Herrera to Seek Attorneys’ Fees in Wake of Dismissed Challenge to SFO Cargo Project

As Private Developer Suit That ‘Should Never Have Been Filed’ is Dismissed, Airport-Led Redevelopment Project to Proceed

City Attorney Dennis Herrera today announced that he will seek to recover attorneys’ fees from a Texas-based private developer that had sued San Francisco International Airport over plans to self-develop the West Field Cargo Area. Airis Holdings, LLC, which filed a dismissal of the suit in U.S. District Court for the Northern District of California last Thursday, originally brought suit against the City over its proposal to privately develop a 25-acre site at the Airport. This site currently houses several airlines for their cargo operations, including American Airlines, Northwest Airlines, KLM Royal Dutch Airlines, Air Canada, and US Airways.

“This lawsuit was without basis in law or fact, it should never have been filed, and I’m determined to ensure that the expenses associated with it are reimbursed,” said Herrera. “Even apart from the issue of attorneys’ fees, however, the dismissal of this suit is an important victory for the City, for the businesses who move cargo through SFO and for the employees working in the Bay Area cargo industry.”

Airport Director John L. Martin indicated that he was pleased with the announcement, saying the Airport was eager to move forward with a demand-driven state-of-the-art development in the West Field Cargo Area.

In 2002, the Airport issued a “Request for Proposals” seeking proposals from developers interested in redeveloping the site by replacing the older cargo buildings with newer, more efficient buildings. At the time, the Airport was reviewing and suspending most of its own capital improvement programs, given the downturn in air travel and the economy, and a third-party developer structure was deemed advantageous.

Following a rigorous evaluation process, on January 30, 2003, the Airport Commission awarded to Airis the exclusive right to negotiate the terms of the project. The period in which the parties were to negotiate the terms of the project, initially 60 days, was extended by the parties six times, finally expiring in October 2003. From January through October 2003, representatives of the City negotiated with Airis over the terms of the project. On Oct. 8, 2003, the Airport Commission approved the negotiated terms, and forwarded the project to the San Francisco Board of Supervisors for required approval. On Dec.16, 2003, the Board rejected the project, 6 to 4. All of the Airport’s major airlines also opposed the project, citing the developer’s projected high rents.

Given the Board’s rejection of the project, and citing improved Airport economics, on June 15, 2004, the San Francisco Airport Commission voted unanimously to develop the project itself, consistent with its successful development of other Airport cargo facilities, including those housing Asiana Airlines, China Airlines, Federal Express, Korean Airlines, and Nippon Cargo (NCA).

On June 25, 2004, Airis sued the City and County of San Francisco, the San Francisco Airport Commission and Airport Director Martin in federal district court, claiming that the City was violating its negotiating agreement by proceeding with its own development of the site. In response, Herrera argued that the negotiating period had expired long ago, and that the Board of Supervisors had rejected the project. “The City is clearly under no obligation to provide developers multiple bites at the apple,” said Herrera at the time. “And there is no basis for restraining the City from acting in the best interests of its Airport in constructing its own facilities.”

After briefing and argument on the issue, U.S. District Court Judge Jeffrey S. White denied Airis’ motion for a temporary restraining order on July 16, 2004, which would have prevented the much needed work to commence at the Airport. Airis filed its voluntary dismissal of the lawsuit on July 29, 2004.

“San Francisco International Airport remains committed to providing the facility infrastructure to support the efficient movement of goods through our Airport,” said Director John Martin. “We plan to move forward on our successful track record of self-development that has allowed us to provide new, world class air cargo facilities to Asiana Airlines, China Airlines, Federal Express and Nippon Cargo Airlines-all of which operate cargo aircraft to key destinations in the Pacific Region of the World.”

The lawsuit was Airis SFO LLC and Airis Holdings LLC v. City and County of San Francisco, Airport Commission of the City and County of San Francisco, and John Martin, in his official capacity as Director of the San Francisco International Airport, Case No. C 04-2568 JSW, U.S. District Court, Northern District of California.