Somehow, for 24 hours during the summer of 1998, Huntington Beach Mayor Dave Garofalo owned a lavish dream house in the No. 1 location in the No. 1 neighborhood in the city's crown-jewel Holly-Seacliff development.
Yeah, it was only for 24 hours. But Garofalo is a man of modest financial circumstances—and the house was worth more than a half-million bucks.
“Obviously, I don't have those kinds of assets,” Garofalo acknowledged this week.
That raises questions about how Garofalo got the house from Christopher Gibbs, vice president of the PLC Land Co. Gibbs' company built all 2,000 homes in the sprawling Holly-Seacliff project, and for some reason, he grant-deeded one of those houses to Garofalo on March 20, 1998, for no money down.
Gibbs failed to respond to several requests for an interview. But Garofalo insisted the nothing-down deal was common. “No buyer had good-faith money down,” he said—and then added, “I don't think.”
What makes the deal even more interesting is the timing: as the house moved through escrow between March and July 1998, then-City Councilman Garofalo was sitting on a city committee negotiating a deal worth millions to Gibbs and PLC. And it's worth noting that Garofalo helped honor Gibbs with a ride down Main Street in an open convertible during the 1998 Huntington Beach Fourth of July parade.
Then, on July 28, 1998, the day after escrow closed on Garofalo's little mansion by the sea, he suddenly quit-claim deeded the house to George Pearson, a wealthy Huntington Beach businessman and landowner, for $625,000. Garofalo and Pearson go to the same church.
“George is a great guy. He takes priests on vacation,” Garofalo explained. “He takes kids to camp. He does all kinds of great things. Since I don't have those kinds of resources, since I can't compete with [him], this is what I did for the guy.”
A few weeks before, Garofalo had moved into another, smaller house near downtown Huntington Beach. Like most people, he paid for that house by taking out a mortgage. His Cinderella story had ended.
What did Garofalo learn from his 24 hours of livin' large? How did he get first dibs on a property that now ranks as the most expensive in the development? How did he get it without a down payment? Did he ever pay anything for it?
Despite repeated requests, Garofalo failed to provide the Weekly with documents that would explain this strange and serpentine land deal. Requests for copies of canceled checks were met with conflicting, often contradictory excuses.
On April 20, for example, Garofalo faxed the Weekly a statement claiming, “I don't have a copy of that paperwork.” Yet on May 1, Garofalo faxed us copies of three inconclusive documents, all bearing an April 20 fax date at the top—the same day he had denied having any “paperwork” on the deal.
Earlier on the April 20, Garofalo had left a recorded phone message thanking the Weekly for raising the issue of his potential conflict of interest. In that statement, he explained that he had not publicly disclosed buying the Seacliff house because he “took it for granted that any primary residence was exempt from any of those issues.” That would be interesting if it were true: state law suggests that Garofalo should have disclosed his interest in the property before taking any official action on the development.
But in the subsequent faxed statement (the one in which he claimed he didn't have a copy of the paperwork), Garofalo reversed course, claiming that “during the time I entered escrow . . . I found the house I really wanted in another section of Huntington Beach.”
Finally, in an April 28 phone interview, Garofalo explained his failure to disclose his interest in Seacliff this way: “Since the house was acquired and sold in the same year, it didn't need to be reported.”
Contacted at the Seacliff home that is now his residence, Pearson claimed Garofalo was a straw buyer—that Pearson used the mayor's prime position in the sales process to get the house he wanted. “Dave was me,” he said. “All the money was put up by me. I have every canceled check to prove it.”
Pressed for that proof, Pearson said he would pass along the documents to Garofalo. “I'm going to give them to Dave,” he said. “If he wants to give them to you, he can.”
Garofalo subsequently refused to provide that documentation, denying he had received it from Pearson.
“I don't lie for a living,” he said. “If I say I don't have any, I don't have any.”
Whatever the explanation for Garofalo's real-estate adventure with Gibbs, Garofalo's simultaneous role in pushing the city to “refund” millions to Gibbs is clearer.
That role started in 1996, when Gibbs was demanding the city reimburse his company for infrastructure related to the Holly-Seacliff development. Developers commonly build and pay for water, sewage and other facilities as part of their projects. But PLC later claimed that it had built excess capacity into the improvements. The company demanded a refund and financed two studies it said showed that the city should cough up $40 million. But on Dec. 16, 1996, the City Council decided it wanted another study, this one free of PLC influence. That study ultimately showed the city might conceivably owe something like $5 million.
To counter that, the minutes of the council meeting show, PLC official William Holman addressed the council “at the request of Councilman Garofalo.” Holman argued that the city had a “financial obligation” to reimburse PLC. According to the minutes, “Mr. Holman recommended a council committee be formed to study the issue.” Significantly, it was Garofalo who moved that Holman's subcommittee be created, and it was—with Garofalo as a member.
For more than two years, that subcommittee wrangled with PLC over how much money the city should refund to the developers for the excess infrastructure.
Looking back on the subcommittee meetings, “it was obvious that Garofalo was carrying PLC's water,” an observer close to the negotiations said. “It was appalling.” A participant said Garofalo was pushing to give PLC “several million dollars more than what city staff thought fair.” Yet another said Garofalo was “blatantly pushing [PLC's] side against the city. . . . He supported Gibbs' studies.”
Garofalo denies the subcommittee ever discussed dollar amounts but acknowledged that he pushed for the refunds. The city was bound by a 1990 agreement to make its “best effort” to reimburse PLC, and Garofalo insists the legal implications of that agreement were foremost in his mind. “What was driving me was getting the best deal for the city by keeping this thing out of court,” Garofalo explained.
But a source close to the negotiations said Garofalo never mentioned his avoidance-of-litigation strategy during the 1997-1998 negotiations.
“He was not pushing that argument—that the city would get hurt in court—at that time,” said the source. “His argument was simply that they [PLC] deserved the higher reimbursements.”
Late in 1998, with the city and PLC as polarized as ever, the matter was effectively taken out of the subcommittee's hands. Assistant city administrator Melanie Fallon and deputy city attorney Scott Field entered the fray and began to help craft a settlement free from Garofalo's influence.
“The city and PLC were very, very far apart—arguing over amounts of money that were all over the ballpark,” Fallon recalled. “We recommended sitting down and being rational. Regardless of whether Garofalo had any relationship with PLC, he was not at all involved in our negotiations during the past year.”
Ultimately, those negotiations produced an agreement that was approved by the City Council on April 17. It calls for the city to reimburse PLC more than $5 million dollars. That's the largest such outlay in city history but still millions less than some say Garofalo pushed for.
