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HomeMy WebLinkAboutErik MarksPreserve Local Access toHealthcare! • The Centers for Medicare and Medicaid (CMS) proposed a rule to cut reimbursement for OMC's off-site clinics (more than 250 yards from a hospital). Physician clinic expense reimbursement in Clallam County would be reduced from $1 18.35 per visit to $47.34 a 60% cut' • The proposed rule would substantially harm OMCs Sequim clinics and primary care at 8th & Vine in Port Angeles. The proposal would result in OMC receiving a Medicare cut of $3.4 million in 2019 and more than $47 million over the next decade. This is a devastating development for Clallam County. Please urge CMS to maintain reimbursement for off-site hospital-based clinics by making your voice heard. About OMC • Olympic Medical Center, is a 67 -bed rural Sale Community Hospital and Rural Referral Center including a level -three trauma designated emergency department, surgical services, and labor and delivery. • $4,968,249 Uncompensated care in 2017 (includes charity care, bad debt) • -$2,665,391 (-1.48%) Operating margin in 2017 Off-site Hospital-based Clinics at Risk • Services provided outside of the hospital campus include cardiac, primary care, a walk-in clinic, sleep center, specialty physician services, and cancer care. Our Healthcare Delivery Challenges • Access to a primary care provider continues to be a challenge • Distance to off peninsula services is significant and difficult for many • 83% of our payer mix is government (Medicare, Medicaid, Tricare) ^_o � OLYMPIC 939 Caroline St, Port Angeles, WA 98362 1 (360) 417-7000 MEDICAL CENTER www.olympicmedical.org/ProtectLocalHealthcare Access to local health care will suffer. With its site neutral policies, CMS proposes to cut OMCs reimbursement to match a rate that is paid to "free-standing" or independent physician practices. Site neutral policies do not work in rural communities such as ours because long ago these independent physicians determined they could not operate at such a low Medicare reimbursement. OMC provides vital access to care for these Medicare (and Medicaid) patients, and health care services for residents of Clallam County should not be restricted by misguided policies. Clallam County's economy will be harmed. Site neutral payment cuts of $47 million over the next decade, if implemented, will result in fewer jobs and fewer health care services for Clallam County citizens. Our community depends on having a healthcare delivery system that can grow with our population and meet healthcare needs adequately. The proposed reductions in Medicare payments threaten to impede our economic development. The shortage of health professionals will be made worse. In Clallam County, we lack needed physicians, registered nurses, physical therapists, medical assistants and other medical professionals. These large cuts will significantly hurt OMCs ability to recruit and retain the needed workforce to provide excellent care to our patients and to deliver value to the Medicare program. Future services for Sequim patients will be limited. CMS proposes to cut reimbursement by 60`t for new services at previously grandfathered clinics. This severely restricts the ability of rural and safety net hospitals to meet their patients' needs in the future. Further curtailing new services that can be offered in Sequim is wrong. Site neutral policies will result in less primarylpreventive care, and more emergency department and hospital utilization. By cutting the facility fee by 60%. CMS will deprive OMC of needed resources to invest in wellness, prevention and chronic disease management services. OMC has partnered with our local YMCA to provide wellness and chronic disease management services at the Sequim YMCVacility. These services are important to offer Sequim residents and reduce the overall cost of health care by keeping patients healthier. Erik Marks Attorney, Strcitlegi,,t, Advisor. 2255 Harbor Ave SW Suite 203 Seattle, WA 98126 206-264-4598 erikrd)evrnrea lesta te. con) September 19, 2018 VIA Email to countit of-pa.us and 11 _MA)"em --- PorAngeles City Council Nathan West, City Manager 321 East 5th Street Port Angeles, WA 98362 Re: Proposed Sale of Waterfront Parcels at 107 and 1.11 East Front St and 110 Railroad Ave (the "Subject Property") Dear Nathan and Members of the City Council: I I have reviewed the proposed land sale ("Subject Transaction") by the City of Port Angeles ("City"), to the Lower Elwha KlallainTribe ("Purchaser"), as reflected in a proposed Agreement for the Purchase and Sale of Real Property ("Agreement") that is attached to the Notice of Joint Meeting published on the City website with respect to ajoint meeting of the Port Angeles City Council and Lower Elwha Klallain'tribal Council scheduled for 10:00ani on September 20, 2018. I want to make clear at the outset that I am not writing this letter to derail the hotel plans. In fact, the hotel has my full support, and I think the Lower Elwha Klallam Tribe is an excellent party to be the developer and owner of the hotel. I have met with City officials and Tribal officials regarding this project. I alerted both parties by telephone that I would be sending this letter. I divide my residence between Seattle and Port Angeles, and I recently became the owner of a waterfront parcel in Port Angeles commonly known as The Landing. The Subject Property is located roughly across the street from The Landing. Professionally, I have 25 years of experience as a commercial real estate lawyer and 15 years experience as a commercial real estate broker. I have been involved in hundreds of commercial real estate transactions, including many contaminated -property transactions. Page 2 SUMMARY OF MY OPINION I write this letter because (a) I think the current structure of the Subject Transaction does not maximize the likelihood that the hotel will be constructed and (b) I think the structure of the Subject Transaction creates unreasonable and avoidable risk to the City. I have come to this conclusion on the basis of 3 fundamental areas of concern: (1) Basic Structure of Subject Transaction Does Not Protect City Interests. Although the City expresses in a range of documents that (a) redevelopment of its waterfront is an important goal and (b) that part of its motivation for consummating the transaction is to have the Subject Parcel redeveloped, there are zero provisions in the Agreement that require or even promote redevelopment of the Subject Parcel. Rather, despite a scattering of non-binding language that serves only to obscure, the true nature of the transaction is a simple and unconditional sale of the Subject Parcel at a discounted price. Here is one example. Although Section 5 of the Agreement discusses redevelopment of the Subject Parcel within 5 years, that language is just filler, with no binding effect. In fact, the Purchaser could let the Subject Property sit in its current unused and deteriorating state indefinitely. And rather than a hotel, the Purchaser (or any other party to which it sells or leases the Subject Property) can establish any of the uses for the Subject Property that are permitted outright by the City Code in the CBD zone, including parking lot, vehicle rental, pawn shop or liquor store. (2) Errors in the Language of the Agreement Itself Render it Unprotective and Litigation -Risky for the City. The Agreement has drafting errors, as identified in Schedule I to this letter. In my opinion these drafting errors make it highly likely that the City will not receive the benefits from this transaction that it anticipates in the ordinary course of business; and that if the City elects to seek those benefits through the Court system, the City will find that the flaws in the Agreement itself render it effectively unenforceable. Here is one example. Section 26(g) of the Agreement has a fatal drafting error. It says that if any of 11 different provisions in the Agreement are found by a Court to be invalid, then the environmental release and indemnity that the Purchaser provides in Section 4 of the Agreement, is also deemed to be "defeated, invalidated and void." That means that the Purchaser would not have any obligation under the Agreement to clean up the environmental contamination, and the City could be sued by anyone for the environmental cleanup costs, with no protection from the Purchaser, despite having provided the Purchaser with a $650,000 credit against the Purchase Price. Page 3 (3) Procedural Flaws. Contracts with tribes are inherently challenging and risky because of the complicated legal status of tribes within United States legal system. There are steps that the City could take to mitigate and reduce its risk in this regard, but it does not appear to have done so. It appears that the City may not be proceeding in a sufficiently cautious manner in light of the challenges inherent in a tribal transaction. Here is one example. The Agreement purports to have 4 attachments, denoted in the Agreement as Exhibits A, B, C and D. Each of the Exhibits is "incorporated into" the Agreement by express language of the Agreement. Therefore the Exhibits are inseparably part of the Agreement. But both the Lower Elwha Klallain Tribe resolution authorizing its execution of the Agreement, and the Notice of Joint Meeting, attach only the main body of the Agreement and not the Exhibits. The omission of the Exhibits renders the resolution and notice incomplete and likely ineffective. And if the resolution and notice are ineffective, then the authorization of the Agreement by the parties is ineffective, and the entire Agreement can be invalidated. NEXT STEPS? I recommend the following: City Council consideration and discussion of the Agreement should be tabled. It will not be helpful to substantively discuss and consider the flaws of the Subject Transaction in an environment such as the Joint Meeting. 2. The current Agreement should be set aside. 'I'he City and Purchaser teams should meet and begin negotiating a new Letter of Intent. 'I'lie new Letter of Intent can retain the basic business terms the parties have worked out over the past few months concerning the purchase price and enviromnental-credit; but the Letter of Intent would reflect transaction structures that are designed to promote the goals, and protect the risks, of the parties. In particular, I recommend that consideration be given to structuring the transaction as either an Option to Purchase, with a timeline and milestones, or as a conveyance with reverter clause. These two approaches can be designed to maximize the likelihood that the Purchaser will construct its hotel, and to minimize the risk to the City in the event that the Purchaser ultimately is unable to construct its hotel for whatever reason. (for example, inadequate capital availability, inability to access construction financing, changing economic climate, unknown site conditions, inability to attract development expertise, internal political issues, etc.) And in parallel with the foregoing, the City can ask the Purchaser to provide an Opinion of Counsel, assuring the City that the Agreement was duly authorized, executed and is enforceable against the Purchaser. Requiring such an Opinion Letter should be standard practice when there is an entity with complicated and opaque internal organizational structures, such as a Tribe. Page 4 PARTICULAR QUESTIONS AND ANSWERS These questions and answers may help clarify why I believe the Agreement is not crafted in a manner that advances the City's interests, May the Purchaser develop a casino on the Subject Property under the terms of the Subject Transaction? Yes May the Purchaser leave the Subject Property vacant and in a state of disrepair indefinitely post -closing? Yes. The City is providing the Purchaser a $650,000 credit in exchange for the Purchaser's agreement to clean up environmental contamination on the Subject Property. If the Purchaser doesn't clean it up, is there anything the City can do? Probably not. See the discussion about Section 4 of the Agreement in Schedule I to this letter. If the Subject Property remains in its current eye -sore state .10 years from now, is there anything the City an do about it? RM Could the City structure this transaction to prohibit a casino, require that the property be kept up, establish enforceable remedies if the contamination is not cleaned up, and recover the Property for beneficial use if it is not redeveloped as a hotel within the stated timeline? Yes, the City could readily achieve these goals. But it did not. The City allowed flaws in transaction structure and documentation to move forward, thereby failing to advance acknowledged goals with respect to the streetscape, economy, business and citizens of the City of Port Angeles. Page 5 I repeat what I said at the outset here, so that there is no misunderstanding. I want to see the hotel built on the Subject Parcel, and the Lower Elwha Klallarn Tribe is a good candidate to build it. Unfortunately, the Agreement was mistakenly conceived, and contains innumerable drafting flaws, and therefore is a poor path forward. The Agreement fails to promote the likelihood of a new hotel on the PA waterfront in 5 years. And the Agreement has terms that increase the City's risk of litigation and loss if it seeks to enforce the environmental cleanup covenants, for which it is providing a $650,000 purchase price credit. I believe that a new agreement can be put in place, using conventional real estate and legal transaction approaches, that appropriately incentivizes the Purchaser to complete its hotel development, and appropriately protects the City in the event that the Purchaser is unable to complete the hotel project. (I would be happy to meet with Tribal and City staff and share my professional expertise toward this end, without charge.) Therefore I recommend that the City Council decline to approve the Agreement at this time. Very truly yours, Erik G. Marks Schedule Flaws in Structure and Drafting of the Agreement cc: Linty Hopie, Lower Elwha Klallam, Tribe SCHEDULE FLAWS IN STRUCTURE AND DRAFTING OF THE AGREEMENT Section 4. mmom, Section 4 is the core of this Agreement. In exchange for a $650,000 credit against the purchase price, the Zn City received the covenants in Section 4. The City did not strike a good deal for itself. Section 4 has flaws that render it toothless and unlikely to be practically enforceable. Definitional Problems. "Environmental Conditions" is defined at Section 4a with a good definition. But that definition is not in fact used in describing the cleanup obligations. Rather, Section 4b (which could have said that the Purchaser must clean up the Environmental Conditions) says something else. "Reasonable Time Period" is supposedly defined at Section 4c, but the definition does not actually describe a time period. Rather, where the definition should appear there are two covenants about remediation of sub -elements of the Environmental Conditions. This means that when other areas of the Agreement use the term "Reasonable Time Period" (e.g. see Section 26b), it cannot be deciphered what that reference means. Further, the final sentence in Section 4c says that the parties may not unreasonably withhold agreement to "amend the Reasonable Time Period." To use the language of our times, wtf does this mean? It is indecipherable and subject to numerous interpretations, and therefore creates significant risk of litigation and unenforceability. "Matters Addressed by the Credit" is defined in Section 4e as "the scope of Environmental Conditions that fall within the Credit ...... The "Credit" is defined at Section 2 as being the sum of $650,000. How can Environmental Conditions fall within a sum of money? This is terribly confusing. Although I can figure out elements of what the drafters may have been trying to say, I cannot figure out what the term actually means. And I really don't understand how the definition of "Matters Addressed by the Credit" differs from the definition of "Environmental Conditions" - as far as I can tell they are intended to mean the same thing. Creating two defined terms with the same meaning violates a fundamental rule of contract drafting and materially increases the risk and uncertainty of litigation about that contract. "remedial action costs" is a term that is used in Section 411 and should be defined but is not. Section 4h is critical - it is the clause where the Purchaser agrees to indemnify the City against cleanup costs. But Section 4h just says the indemnity is for "remedial action costs." Such a term absolutely needs to be defined. Here is a list of costs that would be included when defining such a term; without a definition, who knows if these are costs that the City is or is not indemnified against: investigation, drilling, testing, permitting, DOE fees, legal fees, insurance, engineering, transportation and disposal, excavation stabilization, obtaining easements, post -cleanup monitoring, etc. Page 7 No Environmental Agreement Signed at Closing. In almost all instances where an important covenant survives closing, that covenant will be reflected in an Agreement that is attached to the Real Estate Purchase Agreement and delivered at Closing. In this instance, the terms of Section 4 should have not been incorporated into such an Environmental Agreement that the parties would sign and deliver at Closing, and be bound to after Closing. The Environmental Agreement would generally be recorded in the real property records as well, to provide assurances about future property owners and long term property administration. What are the problems with the approach that the Agreement takes in lieu of the typical documentation? Severability Clause. As explained above in this letter, Section 26g of the Agreement contains an error, such that if any of 11 clauses in the Agreement are invalid, then the entirety of Section 4 is invalid. If this were to occur, the City would have provided a credit of $650,000 and received nothing in exchange. 0 Litigation. If the City wishes to enforce any environmental cleanup provisions, it will have to do so by suing on the basis of a Purchase Agreement that has for the most part terminated, with a few surviving clauses. Such is a messy process and reduces the City's chances of success. Attorney Fees. If the City wishes to enforce the provisions of Section 4 and prevails, you would expect the City to recover its attorney fees. But such is not the case in this Agreement. The attorney -fees clause appears at Section 26d. But Section 26d does not survive closing. And so there is no award of attorney fees to the prevailing party for post -closing disputes. This circumstance is particularly prejudicial to the City, because the City is the party that will have to bring any action, or actions, post -closing to enforce the Agreement. No Recording. Section 4 survives as a cleanup covenant indefinitely post -closing - could be 5 or 15 years. But Section 4 is not recorded and is not binding on successor -owners. And so what happens if the Purchaser sells the Property prior to cleaning it up? Well... nothing. The Purchaser has a covenant to clean it up, but does not have a right of entry. That renders the cleanup covenant impossible to perform, and covenants that are impossible to perform are often deemed unenforceable. Removing the provisions of Section 4 to a separate document delivered at closing and recorded would avoid the problems described above. Language Choices in Section 4 - "Will" v "Shall". First year lawyers learn that the correct use of these terms is important in contract drafting. These terms are misused in Section 4. The term "shall" must be used when there is a covenant by a patty (i.e. a promise to perform a future act). The term "will" does not create an obligation on a party, so it is not used in a covenant. Unfortunately Section 4 uses the term "will" for several covenants of the Purchaser, including the most important covenant - the cleanup covenant at Section 4b. Other clauses in Section 4 that use the term "shall" for covenants include the important clauses at, 4f and 4h. It is a rule of contract interpretation that where different words are used, they will be interpreted to have different meanings. Therefore the erroneous use of the term "will" in Section 4, alongside the correct use of the word "shall" in some instances, Page 8 raises serious questions as to the enforceability of the environmental cleanup covenants in the Agreement. Section 5 - Hotel Development. Section 5 says that the Purchaser intends to develop a hotel on the Subject Property within 5 years of closing. This is 2 years longer than originally stated by the Purchaser, The City should be circumspect about timeline forecasts from a Purchaser that does not have experience developing commercial hospitality properties. And this provision has no enforcement mechanism at all. If there is no hotel there in 3 years, 5 years, 10 years, there is nothing the City can do about it. It does not have to be this way. If the Purchaser does intend to develop a hotel, the Purchaser should readily agree to establishing milestones and deadlines that keep everyone's expectations on -track. Why is the City short -selling itself on such all important provision. Sections 9 and 17 - Title Insurance. Section 9b calls for a standard coverage title commitment, but Section 17d makes it a Purchaser's condition to closing that. the Title Company be prepared to issue an extended coverage policy. While the inconsistency is more of an annoyance than a problem, the condition for extended coverage at 17d is a material concern. Because a survey is needed to obtain extended coverage, and because the presence or absence of a survey is within Purchaser's control (not to mention that in a property like this the survey is nearly certain to identify encroachments), the provision at 17d that makes extended coverage a condition to Purchaser's obligation to close creates, at the end of the day, a right for the Purchaser to terminate the Agreement at any time prior to closing. Sections 20 -Closing Costs and Prorations. This clause just says that the parties will split "closing costs." What are these? No one knows if they are not defined. And they are not defined. The escrow fee is a closing cost I am pretty sure. What about the title policy - is that a closing cost? I don't know. Nothing else in the Agreement says who is paying for the title policy. Appropriate language for a clause like this can be found in any form contract. As for pro -rations? They are mentioned in the heading for the Section, but are not addressed. Nothing in the contract addresses pro -rations. Not a big deal because they probably are minor, but they should be addressed. Section 24 - Payment in Lieu of Taxes Agreement . This clause is in "agreement to agree". Agreements to agree are widely known to be unenforceable. Therefore the tribe is free post -closing to move the property off of the tax rolls, with no offsetting agreement to benefit the City. This problem can be easily remedied by establishing the form and terms of Payment in Lieu of Taxes Agreement today, as an attachment to the Agreement. Section 26d - Dispute Resolution and Waiver of SovereJZLi Iiii qLunijy. • There is no provision saying that Section 26d survives closing. (There is a sentence saying that certain aspects of it terminate at closing, but nothing that says the remaining terms survive.) There is no consent to jurisdiction of Ciallam County Superior Court. Although the Agreement does place venue for any action in Ciallarn County Superior Court, there must also be a consent by the Purchaser, as a sovereign nation, to the jurisdiction of the Court. Page 9 There is no identified method for service of process on the Purchaser. The Tribe must agree that legal process can be served upon it in a certain manner that can be readily achieved. Otherwise it is not clear how one would serve process and begin a legal action. Enforcement of Judgment. Even if the Purchaser is subject to the jurisdiction of Clallarn County Superior Court, and if the Court issues a Judgment awarding specific performance or monetary damages to the City, how will the City enforce that? Certainly there are political hurdles to enforcement. There are also legal hurdles - there is no garnishment or seizure against a sovereign nation for the most part. This is an aspect of doing business with a tribe that must be thought through. The most effective approach is to design transactions so that enforcement through Court action is highly unlikely. This proposed Agreement is quite the opposite - it hands all control over the asset (the real estate) to the Purchaser, and the City's only course of action if things go sideways is to go to Court. And going to Court is likely to be expensive, frustrating and unfruitful for the reasons identified in this paragraph and at other points above in this letter. Section 26(g) - Severability_Qlausq. This provision is supposed to ensure that if one element of the Agreement is unenforceable, the remainder of the Agreement remains enforceable. But in this instance there is a fatal drafting error. In fact, Section 26g says that if any of 11 different provisions in the Agreement are found by a Court to be invalid, then the environmental release and indemnity that the Purchaser provides in Section 4 of the Agreement, is also deemed to be "defeated, invalidated and void." That means that the Purchaser would not have any obligation under the Agreement to clean Lip the environmental contamination, and the City could be Sued by anyone for the environmental cleanup costs, with no protection from the Purchaser, despite having provided the Purchaser with a $650,000 credit against the Purchase Price. END OF SCHEDULE I