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Reservoir Logs

[whitespace] Lexington Reservoir
Christopher Gardner

View Lots: Fifty exclusive homes and a country club could become part of this view, stretching from the far shore of Lexington Reservoir up to the horizon, near Summit Road.

If an aggressive Oregon-based land company gets its way, the area's last big redwood forest may become an exclusive country club and housing tract, complete with stunning views of Lexington Reservoir

Story by Jim Rendon
Photos by Christopher Gardner

CELIA THOMPSON-TAUPIN trundles down a shady wooded trail from her back yard toward a redwood as big around as her kitchen. "I don't usually hug trees, but this one I can't resist," she says as she squeezes herself against the trunk. Her outstretched arms reach not even halfway around the part of the tree that faces her. In her purple batik T-shirt and shorts, she looks like a flattened doll, all scale lost in the massive trunk. "They won't take this one," she vows. "I'll chain myself to it first."

Already, thin yellow ribbons dangle from some branches in the vicinity, marked by Big Creek Lumber as the first step in harvesting trees that reside just a stone's throw from a stunning view of Lexington Reservoir, the smog cap of the Santa Clara Valley beyond. As development sprawls up and around the hillsides that frame the valley, this large tract of wild, green forest land could become the next casualty of Silicon Valley's accelerating urbanization. Indeed, the whine of chain saws and the growl of logging trucks, usually associated with groves in the Pacific Northwest, may soon echo throughout these hills. And before long, if the land's owners have their way, bulldozers will carve up this 1,100-acre plot of redwood canyons, towering Douglas firs and grown-over vineyards, making way for as many as 54 luxury estate homes, a golf course and a country club.

The landowner has fired enough shots across the bows of opponents to let it be known that, if he can help it, nothing will stand in the path of his firm's development ambitions. Dusting off long-forgotten century-old documents and demonstrating an aggressive resolve to use the courts to intimidate environmentalists, journalists and critics, it has become clear that a different type of player has emerged--one not seen before in this genteel neck of the woods--to press a bold development agenda in this high-stakes battle.

BEAR CREEK ROAD winds through the middle of the property, which extends from mountain peaks near Summit Road to Lexington Reservoir. In 1934, Jesuits purchased the 1,100 acres and created the first theological order on the West Coast. They erected buildings and cleared dirt access roads that today wander through the steep forested hillside. In 1967 the novitiate closed, but the Jesuits held onto the land until 1989. In the interim, many of the buildings fell into disrepair.

"In a way the property is less developed now than it was 50 years ago," says Mariquita West, who grew up on a mountainous 80-acre stretch of land that runs alongside the property and today shares her home with Thompson-Taupin. "The swimming pool is filled in, the library has burned down," West says. Nature is reclaiming her own.

With the valley's housing pressures growing and nearly certain money to be made from any vacant piece of land, development has long been a threat for this wild hillside. Environmental groups concerned with its fate first contacted West about supporting a preserve on the property in the 1970s, when the land was owned by the Jesuits. It's perfect for a park, says Craig Britton, general manager with the Midpeninsula Regional Open Space District, a public entity that purchases land for public benefit. "There is the capability for camping, there is redwood forest. It is adjacent to the Lexington Reservoir. It is next to a regional park and near the ridge trail. We really want the state to acquire it."

The Peninsula Open Space Trust, a private nonprofit group that buys land to protect it from development, held discussions with the church about the property, but nothing came of the talks. Hong Kong Metro Realty, a firm owned by billionaire Hong Kong casino owner Stanley Ho, bought the property in 1989 for $12 million. Britton says that though there were talks with Hong Kong, it never seriously considered selling the land as a preserve. Hong Kong instead sold an option to former Los Gatos High football coach Pete Denevi to develop a country club and golf course on the lower 210 acres. Denevi's plan drew fierce opposition from environmentalists and still hangs in limbo. Unable to sell to Denevi, Hong Kong sold the timber rights on 125 acres to Big Creek Lumber, which is now laying plans to log behind Thompson-Taupin's home. In late 1997, Hong Kong cut and ran, selling the property to Arlie Land and Cattle, an Oregon-based corporation, for more than $17 million.

The acquired land, with the county's largest collection of privately owned redwoods, now looms at the center of a battle between developers, preservationists and loggers. The controversy has spawned threatening letters, a lawsuit, accusations and concern about the fate of the valley's southern greenbelt. Since Arlie assumed control, it began dividing the property into developer-sized parcels with the hope of getting a huge return on its money. Arlie has advertised 54 lots for sale at $750,000 a piece. At that rate, luxury home development could bring the firm as much as a $22 million gross return.

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Web links about Lexington and the developers.

Images of public documents referred to in this article.

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NOT LONG AFTER acquiring the property, Arlie hired Velmir Sulic, a local land consultant, to dig up century-old land patents, one of them signed by Ulysses S. Grant in 1875, to help Arlie create 13 more lots than already were zoned for the property. These lots are much smaller than any subdivision scheme would otherwise create. According to ads run by its real estate company, Acosta Commercial Real Estate Services, Arlie is applying for 16 additional lots using this technique. If approved they would raise the total number of developable parcels to 54.

Though legal, many environmentalists see this as evidence of Arlie's disregard for county zoning laws. "It is a misuse of planning laws," says Julia Bott of the local Sierra Club chapter. "We should uphold the intent of existing regulations."

Sulic, however, defends this practice. "If somebody wants to develop their own land, and if they have existing lots, why not research it and find out how many they really have," he says. "That way you get the best return for your property."

However, when ancient records like these were first presented in 1993 to the planning office in support of a different project, county officials thought differently. Owners of the Lake View Meadow Ranch dug up 100-year-old records in an effort to create additional lots on their property, and the county went to court to stop them. After two years of battling it out, "the county lost hard," the Planning Department's Zack Carter says. Now that the precedent's been set, counties across the state can do little more than nod and stamp when records of property lines that pre-date zoning laws come through the door.

Because Arlie's property is on a hillside, and because it is inside the Lexington Reservoir watershed, numerous restrictions on development come into play. Most of the lots fall under the county's hillside ordinance, and subdivisions are restricted to 20 acres on some parts of the property and to 160 acres in others. However, by using old land patents, Arlie has managed to create lots that are a fraction of this size. John Musumeci, an Arlie executive who lives with Suzanne Arlie, the company's president, acknowledges that some of the lots are as small as one-and-a-half acres.

Zoning laws allow what is known as cluster development, where 90 percent of the land is left as open space. Lots could then be as small as 2 acres.

Despite the ecological benefits of cluster development, Arlie is not interested. "We are going to peel off lots the way they exist," Musumeci says. Arlie has already placed classified ads in the San Francisco Chronicle offering individual lots for sale.

If Arlie manages to sell any of the lots and houses begin to go up, it could ruin the land's value as a potential park. "If he is looking at selling and developing key areas in the heart of the property, that would have a huge impact," says Greenbelt Alliance Associate Policy Director Vicki Moore.

Any development would certainly require building new roads up the steep hillsides, grading of lots, installation of septic tanks, some tree cutting and lots of permits. Zack Carter says this makes development a tougher sell. "One person came in who was interested in the property; he looked at some maps. He never came back," Carter says.

But Musumeci dismissed these hurdles. "We can build roads," he says. "And the vast majority of lots have access to power and water." Musumeci says the problems property owners may face if and when they try to build should not scare off anyone.

The thought of houses dotting the nearby hillside and new roads carving up the land is a nightmare to West. She is concerned with not only the loss of open space, but also the potential for landslides, the effects on the Lexington Reservoir, the loss of precious redwood forest and, of course, the traffic. "Already," she complains, "the traffic backs up on Bear Creek Road for a mile every morning." Adding more traffic for either the golf course or housing or both would be a disaster, West says.

Celia Thompson-Taupin
Christopher Gardner

Born Again Activist: Celia Thompson-Taupin says she's written checks to environmental groups in the past, but she became personally involved when the trees around her home were threatened.

NONETHELESS, Arlie continues to move ahead. According to records filed with the county, on June 29 Arlie sold the piece of land that presently houses the California Department of Forestry Alma Fire Station to Frontier Land and Development, another Oregon-based company. The state has recently been in negotiations with Arlie over the parcel, but it appears that it has been sold out from under them.

Fred Lambert, with the CDF in Sacramento, says the station, which has been crucial to subduing wild fires in the area, is slated for improvements. "This is an old station," Lambert says. "There is funding pending to rebuild it and modernize it." However, the state is unwilling to put money into the station without owning the property.

Arlie's aggressive efforts to maximize profits on its investment has put activists on the offensive. At the end of March, Greenbelt Alliance, one of the groups working to preserve the property, discovered that four companies--Los Gatos Hills LLC, Redwood Hills LLC, the Lex Company and LTC Exchange Company--had become involved with the property. After determining that two of the companies were created in Oregon very close to the date they became involved with Arlie, the group fired off a press release accusing Arlie of creating paper shell corporations whose interest in the property could allow them to divide up the land and build more homes.

A spate of letters ensued, ending with Arlie filing a lawsuit against Moore, Thompson-Taupin and the Greenbelt Alliance, seeking damages for defamation. While Greenbelt contends that the lawsuit is without merit and is intended to chill public opposition to the project, Arlie maintains that the group made a mistake.

Musumeci denies that Arlie had any role in the limited liability companies, saying, "We have no relationship with Redwood Hills and Los Gatos. They were both brought in to facilitate a transaction. They were not created by us. We have no investment with them at all." Lex Company is related to Hong Kong Metro, and another company, LTC Exchange, is not a limited liability company and is involved for tax purposes, he says. Musumeci challenges Moore to show him any proof that Arlie created any of these companies.

Little can be learned about any of the companies involved with the property. Limited liability companies, first allowed in California in 1994, can own property; they often have many partners, but are not required to disclose much other than the officers and the person to whom lawsuits can be addressed. "There is little public information available about them," says Ron Peterson, chief title officer with the Old Republic Title Company. "That's the advantage to a limited liability company." Many developers use limited liability companies to help bring financiers into property deals without having to cut up the land. But in the end they also provide investors with a totally anonymous means of having ownership interest in a property.

What is known is that Redwood Hills LLC was incorporated in Oregon within a week of becoming part of a trust grant with Arlie. On one occasion they put up $75,000; in another instance they may have put up $500,000 with land near the reservoir as collateral. Los Gatos Hills LLC was incorporated on the same date by the same person, Michael Kearney, an Oregon attorney. The Los Gatos company entertained a brief option to buy the property, but did not make a purchase. "I just drafted the documents," says Kearney, who was unwilling to talk about the nature of the companies, their partners or their relationship to Arlie.

The Lex Company is based in Madison, Wis., where Hong Kong Metro does business. Arlie and Lex have sold portions of the property back and forth. Jun Lee, a representative for Hong Kong Metro, has also signed documents for Lex. The LTC Exchange Company, which helped fund $16.9 million of Arlie's original purchase of the property, also entered a $500,000 trust agreement with Arlie in December 1997, with a portion of the property as collateral. By press time, Lee had not returned calls.

Since the early 1980s, when Musumeci lived in Lafayette, he has been involved in a number of lawsuits and complex business dealings. There were at least five companies associated with him, many of whom were dragged through the local court system in at least eight lawsuits.

The Lee Ray Tarantino Company sued Musumeci for $1 million in outstanding debt and $5 million in punitive damages, arguing that there were so many interlocking companies and creditors that they "did not even know the true name of the defendant."

A number of suits were filed because his businesses allegedly failed to pay their bills. Musumeci was sued for $20,000 in unpaid bills to a printer, and he repeatedly refused to respond to summonses, contending he never received them. He even appealed a $750 small-claims court judgment in favor of Joey Tranchina, a copywriter who wrote an ad for Musumeci but was never paid. In a handwritten note in the file, Tranchina wrote, "I'm tired of rich, insensitive, dishonest people feeling they don't have to honor their obligations." Bruno Andrighetto, who was involved in two actions against Musumeci in the 1980s, says, "He's not a lawyer but he knows the law well."

Musumeci was unavailable to respond to questions about the lawsuits.

Arlie has sued people in Oregon for as little as $790. And in the last four years, nine suits have been filed against Musumeci, Suzanne Arlie and the company in that state. On July 8, they lost a suit in Santa Cruz, a county where Arlie owns more than 30 parcels of land.

When asked whether or not Arlie had sold any land near Lexington, Musumeci denied any sales, pausing to think before saying, "There are a backlog on inquiries to buy property. A number of offers have not been acted upon."

When reminded of the documents recording the sale of the fire station property, he became upset, asking, "Are you ambushing me? Is this an ambush?"

Musumeci refused to comment any more about the issue and asked to be called back later. But shortly after the call, he left his office and passed on word that he would be out of town until after this story goes to press.

Before he hung up, Musumeci said that Arlie Land and Cattle has tried to give the Lexington Reservoir land away to preservation groups, but he has refused to identify any of those groups.

Lexington Reservoir IN THE WOODS behind Thompson-Taupin's house, a small rushing stream winds its way past a broken moss-covered stone foundation. All of her drinking water comes from a catch system in this stream-bed. More yellow tags mark another skid trail that will run right along the creek to where they meet blue tags that mark the proposed logging road. Chances are high that all the activity will dump more debris into the stream bed, clogging up her water collection system. Looking around her, she tries to figure out which of the towering second-growth redwoods in this grove might get cut.

Though some of these trees will certainly go, the hillside will not be clearcut. Instead it will be "thinned," a more environmentally sustainable approach to logging. Bud McCrary, vice president of Big Creek Lumber, which has been working in and around Santa Cruz County for the last 50 years, explains that Big Creek will log 20 to 30 percent of the trees, but will take about 50 percent of the volume of wood. In other words, they will take the big ones.

Midpeninsula Regional Open Space District manager Britton is quick to say that Big Creek has a good reputation as an environmentally conscious company. McCrary says that parts of land they logged were in such good shape that they were acquired by Big Basin State Park. McCrary sees the kind of work his company does as long-term management of the forest which can be done to produce timber or to make the area look like a park. "If over 30 years we cut so there is one tree where there used to seven or 10, it'll make the forest look like a proper old-growth forest," he says. The harvesting just speeds up a natural thinning that would otherwise come from fire or windstorms.

Right now there is no park behind Thompson-Taupin's house. Big Creek is thinning to create more growth. "We are looking to create good spacing between trees so they grow at the maximum rate." And that means that big trees fall first.

Thompson-Taupin stops to look at a towering Douglas fir, another valuable tree that grows throughout the property. It rises in a sunny patch of land near to where another giant fir lies rotting, returning nutrients back to the soil. "Even the best logging is violent," she says. Though she appreciates the company's reputation and gets along well enough with the Big Creek employees who are marking the property, she'd much rather not hear the grumble of trucks and the scream of chainsaws around her home. She'd prefer to see this forest left in its natural state.

At the bottom of the hill, Pete Denevi still holds out hopes for his golf course and the $40,000-a-year memberships at his proposed country club. Since Arlie took over the property, it has made his wait much more painful, increasing the cost of his option from $100 a day under Hong Kong to $1,000 a day. The purchase price also jumped from $6 million to $7.6 million for the 210 acres.

But Denevi's project is far from a done deal. The county turned down his first proposal and now wants him to do a $475,000 hillside study before considering his project. "There is an existing ancient landslide that the water district and Caltrans think could be triggered. The problem is that no one knows what is under there," says Hugh Graham, the principal planner with the county. If the hillside under Denevi's project is unstable and the golf course takes a slide, Graham says, "the costs to the public and the impact on Route 17 and the reservoir could be significant."

"They are asking me to study this even though Caltrans built a freeway and an overpass and the county built a dam on the same hillside," says Denevi, who is challenging the requirement. "The county requirement is excessive."

Study or not, environmentalists are opposed to the development. "The golf course will increase traffic and use water," Britton says. And, as with other development, it also makes the land less valuable as a park. "This is a large property holding in a watershed," says the Sierra Club's Julia Bott. "If it is broken up, that will contribute to habitat fragmentation and contribute to the loss of biodiversity."

But Denevi feels he has jumped through enough hoops to please any environmentalist. "There's nothing better for the environment than a golf course," he says. "We plan to go 100 percent organic. We will use no chemicals. There will be no possibility of pollution," he says.

But that's not enough for Moore. "This is not an appropriate site for a golf course regardless of the gimmicks," she says. "I don't think any golf course will get approved."

Denevi's efforts may have been in vain, but the Greenbelt Alliance and others that stalled Denevi may face a more dire threat. Musumeci says that Denevi stopped making payments on his option to buy. "He no longer has the right to purchase the property," Musumeci says.

"That is totally false," Denevi says. "We have paid. I have the receipt from the title company. My next payment is due next week and I plan to make it."

spring It's the Water: Locals are concerned that this spring near Summit Road, which provides drinking water, will be damaged by developments in the area.

Christopher Gardner



MUSUMECI, HOWEVER, says that a number of golf course developers have approached him. If he can get rid of Denevi, he envisions a more high-profile golf course, where Denevi's organic approach could well be thrown out the window. Arlie is pursuing more certificates of compliance from the county for lots within the proposed country club area as well. "We can cluster lots on the golf course and still develop the golf course at the same time," says Musumeci--a dramatic departure from Denevi's plan.

But Musumeci's motivation may not lie entirely with the golf course. Right now Denevi controls timber rights for the golf course parcel. But once Denevi's option ends, the timber rights revert to Arlie. Selling timber rights would give the company some quick, painless cash, and given the number of trust agreements they have entered since February, some for amounts as small as $75,000, cash may be what they are after.

Denevi is frustrated by the way things have turned out. "If the environmentalists had not shot down my project the first time around, Hong Kong would not have sold the timber rights [to Big Creek]. In a way they brought about the thing they were trying to prevent," he says. Denevi is also convinced that someone could have bought the land from Hong Kong for a reasonable sum and preserved it, avoiding much of the confrontation with Arlie. The activists' confrontational approach has destroyed all that, Denevi contends.

But Britton says there were discussion with Hong Kong and that they went nowhere. "We attempted to negotiate with Hong Kong. They would not negotiate. We talked to Arlie but it was not serious." According to Britton, no owners were genuinely interested in selling the land for a park.

Sitting around the kitchen table in West's house, a view of open fields and forested hillsides unfolds through the window. Thompson-Taupin, West and Bob Moncrief, who is also helping with the struggle, allow themselves to imagine for a while of what their park would be like. "We'd bring people up in buses," Thompson-Taupin says. "Less traffic."

"If the site is developed, it could take a long time," Moncrief says as he brings out more public documents recording Arlie's land dealing, and the group gets down to the work of trying to figure out what the property records mean. Taking in the view out of her window, West muses, "If we could have traded the golf course to preserve the rest, I would have taken it."


Los Gatos Weekly-Times reporter Jeff Kearns contributed to this story.

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From the July 16-22, 1998 issue of Metro.

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