Response To Osc Re Preliminary Injunction

1 ALLEN MATKINS LECK GAMBLE
MALLORY & NATSIS LLP

2 THOMAS E. GIBBS (BAR NO. 93819)
STEPHEN R. THAMES (BAR NO. 106406)
3 NICHOLAS S. SHANTAR (BAR NO. 228980)
1900 Main Street, Fifth Floor
4 Irvine, California 92614-7321
Phone: (949) 553-1313
5 Fax: (949) 553-8354
E-Mail: tgibbs@allenmatkins.com
6 sthames@allenmatkins.com
nshantar@allenmatkins.com
7
Attorneys for Real Parties in Interest and Plaintiffs in
8 Intervention FACILITIES MANAGEMENT WEST, INC.
and OC FAIR AND EVENT CENTER, L.P.
9
10 SUPERIOR COURT OF CALIFORNIA
11 COUNTY OF ORANGE
12 ADVANCED REAL ESTATE SERVICES, Case No. 30-2010-00424923

INC., et al.,
13 Date: December 15, 2010
Petitioners and Plaintiffs, Time: 1:30 p.m.
14 Dept: C31
vs.
15 RESPONSE OF REAL PARTIES IN
The DEPARTMENT OF GENERAL INTEREST AND PLAINTIFFS IN
16 SERVICES of the State of California, et al., INTERVENTION FACILITIES
MANAGEMENT WEST, INC. AND OC
17 Respondents and Defendants. FAIR AND EVENT CENTER, L.P. TO
ORDER TO SHOW CAUSE RE:
18 PRELIMINARY INJUNCTION
FACILITIES MANAGEMENT WEST, INC.,
19 et al., [Filed concurrently with Declarations of Guy
Lemmon and Stephen R. Thames; Objections to
20 Real Parties in Interest and Evidence Cited in Declarations of Teller and
Plaintiffs in Intervention, Meier and Request for Judicial Notice in Support
21 of Opposition]
vs.
22 Petition Filed: November 12, 2010
ADVANCED REAL ESTATE SERVICES,
23 INC., et al.,
24 Defendants in Intervention and

Petitioners and Plaintiffs.
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Allen Matkins Leck Gamble
Mallory & Natsis LLP
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FACILITIES MANAGEMENT WEST, INC. AND OC FAIR AND EVENT CENTER'S
RESPONSE TO ORDER TO SHOW CAUSE RE: PRELIMINARY INJUNCTION
1 TABLE OF CONTENTS
2 Page
3 I. INTRODUCTION ................................................................................................................ i
4 II. PERTINENT FACTS .......................................................................................................... 1
5 A. Brief History Of The Property ................................................................................ 1
6 B. The Legislature Adopts "Urgency" Legislation Authorizing DGS To
Sell The Property To Address California's Financial Crisis ................................... 2
7
C. The First Competitive Bidding Process –– DGS' First "Request For
8 Proposals" –– Which Resulted In DGS Rejecting All Bids .................................... 3
9 1. Due Diligence Information.......................................................................... 3
10 2. The Bidders ................................................................................................. 4
11 D. Measure C And The Preservation Of The Fair ....................................................... 5
12 E. The Second Competitive Bidding Process –– The City Of Costa
Mesa's Unsuccessful Effort To Buy The Property .................................................. 5
13
1. The City Negotiates With Its First Choice, The Petitioners,
14 Which Negotiations Fail Apparently For Financial Reasons ...................... 6
15 2. The City's Proposed Purchase Does Not Proceed Because Of
The Legislature's Failure To Pass Enabling Legislation ............................. 6
16
F. The Third Competitive Bidding Process –– DGS' Second "Request
17 For Proposals" –– Requiring More Money For Less Property................................ 7
18 G. Of The Four DGS Bids Received, Including Bids From Petitioners,
FMW's Bid Offered The Highest And Most Certain Return .................................. 9
19
H. DGS Provides The Statutorily Required 30-Day Report To The
20 Legislative Fiscal Committee Chair ...................................................................... 10
21 I. The State And FMW Are Prepared To Close The Sale, And FMW Is
Committed To Hiring Current Fairground Employees And
22 Continuing The Fair, Swap Meet And The Other Activities And
Events .................................................................................................................... 11
23
J. Petitioners Wrongfully Attempt To Block DGS From Lawfully
24 Selling The Property To OC Fair and Event ......................................................... 11
25 III. LEGAL STANDARDS ..................................................................................................... 11
26 A. "Probability Of Success" Is The Standard For Such "Drastic
Remedy." ............................................................................................................... 11
27
B. Petitioners Bear The Burden Of Proof, By Admissible Evidence......................... 12
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1 Page
2 IV. PETITIONERS HAVE FAILED TO MEET THEIR BURDEN OF
PROVING A REASONABLE PROBABILITY OF SUCCESS ON THE
3 MERITS ............................................................................................................................ 12
4 A. Petitioners' Primary Challenge –– That RFP II Favored FMW –– Is
Absurd On Its Face ................................................................................................ 12
5
1. Petitioner's Claim That RFP II Was A "Sham" Because It
6 "Mirrored" The City Proposal Is Both False And Illogical ....................... 13
7 2. RFP II's 38-Day Due Diligence Period Did Not Favor FMW
Over Petitioners ......................................................................................... 14
8
B. Sections 3884.1 And 3884.2 Are Not Unconstitutional ........................................ 15
9
1. Prop. 60A Does Not Apply Because the Property Was
10 Purchased From Special Fund Monies, Not From General
Fund Revenue ............................................................................................ 15
11
2. The Property Is Not "Surplus State Property" Governed by
12 Prop. 60A .................................................................................................. 16
13 C. DGS Followed The Procedure Set Forth In RFP II And Reported All
Required Information To The Legislature ............................................................ 17
14
1. DGS Gave The 30-Day "Approval" Notice To The
15 Legislature Required By The Statute; No Affirmative
Legislative Approval Is Required ............................................................. 17
16
2. DGS Gave All Required Information To The Legislature ........................ 19
17
D. DGS Lacked Jurisdiction To Hear Petitioners' "Protests." ................................... 20
18
E. Petitioners' Claims Regarding "Uncertainties" Over Title And
19 Ownership Rights In The Property Are Without Merit......................................... 21
20 1. Petitioners' Title Claim Does Not Present A Justiciable
Controversy And Is Unfounded In Any Event .......................................... 21
21
2. RFP II Does Not Contemplate The Sale Of Personal Property................. 22
22
3. Section 3884.2 Controls Over Any Conflicting General Food
23 & Agriculture Statutes ............................................................................... 23
24 4. The City's Priority Right Is Unfounded, And Petitioners Lack
Standing To Assert It................................................................................. 23
25
V. A BOND IS MANDATORY............................................................................................... 23
26
A. A Bond Is Mandatory Under Code of Civil Procedure Section 529 ..................... 23
27
B. Given The Severity Of Harm To Real Parties, The Bond Should Be
28 At Least $500,000 ................................................................................................. 24
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2 VI. CONCLUSION ................................................................................................................. 25
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1 I. INTRODUCTION.
2 To address the serious "fiscal crisis" facing the State, our elected Legislature, by an over-
3 whelming majority vote of 109 to 3, enacted emergency legislation directing the Department of
4 General Services ("DGS") to sell the Orange County fairgrounds property (the "Property") through
5 "a public bidding process designed to obtain the highest, most certain return for the State from a
6 responsible bidder." DGS then conducted an open and eminently fair, if not aggressive, competi-
7 tive bidding process spanning over a year in which all competitive bidders were on equal footing.
8 The bidders included (1) Petitioners American Fairs and Festivals, Inc., ("American Fairs") and Tel
9 Phil Enterprises, Inc. ("Tel Phil"), both run by Petitioner Jeffrey Teller as President and owner;
10 (2) Petitioner Advanced Real Estate Services, Inc. ("ARES"); and (3) Real Party Facilities
11 Management West, Inc. ("FMW"). FMW's bid demonstrably was the highest and best, and was
12 accepted by DGS. FMW and the State are prepared to close the sale as directed by the Legislature.
13 Petitioners, unsuccessful bidders, now seek to block the sale, not for the public interest as
14 determined by the Legislature, but for their own pecuniary interests –– so Petitioners can purchase
15 the Property for a lower price and/or so Jeffrey Teller can continue to reap enormous profits from
16 operating the swap meet by killing the sale. To do so, they have fundamentally miscast what
17 occurred, and have asserted a litany of claims, not one of which has any merit whatsoever. As will
18 be explained, DGS' sale process was fair and in full compliance with the law, and should be
19 allowed to conclude in the public interest.
20 II. PERTINENT FACTS.
21 A. Brief History Of The Property.
22 In 1949, the State's 32nd District Agricultural Association ("District 32") purchased the
23 Property from the federal government using special funds belonging to the State; no general funds
24 were used. McKinnon Decl., ¶¶9-10, Exs. A-B.1 Over the years, the Property has been used for
25 the Orange County Fair, a swap meet, Centennial Farms, an equestrian center and other events.
26
27
1
"McKinnon Decl." refers to the Declaration of Robert McKinnon In Opposition To OSC Re Preliminary
28 Injunction filed concurrently herewith by Respondent and Defendant The Department of General
Services of the State of California.
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1 B. The Legislature Adopts "Urgency" Legislation Authorizing DGS To Sell The
2 Property To Address California's Financial Crisis.
3 On July 1, 2009, Governor Schwarzenegger issued a proclamation declaring a "fiscal emer-
4 gency" in the State, and calling for a special session of the Legislature to address the crisis. RJN,
5 Ex. 1.2 In response, by an overwhelming 98% margin, the California Legislature passed ABX4 22
6 calling for the sale of the Property –– the vote: Senate 37 ayes/0 noes; Assembly 76 ayes/3 noes.
7 RJN, Ex. 2. The bills' preamble states: "This bill, . . . addresses the fiscal emergency declared by
8 the Governor," and Section 10 provides that it is "an urgency statute," and that "[i]n order to
9 provide for the speedy resolution of the State's fiscal crisis, it is necessary that this Act take effect
10 immediately." RJN, Ex. 3. The Governor signed the legislation and it was enacted as Food and
11 Agricultural Code sections 3884.1 and 3884.2.3 To implement its important legislative purpose,
12 Section 3884.2 contains the following directives.
13 1. District 32a. Section 3884.1 created a new State Agricultural District 32a
14 "which consists of all of that real property that is a portion of District 32 that is commonly known
15 as the Orange County Fair," effectively transferring the Property to District 32a's ownership,
16 jurisdiction and control for the eventual sale.
17 2. DGS' Direction to Sell. Section 3884.2(b) directs and empowers DGS to
18 "sell all or any portion of" the Property, with the net proceeds of the sale to be transferred into the
19 State's General Fund. Section 3884.2(g).
20 3. Public Bidding Process. Section 3884.2(c) directs that the sale proceed by
21 "a public bidding process designed to obtain the highest, most certain return for the State from a
22 responsible bidder, and any transaction based on such a bidding process shall be deemed to be the
23 fair market value for the Property." The statute leaves to DGS the discretion to determine the
24 bidding process, ascertain the highest, most certain return and negotiate the purchase agreement.
25
26
2
27 "RJN" refers to the Request for Judicial Notice in Support of Opposition to Preliminary Injunction filed
concurrently herewith.
3
28 Throughout this brief, Section 3884.1 and Section 3884.2 shall refer to those sections of the Food and
Agricultural Code.
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1 4. 30-Day Due Diligence. Section 3884.2(c) provides that notice of the bid-
2 ding process must be posted on DGS' Internet website for "at least 30 days prior to the sale of" the
3 Property, to give bidders time to perform due diligence.
4 5. DGS Report to Legislature. Section 3884.2(d) provides that "thirty days
5 prior to executing a transaction" to sell the Property, the Director of DGS
6 "shall report to the chairs of the fiscal committees of the Legislature

all of the following: (1) The financial terms of the transaction.
7 (2) A comparison of fair market value for the real property and
terms listed in Paragraph (1). (3) Any basis for agreeing to terms
8 and conditions other than fair market value."
9 This notice is to give the Committee Chair the opportunity to review a transaction and, if
10 objectionable, to take appropriate action to stop the sale. Section 3884.2 does not require any affir-
11 mative legislative approval of the sale; therefore, unless the Legislature acts within the 30 days,
12 DGS is empowered to execute a purchase agreement and sell the Property.
13 C. The First Competitive Bidding Process –– DGS' First "Request For
14 Proposals" –– Which Resulted In DGS Rejecting All Bids.
15 On October 7, 2009, DGS issued its "Request for Proposals –– Orange County Fairgrounds,
16 Costa Mesa, CA" ("RFP I"), inviting competitive bids from all interested purchasers of the Prop-
17 erty. RFP I gave interested parties until January 8, 2010 (93 days) to prepare and submit written
18 bids. Kalemba Decl., ¶2, Ex. A, p. 10.4
19 1. Due Diligence Information.
20 RFP I provided bidders with comprehensive information concerning the Property to
21 conduct due diligence, including internet links to title reports, real property inventory, capital
22 improvements, environmental impact reports, and detailed financial information. Id., pp. 4-9;
23 Lemmon Decl., ¶5.5 Additionally, on December 30, 2009, DGS posted a current 427-page Phase I
24 Environmental Report for the Property. Kalemba Decl., ¶5, Ex. C; Lemmon Decl., ¶5. RFP I also
25
26
4
"Kalemba Decl." refers to the Declaration of Dave Kalemba In Opposition To OSC Re Preliminary
27 Injunction filed concurrently herewith by Respondent and Defendant The Department of General
Services of the State of California.
5
28 "Lemmon Decl." refers to the Declaration of Guy W. Lemmon In Support of Response of Real Parties
in Interest's Response to Order to Show Cause Re: Preliminary Injunction filed concurrently herewith.
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1 invited bidders to physically inspect the Property and to submit written questions, detailed answers
2 to which DGS posted online. Kalemba Decl., ¶¶2-4, Ex. B; Lemmon Decl., ¶5. All this provided
3 potential bidders ample information to conduct due diligence and make their best bids.
4 2. The Bidders.
5 RFP I called for a two-step bidding process: first, bidders would submit written bids by
6 January 8, 2010, and second, DGS would conduct an auction during which bidders could increase
7 their bids. Kalemba Decl., Ex. A. DGS received bids from seven separate parties, including the
8 following:
9 (a) Petitioner Tel Phil. This entity, owned by Petitioner Jeffrey Teller, leases a
10 portion of the Property to operate a swap meet for which it pays 35% of its gross revenues. See
11 lease attached to Petitioner's motion, Ex. 5. The lease has been enormously profitable to Tel Phil;
12 if its claim to have paid the State more than $108 million in rent is correct, Tel Phil would have
13 received in excess of $308 million in gross revenue. However, the lease gives the State the right to
14 terminate upon sale of the premises. Id. For this reason, to preserve its enormous profits, Tel Phil
15 does not want the Property sold, at least to a third party. Tel Phil submitted a bid of $1,000.
16 Kalemba Decl., ¶8, Ex. E.
17 (b) Petitioner ARES. As reflected on its website (www.advancedonline.com),
18 this entity is a specialty developer of apartment properties in Southern California, claiming a port-
19 folio of over 7,000 units. Apparently viewing the Property as an opportunity for development of
20 more apartments, ARES initially bid $17 million, which it increased to $56 million during the
21 auction. Id., ¶9, Ex. F.
22 (c) FMW. FMW is a local firm owned by Kenneth Fait whose family has lived
23 in Orange County for generations. Planning to improve and continue the operation of the fair and
24 other activities, FMW submitted a bid in the amount of $55 million, the highest bid received by the
25 January 8, 2010 deadline. FMW did not increase its bid during the auction phase. Lemmon Decl.,
26 ¶¶3-7, Ex. 1; Kalemba Decl., ¶7, Ex. D.
27 The highest bid at the auction was $56.5 million. Kalemba Decl., ¶10. DGS evaluated all
28 bids and determined that the State would not obtain the "highest and most certain" return for the
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1 Property from any of the bids. Accordingly, on March 17, 2010, DGS publicly announced that it
2 was rejecting all bids submitted in response to RFP I. Id., ¶11.
3 D. Measure C And The Preservation Of The Fair.
4 Faced with the State's planned sale, the City of Costa Mesa ("City") was concerned, and
5 investigated various ways to preserve the fair and other current uses. To accomplish this, the City
6 of Costa Mesa sponsored "Measure C" which prevents any change in the use of the Property from a
7 fairgrounds event center without a majority vote of the electorate. RJN, Ex. 4. Measure C was
8 passed by the voters on June 8, 2010 and is binding on any purchaser of the Property, including
9 FMW.6 Id., Ex. 5.
10 E. The Second Competitive Bidding Process –– The City Of Costa Mesa's
11 Unsuccessful Effort To Buy The Property.
12 After DGS rejected all bids, the City attempted to purchase the Property. The State agreed
13 to exclusively negotiate with the City for a short period of time, but set a minimum purchase price
14 of $96 million. RJN, Ex. 6, pp. 1-2. Moreover, because Section 3884.2 requires a public bid pro-
15 cess, not a negotiated sale, new legislation was needed for the City to acquire the Property. Indeed,
16 the City's April 1, 2010 press release states "it is expected that successful negotiations between the
17 City and State will require State legislation." RJN, Ex. 7. Contrary to Petitioner's claims, all
18 parties, including Petitioners, knew from the outset that enabling legislation would be required.
19 Because the City lacked the necessary funds to buy the Property, it needed a "public/
20 private partnership" with a solid financial partner who would fund the entire purchase. DGS gave
21 the City until April 21, 2010, later extended to May 21, 2010, to find that partner and submit an
22 offer. RJN, Ex. 6, p. 2, Ex. 11, p. 2.
23 The City promptly conducted its own "RFP" process in the form of written letters dated
24 April 7, 2010, which required that any bidder commit to the "preservation of the OC Fair and Event
25 Center activities, and the community programs currently operating at the site." RJN, Ex. 6, p. 2 &
26 Exs. 8-9, Lemmon Decl., ¶9, Ex. 2. The City received two written proposals in response: (1) a
27
6
28 Measure C does not bind the State who could develop the Property in any way it chooses, but would
bind and restrict FMW's use of the Property.
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1 joint proposal from Petitioners American Fairs (also a Jeffrey Teller company) and ARES7; and
2 (2) a proposal from FMW. RJN, Exs. 10, p. 3, Ex. 11, p. 1; Lemmon Decl., ¶10, Ex. 3. At a
3 special meeting on May 10, 2010, the Costa Mesa City Council ranked Petitioners' joint proposal
4 "first." RJN, Ex. 10, p. 3.
5 1. The City Negotiates With Its First Choice, The Petitioners, Which
6 Negotiations Fail Apparently For Financial Reasons.
7 Although Petitioners' papers fail to mention their joint proposal (or even their involvement
8 with the City), it was Petitioners who first proposed "assuming 100% of the financial responsibil-
9 ity" for the City's purchase of the Property on the following terms: a purchase price of $96 million,
10 with 20% down and the balance in the form of a 40-year note at 5% interest. RJN, Ex. 11, pp. 4-5.
11 In fact, unbeknownst to FMW, Petitioners apparently had gotten that proposal pre-approved by the
12 State, through the City! Id. Under Petitioners' "deal" the City would then lease the Property to the
13 Petitioners through which they would make the payments required for the City's purchase. Id. The
14 City proceeded to negotiate with Petitioners on their proposal; however, within a week the negotia-
15 tions failed apparently because the Petitioners lacked the financial resources to back up their bid.
16 RJN, Ex. 12, p. 3; Ex. 13, p. 3. As a result, on May 19, 2010, the City issued a press release
17 announcing that it had selected FMW for exclusive negotiation. Id., Ex. 14.
18 2. The City's Proposed Purchase Does Not Proceed Because Of The
19 Legislature's Failure To Pass Enabling Legislation.
20 Contrary to Petitioner's claim, there was no "back room" deal between the City and FMW.
21 Rather, when it approached FMW, the City proposed the same lease arrangement and financial
22 terms as initially bid by the Petitioners ($96 million price, 20% down, 40-year note at 5% interest)
23 (the "City Proposal"), and FMW was interested. Lemmon Decl., ¶11. The City and FMW signed a
24 written Memorandum of Understanding ("MOU") which also expressly committed FMW to
25 operate the Orange County Fair, swap meet, Centennial Farm, the Equestrian Center and other
26
27
7
28 While Petitioners have not revealed the compact among themselves, it must certainly preserve Tel Phil's
lucrative swap meet franchise and give ARES the ability to pursue apartment development.
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1 community activities. Id., ¶11, Ex. 4 (§§5A-D & G). FMW signed the MOU because its plan is to
2 continue and improve those uses.
3 The City and FMW then proceeded to negotiate the City's purchase agreement with the
4 State which, unlike RFP I, included in the sale not only the real property, but also all valuable
5 personal property on-site, trademarks (including the name "Orange County Fair"), and goodwill.
6 Id., ¶12, Ex. 5 (PSA, Rec. A & §1.1) The purchase was expressly subject to the California State
7 Legislature enacting legislation authorizing the sale to the City. Id., (PSA, §3.6(A)(6)).
8 But by August 24, 2010, the required legislation had not been adopted. Shortly thereafter,
9 on September 7, 2010, Assembly Member Jose Solorio publicly announced that he was dropping
10 his support for the legislation, effectively killing the City's efforts to purchase the Property. Id.,
11 ¶13. The City's purchase agreement was never finalized or signed. Id.
12 F. The Third Competitive Bidding Process –– DGS' Second "Request For
13 Proposals" –– Requiring More Money For Less Property.
14 With the City's efforts failing, DGS decided again to put the Property out for competitive
15 bidding. Contrary to Petitioner's wild claim that this decision resulted from a "back room deal"
16 (for which it presents absolutely no supporting evidence), FMW had no involvement whatsoever in
17 that decision or prior knowledge of RFP II. Id., ¶14; Kalemba Decl., ¶12. On August 23, 2010,
18 DGS issued its "Request For Proposals, II - Orange County Fairgrounds" ("RFP II") which, also
19 contrary to Petitioners' claims, is far from a "mirror image" of the terms proposed by the City.
20 Kalemba Decl., ¶12; Lemmon Decl., ¶14. Instead, RFP II required a minimum bid that is for more
21 money and for less property. Nor was RFP II in any way a "sham" as Petitioners contend –– rather,
22 it was an open and transparent public request for competitive bids to which all interested parties
23 could and did respond.8
24 Significant terms in RFP II include:
25 1. The Property. Unlike the failed City purchase, RFP II offered to sell only the real
26 property, stating: "the transaction will not include any personal property, goodwill, or any other
27
8
28 Attached as Exhibit 8 to the Lemmon Declaration is a bid matrix, explaining the significant differences
between the City's proposal, RFP II and FMW's bid submitted in response to RFP II.
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1 element reflective of the Property's going-concern use by the 32nd DAA." Kalemba Decl., ¶¶12,
2 17, Ex. G, p. 10.
3 2. Minimum Bid Term. RFP II specified the minimum bid terms as follows: (i) bid
4 price – $96 million; (ii) down – $20 million; (iii) annual payments "not to exceed" 40 years, with
5 the "[f]ixed annual payments as determined by the bidder"; and (iv) the net present value "of the
6 fixed annual payments must be equal to the face value of the note" using a "6%" discount rate.
7 Kalemba Decl., ¶12, Ex. G, p.8. To maintain a net present value using a 6% discount rate effect-
8 tively requires the note be at 6% interest. However, the note on the failed City Proposal was only
9 at 5% interest and otherwise provided the State a significantly lower yield. In fact, the net present
10 value, and thus yield, to the State from the RFP II minimum bid requirements (using a 6% discount
11 rate as mandated by RFP II) is $96 million, whereas the net present value to the State from the
12 City Proposal is $84 million –– a whopping $12 million more. Lemmon Decl., ¶15, Exs. 6-7.
13 Thus, RFP II represents a demand for significantly more money for less property. Moreover, and
14 importantly, these were "minimum requirements" which the State certainly hoped would be
15 exceeded in the public bidding process (as indeed they were). Kalemba Decl., ¶12, Ex. G, p. 10.
16 3. Due Diligence. All interested bidders had ample time and information to conduct
17 full due diligence during the preceding RFP I and the City RFP processes described above. On top
18 of this, RFP II gave all bidders from August 23, 2010, when it was issued, to September 30, 2010,
19 the bid submission date –– a total of 38 days which is more than the 30 days specified in Section
20 3884.2(c) –– to conduct additional due diligence and put together bids. Kalemba Decl., ¶¶15-16.
21 Of course, Petitioners required no additional due diligence because they had been bidders since the
22 outset of RFP I, and indeed Petitioner Jeffrey Teller and his companies knew the Property better
23 than anyone as they had been operating a swap meet there since 1969. Teller Decl., ¶6. RFP II
24 offered web links to the same comprehensive documents (including environmental and financial)
25 that were included in RFP I, plus soil reports and a hazardous materials survey. Lemmon Decl.,
26 ¶17; Kalemba Decl., ¶14. As before, RFP II allowed all prospective bidders the opportunity to
27 inspect the Property and submit written questions. Lemmon Decl., ¶17; Kalemba Decl., ¶¶15-16,
28 Exh. H.
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1 4. Key Dates. RFP II gave various "Key Dates" with the express qualification: "The
2 Department reserves the right to modify the above projected dates at its sole discretion prior to and
3 after the Final Bid Submission Date." Kalemba Decl., ¶12, Ex. G, p. 7. Indeed, it made several
4 changes in Addendum No. 3, issued on October 13, 2010. Lemmon Decl., ¶18, Ex. 9. In the
5 Addendum, the RFP II included the following projected dates:
6  October 14, 2010 – "Final Selection and Notice to Bidders"

7  October 20, 2010 – "Escrow Opened" and "Notice to the Legislature"
8  November 18, 2010 – "Department Execution of Purchase Contract"
9  December 2010 – "Estimated Close of Escrow"
10 G. Of The Four DGS Bids Received, Including Bids From Petitioners, FMW's
11 Bid Offered The Highest And Most Certain Return.
12 Documents recently released by DGS 9 reveal that the State received bids from four bidders:
13 Petitioner American Fairs (Jeffrey Teller's company), Petitioner ARES, City Ventures and FMW.
14 Kalemba Decl., ¶¶18-21, Exs. I-K; Thames Decl., ¶¶10-13, Exs. 2-5.10 As can be seen from the
15 State's summary spreadsheets (Thames Decl., Ex. 6 11), each bid reflects careful consideration of
16 the economics by the bidder, and their best offer. Petitioner American Fairs' bid offered the lowest
17 "face amount" at $97 million, followed by City Ventures at $98 million, with the highest by FMW
18 and Petitioner ARES at $100 million. Thames Decl., ¶14, Ex. 6, p. 2. All four bids offered
19 $20 million down and the remainder by a promissory note. Id. Importantly, the terms of the note
20 are what further separates the bids, and in fact made Petitioner's bids the two weakest.
21 First, FMW offered substantial payments on the note commencing in year 2, whereas the
22 Petitioners' bids called for absolutely no payments until 6 and 8 years, respectively. Id. Second,
23 FMW offered substantial payments through the whole term of the note, with no balloon payment,
24 whereas all the other bids call for significantly smaller payments with an enormous balloon
25
9
26 On November 24, 2010, DGS produced to all parties the documents Petitioners had requested in their
October 8, 2010 California Public Records Act request. Thames Decl., ¶9, Ex. 1.
10
27 "Thames Decl." refers to the Declaration of Stephen R. Thames In Support of Response of Real Parties
in Interest's Response to Order to Show Cause Re: Preliminary Injunction filed concurrently herewith.
11
28 This summary is authenticated and included in Exhibit L to the Kalemba Declaration, and for the
Court's convenience, is individually attached to the Thames Declaration as Exhibit 6.
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1 payment at the end of the 40-year term –– indeed Petitioners' proposed annual payments resulted in
2 tremendous negative amortization and balloon payments far in excess of the notes' original princi-
3 pal amount ($173 million and $510 million, respectively). Id. Third, FMW offered a 35-year note,
4 whereas all the other bids offered a 40-year note, and unlike all the other bids, FMW offered per-
5 sonal guaranties by Kenneth Fait and David Pyle –– both high-net-worth individuals. Id.; Lemmon
6 Decl. ¶19; Kalemba Decl., ¶¶24-25.
7 As reflected in Exhibit L to the Kalemba Declaration, DGS performed a thorough and
8 objective financial analysis of the various offers, with the analysts making the following correct
9 evaluations among others: (1) "[U]nder the FMW bid, the State receives all of the payments
10 sooner and without depending upon a large balloon payment"; (2) the "AFF and ARES payments
11 schedules are back-loaded in that the bulk of their repayment is made in the latter years of the
12 note;" and (3) the "AFF and ARES balloon payments are higher than the face value of the note . . .
13 as these payment schedules fail to pay down any principal of the note over the loan term." Thames
14 Decl., ¶15, Ex. 7, pp. 1, 3, 5. Kalemba Decl., ¶24, Ex. L; . Based on this analysis, DGS prudently
15 chose FMW's bid. Kalemba Decl., ¶27; Lemmon Decl., ¶20, Ex. 11.
16 H. DGS Provides The Statutorily Required 30-Day Report To The Legislative
17 Fiscal Committee Chair.
18 On October 19, 2010, DGS sent a letter to the Honorable Denise Moreno Duchny, Chair of
19 the joint legislative budget committee, providing the report required under Section 3884.2(d) for
20 the sale of the Property to FMW. McKinnon Decl., ¶11, Ex. C. Attachment A to the letter speci-
21 fies the financial terms of the transaction as required by Section 3884(d)(1). The letter also reports
22 the fair market value comparison as required by Section 3884.2(d), by stating in Attachment A:
23 "Fair Market Value: Purchase Price and terms presented represent the Fair Market Value as per
24 Food and Agricultural Code 3884.2(c)." Section 3884.2(c) provides that "any transaction based on
25 such a bidding process shall be deemed to be the fair market value for the Property." Id. This
26 makes perfect sense; public competitive bidding is the best method to determine fair market value.
27 DGS has not received any questions, concerns or objections from the Legislature regarding
28 the proposed sale to FMW. Id., ¶14.

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1 I. The State And FMW Are Prepared To Close The Sale, And FMW Is
2 Committed To Hiring Current Fairground Employees And Continuing The
3 Fair, Swap Meet And The Other Activities And Events.
4 DGS and FMW are prepared to execute the purchase agreement and close the sale in accor-
5 dance with FMW's bid and the DGS' report to the Legislature. Lemmon Decl., ¶21. Moreover,
6 FMW's Kenneth Fait along with David Pyle, whose family also are multi-generational Orange
7 County residents, created OC Fair and Event Center, LP ("OC Fair and Event") to take title to and
8 manage the Property. OC Fair and Event is committed to offer employment to current fairground
9 employees and continue to operate the Fair, the swap meet, Centennial Farm and the equestrian
10 center. Not only are such uses the highest and best historical use for the property, they comply
11 with Measure C which OC Fair and Event fully supports. Lemmon Decl., ¶2. All of Petitioner's
12 doomsday claims to the contrary, made both in this proceeding and publicly, are self-serving and
13 false.
14 J. Petitioners Wrongfully Attempt To Block DGS From Lawfully Selling The
15 Property To OC Fair and Event.
16 As explained above, Petitioners are three-time unsuccessful bidders, and have filed the
17 present action to block the sale of the Property to the successful bidder. Their obvious purpose has
18 nothing to do with the public interest, but everything to do with their own pecuniary interests, whe-
19 ther that be to buy the Property at a cheaper price (e.g., like their prior unsuccessful bids on RFP I,
20 the City's RFP and RFP II) or to protect Petitioner Tel Phil's enormous profits from its operating
21 the swap meet at the fairgrounds. None of their pot-shot claims have any merit whatsoever.
22 III. LEGAL STANDARDS.
23 A. "Probability Of Success" Is The Standard For Such "Drastic Remedy."
24 A preliminary injunction is a "drastic remedy," requiring "great caution and sound discre-
25 tion, and rarely, if ever, should it be exercised in a doubtful case." Ancora-Citronelle Corp. v.
26 Green (1974) 41 Cal.App.3d 146, 148-50 (citing cases). In determining whether to issue a prelim-
27 inary injunction, a court must consider both (1) "the likelihood the moving party will succeed in the
28 litigation on the merits of its claim," and also (2) "the relative interim harm to the parties if the
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1 injunction is granted, or not granted." O'Connell v. Sup. Ct. (2006) 141 Cal.App.4th 1452, 1468.
2 Regardless of the alleged harm, however, the movant must show a "reasonable probability" of
3 success on the merits. San Fran. Newspaper Printing Co. v. Sup. Ct. (1985) 170 Cal.App.3d 438,
4 442.
5 B. Petitioners Bear The Burden Of Proof, By Admissible Evidence.
6 The burden of proof falls squarely on the party seeking relief. Fleishman v. Sup. Ct. (2002)
7 102 Cal.App.4th 350, 356. ("The plaintiff bears the burden of presenting facts establishing the
8 requisite reasonable probability.") Further, such burden can only be carried by competent, admis-
9 sible evidence. Code Civ. Proc. §527(a); Carsten v. City of Del Mar (1992) 8 Cal.App.4th 1642,
10 1655 (reversing a preliminary injunction because movant presented conclusory statements instead
11 of "competent evidence"). As set forth in FMW's "Objections to Evidence," Petitioners lack
12 competent evidence to support their Motion, which should be denied on that basis alone.
13 IV. PETITIONERS HAVE FAILED TO MEET THEIR BURDEN OF PROVING A
14 REASONABLE PROBABILITY OF SUCCESS ON THE MERITS.
15 A. Petitioners' Primary Challenge –– That RFP II Favored FMW –– Is Absurd
16 On Its Face.
17 Section 3884.2(c) requires DGS to sell the Property by "a public bidding process designed
18 to obtain the highest, most certain return for the state from a responsible bidder." Section
19 3884.2(c). Responsibility for designing the "public bidding process" is left squarely to DGS,
20 subject only to the 30-day notice requirement in Section 3884.2(c). In California, a "public agency
21 is afforded considerable latitude in setting bid specifications, and these will be upheld if substantial
22 evidence shows they are in furtherance of legitimate government interests." Schram Construction,
23 Inc. v. The Regents of Univ. of Cal. (2010) 187 Cal.App.4th 1040, 1054-55 (emphasis added)
24 (citing cases). The party seeking to establish "favoritism" by a public agency has the burden of
25
26
27
28
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1 proving such favoritism with competent evidence. See MCM Const'n, Inc. v. City and County of
2 San Fran. (1998) 66 Cal.App.4th 359, 378.12
3 Here, Petitioners' primary challenge is that RFP II was a "sham" designed to favor FMW to
4 the exclusion of all other bidders. Brief, p. 1:9-10; pp. 7-8. The dictionary defines "sham" as "a
5 trick that deludes: Hoax." WEBSTER'S NEW COLLEGIATE DICTIONARY, p. 1081 (Ninth Ed., 1985).
6 But no evidence suggests RFP II was "a trick that deludes." Rather, the record establishes that
7 RFP II was a lawful, transparent, and public request for bids, made in strict conformity with Sec-
8 tion 3884.2 and dutifully conducted by DGS. As demonstrated above, the minimum terms in
9 RFP II were real and indeed exceeded by the various bidders.
10 Nonetheless, Petitioners maintain that RFP II was a sham based on claims that it "mirrored"
11 the City's Proposal and it provided inadequate due diligence. Both claims are entirely meritless.
12 1. Petitioner's Claim That RFP II Was A "Sham" Because It "Mirrored"
13 The City Proposal Is Both False And Illogical.
14 The entire premise of Petitioners' claim is flawed because the City Proposal's terms and the
15 RFP II minimum bidding requirements, as explained above, differ in key respects. Most signify-
16 cantly, RFP II set a minimum bid that required substantially a greater price for less property than
17 the City Proposal. See discussion at p. 8, supra.
18 Nor do Petitioners in any way explain how any supposed similarities between the terms of
19 the City Proposal and the minimum bidding requirements of RFP II either favor RFP or are unlaw-
20 ful. In reality, RFP II, in setting minimum bid requirements and inviting competitive bids above
21 those minimums, favored no bidder. Rather, it insured the "highest and most certain" return by
22 pitting competing bidders against each other to obtain even better results for the State. Petitioners
23 and FMW were on equal footing with all other bidders, with the same incentive to increase their
24 bid above those minimums to secure the award. Petitioners present no authority forbidding DGS'
25
12
26 Petitioners pin their favoritism claim on the anti-favoritism provision in Public Contract Code ("PCC")
section 10339 . However, that provision, and the PCC in general, only apply to the State's procurement
27 of services, not sales of real property. See PCC §10339 (expressly applies only to contracts "for
services to be rendered to the State . . ."); Arnold v. Cal. Expo. & State Fair (2004) 125 Cal.App.4th
28 498, 505-06 (rejecting petitioners' contention that a lease was a "services contract," subject to the
requirements of Public Contract Code). In any event, there was no favoritism by DGS here.
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1 actions; far from illegal, DGS' RFP II was prudent, in compliance with the law and designed to
2 achieve the highest return for the public good.
3 2. RFP II's 38-Day Due Diligence Period Did Not Favor FMW Over
4 Petitioners.
5 Remarkably, Petitioners complain that the due diligence period under RFP II (which they
6 erroneously claim is 30 days when it is 38 days) unfairly favored FMW because "Plaintiffs could
7 not possibly do [their due diligence] within the allotted 30 day time," and "FMW, however, had
8 already enjoyed an earlier opportunity to begin due diligence through its Private Agreement and
9 MOU" with the City. Brief, 8:18-22. Utter nonsense.
10 In truth, Petitioners had more than ample time to conduct all required due diligence dating
11 back to when RFP I was issued over a year ago on October 9, 2009, and certainly did so prior to
12 their bid on RFP I, and did so again prior to their bid to the City, and did so once again prior to
13 their bid on RFP II. Not surprisingly, Petitioners point to no specific area of due diligence they
14 were denied. Nor do they present any explanation –– much less evidence –– of any particular due
15 diligence advantage FMW received during its negotiations on the City Proposal, and indeed there
16 is none.
17 The truth is that all interested parties were provided ample time and information to conduct
18 due diligence and make their highest and best bids. Under RFP I, all interested bidders were
19 afforded a 93-day due diligence period (over three times what Section 3884.2(c) required) under
20 RFP I, plus financial, environmental and other documentation, and the right to inspect the Property
21 and ask questions, the answers to which were all posted online. Under RFP II, all potential bidders
22 were given another 38-day due diligence period to again review the documentation and inspect the
23 Property. And, as before, RFP II invited potential bidders to submit questions, but neither
24 Petitioners nor anyone else did so. Nor do Petitioners even attempt to explain what additional due
25 diligence they or other bidders would have performed given more time –– or how the lack of such
26 information or time favored FMW.
27 In sum, Petitioners and all other potential bidders had more than enough time and
28 opportunity to conduct due diligence on the Property and submit their best bids.
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1 B. Sections 3884.1 And 3884.2 Are Not Unconstitutional.
2 Petitioners argue that the statutes authorizing sale of the Property violate Article III,
3 section 9 of the California Constitution ("Prop. 60A") because sale proceeds go to the General
4 Fund instead of paying down bond debt.13 This argument fails for at least two independent
5 reasons: (1) Prop. 60A does not apply because the Property was not purchased with General Fund
6 monies; and (2) the Property does not meet the definition of "surplus state property" covered by
7 Prop. 60A in any event.
8 1. Prop. 60A Does Not Apply Because the Property Was Purchased From Special
9 Fund Monies, Not From General Fund Revenue.
10 Property "purchased with revenues described in Article XIX or any other special fund
11 monies" is specifically exempted from Prop. 60A. Cal. Const. Art. III, sec. 9 (emphasis added).
12 The State's Legislative Analyst put it this way in the "Official Voter Information Guide" for
13 Prop. 60A:
14 "The measure does not apply to properties acquired with specified

transportation funds or other special fund monies. In other words,
15 the measure only applies to those properties that were purchased
with General Fund revenue or bonds secured by the General Fund."
16
RJN, Ex. 16 (California Official Voter Information Guide) (emphasis added).
17
Here, uncontroverted government records from the Statewide Property Inventory show the
18
property was purchased from the federal government in 1949 with funds from the "DAA Enterprise
19
Fund," a subaccount of Fund No. 0191, legally known as the "Fair and Exposition Fund," a special
20
fund administered under "the Department of Food and Agriculture, Division Affairs and
21
Exposition." See McKinnon Decl., ¶¶9-10, Exs. A-B. Notably, the California State Auditor's
22
Report for the year ended June 30, 2009 ("State Audit") classifies district agricultural associations
23
as "discretely presented component units" that are "legally separate from the primary government
24
25
26
13
27 Proceeds from property sales under Prop. 60A were directed to pay down bonds authorized by the
voters that same year (March 2, 2004) under the Economic Recovery Bond Act, designed to finance past
28 budget deficits. Cal. Const. Art. 3, sec. 9; RJN, Ex. B (Official Voter Information Guide, Analysis by
Legislative Analyst).
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1 and mostly provide[s] services to entities and individuals outside the primary government." Id.,
2 Ex. 18 (State Audit), pp. 60-63.
3 Thus, "enterprise funds" such as the "DAA Enterprise Fund," are not included in the broad
4 category of "Governmental Funds," such as the "General Fund" which is the main operating
5 governmental fund of the State. Id., p. 64. Instead, "enterprise funds are categorized separately as
6 'proprietary funds' and are intended to "record business-type activity for which a fee is charged to
7 external users for goods and services" (such as fairs and expositions). Id., p. 65. In short,
8 enterprise funds, such as were used to purchase the Property, are "special fund monies," not
9 "General Fund revenues." As such, because the Property was initially purchased by the State with
10 "special fund monies" Prop. 60A simply does not apply to the State's sale of the Property.
11 2. The Property Is Not "Surplus State Property" Governed by Prop. 60A.
12 Prop. 60A also does not apply because the Property is not "surplus state property" under
13 any definition –– much less the definition contemplated by the State Legislature when it put Prop.
14 60A on the Ballot by passing of Senate Constitutional Amendment No. 18. Cal. Sen. Const.
15 Amend. 18, 2003-2004 2nd Reg. Sess. 2 (June 24, 2004). Petitioners wrongly assume –– and
16 disingenuously argue –– that the Legislature put Prop. 60A on the ballot in a semantic vacuum
17 ("the ballot summary, arguments, and analysis for the Prop. 60A do not indicate that the word
18 'surplus' was to be given any special or technical meaning"). Brief, pp. 10-12. But this is
19 demonstrably false.
20 First, the "Analysis by the Legislative Analyst" that appeared on the very first page after the
21 Prop. 60A summary, in the Official Voter Information Guide informed the voters that "surplus state
22 property" was a term of art already addressed in existing state law:
23 "Surplus State Property. Current state statutes generally require a

state agency to review annually its real property holdings (land and
24 facilities) and determine what, if any, is in excess of its foreseeable
needs . . .
25
Once real property has been identified as surplus, the state attempts
26 to sell the property, or dispose of it in some other manner such as by
giving it to a local government."
27
28 RJN, Ex. 16 (emphasis in original and added).

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1 Indeed, the Legislative Analyst was correct: under Government Code Section 11011 et
2 seq., which long pre-existed Prop 60A, state property does not become "surplus" automatically or
3 by meeting somebody's version of a debatable dictionary definition. Instead, each state agency is
4 called upon to annually review the state properties within its jurisdiction, determine "what, if any,
5 land is in excess of its foreseeable needs" and then to make a report of such lands to DGS. Gov't
6 Code §11011(a). "Jurisdiction of all land reported as excess" is then to be transferred to DGS,
7 which "shall report to the Legislature annually, the land declared excess . . .." Gov't Code
8 §11011(b)-(c). Then, it is up to the Legislature to declare such excess property as surplus ("surplus
9 state property" is "real property declared surplus by the Legislature and directed to be disposed of
10 by the Department of General Services . . ..") Gov't Code §11011.1(a).
11 In fact, the Property has never been identified as "surplus state property" or even "excess" at
12 any level, much less by the Legislature: No state agency, including District 32, has ever reported
13 the Property was "in excess of its foreseeable needs" under (Gov't Code §11011(a)). DGS has
14 never reported the Property as excess or surplus land under Government Code section 11011(b) in
15 any of its annual reports to the Legislature; nor has the Legislature ever declared the Property to be
16 "surplus." Cal. Gov't Code §11011.1(a). McKinnon Decl., ¶8. Rather, the Property has and con-
17 tinues to be used by the State, for which it receives revenues. It is only selling the Property now,
18 not because it is surplus, but to raise funds critically needed to deal with the State's "fiscal crisis."
19 C. DGS Followed The Procedure Set Forth In RFP II And Reported All
20 Required Information To The Legislature.
21 1. DGS Gave The 30-Day "Approval" Notice To The Legislature
22 Required By The Statute; No Affirmative Legislative Approval Is
23 Required.
24 Petitioners argue that this Court should enjoin the sale because DGS failed to obtain
25 affirmative legislative approval before executing the purchase agreement with FMW. Its argument
26 is not based on Section 3884.2 which contains no such approval requirement, but on a single out-
27 of-context phrase lifted from page 12 of RFP II:
28
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1 "Subject to Department and legislative approval, the Department
intends to execute a Purchase and Sale Agreement with the suc-
2 cessful bidder." Kalemba Decl., ¶12, Ex. G, p. 12 (emphasis added).
3 But Petitioners ignore the context of the immediately-preceding sentence:
4 "A 30-day notification period to the California legislature is required

before the Department can execute a Purchase and Sale Agreement."
5 Id., p. 11.
6 Contrary to Petitioner's claim, "legislative approval," in context, accurately reflects the
7 Legislature's opportunity to disapprove afforded by the 30-day notice requirement in Section
8 3884.2(d). In other words, failure to object amounts to a "tacit approval" after the 30 days. The
9 RFP II Key Dates schedule (RFP II, p. 7) confirms this intent: the schedule lists no date(s) for an
10 affirmative legislative approval, but instead schedules November 18, 2010 (30 days after DGS'
11 notice to the Legislature) as the date for DGS to execute a binding purchase agreement. Id., p. 7.
12 Even if the whole of the RFP II language were susceptible to differing interpretations
13 (which it is not), this Court should not interpret the "legislative approval" phrase to impose an
14 affirmative legislative approval requirement that is found nowhere in Section 3884.2, the governing
15 statute. Rather, this Court can –– and should –– read the phrase in harmony with the "tacit
16 approval" concept in Section 3884.2(d), i.e., unless the Legislature objects within 30 days after
17 DGS reports the terms of sale, DGS has the authority to proceed. See Civil Code section 3541 ("an
18 interpretation which gives effect is preferred to one which makes void"); Klay v. Tryk (1986) 177
19 Cal.App. 3d 119, 128 (Section 3541 applied by Court to reconcile agency regulation with arguably
20 inconsistent statute).
21 Finally, even if DGS could impose its own requirement for affirmative legislative approval,
22 it is entitled to forego that requirement at its discretion. Such discretionary decisions by DGS, as
23 an administrative agency charged with state government contracting, are entitled to great judicial
24 deference. See Gov't Code §§14600, 14670 (DGS generally manages California's business and
25 property functions); Arnold, 125 Cal.App.4th at 507 (finding that DGS is entitled to deference on
26 matters of "state government contracting process"); see also In re Dikes (2004) 121 Cal.App.4th
27 825, 833 (An agency's exercise of discretion "is entitled to great weight and deference, and will
28 ordinarily not be disturbed unless it is plainly erroneous or inconsistent with the regulation").
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1 Petitioners, however, argue that DGS does not have the discretion to forego a self-imposed
2 legislative approval requirement in the RFP, citing Konica Business Machines U.S.A., Inc., v. the
3 Regents of the University of California (1998) 206 Cal.App.3d 449. Brief, p. 12. But Konica is
4 wholly inapposite. In that case a party was awarded a contract to supply the University with copier
5 machines meeting certain specifications in its "Request for Quotation," based on a bid that did not
6 meet those specifications. An unsuccessful bidder challenged the award, claiming it violated the
7 governing statute, Public Contract Code, Section 10507, which specifically required the University
8 to purchase goods and materials only from the "lowest responsible bidder meeting specifications,
9 or else reject all bids." The Court invalidated the award because the statute expressly required the
10 successful bid meet the product's specifications, which it did not. Unlike the statute in Konica,
11 however, here Section 3884.2 does not require legislative approval, and of course says nothing
12 about "specifications," which relate to procurement contracts under The Public Contract Code in
13 any event. Indeed, the Public Contract Code does not apply to RFP II at all. See page 14, fn. 13,
14 supra.
15 2. DGS Gave All Required Information To The Legislature.
16 Equally unavailing is Petitioners' argument that DGS' 30-day notice did not include all
17 information required by Section 3884.2. Brief, 12:16-25. Section 3884.2(d) provides:
18 "Thirty days prior to executing a transaction for a sale of real

property authorized by this section, the Director of General Services
19 shall report to the chairs of the fiscal committees of the Legislature
all of the following:
20
(1) The financial terms of the transaction;
21 (2) A comparison of fair market value for the real property and
the terms listed in paragraph (1); [and]
22 (3) Any basis for agreeing to terms and conditions other than
fair market value."
23
24 Petitioners concede the DGS notice complied with the first of these reporting provisions by
25 supplying the financial terms of the transaction. See Brief, 12:20; see also McKinnon Decl., ¶11,
26 Ex. C (DGS Letter to Legislature). Petitioners complain, however, that DGS did not comply with
27 the second reporting provisions because the notice "provides no fair market value analysis and
28
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1 merely includes an unsubstantiated statement that the price and terms represent fair market value."
2 Brief, 12:20-23 (emphasis added).
3 Petitioners grossly overstate the requirements of Section 3884.2(d)(2). The statute does not
4 require DGS to provide the Legislature with any "analysis" or "substantiation" of fair market
5 value –– words that do not appear anywhere in Section 3884.2. To the contrary, all Section
6 3884.2(d) requires is a statement of "comparison of fair market value" to the financial terms of the
7 transaction. DGS' notice provides that comparison by correctly stating: "Fair Market Value:
8 Purchase Price and terms presented represent the Fair Market Value as per Food and Agricultural
9 Code 3884.2(c)." The referenced Section 3884.2(c) states that "transaction based on . . . a public
10 bidding process" such as RFP II "shall be deemed to be the fair market value for the property."
11 That is clearly correct; an open public competitive bidding process indeed yields fair market value,
12 unlike often unreliable and speculative appraisals or other "analysis" of value. Thus, based upon
13 Section 3884.2(c), and common sense, DGS' statement of comparison was not only given, but was
14 entirely correct.
15 Nothing more is required under Section 3884.2, and DGS is entitled to deference when
16 interpreting such requirement. See, e.g., Arnold, 125 Cal.App.4th at 506 ("[W]hile interpretation
17 of a statute is ultimately a question of law, a court must defer to an administrative agency's inter-
18 pretation of a statute involving its area of expertise, unless the interpretation flies in the face of the
19 clear language and purpose of the interpreted provision.") (citations omitted); Gov't Code
20 §§14670.10(g)(2), 14670.13(e), 14670.13(f), 14670.2(c), 14672.9(f) (charging DGS with the
21 responsibility of reporting various transactions to the Legislature). Notably, the Legislature did not
22 seek additional information or object to the information provided by DGS. McKinnon Decl., ¶14.
23 Petitioners' conclusory complaints notwithstanding, DGS clearly complied with all reporting
24 requirements in Section 3884.2.
25 D. DGS Lacked Jurisdiction To Hear Petitioners' "Protests."
26 Petitioners complain that DGS wrongfully rejected Petitioners' protests in connection with
27 RFP II. But Petitioners incorrectly rely on laws that do not apply.
28
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1 First, Public Contract Code sections 10341-10345, and 10306 (in Chapter 2, titled "State
2 Acquisition of Goods and Services"), apply only to contracts to procure goods and services –– not
3 to the State's sale of real property. See supra, note 13.
4 Second, Petitioners fail to cite any specific provision of the State Administrative Manual,
5 which contains no protest procedures pertinent to DGS' sale, in any event.
6 Third, State Contracting Manual, Vol. 1, Sections 6.35 and 6.30B, also applies only to
7 "services or consulting service contracts . . .." (§6.00, emphasis added). And Chapter 7, entitled
8 "Miscellaneous Contracting Issues," does not apply to real property sales contracts with DGS.
9 Lastly, Petitioners wrongly rely on California Code of Regulations, Title 2, Sections 1195-
10 1195.6, which apply only to consulting and service contracts.
11 In sum, DGS' sale of the Property is governed exclusively by Section 3884.2, which does
12 not provide a protest procedure. It is well established that "where no administrative remedy is
13 provided for the particular issue raised, recourse to the administrative agency is not required before
14 initiation of court action." Andal v. City of Stockton (2006) 137 Cal.App.4th 86, 91. Here, DGS
15 properly rejected Petitioners' protests because Section 3884.2 did not vest DGS with jurisdiction to
16 hear them.
17 E. Petitioners' Claims Regarding "Uncertainties" Over Title And Ownership
18 Rights In The Property Are Without Merit.
19 Petitioners assert a scattershot of arguments designed to create the appearance of
20 "uncertainty" concerning the transaction, but none of them have merit.
21 1. Petitioners' Title Claim Does Not Present A Justiciable Controversy
22 And Is Unfounded In Any Event.
23 Petitioners first argue that the State "cannot proceed with RFP II" because it is not clear
24 "that the 32a District Agricultural Association actually owns the property with the right to sell it."
25 Brief, 13:18-19. But Petitioners' claim does not even present a justiciable controversy, which
26 requires both: (i) "standing, which goes to the existence of a cause of action in the plaintiff," and
27 (ii) "ripeness," which means that a controversy 'has reached, but has not passed, the point that the
28 facts have sufficiently congealed to permit an intelligent and useful decision to be made.'"
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1 Sherwyn v. Dept. of Social Servs. (1985) 173 Cal.App.3d 52, 57-58 (emphasis added). Here, even
2 assuming, arguendo, that title to the Property is unclear, it is FMW, not the Petitioners, that would
3 be adversely affected by such uncertainty. Thus, Petitioners lack standing to assert this claim.
4 Moreover, Petitioners' title claim is not ripe because, until the date of sale, title issues are purely
5 speculative. Thus, Petitioners' title claim fails on these grounds alone.
6 In any event, Petitioners' title argument fails as a matter of law. First, by enacting a law
7 that puts "all of" the Property into newly-created District 32a and then granting DGS the power to
8 sell the Property, the Legislature vested title to the Property in District 32a. See Civ. Code §1091
9 (providing that real property may be transferred "by operation of law"). Second, even if
10 Section 3884.1 did not transfer title, the Director of DGS is vested with the ability to unilaterally
11 transfer "[t]he jurisdiction of real property owned by the state . . . from one state agency to another
12 state agency . . .." Gov't Code §14673. Thus, DGS can simply correct any title defect by
13 transferring title to District 32a before the sale. Third, "uncertainty" over title has no impact on
14 RFP II or FMW's right to purchase the Property: (i) the Property is real property of the State,
15 (ii) the Legislature has expressly authorized DGS to "sell all or any portion of" that Property, and
16 (iii) FMW was the successful highest bidder. Ultimately, the State is obligated to deliver valid title
17 to FMW, regardless of which state agency is "on title," and there is no evidence it will not comply
18 with this obligation.
19 2. RFP II Does Not Contemplate The Sale Of Personal Property.
20 Petitioners assert that RFP II is unauthorized because it "contemplates the sale of personal
21 property . . . while the Enabling Statute (Food and Agricultural Code §3884.2) refers only to the
22 disposition of real property." Brief, 13:25-14:2. Petitioners are wrong. RFP II explicitly provides
23 "that this sale opportunity is for real property only" and that "[t]he transaction will not include any
24 personal property, good will, or any other element reflective of the Property's going-concern use by
25 the District 32." Kalemba Decl., ¶12, Ex. G, p. 10.
26
27
28
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1 3. Section 3884.2 Controls Over Any Conflicting General Food &
2 Agriculture Statutes.
3 Petitioners assert that there is a purported conflict between Section 3884.2 and Food and
4 Agricultural Code §4002 concerning "whether the sales proceeds may be deposited into the state's
5 General Fund or whether such funds must be deposited into the state's Fair and Exposition Fund."
6 Brief, 14:3-9. This argument is irrelevant; whether the funds are deposited in the General Fund or
7 in the Fair and Exposition Fund does not affect the validity of RFP II or FMW's purchase of the
8 Property. In any event, it is a "basic principle[] of statutory construction" that "[i]f conflicting
9 statutes cannot be reconciled, later enactments supersede earlier ones and more specific provisions
10 take precedence over more general ones." Collection Bureau of San Jose v. Rumsey (2000) 24
11 Cal.4th 301, 310 (citations omitted). Here, Food and Agriculture Code section 4002, enacted in
12 1967, is a general statute which concerns "the sale of any interest in real property which is owned
13 by any association." The 2009-enacted Section 3884.2, however, authorizes the sale of this
14 specific Property, and therefore controls.
15 4. The City's Priority Right Is Unfounded, And Petitioners Lack Standing
16 To Assert It.
17 Petitioners argue that "the City and the JPA" assert statutory priority rights to buy the
18 property." Brief, 14:9-11. First, Petitioners obviously have no standing to assert such a claim.
19 Second, Petitioners' argument can only be based on Government Code section 11011.1, which
20 governs "the disposal of surplus state real property." However, as explained above, the Property is
21 not "surplus state real property," and is expressly not subject to Government Code 11011.1.
22 Moreover, there is no evidence that the City can or will buy the Property, which official records
23 show the City cannot afford. See RJN, Ex. 6, p. 3.
24 V. A BOND IS MANDATORY.
25 A. A Bond Is Mandatory Under Code of Civil Procedure Section 529.
26 In the event the Court grants Petitioners' request for a preliminary injunction, Petitioners are
27 required to post a bond. Code of Civil Procedure section 529(a) provides:
28 "On granting an injunction, the court or judge must require an

undertaking on the part of the applicant to the effect that the
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914972.05/OC
1 applicant will pay to the party enjoined any damages, not exceeding
an amount to be specified, the party may sustain by reason of the
2 injunction, if the court finally decides that the applicant was not
entitled to the injunction." (emphasis added).
3
4 It is black-letter law that a bond is mandatory under Section 529. Weil & Brown,
5 CALIFORNIA PRACTICE GUIDE: CIVIL PROCEDURE BEFORE TRIAL (The Rutter Group) ¶ 9:640, p.
6 9(II)34 (Rev. #1 2010) [hereinafter "Rutter"] ("If the PI is granted, the court must require an under-
7 taking, or allow a cash deposit in lieu thereof.") (emphasis added). California cases have
8 consistently so held. See, e.g., ABBA Rubber Co. v. Seaquist (1991) 235 Cal.App.3d 1, 10 (stating
9 that a bond is an "indispensable prerequisite to the issuance of a preliminary injunction" and the
10 duty to order a bond is "mandatory, not discretionary") (emphasis added).
11 Tellingly, Petitioners do not cite a single decision from the courts of this State in support of
12 the supposedly "well-established" practice of not requiring a bond. Brief, 15:18-20. Instead,
13 Petitioners offer two federal court decisions applying a limited exception to the bond requirement
14 under Rule 65 of the Federal Rules of Civil Procedure under specific facts involving non-profit
15 entities in environmental cases. Id. But no California decision has recognized or approved any
16 such exception to the clear mandate of Code of Civil Procedure section 529. See Mangini v. J.G.
17 Durand Int'l (1994) 31 Cal.App.4th 214, 217-19 (noting that the bond requirement is "mandatory"
18 and that the California Supreme Court had depublished previous cases applying the federal rule).
19 There is simply no basis for ignoring the clear requirement of a bond.
20 B. Given The Severity Of Harm To Real Parties, The Bond Should Be At Least
21 $500,000
22 The purpose of a bond is "to protect the defendant in the event that a final judgment against
23 the plaintiff determines that the restraint was wrongfully imposed." 6 Witkin, CAL. PROCEDURE
24 (5th ed. 2008) Provisional Remedies, §382, p. 327 [hereinafter "Witkin"]; see also Rutter, supra,
25 §9:641, p. 9(II)-35. In determining the amount of the bond, the Court "is to estimate the harmful
26 effect which the injunction is likely to have on the restrained party, and to set the undertaking in
27 that sum." Abba Rubber, 235 Cal.App.3d at 14; Code Civ. Proc. §529 (providing that the bond is
28 to cover costs the restrained party "may sustain by reason of the injunction, if the court finally
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914972.05/OC
1 decides that the applicant was not entitled to the injunction"). The probability that the injunction is
2 proper and that the restrained party will ultimately fail in the action is irrelevant:
3 "The undertaking is designed to compensate the defendants in the

event, however unlikely, that the preliminary injunction is finally
4 determined to have been unjustified. The probability that they will
actually obtain such a favorable determination, either through appeal
5
or trial, is irrelevant in determining the likely amount of those dam-
6 ages." Abba Rubber, 235 Cal.App.3d at 16, n.8 (emphasis added).
7 Moreover, it is "well settled" that the bond must include attorney's fees "either prosecuting
8 an appeal of the preliminary injunction, or defending at trial against those causes of action upon
9 which the preliminary injunctive relief had been granted." Id. at 15-16.
10 Here, Real Parties FMW will incur attorneys' fees and costs litigating this matter through
11 appeal, in the minimum sum of $550,000, and therefore Real Parties request a bond in at least that
12 amount in the event the Court should grant the injunction. Thames Decl., ¶16.
13 VI. CONCLUSION.
14 For the foregoing reasons, the Court should deny Petitioners' request for a preliminary
15 injunction. Furthermore, in the event the Court grants Petitioners' request, the Court should order
16 Petitioners to post a bond of at least $550,000.
17
18 Dated: December 3, 2010 ALLEN MATKINS LECK GAMBLE

MALLORY & NATSIS LLP
19 THOMAS E. GIBBS
STEPHEN R. THAMES
20 NICHOLAS S. SHANTAR
21
By:
22 THOMAS E. GIBBS
Attorneys for Real Parties in Interest and
23 Plaintiffs in Intervention FACILITIES
MANAGEMENT WEST, INC. and OC
24 FAIR AND EVENT CENTER, L.P.
25
26
27
28
LAW OFFICES
914972.05/OC

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Response To Osc Re Preliminary Injunction

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1 ALLEN MATKINS LECK GAMBLE

MALLORY & NATSIS LLP

10 SUPERIOR COURT OF CALIFORNIA

12 ADVANCED REAL ESTATE SERVICES, Case No. 30-2010-00424923

24 Defendants in Intervention and

19 allowed to conclude in the public interest.

20 II. PERTINENT FACTS.

21 A. Brief History Of The Property.

2 Property To Address California's Financial Crisis.

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

12 Section 3884.2 contains the following directives.

16 jurisdiction and control for the eventual sale.

17 2. DGS' Direction to Sell. Section 3884.2(b) directs and empowers DGS to

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

3 Property, to give bidders time to perform due diligence.

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

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

6 "shall report to the chairs of the fiscal committees of the Legislature

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

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

14 Proposals" –– Which Resulted In DGS Rejecting All Bids.

18 bids. Kalemba Decl., ¶2, Ex. A, p. 10.4

19 1. Due Diligence Information.

20 RFP I provided bidders with comprehensive information concerning the Property to

16 Kalemba Decl., ¶8, Ex. E.

17 (b) Petitioner ARES. As reflected on its website (www.advancedonline.com),

21 auction. Id., ¶9, Ex. F.

26 ¶¶3-7, Ex. 1; Kalemba Decl., ¶7, Ex. D.

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

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

9 FMW.6 Id., Ex. 5.

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

11 Unsuccessful Effort To Buy The Property.

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

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

6 Negotiations Fail Apparently For Financial Reasons.

18 2. The City's Proposed Purchase Does Not Proceed Because Of The

19 Legislature's Failure To Pass Enabling Legislation.

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

2 continue and improve those uses.

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

13 Proposals" –– Requiring More Money For Less Property.

23 could and did respond.8

24 Significant terms in RFP II include:

2 17, Ex. G, p. 10.

5 Addendum, the RFP II included the following projected dates:

6  October 14, 2010 – "Final Selection and Notice to Bidders"

11 Bid Offered The Highest And Most Certain Return.

6 Decl. ¶19; Kalemba Decl., ¶¶24-25.

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

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

17 Fiscal Committee Chair.

28 the proposed sale to FMW. Id., ¶14.

2 Committed To Hiring Current Fairground Employees And Continuing The

3 Fair, Swap Meet And The Other Activities And Events.

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

15 Property To OC Fair and Event.

22 III. LEGAL STANDARDS.

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

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

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

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

14 REASONABLE PROBABILITY OF SUCCESS ON THE MERITS.