News

Griftin' on the Dock of the Bay

Continued from page 3

In response to Ernst's assertion that O'Donoghue is responsible for what happened next, Harrington says, "I'm a friend of Joe's, but he had nothing to do with this." Harrington says he went to Port Commission headquarters at Pier 1 and told port officials to take the amendment off the calendar and to look into the problems with the lease. Noreen Ambrose, the commission's general counsel, says Wong removed the item shortly before the meeting was called to order.

Ernst's luxury yacht scheme appeared to be doomed.

The physical state of Ernst's pier reflects the financial condition of his business.

Wooden pilings that support the pier are rotting away. Most of the shed has no fire sprinklers, though its interior is littered with construction debris, rusting machinery, car engines, and barrels of flammable asphalt. Port engineers say the pier is a danger to the public.

Instead of cleaning up the mess, Ernst spent the summer of 2001 lobbying midlevel port officials for rent breaks. The port allowed him to go into arrears, asking only that he raise a sunken vessel, fix numerous fire safety and building code violations, and return to his original plan of building boat storage racks. Ernst declined to do any of these things; he had found a way to squeeze more money out of the state.

In October 2000, while weighing his request for a second loan, the state Boating Department asked Ernst to list his sources of income, according to e-mails obtained by SF Weekly under the California Public Records Act. A Pier 38 executive replied that berthing boats brought in about $28,000 a month. The executive mentioned that Ernst also made money from subleasing office space and from parking "memberships," but he did not quantify this income, which probably added roughly $15,000 to the total. At the time, Ernst was paying about $45,000 to $50,000 monthly in rent, loan payments, and salaries to himself and two employees. Thus, his expenses offset his income.

In July 2001, the state approved a second loan, for $1.3 million, on the strength of its own financial analysis, which projected that Ernst would be pulling in $220,000 a month by the following year. The income projection included revenues from a boat dealership and a restaurant that Ernst hoped to attract to Pier 38. However, the restaurant never materialized and the boat dealer later backed out.

Less than four months after granting the second loan, the state allowed Ernst to defer making payments on the first loan for a year. Public records show that Donald Waltz, chief of the facilities division of the state Department of Boating and Waterways, then refunded $56,000 of Ernst's previous loan repayments.

Responding to written questions from SF Weekly, Boating Department spokeswoman Megan Standard said the deferral was granted "due to observed poor business activity at Pier 38." She added, "At the time, it was apparent that business operations at Pier 38 were adversely affected by the downturn in the technology industry and the aftermath of September 11, 2001."

With the state recycling his money back to him, Ernst went on the offensive against Mayor Brown. In December 2001, he filed a legal claim against the city alleging that Harrington, the mayor's special assistant, violated city and state law by improperly intervening in "matters pertaining to the lease of property under the jurisdiction of the San Francisco Port Commission." Ernst claimed to have lost income and financing in excess of $25,000 as a result of Harrington getting his lease amendment pulled from the Port Commission agenda.

City officials denied the claim and in June Ernst sued, naming the mayor, Harrington, and the city as defendants. Ernst accused the mayor and his assistant of damaging the Pier 38 project by meddling in Port Commission business.

But Ernst never served his lawsuit on the defendants. He told SF Weekly he would drop it if the commission granted his lease amendment, although he was not optimistic about that. Ernst also said he notified port officials and City Attorney Dennis Herrera about the impending suit -- an apparent effort to use the threatened court action as leverage to get what he wanted from the port.

The suit had the potential to create big trouble for the Brown administration. Ernst's legal argument was aimed at Brown's well-known habit of micromanaging city commissions. The lawsuit sought an injunction prohibiting the mayor from "influencing, or making decisions related to ... contracts and agreements germane to leases of Port property." With hundreds of millions of dollars in port leases and development projects on the table, such an injunction could have crippled the mayor's ability to call the shots at the port.

Before Ernst filed his lawsuit, port officials had doubts about granting the lease amendment they had rejected the previous year, according to e-mails obtained by SF Weekly. Nonetheless, the day after the suit was filed, Port Director Doug Wong faxed a letter to Ernst, telling Ernst that he was now favorably disposed toward his amendment and would put it before the commission.

The second vote on the amendment was calendared for Aug. 27. Ernst and his attorney sat in the back of the glassed-in meeting room at Pier 1, behind rows of port staffers wearing dark blue suits. In a moment of anti-climax, Commissioner Denise McCarthy asked, "Is the lease in good standing? There was a problem." Staffers assured her that everything was in order. Ernst's lease amendment passed unanimously.

Wong did not respond to repeated calls from SF Weekly. Port Commission President Michael Hardeman refused to say if commissioners discussed Ernst's lawsuit prior to the lease vote. He also declined to explain why the commission changed its mind on the issue.

The following day, Ernst -- with $1.3 million in state money on the way and 29 years left to figure out what to do with his leasehold -- was jubilant in an interview. He compared his victory at the Port Commission to the fall of the U.S.S.R., casting the port commissioners as anti-capitalist commissars and himself as a valiant entrepreneur.

But then he was asked some hard questions: Why wasn't he paying city parking taxes? Why wasn't he repaying his state loans? Why didn't he submit proper documentation when filing for port rent credits? Why was he subleasing pier space to nonmaritime businesses, in violation of his lease? What happened to the public promenade, and the boat racks, and the restaurant?

Ernst went silent for a solid minute.

"I am not going to cooperate in the publication of an article that is likely to damage the good working relationship that it has taken me seven years to build with the port," he eventually said. "Any article that goes over the history of this thing can't help me." Then he hung up.

• 1
• 2
• 3
• 4