3884.2(d) provides:"Thirty days prior to executing a transaction for a sale of realproperty authorized by this section, the Director of General Servicesshall report to the chairs of the fiscal committees of the Legislatureall of the following:(1) The financial terms of the transaction;(2) A comparison of fair market value for the real property andthe terms listed in paragraph (1); [and](3) Any basis for agreeing to terms and conditions other thanfair market value."

Petitioners concede the DGS notice complied with the first of these reporting provisions by

supplying the financial terms of the transaction. See Brief, 12:20; see also McKinnon Decl., 11,

Ex. C (DGS Letter to Legislature). Petitioners complain, however, that DGS did not comply with

the second reporting provisions because the notice "provides no fair market value analysis and


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merely includes an unsubstantiated statement that the price and terms represent fair market value."

Brief, 12:20-23 (emphasis added).

Petitioners grossly overstate the requirements of Section 3884.2(d)(2). The statute does not

require DGS to provide the Legislature with any "analysis" or "substantiation" of fair market

value words that do not appear anywhere in Section 3884.2. To the contrary, all Section

3884.2(d) requires is a statement of "comparison of fair market value" to the financial terms of the

transaction. DGS' notice provides that comparison by correctly stating: "Fair Market Value:

Purchase Price and terms presented represent the Fair Market Value as per Food and Agricultural

Code 3884.2(c)." The referenced Section 3884.2(c) states that "transaction based on . . . a public

bidding process" such as RFP II "shall be deemed to be the fair market value for the property."

That is clearly correct; an open public competitive bidding process indeed yields fair market value,

unlike often unreliable and speculative appraisals or other "analysis" of value. Thus, based upon

Section 3884.2(c), and common sense, DGS' statement of comparison was not only given, but was

entirely correct.

Nothing more is required under Section 3884.2, and DGS is entitled to deference when

interpreting such requirement. See, e.g., Arnold, 125 Cal.App.4th at 506 ("[W]hile interpretation

of a statute is ultimately a question of law, a court must defer to an administrative agency's inter-pretation of a statute involving its area of expertise, unless the interpretation flies in the face of the

clear language and purpose of the interpreted provision.") (citations omitted); Gov't Code

14670.10(g)(2), 14670.13(e), 14670.13(f), 14670.2(c), 14672.9(f) (charging DGS with the

responsibility of reporting various transactions to the Legislature). Notably, the Legislature did not

seek additional information or object to the information provided by DGS. McKinnon Decl., 14.

Petitioners' conclusory complaints notwithstanding, DGS clearly complied with all reporting

requirements in Section 3884.2.

D. DGS Lacked Jurisdiction To Hear Petitioners' "Protests."

Petitioners complain that DGS wrongfully rejected Petitioners' protests in connection with

RFP II. But Petitioners incorrectly rely on laws that do not apply.


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First, Public Contract Code sections 10341-10345, and 10306 (in Chapter 2, titled "State

Acquisition of Goods and Services"), apply only to contracts to procure goods and services not

to the State's sale of real property . See supra, note 13.

Second, Petitioners fail to cite any specific provision of the State Administrative Manual,

which contains no protest procedures pertinent to DGS' sale, in any event.

Third, State Contracting Manual, Vol. 1, Sections 6.35 and 6.30B, also applies only to

"services or consulting service contracts . . .." (6.00, emphasis added). And Chapter 7, entitled

"Miscellaneous Contracting Issues," does not apply to real property sales contracts with DGS.

Lastly, Petitioners wrongly rely on California Code of Regulations, Title 2, Sections 1195-

1195.6, which apply only to consulting and service contracts.

In sum, DGS' sale of the Property is governed exclusively by Section 3884.2, which does

not provide a protest procedure. It is well established that "where no administrative remedy is

provided for the particular issue raised, recourse to the administrative agency is not required before

initiation of court action." Andal v. City of Stockton (2006) 137 Cal.App.4th 86, 91. Here, DGS

properly rejected Petitioners' protests because Section 3884.2 did not vest DGS with jurisdiction to

hear them.

E. Petitioners' Claims Regarding "Uncertainties" Over Title And OwnershipRights In The Property Are Without Merit.

Petitioners assert a scattershot of arguments designed to create the appearance of

"uncertainty" concerning the transaction, but none of them have merit.

1. Petitioners' Title Claim Does Not Present A Justiciable Controversy

And Is Unfounded In Any Event.

Petitioners first argue that the State "cannot proceed with RFP II" because it is not clear

"that the 32a District Agricultural Association actually owns the property with the right to sell it."

Brief, 13:18-19. But Petitioners' claim does not even present a justiciable controversy, which

requires both: (i) "standing, which goes to the existence of a cause of action in the plaintiff," and

(ii) "ripeness," which means that a controversy 'has reached, but has not passed, the point that the

facts have sufficiently congealed to permit an intelligent and useful decision to be made.'"


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Sherwyn v. Dept. of Social Servs. (1985) 173 Cal.App.3d 52, 57-58 (emphasis added). Here, even

assuming, arguendo, that title to the Property is unclear, it is FMW, not the Petitioners, that would

be adversely affected by such uncertainty. Thus, Petitioners lack standing to assert this claim.

Moreover, Petitioners' title claim is not ripe because, until the date of sale, title issues are purely

speculative. Thus, Petitioners' title claim fails on these grounds alone.

In any event, Petitioners' title argument fails as a matter of law. First, by enacting a law

that puts "all of" the Property into newly-created District 32a and then granting DGS the power to

sell the Property, the Legislature vested title to the Property in District 32a. See Civ. Code 1091

(providing that real property may be transferred "by operation of law"). Second, even if

Section 3884.1 did not transfer title, the Director of DGS is vested with the ability to unilaterally

transfer "[t]he jurisdiction of real property owned by the state . . . from one state agency to another

state agency . . .." Gov't Code 14673. Thus, DGS can simply correct any title defect by

transferring title to District 32a before the sale. Third, "uncertainty" over title has no impact on

RFP II or FMW's right to purchase the Property: (i) the Property is real property of the State,

(ii) the Legislature has expressly authorized DGS to "sell all or any portion of" that Property, and

(iii) FMW was the successful highest bidder. Ultimately, the State is obligated to deliver valid title

to FMW, regardless of which state agency is "on title," and there is no evidence it will not complywith this obligation.

2. RFP II Does Not Contemplate The Sale Of Personal Property.

Petitioners assert that RFP II is unauthorized because it "contemplates the sale of personal

property . . . while the Enabling Statute (Food and Agricultural Code 3884.2) refers only to the

disposition of real property." Brief, 13:25-14:2. Petitioners are wrong. RFP II explicitly provides

"that this sale opportunity is for real property only" and that "[t]he transaction will not include any

personal property, good will, or any other element reflective of the Property's going-concern use by

the District 32." Kalemba Decl., 12, Ex. G, p. 10.


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914972.05/OC



LAW OFFICES


applicant will pay to the party enjoined any damages, not exceedingan amount to be specified, the party may sustain by reason of theinjunction, if the court finally decides that the applicant was notentitled to the injunction." (emphasis added).

It is black-letter law that a bond is mandatory under Section 529. Weil & Brown,

CALIFORNIA PRACTICE GUIDE : CIVIL PROCEDURE BEFORE TRIAL (The Rutter Group) 9:640, p.

9(II)34 (Rev. #1 2010) [hereinafter "Rutter"] ("If the PI is granted, the court must require an under-

taking, or allow a cash deposit in lieu thereof.") (emphasis added). California cases have

consistently so held. See, e.g., ABBA Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 10 (stating

that a bond is an "indispensable prerequisite to the issuance of a preliminary injunction" and the

duty to order a bond is "mandatory, not discretionary") (emphasis added).

Tellingly, Petitioners do not cite a single decision from the courts of this State in support of

the supposedly "well-established" practice of not requiring a bond. Brief, 15:18-20. Instead,

Petitioners offer two federal court decisions applying a limited exception to the bond requirement

under Rule 65 of the Federal Rules of Civil Procedure under specific facts involving non-profit

entities in environmental cases. Id. But no California decision has recognized or approved any

such exception to the clear mandate of Code of Civil Procedure section 529. See Mangini v. J.G.

Durand Int'l (1994) 31 Cal.App.4th 214, 217-19 (noting that the bond requirement is "mandatory"and that the California Supreme Court had depublished previous cases applying the federal rule).

There is simply no basis for ignoring the clear requirement of a bond.

B. Given The Severity Of Harm To Real Parties, The Bond Should Be At Least

$500,000

The purpose of a bond is "to protect the defendant in the event that a final judgment against

the plaintiff determines that the restraint was wrongfully imposed." 6 Witkin, C AL. PROCEDURE

(5th ed. 2008) Provisional Remedies, 382, p. 327 [hereinafter "Witkin"]; see also Rutter, supra,

9:641, p. 9(II)-35. In determining the amount of the bond, the Court "is to estimate the harmful

effect which the injunction is likely to have on the restrained party, and to set the undertaking in

that sum." Abba Rubber, 235 Cal.App.3d at 14; Code Civ. Proc. 529 (providing that the bond is

to cover costs the restrained party "may sustain by reason of the injunction, if the court finally


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decides that the applicant was not entitled to the injunction"). The probability that the injunction is

proper and that the restrained party will ultimately fail in the action is irrelevant:

"The undertaking is designed to compensate the defendants in theevent, however unlikely , that the preliminary injunction is finally

determined to have been unjustified. The probability that they willactually obtain such a favorable determination, either through appealor trial, is irrelevant in determining the likely amount of those dam-ages." Abba Rubber, 235 Cal.App.3d at 16, n.8 (emphasis added).

Moreover, it is "well settled" that the bond must include attorney's fees "either prosecuting

an appeal of the preliminary injunction, or defending at trial against those causes of action upon

which the preliminary injunctive relief had been granted." Id. at 15-16.

Here, Real Parties FMW will incur attorneys' fees and costs litigating this matter through

appeal, in the minimum sum of $550,000, and therefore Real Parties request a bond in at least that

amount in the event the Court should grant the injunction. Thames Decl., 16.

VI. CONCLUSION.

For the foregoing reasons, the Court should deny Petitioners' request for a preliminary

injunction. Furthermore, in the event the Court grants Petitioners' request, the Court should order

Petitioners to post a bond of at least $550,000.

Dated: December 3, 2010 ALLEN MATKINS LECK GAMBLEMALLORY & NATSIS LLP

THOMAS E. GIBBSSTEPHEN R. THAMESNICHOLAS S. SHANTAR

By:THOMAS E. GIBBSAttorneys for Real Parties in Interest andPlaintiffs in Intervention FACILITIESMANAGEMENT WEST, INC. and OCFAIR AND EVENT CENTER, L.P.