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Nickles takes aim at Peebles, alleges $1.25M in overbilling

By Mike DeBonis

UPDATED 7:45 P.M.

Attorney General Peter Nickles' scorched-earth farewell continues. Today his office filed suit against the owners of an office building at 2100 Martin Luther King Ave. SE, where the city has leased office space for two decades. The owners, Nickles alleges, have overcharged the city government by more than $1.2 million over the past three years.

What makes this more than a simple business dispute is that the building's principal owner is R. Donahue Peebles, who has been a outspoken critic of Nickles' boss, Mayor Adrian M. Fenty (D), and was for months threatening to mount a run against him. He ended up spending nearly $100,000 on an independent campaign aimed at ousting Fenty.

And this isn't just any building for Peebles: This was the mega-developer's first, which he used as a stepping stone to ever-bigger real estate ventures. The building is the foundation of what he now claims is a $4 billion portfolio.

The lease, which dates to 1988, entitles the building owners not only to a monthly rent payment, but also to reimbursements for "any and all expenses ... in connection with the operation, management, maintenance and repair" of the building.

The suit alleges that Peebles' company interpreted that provision loosely.

Most salacious is the allegation that Peebles' company billed the city for $3,700 in political contributions -- $500 to Mark Long, who ran for an at-large council seat in 2008 and is now an aide to Mayor-Elect Vincent Gray; three donations totaling $1,700 to Michael A. Brown's successful campaign for the same seat; $500 to Marion Barry's 2008 re-election campaign; $500 to Ward 2 council member Jack Evans' 2008 re-election push; plus $500 to Miami Beach Mayor Matti Herrera Bower.

The Peebles Corp. had no immediate response to the suit.

Also billed to the city, according to the suit, was a $500 charge for a "fundraiser" at the tony Bath Club in Miami Beach. That fee, the suit alleges, was for a portion of a bill consisting of $1,050 for champagne plus a $1,060 tip. There's also a $5,000 donation to the Anacostia Economic Development Corp. In addition, the owners allegedly billed the city for janitorial services and trash removal even thought the lease states that is the responsibility of the landlord, not the renter. The lawsuit also alleges that the owners improperly billed for management fees, legal and accounting fees, and various business expenses, plus reimbursements for business taxes paid.

The city is suing under the local False Claims Act, which entitles the plaintiff to recover triple damages plus civil penalties and attorney's fees. The complaint claims that the city has already overpaid the building's owners more than $600,000 and seeks well over $2 million in payments.

The lease dates to 1988, when Peebles won a commitment from then-mayor Barry to enter into a long-term lease to put city offices in the building. In his 2007 book "The Peebles Principles," the mogul looked back at what Barry's commitment meant:

I remember that day vividly. ... The bricks and mortar were still to come, but that document meant I would own half of a multimillion-dollar project and would be receiving a mid-six-figure income annually for decades to come.

When I returned to my apartment, at about eight o'clock, a group of my friends were there. To celebrate, my girlfriend had gotten a cake from the Watergate Bakery, a white chocolate mousse cake, and a few bottles of champagne. It was a moment worthy of celebration, a breakthrough moment, the biggest event of my business career to date. It meant that my financial future was set from that moment on. I could quit right there if I wanted to; making half a million a year was more than I'd ever envisioned as a kid, when I was a teenager living with my mother and helping her make ends meet. ...

I didn't have to do another thing except make sure the construction company actually built the building. What a great moment.

The lease expired on Sept. 30, 2009. The city renewed the lease in January for 10 years, with a five-year option.

Shortly after the lease was renewed, the building's owners claimed they were owed about $3 million in excess operating expenses and provided materials supporting their claims. The city then handed over the material to a New York-based auditor to look at the previous three years; the auditor noted the questionable reimbursement requests.

Nickles said in an interview that the lawsuit had its origins in a review of some 70 city leases started more than a year ago by the Department of Real Estate Services. About 30 of them, Nickles said, raised questions.

"This one rose to the top," he said. "There are a number of others we're looking at. ... My guess is that if you went into a lot of these situations, you will find that the city has not been adequately protected." He added that he regretted that the city real estate department had extended the lease.

Nickles resisted suggestions that the suit is part of any sort of last-minute retribution against Fenty's political enemies. He is also facing questions over his subpoena of documents relating to a nonprofit run by Ward 5 council member Harry Thomas Jr.

"I assume that almost anything I do that has merit at this point is going to be read as some attempt to deal with folks who were against the mayor," he said. "That's a very easy, glib kind of response."

Nickles will clearly not be able to see the suit through in the six weeks he has left in office. But what Nickles has done is placed one hot little potato in Mayor-Elect Gray's lap.

Will Gray continue to press a lawsuit that stands to pry a good chunk of cash from the wallet of a guy who played a role in his election? Or will he prove less willing than Nickles to press the suit, and open himself to charges of politics as usual?

Asked how far the case would proceed before the Fenty administration ends on Jan. 2, Nickles said, "We'll see. I think what's important is that there's a formal complaint on the record."

UPDATE, 7:45 P.M.: Peebles issued this statement this evening, which I quote in part:

Today, I was disappointed to learn that the District of Columbia, directed by Peter Nickles, filed suit against 2100 Avenue Martin Luther King Associates, a partnership of which I am a part. This lawsuit is without merit and the allegations made in it are false. Sadly, this action represents another example of a continued pattern of abuse of power under this Attorney General. It is no secret that I have been highly critical of this administration and for good reason. This retaliation does not surprise me; it has become the modus operandi of the Fenty administration over the past 4 years. I know that this is a consequence of my criticism. It is a price I am willing to pay in order to do my part in standing up to an administration that has repeatedly practiced intimidation.

Under normal circumstances, people sit down to work out this kind of disagreement. For example, the District has owed 2100 Avenue Martin Luther King Associates between $216,000 and $326,000 since 2009 and we never demanded payment or even considered filing suit. Going against the recommendation of the Department of Real Estate Services, Peter Nickles has taken the most confrontational path possible by retroactively invalidating a settled agreement the partnership made with Director Robin Eve-Jasper this past Monday and going straight to court. Furthermore, he has issued an inflammatory press release in an attempt to further damage the reputation of our partnership and it's owners.

[..]

The building ownership has and will continue to make charitable contributions and political contributions to worthwhile candidates as is it sees fit. None of these contributions have ever been charged to or paid by the District. To suggest that we would knowingly attempt to charge the District for $3,700 in political contributions and $500 for a contribution for event expenses and risking a $30 million building is simply ridiculous. The lawsuit is based on our unofficial internal documents that were requested by the city and handed over immediately, they were not reviewed by attorneys and our outside accountants and were never represented as an official bill. Nothing was withheld from the District and there was no intent to deceive. Most importantly, no demand for payment was made by the partnership. At best, this is a dishonest application of a false claims suit. At worst, it is a setup.

[...]

Peter Nickles has demonstrated that he is using his government position to pursue a political vendetta. This lawsuit is an attempt to derail the Peebles Corporation's bid for the Stevens School, projects in the region and to embarrass me personally. It is not an accident that Peter Nickles waited for nearly six months before allowing the Department of Real Estate Services to meet with us and file this frivolous law suit. He waited because he knew when it went to court and it was time to prove these allegations, he would be long gone. Nickles has brought this suit within days of his departure from his job and the end of the Fenty Administration with the false sense of security that he will no longer be in office when it is time to prove these baseless allegations and suffer the consequences of his actions. He will be held accountable.

It is sad that in the twilight of the Fenty administration, Peter Nickles is pursuing such a classic case of abuse of power and wasting tax dollars to settle a political vendetta. The Fenty administration will end on the same note of pettiness and retribution which has defined it throughout. Peter Nickles conduct in this matter will remind us of the legacy of Adrian Fenty when this suit fails in court. His legacy will be abuse of power, retribution, and political vendettas. A sad chapter is ending for the District of Columbia.

File photo by Nikki Kahn/The Washington Post

By Mike DeBonis  | November 10, 2010; 12:14 PM ET
Categories:  Adrian Fenty, Don Peebles, The District, Vincent Gray  
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Comments

Note to Peeples: The D.C. Office of Real Estate Services charges District agencies for space that they do not occupy.

Use FOIA and you will see just how dysfunctional it really is.

Posted by: concernedaboutdc | November 10, 2010 1:38 PM | Report abuse

So Fenty renews lease, which probably meant that Nickle's staff reviewed the contract. He was in charge of that department. Another Nickles/Fenty multimillion dollar screw up.

Posted by: emrj | November 10, 2010 3:59 PM | Report abuse

@concernedaboutdc

Please use FOIA to understand why the DC Department of Real Estate Services charge District agencies for space they don't use:

Because of years of poor oversight and management of where agencies had office has lead to unnecessary leases like 2100 MLK throughout the city. With these leases being signed by previous administrations, it cripples the Real Estate Services division in charges that need to be deflected to agencies truly responsible.

As is the case with this lease, it was re-signed because it is likely more cost effective in this economy to keep the services at this location, especially considering there is an income maintenance center in the building for low income families, than it would be to move the services and agencies out of the building completely and into newly constructed District owned space.

So yeah, shame on DC for signing the lease but also shame on former Mayor Barry for locking the District into the lease to begin with... you forget, an office of his is in this location. A council member office should always be in District owned space, not in a handshake deal behind a closed door lease agreement space.

Posted by: DCRealist24 | November 10, 2010 4:31 PM | Report abuse

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