This is a story of trust and finance, passion and politics, of do-gooders and a vision for San Diego, all revolving around the 110-room Horton Grand Hotel in the Gaslamp Quarter. With its touted “gracious antiques” liberally supplemented with Pier 1 wicker furniture and fresh flowers from a home garden, the Horton Grand has held up better than one would expect, having endured bankruptcy twice in nine years and now under a state receiver’s sharp eye.
Toyota dealer John Rose and his wife, Dori, recently foreclosed on the hotel, legally converting debt into ownership, and have embarked on new business at a time when, by all rights, they should be slowing down and playing with their great-grandchildren.
Dan Pearson, the visionary behind the hotel project, has lost more than $230,000 in equity in the property and is trying to pick up the pieces and move on. While he admits “the bell has been rung, and it can’t be un-rung,” a part of him still hopes the last ten years of his professional life will be vindicated by an investigation by Mayor Susan Golding's office into one small, albeit pivotal, piece of the hotel deal.
Fifteen years ago, as city leaders wrestled with the sweeping, multimillion-dollar revamp of downtown San Diego, they had to balance the decision to make Horton Plaza the revitalization centerpiece with a political sensitivity to preservationists’ concerns for the area’s historic buildings.
Assembling the land for the seven-plus-block Horton Plaza meant purchasing and demolishing a number of buildings, the Horton Grand Hotel (circa 1886) among them. In 1979 one of Dan Pearson’s duties as a consultant to the city for the Gaslamp Quarter was to conduct tours for interested parties through those lower downtown streets. The F.M. Hendrickson Development Co. of San Francisco had been successfully converting small, old hostelries into luxurious bed-and-breakfast inns and saw a similar potential in the Horton Grand.
Pearson, who had long been involved in Gaslamp development (the Grand Pacific SRO Hotel and the original Gaslamp Quarter Theatre, along with entrepreneur and later, wife, Kit Goldman), cut his consultancy ties with the city in order to develop the B and B. In 1980 Pearson and the San Francisco group approached the Center City Development Corporation about dismantling the hotel and reassembling it outside of the shopping center footprint — a win/win for preservation and development interests. The CCDC quickly agreed and threw in $300,000 worth of cash, land, and improvements on Island Avenue, bounded by Third and Fourth Avenues.
Pearson was to provide equity and develop the 32-room B and B; Hendrickson was to find financing and operate it. They wanted to time construction to coincide with the Horton Plaza opening, late 1983, and figured they had a couple of years to pull it all together,.
While the building was demolished and every salvageable piece of brick, mortar, and bric-a-brac (reportedly, 40 tons of it) carefully cataloged and stored, Pearson started looking around for money.
A number of friends and acquaintances who had a soft spot for the Gaslamp were the first folks in. “It was more an emotional than financial decision to invest — in San Diego as a community and in Dan and Kit for what they were trying to do,” said George Driver of Robert F. and Co., long-time civic activist. “That project could have set the stage, led the way for other projects there.” Pearson also called on an old Naval Reserve buddy Steve Stevenson, to help locate equity partners, for a fee. Stevenson’s pitch had something for everyone: the emotional component of civic activism, the investment in a small and refined establishment, and a historical-property tax credit of 20 to 25 percent. So, to pull the building down in 1982, the Horton Grand general partners put in $140,000, and 35 limited partners anted up $60,000. That was a nice little project, and probably doable, said Pearson, with 20/20 hindsight. But “as we put pencil to paper, the numbers [for a 32-room B and B] didn’t work,” even though everything had been set in motion.
Out of the blue, an opportunity presented itself. The Salvation Army tagged for demolition another dilapidated but historic property, the Kahle Grand Saddlery Hotel. By playing with the design and joining the two structures, Pearson and architect Wayne Donaldson came up with a plan for a 110-room hotel, “which took us beyond that economic never-never land of trying to run a hotel with less than 100 rooms.” Again the CCDC gave its blessing, land, improvements, and cash worth $300,000. By 1983, 40 tons of warehoused historic rubble had grown to 80 tons.
Stevenson went back to the streets and conjured a little more than $100,000 from investors, but conventional construction financing for $10 million was not to be found. Throughout 1984, Pearson, et al., wheeled and dealed and came up with $8.1 million in a historic industrial revenue bond, sold by PaineWebber and serviced by Bank of America; a $1.05 million loan from the U.S. Department of Housing and Urban Development, compliments of the CCDC; and the CCDC kicked in another $300,000.
Pearson’s flair for dramatic publicity reaped rewards throughout the year it took to build the hotel. Glowing newspaper reports on foundation holes and topping-off ceremonies culminated with a June 1, 1986 opening day. Dignitaries arrived in turn-of-the-century finery to enjoy the festivities. But there was a cloud over 311 Island Avenue. Not that the hotel wasn’t lovingly restored or handsomely crafted. Not that the staff wasn’t gracious and the downtown denizens thrilled. It was something else.
“Every time Dan turned around, there seemed to be another problem not of his making,” reflected one investor. Worse-than-expected soil projections compounded the rain delays during construction. The Convention Center opening, the marketing peg for the Horton Grand, was delayed twice. “Yes, it went through my mind that perhaps he wasn’t savvy enough to deal with the pitfalls and problems that were apparent from the beginning. Or was he snakebit, and this was just not meant to be?” the investor mused.
The refined little hotel was opened with virtually nothing in reserve because of unforeseen cost overruns, no takeout financing at the end of construction, and a huge debt nut of $95,000 a month. In essence, it opened bare.
Risk-taking runs deep in Dan Pearson’s family. “There were 8 [siblings] in my dad’s family and 11 in my mother’s.... Every single one of them was an entrepreneur, from cesspools to car dealerships. They all signed their own paychecks.” In his hometown of Ft. Wayne, Indiana, he was president of his high school classes and eventually president of his college fraternity. So in 1962, when his counselor at Indiana University said it was time to run the senior-year job interview gauntlet, Pearson responded, “No way. I wouldn’t be allowed to go home again if I worked for someone else.”
Before he found his entrepreneurial niche, he spent four years as a supply officer in the U.S. Navy based out of San Diego. After a couple of tours of duty in Vietnam, he returned to San Diego State for graduate work in finance.
At SDSU Pearson worked part-time on a professor’s outside project, a feasibility study to set up a cattle-feeding operation, which, in the hot stock market of the 1960s, was one of several popular types of tax shelter businesses. With his partners, Pearson worked day and night on realizing the plan, eventually seeing the company grow to $20 million in annual sales. Pearson’s first marriage disintegrated in 1976, he said, because of his “mistress,” Alvarado Cattle, and he cashed out.
For 18 months he devoted himself to international travel and introspection. “I had been charging hard for the last eight years, I had lost my marriage and needed some time to get comfortable again with the person I was — or thought I was.” He discovered his happiest times were those during which he was “working for a cause bigger than myself.”
He returned to San Diego and “got wandering around downtown,” where he bumped into Tom Hom, whose family pioneered the Gaslamp Quarter resurgence. “I spent hours talking with the Homs and was intrigued by this community trying to get something done,” so he signed on, first with Hom and then with the City of San Diego, to work for the Gaslamp cause.
Pearson and current wife. Kit Goldman, a downtown theater entrepreneur and actor, are one of those couples who will end up finishing one another’s sentences when they’re older. In separate conversations, they make the same points and use some of the same punch lines. Tall, glib, and passionately involved, the couple has been the Gaslamp’s reigning king and queen for the past decade. “We have the actor and the businessman,” Pearson said with a laugh. “Whenever I’d go to her art or theater events. I’d be ‘Mr. Goldman’; she’d come over to the hotel and be ‘Mrs. Pearson.’ Our egos were so totally involved with our respective work that it would be a nice break.”
Within six months of the Horton Grand opening in June of 1986, Pearson went back to the limited partners with an idea for a third partnership. Horton Expansion Partners would fund equipment and marketing that the stretched opening budget couldn’t manage and also “study further expansion.” This partnership drew $ 1.1 million and then was merged with the two others under the name of Horton Grand Saddlery Joint Venture.
About a year later, Pearson launched yet another plan, the Horton Grand Offices partnership, originally envisioned “as a separate entity altogether...no real association with the hotel.” The partnership developed an office building alongside the hotel’s Fourth Avenue flank, with Kit Goldman’s new theater housed on its ground floor. The general partners gathered about $1 million in equity, along with a $1.6 million loan from Home Federal Savings and a City of San Diego grant for $159,000. To make the deal pencil out, the tiny theater company was saddled with rent of $8700 a month, which later would climb to $10,000.
Pearson kept the limited partners in both the hotel and the office/theater projects informed through regular, chatty letters Pearson and the accountant’s or hotel bookkeeper’s (usually late) K-l tax forms. For the first year or so, the hotel held its own. It ran at a loss, but tax credits kept up with the investment, so no one thought much of it. But as time went on, one investor after another started wondering aloud about the lack of audited financials. Among the questioners was John A. Rose.
Like others. Rose had been caught up in the excitement and promise of what the Gaslamp could be. He had invested $25,000 in the first partnership, $50,000 in the second, and so on, he recalled, in $25,000 increments, for a total of $250,000. “Dan was working so hard, trying to do everything,” Rose said in an interview, “so I didn’t push it.”
Again, events eclipsed efforts. In 1988 more than 2000 new hotel rooms opened downtown, all pegged to the expected 1987 Convention Center opening. But as it turned out, the center would not open until 1989, and in the interim, instant oversupply sent occupancy and room rates into a competitive tailspin. The Horton Grand’s operating losses suddenly became a liquidity crunch. The monthly debt nut, which had grown to about $105,000, wasn’t being paid, nor were suppliers or city and county taxing authorities. Technically, the Horton Grand was busted.
The general partners cast about for help and found the Continental Companies willing to take a joint venture partnership position to operate the hotel, widen its market, and assist in another expansion of the little jewel into a 300-room facility. A new set of consultants told Pearson and partners that many more opportunities and efficiencies would accrue to a hotel that size. Continental was signed on and took over on August 1, 1989.
Once again, Pearson told the now 100-plus limited partners of the “exciting opportunity” to cement their eroding equity position by participating in yet a fourth partnership, the Chinese Regal Condominiums. The name paid homage to the old Chinese Stingaree district in which the Horton Grand was now sited. Attached to the back of the hotel and fronting on Third Avenue, the Chinese Regal’s units would be individually owned but managed and leased by the hotel as its luxury units. The ground floor would include a banquet hall and ballrooms; the basement could be leased by the hotel for extra storage and office uses.
Pearson recalled that the plan was to underwrite the construction of the 24 units through the Chinese Regal partnership but then dissolve the partnership and let each condo owner provide his or her own financing, allowing owners to find whatever arrangement was comfortable for them. But Chinese Regal lender Home Federal rewrote those terms for its participation so investors stayed linked.
“I think when Dan started this initially, he totally believed in the whole project and put his heart and soul into it. I thought we were going to make some real money with this thing,” said attorney Frank Frye, whose family trust is an investor in Chinese Regal. “But the project fell into so much trouble...in retrospect, we should have removed Dan as the general years ago.”
Phase One, the first 24 units, would be completed by 1990. Phase Two would have added another 150-plus rooms at the back end of the block by mid-1992.
The general partners asked hotel consultants Pannell Kerr Forster for an appraisal of the Horton Grand and related projects, and in late 1989, evaluating only paper and promise, they came up with a total of $22.2 million. Suddenly the $ 12 million to build the hotel, plus the additional millions of dollars of expenditures, seemed to fall right in line. Perhaps the hotel was barely scraping along, but the consultants’ report touted its worth at one-third again that amount.
Energized, Pearson went again to the partners, who approved a ballot item to raise $5 million from outside sources in order to pay off the CCDC’s second trust deed of $ 1.5 million and convert the upper floors of the adjacent office building into hotel rooms. In spite of the glowing Pannell Kerr Forster valuation, no conventional lenders could be enticed.
Pearson then went to a substantial limited partner, his trusted friend John Rose. On a handshake in 1989, he handed over $800,000 of a $2 million Rose Family Trust investment at 12 percent interest, due and payable in 18 months. In return, Pearson signed over 5 percent of his personal equity position, and the Roses took their place as third trust deed holders, behind the Bank of America’s now $9.5 million first and the city's second. While Rose is well-he did not have, as he put it, “an extra $2 million lying around,” so he arranged a line of credit with Citicorp on which he paid it $17,000 a month for the next 18 months.
The hotel needed that $2 million to break free and clear. It brought suppliers' bills current, along with property and federal tax and transient occupancy tax; performed deferred maintenance; and banked a reserve as a cushion for Rose's interest. “In retrospect, I feel stupid," said Rose. “But I believed Dan, I believed the con-report, and I believed that in 18 months we'd sell the hotel and everyone would be made whole."
That was not to be. First, the much-ballyhooed management agreement with the Continental Companies was terminated for alleged vent after only six months. In the wake, Pearson found that the managers had increased room rates, expenses had gone up, and occupancy had plummeted. Losses were increasing geometrically. To top it all off, Pearson claims he found evidence that suggested that on the day of termination, two Continental staffers had made about $70,000 in unauthorized withdrawals. Pearson alerted the limited partners in a detailed letter and promised quick legal follow-up. He also notified the district attorney's office, he says.
Despite the allegations that Continental had absconded with cash and breached contracts, Pearson said he was advised that trying to sue in the company’s home state of Florida would be an arduous and iffy process. “We also felt we had four years under the statute of limitations, and I had more pressing problems, like keeping the doors open. I was on the floor, bleeding. I decided to fight that battle another day.” But ultimately that day would never come.
In mid-1990, the limited partners were polled again. Would they rather provide a $1 million capital infusion or sell the hotel? A resounding 98 percent of the respondents voted to sell — and soon. They established a deadline of March 1991 and engaged Paribus Properties to find a buyer.
But it was too late. By the closing months of 1990, the recession had taken hold. New banking laws had lenders closing their pocket books to new projects and pressing for monies due. The Gulf War knocked out most international travel. And hotels were going broke at the rate of hundreds a month.
Pearson’s February 1991 report to partners acknowledged that any offer by deadline could well mean they would lose all their equity. Then he continued on for pages about future hotel performance, the promise of 1992’s America’s Cup races, and enclosed yet another ballot asking the limited partners whether they wanted to ante up yet another $1.2 million to make up for the more than $4 million in unprojected losses that had ballooned the monthly debt service to more than $1.2 million.
“When I saw that, I went back to my files to see if my eyes were playing tricks on me,” recalled one limited partner. “Nope, I was right. Even in the best of times — about a year into the hotel — there wasn’t enough plain old operating income, forget expenses, to pay that debt. Not even close.”
This was also the point at which Rose’s 18-month loan was due. But Horton Grand certainly couldn’t pay it, not with Bank of America’s first trust deed and the city’s second having priority. Citicorp, in the grips of the fiscal austerity of the early 1990s, sincerely regretted that it couldn’t renew Rose’s loan without a new appraisal of the varied Rose real estate and business holdings, which would cost him an additional $80,000.
“That’s when I knew we had to talk seriously, really seriously about things,” said Rose. “I needed my money back for another commitment. What I thought I was doing was helping the hotel over a rough spot and saving my other investments in it.”
So, beginning in March 1991, Rose and Pearson held a series of meetings, which included their advisors — Azim Khamisa, president of Sovereign Capital, for Pearson; and Pete Davis, president of Bank of Commerce, for Rose. The meetings usually took place on Mondays at the Roses’ Del Cerro home, “because the marshal was over at the hotel attaching things, so we couldn’t meet there,” Rose recalled. Dori Rose added that she often served coffee and pastries for the group.
The issue on the table, according to Pearson, was devising a plan to restructure the staggering debt load to save the hotel, pay off creditors, and save some equity. Rose’s recollection was simpler. “I wanted my money back, and I was willing to help any way I could. But I made it very clear. Not one more dime would I spend on this thing. I wanted out.”
Pearson, Rose, and their advisors met about two dozen times (although the exact number is disputed). “Poor Dan would look so frazzled, my heart just went out to him,” said Dori Rose. Indeed, recalled Pearson, “I was frantic, trying to renegotiate the debt” with Bank of America, the city, and the Roses. Khamisa suggested one restructuring plan to the city that would have cut B of A’s $10.4 million first trust deed to a face value of $6 million, the CCDC’s $ 1.5 million second to $667,000, and Rose’s $2.2 million third to $917,000. In the plan, Khamisa also introduced a “mezzanine” debt level, a “new infusion of capital lead by Pearson and Rose, who will look to other substantial equity partners in this project.”
While Bank of America at first seemed amenable to restructuring the Horton Grand’s loan, its merger with Security Pacific National Bank in late summer of 1991 scuttled that plan. But the giant bank was willing to discuss outright sale of the note at a deep discount — anywhere from $3 million to $3.5 million — before October, when they planned to foreclose. All of this and more were discussed at the Del Cerro meetings.
While the bank was willing to take a bath on the note rather than foreclose, it did want to make sure there was actual cash behind any offer. On September 30, 1991, after B of A expressed skepticism about the hotel’s ability to raise money, Pearson, Rose, and their advisors met, and the group begged Rose to call Bank of America to vouch for the cash-worthiness of the group’s offer. But he balked. Rose said, because of his vow not to “go any further with this thing. Not another cent would I pay. It’s that simple.”
In the end, Rose agreed to call the bank but said he would deny any expectations that he supported another investment. Rose claims he told the September 30 group, “I’m not going to say what you want me to say.”
Rose said his opening statement to the bank loan officer on October 1 was, “I’m calling to tell you firsthand that I am not behind the Horton Grand. I want out, not in.” But by the end of that conversation, he said, the officer had suggested that Rose consider making an offer for the note since “I’d have $2.5 million I was going to lose if the bank foreclosed. I told [the banker] I had to talk with my family.”
Rose claims he called Pearson within two days and recounted the Bank of America conversation, except for the bottom-line asking price of $3 million. “I told him to line up his investors and get me out of the deal.” Rose embellished this recollection with a story of Pearson bemoaning the fact that his fragile truce with suppliers, negotiated during the restructuring, would “land on him once this got out.” At this point, the weekly meetings stopped.
Pearson, however, says Rose’s rendition “is an outright lie.” He not only did not receive that October call, he said, but also had no clue that Rose would actually consider buying the first trust deed. Pearson said Khamisa had an inkling of Rose’s negotiations with B of A, but Pearson swears he was “in the dark” until November 26, “which led to a mad scramble for six weeks, trying to better his offer” of $3.02 million.
Pearson also said that he then had an “open, honest, nose-to-nose conversation” with Rose, recapping that the limited partners’ money was gone, suppliers’ money was gone, Rose’s third trust deed was gone, so “let’s at least try to keep our reputations intact” by not bidding against one another. “He didn’t quite see it the way I did.”
The limited partners again received a communiqué from Pearson, which was a copy of his December 16,1991 letter to Rose, throwing down the gauntlet: “[Y]ou have informed me that you intend to purchase this position and foreclose out all of the other partners. This is not legally and morally correct.... [I]f you now proceed to purchase the B of A position, you proceed at your own risk.”
Although a last-ditch fundraising effort allowed Pearson’s group — which now included outside investors Joseph Mawad of MAC/NA and Paul Denyer — a $3.05 million bid to B of A, the bank chose Rose’s $3.02 million offer. That transaction closed on February 13, 1992. The next week, general partner Pearson threw the hotel into Chapter 11 bankruptcy.
“I knew [Rose] was going to foreclose, and it would be less than honest of me to say that my motives [in filing bankruptcy] were completely pure. But if through reorganization we could pay back even 15 or 20 cents on the dollar to some of our trade creditors.... [A]nyway, I decided to file Chapter 11 and to sue John personally for stealing the deal.”
The hotel’s breach of fiduciary duty lawsuit, filed in superior court against Rose, eventually became part of the bankruptcy case brought before Judge Louise Adler. After ten days of testimony from the principals and a number of witnesses, it came down to Pearson’s contention that Rose concealed his efforts to buy the note versus Rose’s testimony that he told Pearson about his plans as the only way to save his years of investments.
The judge discounted conflicting testimony and based her decision on “events in conduct.” In November 1992, she ruled, “It is simply not believable that Mr. Pearson and Mr. Khamisa would have learned that Mr. Rose was not joining them in their effort to purchase this note and hereafter do nothing to raise alternative sources of capital. There is no evidence of effort to raise capital, indeed the frantic efforts to raise capital, until after November 26, 1991, when Mr. Rose attended a meeting...in which he announced he was acting on his own.”
Her ruling said that Rose used privileged Horton Grand information (knowledge of Pearson’s and Khamisa’s machinations to save the hotel) to make an individual investment. As the penalty, the judge declared the note enforceable only to the amount paid ($3.02 million) despite its face value of more than $10 million.
Pearson’s lawyers also had requested that first trust deed be stripped of its secured status, be moved in priority behind other creditors’ claims, and be lumped into the limited partners’ return. Judge Adler drew the line at those “drastic remedies.”
Like many self-made men, John Rose, in the words of one admirer, “is often wrong but never in doubt.” He is sincerely one of those American-fiag-on-his-lapel, Shriner past potentate, his-handshake-is-his-bond type characters that communities nurture. Before all of this happened, he was content to attend his civic meetings, sit on his boards (he is chairman and largest shareholder at the Bank of Commerce), play with his great-grandchildren, and generally enjoy the fruits of his labors.
Instead, Rose is spending time, money, and emotional energy in the courts solely on the principle of clearing his name. That few San Diegans even knew of the messy legal proceedings surrounding Judge Adler’s statements that she did not believe Rose’s testimony or that of his wife and witnesses makes little difference to this proud man.
His first appeal rebuffed, he is now awaiting a ruling from the U.S. District Court of Appeals, which heard his attorney, David Gallo, this past March. In a tape recording of that hearing, one judge in particular seemed sympathetic to Rose’s arguments.
“We’ve been here in San Diego a long time,” Rose said in a recent interview, “and I am not what I was painted to be in [Judge Adler’s] courtroom.”
John Rose is a 75-year-old traditional businessman. He is of the old school, which took its chances; he worked hard to make it and now husbands the fruits of his labors. He has never done things halfway. He and Dori, his wife of 49 years, live in the same Del Cerro home they moved into 30 years ago. Together they built their business, their nest egg, and their life.
Fresh from the Merchant Marine after World War II, John Rose opened a garage in Venice, California, where he was fortunate enough to land the contract for police department towing service. After he met and married Dori, he relocated the business to the San Fernando Valley. “But one day, as we were working, we looked up and saw the blacktop bubbling. We knew it was time to move.”
The Roses opened their towing business at Marlborough and University Avenues in San Diego and again found the local police department a good contract bet. Later they moved to Park and Robinson, where they added a body shop and service station to their towing venture.
In 1949, with the proceeds from that property and a treasured Cadillac, the Roses moved their business to Mission Valley. With three children under the age of five years, Dori had had enough of juggling babysitters in order to run the office and decided she needed to move closer to the business. So when she next saw the mortgage holder (he’d come to the shop to pick up the monthly check, “and I’d have to tell him when it would be safe to cash it, things were that tight”), she screwed up all her courage to suggest that “since we owe you so much money anyway,” he lend them enough more to purchase the property next door to the yard. To everyone’s surprise, he agreed.
There were a number of folks who enjoyed puttering around in the debris of the tow yard, including one Mr. Klinger, who, for all appearances, was a nearly indigent old guy. He waylaid Rose one day, saying he had heard about Dori’s plans to move family and work closer together, and he wanted to help. Rose thanked him, went on his way, and promptly forgot about it. But the next day, Klinger showed up at the towing yard in his tattered overalls with enough money for the Roses to build their house.
For 14 years, it was a mom-and-pop enterprise, with John doing most of the towing and Dori running not only the office but also an unofficial after-hours cafe from her kitchen. “There was always somebody in the kitchen, one of the boys that helped John with towing or maybe a Highway Patrol officer. After a call, they’d come in and unwind for a while.”
But one morning at 8:00 a.m. she woke to see an insurance agent casually eating a hard-boiled egg at the foot of her bed, waiting to ask about John. That was the day she snapped. There would be no more of this, she told Rose. She wanted a house with no tow trucks in the back yard, no Atlas Towing telephones next to her bed, and no open-all-hours diner attached. They found the Del Cerro house, where they have lived for the last 30 years.
As she told the story. Rose shifted in his seat, smiling. “I remember the day we signed the papers for that house. Dori was getting all excited about the view, and I told her, 'On a clear day, I can see the poorhouse.’ ”
They continued to toil away at Atlas Towing, which was successful enough to allow a horizontal integration, of sorts, into the imported-car business. John A. Rose Imports started out with Renaults and Peugeots — pretty obscure stuff for the mid-1950s. In 1957 things started to gel. Rose was at an auto show in Hawaii and happened upon the prototype of the Toyota Land Cruiser, which he thought was every bit as good as the standard Jeep. But to get the Land Cruiser shipped to San Diego, Rose Imports also had to handle the Toyota family’s other product, the Toyopet. “They were awful cars,” Rose said with a grimace. Others have said they embodied all of the worst features of imports.
He did his job, though, and the Toyopets he sold he also agreed to service, which often meant packing up the parts and traveling to help stranded Toyopet owners anywhere in Southern California. At first he’d make the journey by car, but later he’d fly to the rescue. “Being John, he bought the airplane first and then took lessons,” said Dori. John Rose was the first Toyota dealer in the continental United States, and, despite the Toyopet, the company’s products made him wealthy.
The couple recounted other examples of close shaves and tough times over the years, but “nothing, nothing ever hit us so hard as this,” said Dori Rose. Indeed, she said, her eyes filling with tears, the Horton Grand investment, court dates, and aftermath nearly tore them apart. She has leaned on her family and her faith (she has been a minister in the Science of Mind church for more than 30 years) to help her cope. Despite nearly 50 years in business, she had never been party to today’s survival-of-the-fittest business and legal worlds and attended most of the trial “in a fog.”
There are those who say that John Rose continues the court fights because he wants to prove to his wife that he did not lie — to the court or especially to her, his helpmate.
The bankruptcy reorganization begun in mid-February 1992 was a painfully slow 30-month process. Pearson, working without pay since the February bankruptcy filing, tried one compromise after another to make the plan work. In early hearings, the hotel’s worth was set at $4 million, quite a step down from the consultant’s estimates of $22 million only four years earlier, and the debt was more than twice that. Meanwhile, the hotel sputtered along, holding its own, but producing no profits, despite the protection from creditors.
According to law, in order to emerge from bankruptcy with a clean bill of health, most of a company’s creditors have to agree, at least in principle, with the terms of the reorganization. With Rose’s first and third trust deeds established as hostile, Pearson and Denyer had to find some “impaired” creditors — creditors hurt by the terms of the final deal — who might be friendly to their own plan of reorganization. The City of San Diego, as represented by the CCDC, was in the $1.6 million secured second spot. The city agreed to the Pearson-Denyer plan that would provide deferred payments.
Although the limited partners had no more stake in the hotel, Pearson continued to send them status reports. “I read them and I filed them, but there was nothing I could do about them,” said investor George Driver. “Maybe it made him feel better to continue keeping us in the loop.”
In his May 1993 report, Pearson touted “an exceptional investment opportunity” to limited partners willing to invest in the new Horton Grand Hotel, which needed $1.2 million. Pearson also said he was bowing out, “as I would not deem it to be appropriate,” and that Denyer would be the new general partner. Also in that letter, Pearson allowed that he would be filing personal bankruptcy, “a risk I assumed in 1984, to enable the hotel to be built.”
Because of the long delay between the time of hearing the plan and its confirmation, one of the investors, MAC/NA, pulled out. That left Denyer and Pearson coordinating the efforts. One such effort, in 1993, was a meeting with CCDC staff and lawyers at which Denyer allegedly offered to buy out its $1.6 million obligation for $600,000. Again, there is dispute about what actually transpired at that meeting.
According to Pearson (Denyer refused all comment), Denyer made the offer twice at a meeting of CCDC finance officer Frank Alessi, CCDC outside counsel Bob Caplan, Pearson, and Pearson’s attorney Colin Weid. At Caplan’s request, the offer was tabled until the judge approved the plan of reorganization.
In recent interviews, Alessi and Caplan acknowledged that the meeting took place but were less clear on whether a firm offer was on the table. “I’m not sure if I knew or had seen an offer,” said Alessi. “Whatever occurred in a meeting back then [May 1993]...there may have been discussions with the Pearson group, but I can’t sit here and tell you what happened.” His uncertainty was as much a question of client privilege as recollection, he added.
Attorney Caplan said he “had no recollection of [the $600,000 cash offer],” before he quickly rang off the telephone.
The CCDC board “absolutely and positively had no knowledge of such an offer,” declared board member, civic activist, and attorney Milton “Mickey” Fredman. “If we had been offered $600,000 to get out of this deal, we would have sold so fast our heads would still be swimming.”
Fredman, who chaired the CCDC subcommittee on the Horton Grand, said in August 1994 that it had “become abundantly apparent to us that this plan of reorganization wasn’t going to work...that the payments to CCDC would be made only if the money was there.” Caught between Rose’s first and third trust deeds, the city had no room to maneuver and decided “we wanted to be closed out completely.”
That was when the CCDC subcommittee asked Rose to visit, and he “was persuaded to see that he wasn't fighting with CCDC, but with the City of San Diego,” said Fredman. Rose agreed with that assessment, bluntly stating, “I’d rather have the city as an ally than an enemy.... (T)here are brownie points involved.”
On August 5, 1994, in a closed CCDC session (allowable under the Brown Act when pertaining to litigation). Rose agreed to buy the city’s $ 1.2 million second trust deed for a deep discount. He put $52,000 down on a no-interest purchase price of $362,000, due in 1999.
Pearson said he found out about the “secret deal” between the CCDC and Rose a few weeks later, when the court was informed that the CCDC was no longer supporting the reorganization plan. “I was devastated,” he said. “I had just gotten out-good-old-boyed.”
Even though the reorganization plan was officially approved later that month, for all intents and purposes, it was a moot point. Rose held the first, second, and third trust deeds, and he was going to foreclose, although legal jousting forestalled the inevitable for a while.
In February 1995, Colin Weid, Pearson’s attorney, told the bankruptcy court that investors were tired and no longer willing to spend the money to make the plan work. At that forum, he also fully aired the “secret deal” between Rose and the CCDC and to allege that Rose’s long ties to Bank of Commerce’s Pete Davis, who was sitting for a second time on the CCDC board, tainted the deal. In press accounts at the time, both Davis and the CCDC strongly denied those allegations.
But this conflict may get a new hearing. After abandoning the reorganization plan in February, Pearson hurried off letters to the media and the mayor’s office, requesting an investigation into the CCDC trust deed sale to Rose. On April 9 this year, an assistant to Mayor Golding sent Pearson a canned letter, saying his concern “has been forwarded to the city manager for investigation.”
Recently, a spokeswoman for the mayor said the city manager’s initial response to Pearson’s letter “was not accepted by our chief of staff...and a more thorough investigation has been ordered.” She could give no additional details.
Pearson says he’s not holding his breath on this, “but I’d like to think that someone will pay attention to the basic fact that not only did Dan Pearson and his investors get screwed, but the hotel vendors got screwed, and the city won’t ever see the more than $600,000 in TOT [transient occupancy taxes] that it is owed,” because the debt is wiped out by foreclosure.
Pearson and Goldman may be down, but they aren’t out. “With all of those people who lost money in those partnerships, not one of them has sued Dan,” Goldman said proudly. “He’s honorable, and he tried his best.”
Today, Kit Goldman is the breadwinner for Pearson and their son Adam, with her Live Action Entertainment firm. Clients are corporations and institutions that need professional actors for their training films or seminars on topics ranging from safety to sexual harassment. She says she is withdrawing from the theater scene in the Gaslamp for a while, being only a passive member of her former theater’s board of directors. “I need some time, some space. (Gaslamp] doesn’t have the same feeling for me anymore.” Dan Pearson said he, too, “needs some time, some healing” before he jumps back into a new business. His short-term goal is to wind down all Gaslamp and related business affairs by mid-June and then reevaluate. “I’m too scattered, too unfocused by all of this right now. I need a clear head in order to find another entrepreneurial opportunity. But I will.”
As if on cue, he joked, “You know, of course, it took Alonzo Horton 19 years to go broke. I made it in 17.”
One thing Pearson is doing is working with taxing agencies, an exercise not too far in the future for Rose. When there is a loss on one end of a transaction, a gain is presumed on the other end, for federal tax purposes. Pearson is untangling his days as a general partner; Rose may have deeper questions to answer as a result of the purchase of the discounted notes.
But that’s another day. At the hotel, morale is up among the 115-person staff, said Judy Wheatbread, director of sales and marketing, with the new business staff “trying to piece the operations back together” since the dismissal of yet another management company. Sales records, future bookings, and other portions of the business puzzle were missing when she arrived in February, she said, but have been re-created. Her goal is to attain 75 percent occupancy year-round, with facilities for small business meetings and other groups.
The Roses “are really having so much fun” with the Horton Grand, said Dori Rose, as she tends to details like finding enough soup spoons for the once-depleted kitchen or bringing in new bedspreads for worn ones. Meanwhile, John “is polishing and tinkering to his heart’s content.” The couple plans to run the hotel together — “the way we’ve done everything else” — since about half of their family legacy is now invested in it.
“It’s now a family enterprise,” she said. “I’m sure our children will love it as much as we do.”