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The Recorder State Settles Suit Over Aborted Sale of Court BuildingsFebruary 24, 2015

Article first appeared in The Recorder.

SACRAMENTO — California will pay $24 million to settle litigation brought by investors who say the state reneged on a 2010 deal to sell 11 properties for $2.3 billion.

Gov. Arnold Schwarzenegger proposed the sale to help generate revenue to help fill the state's recession-plagued budget deficit. Investment group California First L.P. agreed to buy the buildings, including those that house the Supreme Court in San Francisco and the attorney general's office in Sacramento, and lease space back to the state.

But Gov. Jerry Brown scrapped the sale when he took office in 2011, noting concerns expressed by the legislative analyst's office and others that the deal was a bad one long-term for the state. California First sued for breach of contract.

The case dragged on for almost four years until finally going to trial last December in San Francisco Superior Court. Judge Garrett Wong called a temporary halt to the proceedings, however, to resolve a dispute over evidence. During the timeout, both sides participated in a mediation session that led to California First agreeing to drop its claim in exchange for a $24 million payment from the state.

"This was a very highly contested piece of litigation, one of the most highly contested of my career," said Angela Agrusa, the Liner partner who represents California First. "We're pleased that we were able to reach a resolution."

Brian Ferguson, deputy director of the Department of General Services, said "Schwarzenegger's short-sighted plan to sell state buildings would have cost taxpayers billions of dollars and was a bad deal from the start. This puts an immediate end to a prolonged, frivolous legal dispute."

In addition to the San Francisco Civic Center complex and the attorney general's office in Sacramento, the properties proposed in the original sale included the California Public Utilities Commission in San Francisco, the Ronald Reagan building in Los Angeles and the Elihu Harris building in Oakland.

Plaintiffs lawyer Joseph Cotchett originally sued the Schwarzenegger administration in 2010 in an attempt to stop the buildings' sale. That litigation was put on hold pending the outcome of the California First litigation.