Herrera wins Court sanctions against CitiApartments for ‘obfuscation, delay’

Landlords’ defiance in the face of City Attorney’s ‘Herculean efforts’ triggers order to cooperate with discovery, pay $50K sanction
CitiApartments Court Sanctions Presskit (Feb. 2, 2010)
CitiApartments Court Sanctions Presskit (Feb. 2, 2010)

SAN FRANCISCO (Feb. 2, 2010) — City Attorney Dennis Herrera has won Court-ordered sanctions against a labyrinthine web of defendants involved in the operation of CitiApartments and Skyline Realty, the residential property management and investment behemoth Herrera first sued in 2006 for its stunning array of unlawful business practices. The order, which was signed by San Francisco Superior Court Judge John E. Munter last month and obtained this morning, compels each of the two-dozen corporate, trust and individual defendants currently named in the suit to respond to discovery requests in compliance with rules of civil procedure, and to pay sanctions to the City totaling $50,129.50, which reflects San Francisco’s fees and costs to pursue its motion to compel. Munter’s order requires all of the defendants to comply with the order by Feb. 19, 2010.

“CitiApartments deserved to be sanctioned for its continued defiance in this case, and I’m gratified to Judge Munter for calling these tactics exactly what they are — ‘obfuscation, delay and meritless objections,'” said Herrera. “I hope this sanction sends a message to Frank Lembi, Walter Lembi and all of the defendants responsible for CitiApartments’ lawless conduct that there is a limit to judicial patience, and they’ve reached it. This has been a long, difficult case to address what is perhaps the most egregious corruption of San Francisco’s residential housing market in modern history. We remain committed to pursuing this case aggressively, and I hope these sanctions are a tipping point that hastens our progress toward a just outcome.”

Herrera originally filed suit against CitiApartments, Skyline Realty and nine named subsidiary companies in August 2006, detailing an outrageous pattern of corporate lawlessness in which rental units would be illegally recovered from tenants; renovated in clear violation of building and safety codes; and then unlawfully relet at dramatically increased rental rates — occasionally as short-term corporate housing, representing still another violation of local law. According to the complaint Herrera filed following his office’s investigation, CitiApartments’ employed harrowing tactics to intimidate tenants into surrendering their rent controlled tenancies, including unannounced visits by armed paramilitary-like agents; unauthorized entry into rental units; utility shutoffs; changed locks; and retaliation against tenants who refused to accept buy-out offers. Once in control of vacated units, CitiApartments often undertook extensive remodeling work without the requisite permits and inspections necessary to assure compliance with state and local safety and building codes.

At a hearing last December, Judge Munter announced his intention to issue the sanction, saying: “Starting in February of 2008 counsel for plaintiffs have engaged in substantial, indeed Herculean, efforts to resolve the instant discovery disputes with the Corporate Entity Defendants through repeated correspondence and numerous meetings with defense counsel. Those good faith efforts by plaintiffs’ counsel to informally resolve the disputes have proved unsuccessful. In this Court’s opinion, plaintiffs’ discovery requests have been repeatedly met with obfuscation, delay and meritless objections made by the Corporate Entity Defendants in an effort to avoid providing appropriate discovery….In each instance where the Court grants this motion, the Court finds and concludes that there was an unreasonable failure by defendants to fully and fairly respond to plaintiffs’ discovery requests. More specifically, in each instance where the Court grants this motion, the Court finds and concludes that defendants have engaged in misuse of the discovery process by failing to respond properly or at all to proper discovery requests, and/or making unmeritorious objections to proper discovery requests, and/or making evasive responses to proper discovery requests, and/or failing to verify responses.”

Throughout more than three years of complex litigation, the defendants’ litigation strategy has been marked by continued defiance and elaborate financial shell games that forced Herrera to twice move successfully to amend his civil complaint to include additional related corporate, trust and individual alter-egos. Fully 37 defendants are now specifically named in the suit, including founder Frank Lembi and his son, Walter Lembi, whom Herrera sued as individuals. At its zenith — prior to the real estate market meltdown beginning in 2008 — CitiApartments boasted some more than 200 buildings and 6,000 units in its portfolio, making it among San Francisco’s largest residential property owners.

Defendants currently named in Herrera’s lawsuit are: Skyline Realty Inc., Citiapartments Inc., Citi Funding Group Inc., Citisuites LLC, Lembi Group Inc., Lembi Group Partners LLC, Urban Property Management, Inc., Citiwide Rentals, Inc., Frank Lembi, Walter Lembi, David Raynal, Taylor Lembi, Frank Lembi As Trustee Of The Frank E. Lembi Survivor’s Trust Dated February 17, 1984, As Restated On June 2, 1999, Frank Lembi, As Trustee Of The Olga Lembi Residual Trust Created Under The Provisions Of Part Three Of The Lembi Family Trust Dated February 17, 1984, Walter Lembi, As Trustee Of The Walter And Linda Lembi Family Trust Dated June 30, 2004, David Raynal, As Trustee Of The David M. Raynal Revocable Trust Dated May 9, 2002, 737 Pine DE LLC, 737 Pine B10 DE LLC, 737 Pine B10 Mezz DE LLC, 1155 LLC, Gaylord Hotel LLC, LSL Properties B14 DE LLC, LSL Property Holdings II DE LLC, LSL Property Holdings II Mezz LLC, Nob Hill Tower DE LLC, Nob Hill Tower Mezz DE LLC, Prime Apartment Properties LLC, Prime Apartment Properties B10 DE LLC, Prime Apartment Properties B10 Mezz DE LLC, Trophy Properties B10 DE LLC, Trophy Properties IV DE LLC, Trophy Properties IV B8A LLC, Trophy Properties IV Mezz DE LLC, Trophy Properties V LLC, Trophy Properties V DE LLC, Trophy Properties VI LLC, Trophy Properties IV B8A Manager LLC.

The case is City and County of San Francisco and People of the State of California v. Skyline Realty, Inc. et al., San Francisco Superior Court Case No. 06-455241.