SACRAMENTO — Thanks to a timely traffic wreck, a Sacramento real estate developer won 57 acres of prime Ranch Murieta property five years ago for just $2,000. And if that came as a shock to the big union pension fund and the bank that lost out in the deal, the bad news just recently got worse for them.
On Nov. 16, a judge gaveled more salt into the wounds of the Operating Engineers Local 3 Pension Trust Fund and the Amalgamated Bank. It came in a tentative decision that established the value of the land at $27 million, or 13,500 times more than what Bruce Palmbaum paid for it at the judicial foreclosure auction.
Palmbaum lucked into the land on Feb. 24, 2004, when the union's representatives showed up about 15 seconds too late to bid at the auction. They said they were held up by a collision that jammed traffic on Interstate 80 in Davis.
Over the past five years, the multibillion-dollar pension fund and the bank that acted as the union's trustee have tried in a half-dozen legal venues to undo the deal. They've failed in each.
One of their arguments was that the sheriff jumped the gun on the posted auction time of 10 a.m. Palmbaum said in a deposition that he knows that claim is bogus because his eyes were glued to the clock — with good reason.
"And I remember 10:10," he said, "because I was trying to calculate how many millions that was per minute."
Edward Mevi, the San Francisco lawyer for the bank and the trust fund, and David Howard, an asset manager for the McMorgan & Company firm, which handled $1.5 billion in investments for the union, drove separately to the auction from their Bay Area homes, according to their testimony in court depositions.
They said the wreck delayed them by 40 to 45 minutes each. The two missed out on the auction by a matter of seconds.
Witnesses said Howard showed up at the sale just when sheriff's auctioneer Sgt. Paul Spreitzer shouted "Sold!"
Neither Mevi nor Howard could be reached for comment. The new lawyers for the union and the bank declined to comment, as did Fred Herschbach, president of the 41,000-member Operating Engineers Local 3.
In the most recent setback for the union, Sacramento Superior Court Judge Brian R. Van Camp issued a tentative decision Nov. 16 to block the pension fund from recouping some of the millions it lost.
Ruling leaves union empty-handed
Van Camp's 18-page ruling denied the union a "deficiency judgment." The debt owed by the ousted owners, Winncrest Homes, stood at $17.8 million. The union argued that the 57 acres were worth substantially less and it was therefore entitled to the difference between the two figures. Van Camp, however, pegged the land's market value as of February 2004 at $27 million — more than what the union was owed then, meaning it would get nothing now.
With the end of the case in sight, Palmbaum appears poised to come out the huge winner. Although the land is nowhere near as valuable now as it was when he acquired it, it's still worth a lot more than the $2,000 he paid.
"Eventually, I think it's going to be a great development piece," he said.
The 2004 auction and this month's deficiency decision are part of a multifaceted legal brawl that's been going on for 16 years over the most disputed parcel in the upscale, 3,590-acre Rancho Murieta subdivision.
Nestled in the rolling, oak-studded hills along the banks of the Cosumnes River in southeastern Sacramento County, the Operating Engineers Pension Trust Fund acquired the land that is now Rancho Murieta in 1968. After chopping the land into developable chunks, the trust fund financed the transfer of the 57-acre Riverview property in 1990 to Winncrest, a mass-scale home builder.
Winncrest stopped making payments in 1993, however, and the union filed a judicial foreclosure lawsuit in Sacramento Superior Court. The union won the land back in a 2000 court decision, as well as the $17.8 million judgment against Winncrest for unpaid principal, interest, taxes, insurance and attorneys fees. The judgment stood up on appeal, and the land went up for sale at the February 2004 auction.
Sgt. Spreitzer, who said he sets his watch by the U.S. Naval Atomic Clock — the so-called official U.S. time — from the Internet, testified in his deposition that he started the sale at 10:01. He said he read the sale notice and opened the bidding. With nobody else in contention, Palmbaum offered $2,000. Spreitzer said he waited a couple minutes for another bid.
"Just about the time I said, 'Sold,' a gentleman I still don't know the name of (Howard) basically at a fast pace, or a run, came through the door," Spreitzer testified. "And he says he was here for the sale. As I recall, he said something about there being an accident, and I told him, 'I'm sorry, but the sale was closed.' "
Mevi arrived a few minutes later.
"I told him that you should either reopen the bidding or accept our bid," Mevi said in his deposition. In court papers, Mevi said Howard was prepared to bid $6 million.
Spreitzer responded that "as far as I was concerned, I conducted the sale properly, and they may have recourse through the courts, but to my knowledge, I know of no reason that I could reopen the sale at that time," according to his deposition.
About two weeks later, First Interstate Bank and the Operating Engineers sued to set aside what their lawyers characterized as a "farcical" sale.
The bank and the union lost at both the trial and appellate courts.
Beaten out of millions of dollars, the union's pension fund turned on Mevi, Howard, McMorgan & Company and a battalion of other lawyers who worked for the operating engineers in a 2006 lawsuit.
"Had competent professional services been provided to Plaintiffs, the property would not have been sold to the buyer for $2,000," said the union's lawsuit against its former lawyers.
The lawsuit said the whole deal wound up costing the union more than $14 million. It settled out of court in June 2007. Terms were not disclosed.