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Around October 1990, petitioners and CDC began negotiating a
“Third Amendment to Agreement for Purchase and Sale of Real
Property and Escrow Instructions” (Third Amendment) in order to
establish terms for a further extension of the Phase II escrow.
During these negotiations, CDC was aware of the State’s easement
claim but wanted to ultimately close the Phase II escrow if the
claim could be satisfactorily resolved. Also during this time,
petitioners took the position that CDC had an unconditional
obligation to purchase Phase II and the fact that the City of
Huntington Beach refused to process CDC’s application for Phase
II development due to the State’s claim was CDC’s problem.
Many drafts of the Third Amendment went back and forth
between the parties. Mr. Steinman prepared a final version of
the Third Amendment dated June 11, 1991, which petitioners
signed, but which was never signed or agreed to by CDC.
By letter dated July 22, 1991, Mr. Michael McCaffrey (Mr.
McCaffrey), who was working with Mr. Steinman as petitioners’
attorney, requested that First American provide petitioners with
a $2 million interest-free loan because escrow for Phase II had
not closed yet and petitioners were unable to make a required
loan payment for certain real estate not relevant here. Mr.
McCaffrey stated that First American had an obligation to
indemnify petitioners for the title problem. On August 14, 1991,
petitioners and First American entered into an agreement entitled
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