Text of CSD letter on Mutual Benefit Agreement

Published Thursday, November 21, 2002

Here is the full text of the letter from the Community Services District to legal counsel in the Mutual Benefit Agreement negotiation:

McDonough, Holland & Allen
555 Capitol Mall
Sacramento, CA

November 18, 2002

Frederick W. Thompson, Esq.
Stanton, Kay & Watson, LLP
101 New Montgomery Street, Fifth Floor
San Francisco, California 94105

Curt Sproul, Esq.
Weintraub Genshlea & Sproul
400 Capitol Mall, 11th Floor
Sacramento, California 95814

Re: Draft Mutual Benefit Agreement.

Dear Fred and Curt,

The Rancho Murieta Community Services District ("District") recently obtained a copy of the draft Mutual Benefit Agreement ("Agreement") between Rancho Murieta Association ("RMA"), Rancho North Properties, and PTF for Operating Engineers ("PTF"), and Rancho Murieta LLC. Although the Board of Directors and staff of the District have had little time to review the draft Agreement, they understand that the RMA Board is likely to consider the Agreement for approval later this week. The District, therefore, has instructed me to submit the following general and specific comments on the draft Agreement with the caveat that the District may later have some additional comments.

The draft Agreement asks for several important consents and commitments from the District. The draft Agreement calls for the District to consent to the exchange of the District's Stonehouse Park property for commercial property south of Highway 16, to accept title to several proposed park sites and reconvey them to RMA, and to consent to several changes in the Rancho Murieta Park Development agreements, including elimination of the option to purchase the Clementia Community Park site, exchange of the proposed park at the historic ruins site on Murieta Parkway for a smaller site near the RMA administration building, relocation of the neighborhood park in the Greens subdivision and elimination of the obligation to construct facilities at the new site. The draft Agreement also contemplates future actions and commitments by the District, such as those related to modification of the North Gate and the addition of an Escuela Gate, that are likely to more substantially impact the District, as the provider of security at Rancho Murieta, than the parties to the Agreement, themselves, i.e., RMA, PTF and Rancho Murieta North Properties.

The subjects of the draft Agreement that affect the District are also addressed, or are likely to be addressed, in several existing or contemplated agreements of the District. These include the settlement agreement between the District and BNY Western Trust Co., as trustee for the Pension Trust of Operating Engineers Local No. 3, in Sacramento Superior Court Action No. 98AS03836, a proposed escrow agreement to complete the performance of the terms of that settlement, the various Rancho Murieta Park Development Agreements, and the anticipated revised Acquisition and Services Agreement between the District and Rancho Murieta North landowners. Because the draft Agreement has impacts on these existing and contemplated agreements, the comments of the District are not limited to the text of the draft Agreement itself. The comments suggest some revisions or corrections in the draft Agreement but also clarify and explain the issues that must be resolved, one way or another, before the District consents to the Agreement.

In 1986, the District entered into an agreement with the Rancho Murieta property owner/developer that promised the conveyance to the District of all property interests necessary for its water and sewer facilities. Since that time, the District has spent thousands of hours and dollars in a seemingly endless effort to secure the performance of that commitment. The District insists that this problem must be finally resolved by the performance of the settlement agreement that provides for the conveyance of Stonehouse Park from the District to RMA as contemplated by the draft Agreement. But I cannot stress strongly enough the determination of the District that this situation never occur again. The District will not consent to land exchanges or the other terms of the Agreement unless the litigation settlement and other obligations owed to the District have been performed or are simultaneously performed.

General Comments

1. The draft Agreement provided to the District did not include exhibits and other documents referred to in the Agreement (e.g., cited provisions of the CC&R's). Since some of these exhibits and documents directly affect the parks agreements and other matters of concern to the District, the District needs to review them before it provides definitive comments on the Agreement.
2. The draft Agreement provides for easements to RMA and the District for temporary or permanent access to various park sites and other facilities. The easement and Grant of Easement Agreement, attached to the draft Agreement as Exhibits C and D, should also include easements for the District because the District needs to provide security and other services at the park, facility and other locations referred to in the agreements.
3. The draft Agreement provides that park sites will be conveyed from the property owner to the District and then by the District to RMA. The District has indicated in the past that it is willing to participate in these transactions to accommodate RMA and the property owners, and to facilitate its own settlement agreement with BNY Western Trust Company, so long as the District is adequately protected. The opinion of RMA's counsel that the proposed transactions are authorized by law should be made to the District as well as the land owner, and the Agreement should provide that the District shall not be responsible for any fees, taxes, assessments or other costs as a result of the transactions and that RMA and PTF will defend and indemnify the District from any claims arising from the transactions.
4. The completion of the land transfers and easement grants of the settlement agreement between the District and BNY Western Trust Company will be a precondition to the District's consent to the Agreement.
5. The Agreement should provide that the parties to park development agreements (including all signatory landowners or their successors in interest), consent to the modification of the agreements and acknowledge the obligations of the parks agreements as modified by the terms of the Agreement.
6. The Agreement should provide that nothing in the Agreement shall limit or supersede any easements or property interests of the District except the modification of the parks agreements.
7. The Agreement should make clear that the District is a consenting party and not a party to the Agreement, and that the Agreement creates no obligations of the District except those arising from park development agreements, as modified.

Comments on Specific Provisions

1. Section 1.18. Definition of "Parks Sites." The text states that the Stonehouse site will be conveyed to the District. This is not correct. The District already owns the site.
2. Section 3.01. Upgrade of North Rancho Murieta Gate and Lago Entrances. The District believes that the arrangements for the upgrade of Rancho Murieta entrances must provide sufficient certainty to the process to insure that the District will be able to continue to provide appropriate security for the residents of north Rancho Murieta. Security is funded by special taxes that are limited and cannot be increased except by vote of the registered voters of the District. For that reason, the District must have substantial certainty in the amount and timing of facility and personnel cost it will incur for security. With these constraints in mind, the District proposes several modifications of the arrangement for gate/entrance improvements. The project description (Section 3.01(a)) should reflect that traffic lanes will be added. The capital contribution (Section.3.01(b)) should include a "CPI" adjustment and should provide that developer contributed funds may be used to reimburse the District for its costs incurred in connection with the District's gate relocation project if other costs do not exceed $1.4 million. The process for improving the North gate (Section 3.01(d)) should-have a specific, "not-later-than" commencement date, such as twelve months from the date of execution of the Agreement. The plan review process (Section 3.01(e)) should provide for District approval of those aspects of design that impact security operations and their costs. The warranties (Section 3.01(i)) should include at least a one year warranty from the date of completion of construction from whatever person or entity acts as prime contractor.
3. Section 3.02. Release of Liability in Favor of Rancho Murieta North. The District should be deleted from the release of liability provision, The District will not have an ownership interest in the the facilities, and it does not agree to the release, waiver, and indemnity provisions of Section 3.02 insofar as they related to the District.
4. Section 3.04. Escuela Gate. Because of the security budget constraints of the District mentioned, it is extremely unlikely that the District will have a funding source to staff an Escuela Gate until substantial guild-out of Rancho Murieta North. For that reason, the three year time limit of Section 3.04. should be extended to five years and provision should be made for developer or other financial support if manning of the gate will be required before substantial build-out.
5. Section 5.03. Reconveyance of Option to Acquire Clementia Park. The relinquishment of the right to buy the park should be coupled with an acknowledgement that the site is to be used as a tree mitigation area.
6. Section 6.01. Maintenance Responsibilities. The Agreement should provide that RMA shall have the right to delegate maintenance to the District, not that the District has an obligation to maintain based on the Agreement itself.
7. Section 10.01. Murieta South Remote Park Site. The provision regarding the Murieta South Remote Park Site appears to be in part a modification of the Park Development Agreement(s) and in part an agreement limited to the parties to the draft Agreement. It is not clear what the District is being asked to consent to. Perhaps the section should be rewritten to make the distinction clear.
8. Section 11.01. RMA Representations. The representation regarding compliance with the Subdivision Map Act should be made to the District as well as the parties to the Agreement
9. Section 11.03. RMA's Indemnification. The RMA's indemnification should include the District as well as the parties to the Agreement, insofar as the indemnification relates to property exchanges and compliance with the Subdivision Map Act.
10. Section 14.04 Not a Public Dedication. Easements of the District are for a public purpose, although they are not for the benefit of the general public. Section 14.04 should acknowledge that easements to the District are for special public services by the District, including water, sewer, drainage and security. The same comment applies to Section 5.03 of the Grant of Easement Agreement.
11. Consent (page 33). The consent should more specifically describe the modifications of the of the Park Development Agreements that are being consented to. Perhaps this should be a separate amendment to the Park Development Agreements, so that the parties holding rights or subject to obligations under these agreements can clearly understand what their rights and obligations are. The consent should include all landowners subject to the agreements. The District Board and staff does not believe that the Parks Committee has the right or authority to approve modifications of the Parks Development Agreements, and does not understand why the draft Agreement provides that District consents to the modifications made by the Agreement but the Parks Committee consents to modifications made by the Grant of Easement Agreement.
I invite your comments on how we should proceed from here to address the District's concerns in revisions to the draft Agreement or in the related agreements referred to earlier in this letter.

Very Truly Yours,
Richard E. Brandt

cc: Ed Crouse, District Manager