A lawsuit filed June 10, 2019, in the U.S. District Court for California’s Central District, and conspicuously reported on last month in Law360, takes dead aim at defendants who are alleged to have filed and threatened frivolous CEQA suits for the sole purpose of extorting monetary settlements – in this case, from plaintiffs alleging they are economically vulnerable Hollywood hotel project developers who were forced to capitulate to defendants’ extortionate demands.

Akin Gump attorneys Susan Leader and Joshua Rubin filed the lawsuit, on behalf of plaintiff developer Relevant Group, LLC and a number of project-specific LLC entities (collectively “Relevant”) alleging three counts of violation and conspiracy to violate the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”; 18 U.S.C. § 1962 et seq.), and also violations of several California Penal Code sections concerning extortion.  The charges are leveled against defendants Stephan “Saeed” Nourmand and Michael Nourmand and their business entities, who were represented in the underlying CEQA actions by Robert Silverstein of the Silverstein Law Firm, APC (which is described in the Complaint as a “non-defendant member” of the criminal “enterprise”).

The 23-page Complaint includes stunning allegations that plaintiffs paid $5.5 million, with no other consideration requested or provided, to get defendants to drop meritless CEQA lawsuits challenging the City of Los Angeles’ approvals of two Hollywood “infill” hotel development projects based on mitigated Negative Declarations.  The Complaint alleges “Defendants have brazenly admitted that the objective of their litigation is not to address environmental concerns, but to extract money and other competitive advantages from their victims,” and that the mere filing of such CEQA lawsuits delays, threatens or causes the loss of project funding, diverts resources, delays construction (sometimes for years), and causes defendants to incur substantial legal fees to fight the baseless challenges.  Per the Complaint, the CEQA plaintiffs/RICO defendants “then exploit this economic pressure by demanding large sums of money in order to drop their sham claims.”  The Complaint also references a 2018 Hastings Environmental Law Journal article finding “widespread abuse of CEQA lawsuits for nonenvironmental purposes” brought by “business competitors” and “‘bounty hunter’ lawyers seeking quick cash settlements.”

The weaponization of CEQA for improper purposes is not new; as Jim Reeves (and others) sang, “Welcome to my world.”  CEQA litigation abuse – in the form of extortionate lawsuits aimed not at achieving environmentally beneficial project mitigations, but rather economic benefits (e.g., project labor agreements or cash) that could not be achieved as relief granted even in completely successful mandamus litigation – is certainly no stranger to the CEQA defense bar.  (See, e.g., my July 18, 2017 post, “Standing Against Environmental Justice:  Some Thoughts On Facing The Need For CEQA Litigation Reform.”)  But plaintiffs’ attorneys in such abusive actions – often labor union counsel – have usually sought to retain a “fig leaf” conferring a patina of legitimacy by requesting some ostensibly environmental beneficial project features (albeit usually trivial ones) be included as part of the settlement, if for no other reason than to protect themselves from federal or other lawsuits similar to the one brought here by Relevant.

In recent years, however, emboldened plaintiffs and “bounty hunter” lawyers seem to have become more brazen than ever, often abandoning even the pretense of such modest “window dressing.”  As is anticipated to be confirmed in an upcoming publication of Holland & Knight, CEQA lawsuits in general have seen a significant uptick in volume even in the past year, and, as illustrated by Relevant’s federal RICO litigation (corroborated by my own experience with similarly extortionate CEQA actions, albeit involving smaller demanded monetary “bounties”), the improper “shake-down” tactics employed in some have become even more blatant and disturbing.  Having no desire or interest in actually negotiating settlement of the baseless CEQA issues raised in such improper actions on their merits, plaintiffs or their counsel will sometimes frankly admit the sham nature of the action, perhaps assuming (incorrectly in my view) that they are somehow legally shielded by settlement communication confidentiality.  In this vein, Relevant’s Complaint alleges (in addition to other facts concerning the $5.5 million “ransom” payment extracted) that one defendant in that matter stated in a conversation about resolving the underlying CEQA suit:  “You know the drill.  It’s going to take a check to make this go away.”

Or maybe a federal RICO lawsuit instead?  The “playbook” and conduct described in Relevant’s action is more common than CEQA reform opponents are willing to admit; what is uncommon is a ransom victim willing to incur the expense of pursuing a remedy through satellite federal litigation, rather than simply “writing off” its loss and moving on with its development project.  But the damages alleged by Relevant are particularly egregious:  the Complaint seeks an injunction, over $100 million in treble damages (under 18 U.S.C. § 1964(c)), attorneys’ fees, and punitive damages against the alleged CEQA extortionists, whose responsive pleading is due August 9, 2019.  I don’t purport to know whether the RICO claims will succeed, but this case will certainly be a fun one to watch.

 

Questions? Please contact Arthur F. Coon of Miller Starr Regalia. Miller Starr Regalia has had a well-established reputation as a leading real estate law firm for more than fifty years. For nearly all that time, the firm also has written Miller & Starr, California Real Estate 4th, a 12-volume treatise on California real estate law. “The Book” is the most widely used and judicially recognized real estate treatise in California and is cited by practicing attorneys and courts throughout the state. The firm has expertise in all real property matters, including full-service litigation and dispute resolution services, transactions, acquisitions, dispositions, leasing, financing, common interest development, construction, management, eminent domain and inverse condemnation, title insurance, environmental law and land use. For more information, visit www.msrlegal.com.