By Mark Gutglueck
(October 1) When is a deal not a deal?
When one of the parties decides it is unsatisfied with the outcome, according to Ontario’s high powered Washington, D.C.-based law firm.
In its response to the city of Los Angeles’s motion to dismiss the lawsuit filed last year to regain control over Ontario International Airport, Ontario maintains that the arrangement it negotiated with LA in 1967 and finalized in 1985 after the larger city met all of the criteria laid out in the original agreement is not a deal at all.
Rather, Ontario told Riverside Superior Court Judge Gloria Connor Trask that she should declare the contract between the two cities null and void.
According to Ontario’s attorneys, the Ontario City Council in 1967, which was then comprised of Howard Snider, Sam Crowe, Joseph Aime, William Paulin and Walter Stewart, and the Ontario City Council in 1985, consisting of Robert Ellingwood, Faye Myers Dastrup, Gus Skropos, Homer Briggs and Beecher Medlin, were acting beyond their authority as the city’s executive board when they, in the case of the former, entered into the relationship with Los Angeles for the management of the airport, and, in the case of the latter, signed over title to the airport.
Such agreements between municipal entities, according to Ontario, should contain an exit clause that would allow one side to withdraw from the terms of the contract or otherwise sunset after a specific amount of time
For that reason, Ontario should be allowed to exit the agreements it has with Los Angeles and take back possession of the airport, its legal team maintains.
In 1967, Ontario Airport had a gravel parking lot and was servicing fewer than 200,000 passengers per year, with Western Airlines making 26 daily flights daily from Ontario to Sacramento, San Francisco, Palm Springs and Los Angeles, and Bonanza Airlines offering fewer than a dozen flights to Los Angeles, Las Vegas and Phoenix. On its own, Ontario had been unable to convince any other airlines to fly into or out of Ontario. The airport had $2 million in growing debt, which it had no viable prospect of paying.
Ontario willfully entered into a joint powers agreement with Los Angeles that went into effect on November 1, 1967, which allowed Los Angeles to use its clout with airlines to increase flights into and out of Ontario. Pursuant to that agreement, Los Angeles retired the airport’s debt. In addition, it agreed to make at least $20 million worth of improvements to the airport over an unspecified time frame.
Using its leverage over airlines based upon its ability to dole out or withhold favorable gate positions at Los Angeles International Airport, the Los Angeles Department of Airports induced more and more airlines to fly into and out of Ontario. By 1969, flights out of Ontario dramatically increased. In short order, Continental Airlines, PSA, United, American Airlines, Hughes Air West, and Delta established routes from Ontario. In the early 1970s, Ontario was in competition with John Wayne Airport in Orange County, which at that time was expanding dramatically. Though a benchmark of 10 million passengers at the airport by 1975 was not achieved, the Los Angeles Department of Airports still assiduously promoted Ontario International.
In 1981, a modern, second east-to-west runway was built, necessitating the removal of the old northeast-to-southwest runway. Los Angeles officials stepped up pressure on Ontario officials to have them cede ownership of the airport in total to Los Angeles, but Ontario’s then mayor, Robert Ellingwood, resisted, maintaining that all of the criteria specified in the transfer portion of the 1967 agreement had yet to be met. As tensions mounted between the cities and Ontario began levying a parking tax at the airport, which L.A. objected to as unwarranted and illegal in a lawsuit, Ellingwood pressed for the recission of the joint powers agreement and for Ontario to take full control of the airport. Los Angeles, which had control over the revenue being generated at the airport and was bankrolling the cost of operations there, threatened to stand down from the joint powers agreement, leaving Ontario in the position of paying all operational costs. Ellingwood’s four council colleagues, believing Ontario did not have the financial means to operate the airport on its own, broke with him and during Ellingwod’s absence from the February 19, 1985 council meeting, voted 4-0 to transfer title to the airport to the city of Los Angeles.
In 1987, the departure runway was extended to the east. In 1997 and 1998, Los Angeles built two modern 530,000-square foot terminals at the airport at a cost of $270 million. In 2005-2006, the airport’s departure runway was repaved, received storm drains, and runway lighting was improved. The airport’s taxiways were widened. The same year Aeroméxico started seasonal flights to Guadalajara and Mexico City, making Ontario a true international airport. The airport was also renamed Ontario/LA International Airport, ostensibly to avoid confusion with an airport in Canada.
In 2007, use of the airport peaked, with 7.2 million passengers enplaning there and using its terminals. In recent years, Ontario Airport has seen its use decline. In 2008, 6.2 million passengers took flights from the airport, a drop of 13.5 percent compared to 2007. In 2009, the airport had 4.95 million passengers pass through it. That trend continued in 2010, with 4.8 million travelers flying from Ontario International. Simultaneously Los Angeles World Airports was undertaking a flurry of improvements at Los Angeles International Airport intended to make traveling in or out there more convenient to its passengers.
Just under 4.6 million passengers took flights out of Ontario International in 2011. That figure dropped to 4.5 million in 2012.
In 2009, Ontario officials, believing that Los Angeles airport officials were intent on driving up passenger traffic in Los Angeles, potentially to the detriment of Ontario, began a dialogue with Los Angeles World Airports about combating the downward trend in passenger traffic at Ontario. But Los Angeles airport officials were not keen on surrendering any share of the market Los Angeles International had captured in the aftermath of the extensive improvements made there. They countered with offers to improve the marketing of Ontario Airport, at one point offering to bankroll such a marketing campaign to be run by Ontario officials. Ontario declined that offer.
Ontario officials gravitated toward the conclusion that reacquiring the airport was paramount and that not leaving its destiny in the care of Los Angeles officials, whose first loyalty consisted in keeping Los Angeles International Airport thriving, was the only realistic approach to the problem.
They began pushing Los Angeles to allow a public agency-to-public agency transfer of the airport at no consideration, reversing the 1985 action.
Los Angeles officials balked at that.
Quietly, so as to not publicly contradict its official position that the airport grounds are a public benefit property and thus of no sales value, the city of Ontario privately tendered a $250 million offer to Los Angeles World Airports for transfer of the airport’s title and operational control. That offer included the city assuming $75 million of the outstanding bond debt obligations for past improvements to the airport, $125 million in future passenger facility charges to be realized at the airport and $50 million cash.
Los Angeles World Airport officials scoffed at the $250 million figure, pointing to the $560 million in improvements made to the airport since 1967 utilizing revenues generated at both Ontario and Los Angeles International Airports, Federal Aviation Administration grants, and proceeds from bonds issued by the city of Los Angeles at Los Angeles World Airports’ direction.
With ridership at Ontario International continuing to decline throughout 2011, 2012, and into 2013 and the relationship between Ontario and Los Angeles World Airports/the city of Los Angles continuing to deteriorate, a lukewarm effort at maintaining a running dialog between officials on both sides was made, as Ontario officials hoped they might make more progress after then-Los Angles Mayor Anthony Villaraigosa left office. Despite that hope, in the waning months of the Villaraigosa tenure, Ontario, utilizing the Washington, D.C.-based law firm of Sheppard Mullin Richter & Hampton, filed suit against the metropolis in Riverside Superior Court in an effort to have ownership and operational authority over Ontario Airport returned to it.
Shortly thereafter, Eric Garcetti succeeded Villaraigosa as Los Angeles mayor. During his mayoral campaign, Garcetti had given some nebulous indication that he favored having Ontario International Airport returned to local control. Ontario officials interpreted that as a sign that Los Angeles, under his direction, would surrender the reins to the airport relatively readily. When, upon being sworn into office, Garcetti was faced with the fait accompli of legal action brought against Los Angeles by Ontario over the airport ownership, whatever accommodationist attitude he might have had evaporated. Both sides lodged the predictable round of pretrial motions such cases beget. Late last year, the case was put on hold while an effort to negotiate a solution to the myriad of disputes over the airport was carried out. Those talks ended without any substantial progress. The lawsuit resumed.
On September 10, 2014, Los Angeles World Airports filed a motion for summary adjudication, which is scheduled to be heard on October 31, 2014. On Friday, September 26, 2014, the city of Ontario filed its response to that motion.
Represented by Sheppard Mullin Richter & Hampton attorneys Andre Cronthall, Scott Sveslosky and Catherine La Tempa, Ontario is seeking to have its 1967 joint powers agreement and its 1985 transfer of title to the airport to Los Angeles declared null and void.
According to Cronthall, Sveslosky and La Tempa “Los Angeles’s abandonment of Ontario International Airport was inevitable given that the joint powers agreement and the subsequent 1985 acquisition agreement between Ontario International Airport and Los Angeles set the stage for the conflict of interest that eventually materialized. The agreements improperly attempt to forever delegate a core governmental function of Ontario — the operation of its airport – to Los Angeles, a third party municipality some 40 miles away with its own competing airport and an untenable conflict of interest in owning and operating both airports at the same time. Los Angeles’s conflict of interest has become obvious during the past seven years as Los Angeles has admitted the existence of the conflict, and has neglected and mismanaged Ontario International Airport. As a result of that neglect and mismanagement, Ontario International Airport is on the brink of ruin. Even so, Los Angeles insists on continuing to operate and manage Ontario International Airport in perpetuity. Whether defendants’ intransigence is rooted in a desire to control a competitor or use Ontario International Airport’s funds to help finance the billions of dollars incurred for improvements at Ontario International Airport will fail unless Ontario regains control of its airport.”
According to Cronthall, Sveslosky and La Tempa, California law prohibits municipal entities from entering into any agreements that do not have a defined duration or a mechanism for the parties to exit the relationship.
“Ontario seeks summary adjudication for rescission and reformation of the joint powers agreement and the acquisition agreement, on three primary grounds,” Cronthall, Sveslosky and La Tempa state. “First, the joint powers agreement does not have a definite term of duration or permit termination or rescission by any party as required by California Law. Government Code section 6510 states that a joint powers agreement may have a definite term or provide for rescission or termination by any party. The joint powers agreement does not comply with this requirement. Instead, it requires an agreement by both parties to terminate or rescind the joint powers agreement. Thus, one party has the right to continue the agreement in perpetuity no matter what the circumstances, holding the other party hostage, despite the existence of a fiduciary obligation and a requirement to use ‘best efforts’ for the benefit of the other party. Such a scenario not only is illogical and unfair, it is unlawful under Section 6510 and applicable case law.”
Because of the flaws in the joint powers agreement Ontario signed in 1967, Cronthall, Sveslosky and La Tempa maintain the agreement was inapplicable from the start.
“Second, Ontario officials lacked authority to relinquish ownership and control of Ontario International Airport for an indefinite and possibly infinite time period” according to Cronthall, Sveslosky and La Tempa. “ The operation of a local airport is a key municipal function. Thus, the joint powers agreement was void ab initio as a violation of public policy prohibiting the abdication and bargaining away of core municipal legislative and governmental functions.”
Cronthall, Sveslosky and La Tempa maintain Los Angeles is dead set on destroying Ontario Airport’s viability as a functioning entity.
“Third, the agreements must be rescinded because the public interest is prejudiced by permitting the agreements to stand,” according to the motion.”Los Angeles’s untenable conflict of interest in owning and operating both Los Angeles International airport and Ontario International Airport has resulted in the financial and operational ‘death spiral’ of Ontario International Airport and severely harmed the residents of Ontario and surrounding municipalities. As such, the public interest is harmed and prejudiced by permitting the agreements to stand and thereby permitting defendants to preside over Ontario International Airport until it is no more.”
Layered into the Ontario’s motion is an assertion relating to the generation of money at the airport which appears to be the basis for a future argument about the amount of compensation that will be due Los Angeles if it is called upon to relinquish the airport, bringing into dispute the assertion that airport’s selling price should exceed the more than $500 million Los Angeles and Los Angeles World Airports have invested in the aerodrome.
“From 1983 to 2000, at least $70,671,043 [in] revenue was generated at Ontario International Airport in excess of its costs and was retained by Los Angeles World Airports,” according to Cronthall, Sveslosky and La Tempa. “Ontario expects that further financial analysis will disclose that Los Angeles World Airports retained additional funds generated at Ontario International Airport from 1980 to the present.”
Los Angeles and Los Angeles World Airport officials indicated that they would limit public comment with regard to the effort to wrest control of Ontario Airport from them to the information contained in its legal filings in the case.
“The court documents speak for themselves,” said Los Angeles World Airports spokeswoman Maria Tesoro. “Due to pending litigation, Los Angeles World Airports has no further comments.”
By Mark Gutglueck