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16-0321_SAN JUAN HILLS GOLF CLUB, LP_Letter Waiver of Conflict of InterestStradling Attorneys at Law THOMAS P. CLARK, JR DIRECT DIAL 949.725.4140 TCLARKOSYCE.COM BRIAN P. FORBATH DIRECT DIAL' 949.725.4193 BFORSATH@SYCR.COM DAVID C. PALMER DIRECT DIAL: 949.725.4148 DPALMER®SYCR.COM STRAOONG YOCCA CARLSON & RAUTH, P.C. CALIFORNIA 660 NEWPORT CENTER DRIVE, SUITE 1600 NEWPORT BEACH NEWPORT BEACH, CA 92660-6422 SACRAMENTO SYCRCOM SAN DIEGO SAN FRANCISCO SANTA BARBARA SAMA MONICA COLORADO DENVER NEVADA RENO WASHINGTON SEATTLE SOUTH COAST WATER DISTRICT 31592 West St. Laguna Beach, CA 92651 C/O: Art Kidman, General Counsel SAN JUAN BASIN AUTHORITY 26111 Antonia Parkway Rancho Santa Margarita, CA 92688 March 21, 2016 CITY OF SAN JUAN CAPISTRANO 32400 Paseo Adelanto San Juan Capistrano, CA 92675 C/O: Jonathan Sandler, Special Counsel Re: Waiver of Conflicts of Interest re San Juan Hills Golf Club, LP v. City of Sari Juan Capistrano and San Juan Basin Authority, Orange County Superior Court Case No. 30- 2014-00742347 Dear Ladies and Gentlemen: This letter is to request your waiver of actual and potential conflicts of interest based upon the representation by Stradling Yocca Carlson & Rauth ("SYC&R") of the San Juan Basin Authority ("SJBA") in connection with the litigation known as San Juan Hills Golf Club, LP v. City of San Juan Capistrano and San Juan Basin Authority, Orange County Superior Court Case No. 30-2014- 00742347 ("Litigation"). As you are aware, on March 4, 2016, the City of San Juan Capistrano ("City") was granted leave to file a First Amended Cross -Complaint in the Litigation. The City's First Amended Cross -Complaint names the SJBA; South Coast Water District ("SCWD") and Santa Margarita Water District ("SMWD"), among others, as cross-defendants and seeks: (1) a declaration of priority of water rights held in the San Juan Basin; (2) a permanent injunction curtailing the extraction of water from the San Juan Basin that interferes with the City's alleged senior water rights; and, (3) economic damages in connection with the allegations made by the Plaintiff, San Juan Hills Golf Club, LP in the Litigation. As a result, SYC&R has determined that an actual conflict of interest exists due to the fact that clients that SYC&R currently represent (i.e. the SCWD, City and SJBA) are adverse to each other in the Litigation. Furthermore, there is a strong possibility that additional future conflicts of interest may arise due to the fact that the SCWD, City and SJBA each claim water rights in the San Juan Basin and the Litigation seeks a judicial declaration of the water rights and priority of those rights held within the San Juan Basin. SYC&R respectfully requests that this request for waiver of actual and potential conflicts be presented and acted upon by the SCWD D OCSOC/17471 SBvl/022027-0007 Re: Waiver of Conflicts of Interest re Litigation March 21, 2016 Page Two Board of Directors and City Council at their next regular meeting. It is anticipated that the SJBA will act upon this request at its next regular board meeting scheduled for March 8, 2016. As you are aware, SYC&R serves as general counsel to SJBA and represents the SJBA in the litigation. SYC&R also acted as bond counsel for the SJBA's Lease Revenue Bonds (Ground Water Recovery Project), Issue of 2002 and as issuer's counsel for the SJBA when those bonds were refunded in 2014. Both of these bond matters involved the City due to the fact that the bonds were issued in order to construct the Ground Water Recovery Plant that the City currently operates. SYC&R has disclosed the foregoing bond matter representation of the SJBA out of an abundance of caution in light of the fact that the Litigation concerns the City's extraction of groundwater from the San Juan Basin that is treated by the Ground Water Recovery Plant. SYC&R is special counsel to the City in connection with redevelopment dissolution and some economic development matters. Specifically, SYC&R's current representation of the City is limited to representing the City's successor redevelopment agency with regard to redevelopment dissolution. SYC&R had previously represented the City as special counsel with regard to land development, public finance and other economic development activity. SYC&R does not believe that its current and past representation of the City as special counsel has resulted in SYC&R obtaining privileged and confidential information that is directly related to the issues in the Litigation. However, if SYC&R had acquired such information, the attorneys representing the SJBA in the Litigation are now barred from accessing such information due to the ethical wall, described in detail below, that has SYC&R has established. It is possible that SYC&R will be asked to represent the City with respect to other matters in the future. Should SYC&R be requested to represent the City with respect to other matters, SYC&R will make all appropriate disclosures and request all necessary conflict waiver at that time. SYC&R is special counsel to the SCWD in connection with public finance matters, including currently pending negotiations with the State Water Resources Control Board on a funding proposal for its sewer system tunnel project. SYC&R does not believe that its current and past representation of the SCWD as special counsel has resulted in SYC&R obtaining privileged and confidential information that is directly related to the issues in the Litigation. However, if SYC&R had acquired such information, the attorneys representing the SJBA in the Litigation are now barred from accessing such information due to the ethical wall, described in detail below, that has SYC&R has established. It is possible that SYC&R will be asked to represent the SCWD with respect to other matters in the future. Should SYC&R be requested to represent the SCWD with respect to other matters, SYC&R will make all appropriate disclosures and request all necessary conflict waiver at that time. Finally, SYC&R previously represented the SMWD with regard to public finance matters. SYC&R's representation of the SMWD ended in July 2013; however, it is possible that SYC&R will be asked to represent the SMWD in the future. In such instance, SYC&R will make all appropriate disclosures and request all necessary conflict waivers at that time. Notwithstanding that a current conflict does not exist with regard to SYC&R's previous representation of the SMWD, SYC&R has included the SMWD in the ethical wall, described below, that has been put in place with respect to the Litigation. DOCSOC/1747188v 1/022027-0007 Re: Waiver of Conflicts of Interest re Litigation March 21, 2016 Page Three Except for the conflicts identified herein that relate to the Litigation, SYC&R does not believe that its representation of the City with regard to redevelopment dissolution is adverse to its representation of the SCWD with regard to public finance. Under rule 3-310(C) of the California Rules of Professional Conduct (a copy of which is attached to this letter), an attorney may not "(1) Accept representation of more than one client in a matter in which the interests of the clients potentially conflict; or (2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or (3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter" unless the attorney or firm has the informed written consent of each client. The purposes of this letter are (1) to inform you of the conflicts of interest that exist due to SYC&R's concurrent representation of the SCWD, City and SJBA, as detailed above, (2) suggest that you retain independent counsel to assist you in your analysis and evaluation of the conflict issues and the effect of the requested waiver, and (3) to seek your waiver of these conflicts. SYC&R has already implemented an "ethical wall" to prevent the sharing of privileged and confidential client information and communications with respect to the actual and potential conflicts of interests identified herein. The ethical wall also bars verbal communication, or communication in any other fashion, between SYC&R personnel involved in the representation of the SCWD, SJBA and the City from discussing that representation with other SYC&R personnel. In short, the ethical wall put in place will protect the privileged and confidential information obtained by SYC&R from each of the SCWD, City, SJBA and SMWD from being shared with or disclosed to SYC&R personnel involved in the representation of the other entities. A detailed explanation of SYC&R's processes and procedure concerning the ethical wall already in place is provided in an attachment to this letter. As a result of the foregoing, SYC&R is required to request a written confirmation from the SCWD, City and SJBA that: (1) these facts have been disclosed; (2) you have been advised to seek independent counsel concerning the actual and potential conflicts of interest; (3) you have knowingly and voluntarily waived any and all actual or potential conflicts of interest in or relating to SYCR's representation of SJBA in the Litigation; (4) you have knowingly and voluntarily waived any and all actual or potential conflicts of interest in or relating to SYC&R's representation of the SCWD; (5) you have knowingly and voluntarily waived any and all actual or potential conflicts of interest in or relating to SYC&R's representation of the City; and, (6) you consent to SYC&R's continued representation of SJBA in the Litigation, the SCWD with regard to public finance matters and the City with regard to redevelopment dissolution and economic development. If any of the parties decline to waive the conflict of interest, SYC&R will recuse itself from representing the SJBA in the Litigation and the SJBA would have to retain new counsel. If SYC&R were to recuse itself from representing the SJBA in the Litigation, SYC&R would be able to continue its special counsel representation of the SCWD and City because SYC&R's representation of the SCWD with regard to public finance and the City with regard to redevelopment dissolution and economic development are unrelated matters and do not result in the SCWD and City becoming adverse to each other. D O C S O C/ 174718 8 v 1 /022027-0 0 0 7 Re: Waiver of Conflicts of Interest re Litigation March 2,2016 Page Four Should you have any questions concerning this letter or the attached consent form, please discuss them with your independent counsel before signing. Very truly yours, Brian P. Forbath David C. Palmer Enclosure DOCSOC/1747188v 1/022027-0007 CONSENT The undersigned hereby waive any actual and potential conflicts of interest or other adverse consequences that may arise from Stradling Yocca Carlson & Rauth's representation of: (1) San Juan Basin Authority ("SJBA") in connection with the litigation known as San Juan Hills Golf Club, LP v. City of San Juan Capistrano and San Juan Basin Authority, Orange County Superior Court Case No. 30-2014-00742347 ("Litigation"); (2) the South Coast Water District ("SCWD") with regard to public finance matters; and, (3) the City of San Juan Capistrano ("City") with regard to redevelopment dissolution and economic development. The SCWD and SJBA are referred to herein as the "Parties." Stradling Yocca Carlson & Rauth ("SYC&R') has advised the undersigned of Rule 3-310 of the California Rules of Professional Conduct, enclosed a copy of Rule 3-310 for the undersigned to review, and explained to the undersigned that there exists presently and in the future may exist conflicting interests in, arising out of or related to the above-described Litigation, continued representation of the SJBA in the Litigation and continued representation of the SCWD and City which might have serious adverse consequences to the undersigned, The undersigned acknowledge having received a copy of the foregoing letter and have read and understand its contents. Furthermore, the undersigned acknowledge that they have been informed and hereby consent to the following: (1) that SYC&R continues to represent the SJBA in the Litigation; (2) that SYC&R continues to represent the SCWD with regard to public finance matters; (3) that SYC&R continues to represent the City with regard to redevelopment dissolution and economic development; (4) as a result of the foregoing representations, the undersigned may obtain confidential information from either of the SCWD, City or SJBA that may be adverse to the interests of the other, and (4) that SYC&R shall continue to represent the SCWD, City and SJBA on other unrelated matters. The undersigned have had an opportunity to consult with independent counsel regarding this matter and any and all actual and potential conflicts of interest. The signatures below are freely and voluntarily given, and are based upon the informed consent of the SCWD, City and SJBA. DOCS OC/ 1747188v1/022027-0007 Consent Page 2 Capitalized words not defined in this Consent shall have the meaning set forth in the accompanying letter dated March 21, 2016 from SYC&R to the undersigned. Dated: 2016 Dated:, 2016 Dated: 2016 DOCSOCI17471 ssv 11022027-0007 SOUTH COAST WATER DISTRICT Andrew Brunhart, General Manager CITY OF SAN JUAN CAPISTRANO e-12 . i 5j<-- nj m ' gel, ity Manager SAN JUAN BASIN AUTHORITY Dan Ferons, Administrator CALIFORNIA RULES OF PROFESSIONAL CONDUCT RULE 3-310 Avoiding the Representation of Adverse Interests (A) For purposes of this rule: (1) "Disclosure" means Informing the client or former client of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to the client or former client; (2) 'Informed written consent' means the clients or former clients written agreement to the representation following written disclosure; (3) "Written" means any writing as defined in Evidence Code section 250. (B) A member shall not accept or continue representation of a client without providing written disclosure to the client where: (1) The member has a legal, business, financial, professional, or personal relationship with a party or witness in the same matter; or (2) The member knows or reasonably should know that: (a) the member previously had a legal, business, financial, professional, or personal relationship with a party or witness in the same matter; and (b) the previous relationship would substantially affect the member's representation; or (3) The member has or had a legal, business, financial, professional, or personal relationship with another person or entity the member knows or reasonably should know would be affected substantially by resolution of the matter; or (4) The member has or had a legal, business, financial, or professional interest in the subject matter of the representation. (C) A member shall not, without the informed written consent of each client: (1) Accept representation of more than one client in a matter In which the interests of the clients potentially conflict; or (2) Accept or continue representation of more than one client in a matter in which the interests of the clients actually conflict; or (3) Represent a client in a matter and at the same time in a separate matter accept as a client a person or entity whose interest in the first matter is adverse to the client in the first matter. (D) A member who represents two or more clients shall not enter into an aggregate settlement of the claims of or against the clients without the informed written consent of each client. Page 1 oft DOCSOC/1747188v 1/022027-0007 (E) A member shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the member has obtained confidential Information material to the employment. (F) A member shall not accept compensation for representing a client from one other than the client unless: (1) There Is no interference with the member's independence of professional judgment or with the client -lawyer relationship; and (2) Information relating to representation of the client is protected as required by Business and Professions Code section 6068, subdivision (e); and (3) The member obtains the clienPs informed written consent, provided that no disclosure or consent.is required if: (a) such nondisclosure is otherwise authorized by law; or (b) the member is rendering legal services on behalf of any public agency which provides legal services to other public agencies or the public. Page 2 of 2 DOCSOC/1747188v 1/022027-0007 Ethical Wall Processes and Procedures Stradling Yocca Carlson & Rauth ("SYC&R") has already implemented an ethical wall to ensure that privileged and confidential information learned by SYC&R as part of its representation of the South Coast Water District ("SCWD"), City of San Juan Capistrano ("City") and San Juan Basin Authority CUBA") is not shared between the SYC&R attorneys representing the SCWD, City and SJBA. The ethical wall separates SYC&R's Newport Beach Public Law Litigation group, the team representing the SJBA in the San Juan Hills Golf Club v. City of San Juan Capistrano, et al. ("Litigation"), from the rest of the firm. The Newport Beach Public Law Litigation group is comprised of David Palmer, Allison Burns (shareholder in charge of group), Colin Hendricks (associate), Izelly Curran (paralegal) and Alicia Elam (secretary). The Newport Beach Public Law Litigation group are the only attorneys and support staff who are allowed access to the files and records associated with the Litigation. Conversely, the Newport Beach Public Law Litigation group is barred from accessing any records, files, billing entries, etc. related to Stradling's representation of the SCWD, City and Santa Margarita Water District ("SMWD").' The ethical wall barring the Newport Beach Public Law Litigation group from accessing these records and files is not limited to any specific matter or time period but, instead, bars the group from accessing any file or record associated with the client numbers that have been assigned to the SCWD, City and SMWD. To ensure that the ethical wall is not accidentally breached, SYC&R's records department has designated attorneys and staff members as either "allowed" or "denied" in SYC&R's records management system. SYC&R's records management system tracks all files as 'checked -in," meaning the file is located in the records department, or "checked -out," meaning in the file is in the possession of a certain identified attorney or staff member. If anyone attempts to check out a file that is subject to the ethical wall, the records system will indicate that the file is subject to the ethical wall and will identify those individuals that are and are not allowed access to the file. As part of its standard procedures, SYC&R's records department will not allow those persons who have been listed as "denied" to access any file, record, information, etc. without first obtaining express permission and direction from the attorney who had the ethical wall established. Additionally, SYC&R's records department has placed stickers, a copy of which is embedded below, on all files associated with the SJBA, SCWD, City and SMWD. The stickers will serve as a fail-safe and act as a constant reminder to all persons who handle the files to respect the ethical wall. SYC&R previously represented the SMWD with regard to public finance matters. SYC&R's representation of the SMWD ended in July 2013; however, it is possible that SYC&R will be asked to represent the SMWD in the future. In such instance, SYC&R will make all appropriate disclosures and request all necessary conflict waivers at that time. Notwithstanding that a current conflict does not exist with regard to SYC&R's previous representation of the SMWD, SYC&R has included the SMWD in the ethical wall Pagel of2 DOCS OC/1747188v 1/022027-0007 Stradling ' Atturnnpsat Law ********ETHICAL WALL********* RESTRICTED ACCESS Contact NB Records for Information SYC&R's I.T. department has also established similar restrictions for SYC&R's electronic records. SYC&R uses an electronic data management system that saves electronic records by client and matter number. SYC&R's electronic records have been restricted based upon client number. As a result, the Newport Beach Public Law Litigation group no longer has access to any electronic record saved under the client numbers assigned to the SCWD, City and SMWD. Conversely, the Newport Beach Public Law Litigation group are the only individuals within the firm that have access to electronic records associated with SYC&R's representation of the SJBA in the Litigation. Newly created electronic records will be similarly restricted. The ethical wall also encompasses SYC&R's billing system. The Newport Beach Public Law Litigation group is now barred from making any entry in SYC&R's billing system with respect to the client numbers assigned to the SCWD, City and SMWD. Conversely, the Newport Beach Public Law Litigation group are the only individuals who can make billing entries with respect to SYC&R's representation of the SJBA in the Litigation. Finally, the ethical wall also bars SYC&R personnel involved in the representation of the SCWD, SJBA, City and SMWD from engaging in verbal communication with, or communicating in any other fashion, with the other SYC&R personnel involved in the representation of each of the other entities. A detailed explanation of the ethical wall's bar of verbal and non-verbal internal communications are set forth in the attached memo that has been sent firm -wide to all SYC&R personnel. Page 2 of DOCSO C/1747188v 1/022027.0007 STRADLING YOCCA CARLSON & RAUTH, P.C. MEMORANDUM To: All Firm Personnel RLE NUMBER: FRom: David C. Palmer DATE: March 18, 2016 SUBJECT: Ethical Wall: San Juan Basin Authority, South Coast Water District and City of San Juan Capistrano SYCR has implemented an ethical wall with regard to its representation of the: (1) San Juan Basin Authority ("SJBA"); (2) South Coast Water District ("SCWD"); and, (3) City of San Juan Capistrano ("City"). SYCR acts as general counsel to the SJBA and represents it in litigation known as San Juan Hills Golf Club, LP v. City of San Juan Capistrano and San Juan Basin Authority, Orange County Superior Court Case No. 30-2014-00742347 ("Litigation"). The SJBA is a defendant and cross- defendant in the Litigation. SYCR also currently acts as special counsel to the SCWD in connection with public finance matters, including currently pending negotiations with the State Water Resources Control Board on a funding proposal for its sewer system tunnel project. The SCWD is a cross-defendant in the Litigation. SYCR also currently acts as special counsel to the City in connection with redevelopment dissolution and some economic development matters. The City is a defendant and cross-complainant in the Litigation. Actual and potential conflicts of interest have arisen due to the above identified concurrent representation necessitating the implementation of the ethical wall. The ethical wall we have put in place means that: • The only SYCR personnel who will do work with respect to the Litigation are: Allison E. Bums, David C. Palmer, Colin A. Hendricks, Kelly E. Curran and Alicia C. Elam ("Public Law Litigation Department"). • SYCR personnel involved in the representation of the SCWD and City shall not discuss or otherwise communicate with the Public Law Litigation Department about SYCR's representation of the SCWD and City. • The Public Law Litigation Department shall not discuss or otherwise communicate with other firm personnel about SYCR's representation of the SJBA in the Litigation. • The Public Law Litigation Department shall not receive or review any correspondence, documents or files regarding SYCR's representation of the SCWD and City. DOCSOC/1727348v 7 /022027-0000 Ethical Wall March 18, 2016 Page Two • SYCR personnel involved in the representation of the SCWD and City shall not receive or review any correspondence, documents or files regarding SYCR's representation of the SJBA in the Litigation. You are required to maintain this ethical wall at all times. There can be serious consequences if the wall is violated. If you have any questions, please feel free to discuss this with me further. Thank you. DOCSOC11727348v1l022027-0000