Marina Aviation, LLC v. City of Marina, California – No. 16-21-12

Author:

Shannetta R. Griffin, Associate Administrator for Airports

Complainant(s):

Respondent(s):

Airport(s):

Marina Municipal Airport (OAR)

History:

Order of the Director (10/27/21)

Holding:

Abstract:

Complainant alleged that the City violated Grant Assurance 22 by refusing to negotiate and offer a lease extension; that another tenant was provided with a 10-year lease extension, with its economic benefits, “and thereby the City permitted this tenant to enjoy a more favorable position regarding the term extension with the City than Marina Aviation, LLC.” (Order of the Director, p. 6.)

In its Motion to Dismiss and/or for Summary Judgment, the City asserted that its rejection of Complainant’s request to extend the Ground Lease did not, and could not, constitute unjust discrimination because of Complainant’s continuing default and failure to perform under the Ground Lease and the Repayment Agreement. (Order of the Director, p. 6.) The City further explained that “the Airport conducted a comprehensive lease/rent review of all of its Airport tenants and determined that [Complainant] did not pay all sums due in accordance with the terms of the Ground Lease.” (Order of the Director, p. 6.) Complainant’s “missed rental payments and resulting late fees and interest continued to accrue and resulted in the amount of $95,224 being past due and owing to the City.” (Order of the Director, p. 6.) Thus, while the City Council contended that it considered in good faith a lease extension request, it declined based, in part, on Complainant’s poor past performance and continuing default under the Ground Lease. (Order of the Director, p. 6.) What is more, the City raised the point that after termination of the lease, Complainant’s Managing Member continued to collect rent from his former tenants, potentially in violation of California criminal law, which prohibits a person from fraudulently renting out property by another and receiving rent under false pretenses. (Order of the Director, p. 7.)

In the foregoing context, the Director found that “the City has not violated Grant Assurance 22 by denying Marina a lease extension due to difficulties collecting rent payments owing over a multi-year period.” (Order of the Director, p. 7.) “A sponsor is under no obligation to continue a business relationship with a tenant if the tenant is not meeting its obligations under the terms of a lease agreement. Not adhering to minimum standards or not paying rent are reasonable bases for a finding of default.” (Order of the Director, p. 8.) “Here Marina admits that it held back some ground lease payments, which supports the City’s actions not to extend the lease agreement.” (Order of the Director, p. 8.)

The Director also rejected Complainant’s allegations under Grant Assurance 23, Exclusive Rights, noting that “the record clearly shows that Marina lost the potential for a lease extension due to its failure to pay lease rates on a timely basis. Evidence presented shows that the parties agreed to a Repayment Agreement for past due finds. Additionally, the City submitted a running ledger for Marina … [showing] that Marina remains substantially in arrears. The Complainant made no showing that the City’s denial of the lease extension had any basis in protecting another tenant on the Airport.” (Order of the Director, p. 10.)

Finally, Marina alleged that the City violated Grant Assurance 29, Airport Layout Plan (“ALP”), but provided no additional information or evidence to allow the Director to review the allegation. “Marina Aviation has not provided any evidence that the City is in violation of its ALP obligations other than to allege that enforcement of the Resolution is somehow connected to the ALP. There is insufficient evidence to investigate or substantiate an allegation of a violation under Grant Assurance 29. Therefore, the Director finds that the claim warrants no further action by this office.” (Order of the Director, p. 10.)

Appeal—Affirmed

On Appeal, Complainant argued that the Director’s decision was not based on (1) “admissible, relevant and competent evidence” and (2) that Marina should have received favorable inferences from the Director. Neither position prevailed.

Supporting Evidence Argument

First, the Associate Administrator observed that “Marina’s argument on Appeal centers on the lack of evidence presented by the City supporting the reason for denying an extension to the lease” and that “[i]t specifically calls out the meeting minutes from the City Council’s closed meeting and the ASM not having a first-hand account of the decision.” (Final Agency Decision, p. 8.) However, “[t]here is no indication in the record that the ASM submitted information as part of the City’s pleadings in error or independently. Nothing in the record invalidates the ledger prepared by the ASM demonstrating the chronic late payments, late fees and interest. In addition, the repayment agreement itself provides evidence that Marina had a history of not complying with the terms of the lease. Therefore, the Director did not err in determining that the evidence provided by the City was valid and clear in that it represented cause for the City to not extend the lease.” (Final Agency Decision, p. 8.)

Additionally, “Marina provided no evidence to indicate the City had another reason for not extending its lease, other than to point to the lack of meeting minutes to infer and speculate that there were other reasons.” (Final Agency Decision, p. 8). Here, the repayment plan and ledger provided clear and substantial evidence that Marina was not acting in accordance with the agreements, according to the Associate Administrator. (Final Agency Decision, p. 9.) The Associate Administrator elaborated: “The City has the right to choose not to continue that business relationship based on the poor performance of Marina. Whether there are other reasons for not continuing the business relationship is not evident or relevant to this determination. The City has stated that it reviews the past performance and business status of its tenants before granting an extension ... indicating that it treats all tenants in a similar manner based on its actions under previous agreements.” (Final Agency Decision, p. 9.)

In all, “if the City has the right not to renew the lease or extend it, it certainly can do so if there is evidence of default and it does not need to produce additional justifications.” (Final Agency Decision, p. 9). And, against this background, the Associate Administrator found that the Director did not err in making its determination based on the reason presented and the evidence provided in the pleadings: The Director “made its determination based on the evidence included in the pleadings as permissible by Section 16.29(b)(1) which states ‘the FAA may rely entirely on the complaint and the responsive pleadings provided under this subpart.’ The Director was correct in not basing its determination or extending the proceedings based on inferences and speculation of evidence that may or may not exist or support an alternative outcome, or inferences and speculation of evidence that are unnecessary to make a determination.” (Final Agency Decision, p. 9.)

Inference Argument

Second, Complainant argued on appeal that the City did enter into the repayment agreement knowing of its suspended LLC status and that now the City was claiming that as a reason for not continuing the business relationship. (Final Agency Decision, p. 9). Further, Complainant argued on appeal that the Director should have inferred that the City’s actions to enter into a repayment agreement indicated it did not have an issue with Marina’s late payments or suspension of LLC. (Final Agency Decision, p. 9.) In addition, Complainant asserted that the City’s inaction against it in the past suggested that Complainant was in fact not in default of the lease or repayment agreement. (Final Agency Decision, p. 9.) Finally, Complainant averred that the inferences favored it because “the City continually did business with Marina Aviation LLC all during this time knowing full well that the LLC was under suspension by the California Franchise Tax Board (‘FTB’).” (Final Agency Decision, p. 9.)

In Reply to the appeal, the City stated that Complainant’s inference “is illogical and far from reasonable. If Marina Aviation’s late payments were not an issue for the City, the City would not have entered into the Repayment Agreement.” (Final Agency Decision, p. 10.) It additionally claimed that Marina purposely withheld money once it knew the City was not going to extend the lease, and that Marina admitted it owed the City money when it signed the repayment agreement. (Final Agency Decision, p. 10.)

In this context, the Associate Administrator noted that the “Federal obligations do not require the City to accommodate late payments, otherwise forgive previous breaches of lease provisions, provide for structured payments, or take a gentle and forgiving approach in dealing with non-payment situations. The City has the right to choose to negotiate or not negotiate with a tenant based on past performance. The City is under no obligation to go above and beyond the terms of the lease to lessen the financial burden on the tenant.” (Final Agency Decision, p. 10.)

According to the Associate Administrator, moreover, “the fact that the City did not terminate the leases for lack of payments, continued the relationship with Marina despite missing payments, or offered a repayment plan does not undermine the City’s ability, under the Federal obligations, to not renew the lease, and terminate its business relationship with Marina.” (Final Agency Decision, p. 10.) Therefore, “the Director correctly granted the Motion for Summary Judgment in favor of the City and did not infer that past acts of the City to work with Marina obligated it to a [sic] continue the business relationship in the future. The City’s action to attempt to correct the delinquent behavior and further to accept its suspended status in 2015 does not infer that it would continue the business relationship and extend the lease, particularly if the said behavior continued as demonstrated in the ledger.” (Final Agency Decision, p. 10.)

In all, the Associate Administrator found that “the Director did not err by not inferring that City’s repayment agreement implied a lease extension would be granted and further that the City’s previous generous acts to work with Marina to address deficiencies would imply that the City would continue its business relationship with Marina.” (Final Agency Decision, p. 11.)

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