Wednesday, August 27, 2008

Unlike My Mom's Garden Club, Taxpayers Watch Doesn't Have a Web Site

You know where Taxpayers Watch, the over-the-top-shady "citizens group" out of Los Osos, goes wrong?

They make for a helluva story. Big mistake.

I mean, c'mon... three guys get recalled from office, and then immediately form a "citizen's group" (Taxpayers Watch), and use their newly found, hidden identity in an attempt to "dissolve" (through a legal loop hole) the very government agency that they were recently recalled from -- an attempt that would end up costing them some $50,000 of their own money?

That's a great local story.

So many interesting updates from my previous story on this subject, where I showed how Taxpayers Watch fell behind on their $1k/month payments to a local government agency, LAFCO, and were forced to crawl back to LAFCO and beg for a "payment extension."

I also showed in that piece, how, the only reason Taxpayers Watch got stuck with those $1,000/month payments in the first place, was because LAFCO found their act to be so... ummm... reprehensible, that LAFCO put the "entire cost" of the dissolution process on Taxpayers Watch, for a whopping total of "$40,247.50."

In my original piece I wrote:

... the Local Agency Formation Commission (LAFCO) will consider a "request" by the shady citizens group, "Taxpayers Watch," to allow that group more time to pay off a nearly $30,000 bill they racked-up during their frivolous attempt to "dissolve" the Los Osos Community Services District beginning in 2006...

Turns out, that wasn't entirely correct.

Taxpayers Watch had to put up an additional $12+grand just to start the process.

"LAFCO’s original application fee was $12,500 which was a deposit towards the actual cost of processing the proposal. Additional staff time based on the activity log amounted to $27,747.50 for a total of $40,247.50," wrote, Paul Hood, executive officer for LAFCO, in an e-mail to SewerWatch.

"This covered the entire cost of processing the proposal to dissolve the LOCSD."

Over $40-thousand-dollars, and that doesn't even include their attorney fees for the "4 hearings over nine months."

Taxpayers Watch, which, by all indications, includes only about four-to-six people (and three of them appear to be recalled LOCSD Directors), likely spent over $50,000 in their attempt to "dissolve" the very government agency they were recently recalled from.


It also turns out that LAFCO was so adamant about getting their $40-grand back, that they actually sued Taxpayers Watch in Superior Court demanding payment. (Funny, I don't remember reading about that in the Trib.)

So -- and this is flat-out excellent -- to make that embarrassing lawsuit go away, "members" of Taxpayers Watch signed something called a "Stipulation for Entry of Judgement."

(That document, as you will see if you download that link, contains only four signatures from Taxpayers Watch types, Gordon Hensley (recalled CSD Director), Joyce Albright, Robert Crizer, and Sharon Fredericks. Only those four people are on the hook for that $40,247.50. If you ask me, that's where the "membership" of Taxpayers Watch ends --with those four. It's worth noting that recalled LOCSD Director, Richard LeGros's signature is NOT on the SEJ. Despite being one of the most vocal and visible supporters of Taxpayers Watch (and that's not saying much), he is NOT financially on the hook for that $40,247.50. What his role is in all of this, remains as mysterious as Taxpayers Watch themselves.)

The SEJ, a document straight out of the "Superior Court of California," includes a payment schedule.

According to the SEJ, "In no event will the balance (that Taxpayers Watch owes LAFCO) be paid later than June 30, 2008?"

Unless you ask.

Gotta love the sequence, huh?

"Members" of Taxpayers Watch sign a legal document (to settle an embarrassing lawsuit) that reads, "In no event will the balance be paid later than June 30, 2008," then they crawl back to LAFCO nearly two years later and request a payment extension, and LAFCO grants it, on July 31! (That should have been Taxpayers Watch's "extension" right there... that extra month.)

To appreciate the bizarreness of that ruling, you have to keep in mind two things:

1) LAFCO had already determined that the Los Osos CSD dissolution attempt was such bullshit, that they stuck Taxpayers Watch with the "entire cost" of the proceedings -- over $40k (beautiful... excellent job, Mr. Hood) -- and then LAFCO had to go so far as to sue Taxpayers Watch to get their money back.

And, 2) -- and this just blows my mind -- had Taxpayers Watch succeeded in dissolving the LOCSD, "between 48 and 82 million dollars in liabilities incurred by the LOCSD" would have transferred over to COUNTY taxpayers.

That quote, from Hood, is another excellent update to my previous story, where I originally wrote:

...had the dissolution attempt been successful, and the LOCSD had been wiped off the map, the millions upon millions of dollars in debt that the pre-recall board (aka: Taxpayers Watch) needlessly racked-up in the few weeks before the recall election (that they deliberately set at one of the latest possible dates), would have been transferred to county taxpayers...

When I wrote that, I wasn't aware that there was an official, ballpark figure on how much "liabilities" we were talkin' about.

Now, I am.

And it's mind-boggling: "between 48 and 82 million dollars."

Think about that for a second.

Had Taxpayers Watch succeeded in their end-around attempt at dissolving the LOCSD in 2006, county taxpayers would've been stuck paying for the "between 48 and 82 million dollar" Los Osos mess, and Taxpayers Watch -- a group comprised mainly of the people responsible for that very, very expensive mess -- didn't seem to care. They just wanted to punish the very government agency that they were recently, and democratically, recalled from.

Yet, when it came time to beg for a payment extension, county-taxpayer-funded LAFCO rewarded Taxpayers Watch, and granted them their extension.


Initial reports indicated that the rationale behind granting the extension, was that it would save LAFCO money because they wouldn't have to pay the court fees associated with recovering their $9-large (the balance owed).

The: "It'll cost us $20-grand in court fees just to get our $9-grand," logic, if you will.

Which actually makes sense... had that logic actually added up.

The problem with that logic is -- and again, this is beautiful -- it only makes sense if Taxpayers Watch didn't have the $9,247 on them at the time of the hearing, July 31... and LAFCO knew it.

See what I mean there? It's a little tricky, but it's very interesting.

LAFCO Commissioners could have easily, and reasonably, said, "Request denied. That way to the county cashier's office. Next!," and Taxpayers Watch could have simply walked over to the county cashier's office, scratched out a check for $9,247, and everything would have been settled, immediately.

Not a penny in court costs for LAFCO.

Turns out, those initial reports were wrong.

The: "It'll cost us $20-grand in court fees to get our $9 grand," logic had nothing to do with the decision.

"The Commission’s decision was not based on whether Taxpayers Watch had the funds to pay off the entire $9,000 or the expense of enforcing the payment schedule in the SEOJ, which is an administrative matter (i.e. minimal costs) since they signed it," Hood wrote.

So, now it gets weird.

What was the real rationale behind granting the extension? It's not like Taxpayers Watch did LAFCO, and county taxpayers, any favors.

So, why the special treatment? After all, public comment on the matter ran at about a 5-1 clip to NOT grant the extension.

"Virtually all promissory notes and similar instruments contain a due date. The creditor always has the authority to extend the due date. In this case, the Commission concluded that the request was reasonable under the circumstances," Hood wrote.

And those "circumstances" arrrrre... what?

"The circumstances are that Taxpayers Watch has made 17 payments of $1,000 on or before the first of every month as specified in the Stipulation for Entry of Judgment. We have no reason to believe that this payment schedule will not continue."


Even though Taxpayers Watch clearly wasted LAFCO's time for "4 hearings over nine months," even though the dissolution attempt proved to be nothing more than recalled Directors abusing the system to punish the very government agency they were recalled from, and even though that purely vindictive dissolution effort would have cost COUNTY taxpayers "between 48 and 82 million dollars" had it succeeded, and even though LAFCO Chairwoman, Barbara Mann said, "It was not right for the citizens of the County to pay for Los Osos’ problems," and even though "members" of Taxpayers Watch signed a legal document that reads, "In no event will the balance be paid later than June 30, 2008," LAFCO (funded by county taxpayers, including cities) still grants Taxpayers Watch a huge favor by handing them an extension... when they could have just NOT granted it, and immediately wiped their hands of the matter -- a matter that's been dragging on since January, 2006.

That LAFCO ruling makes absolutely no sense whatsoever.

Hell-uv-a-story, I said.

Personally, my favorite part of the Taxpayers Watch story is their over-the-top shadiness.

With everything they have going on -- their bitter, vindictive lawsuits, their failed dissolution attempts, their silly petitions -- unlike my Mom's garden club, they don't even have a web site. And the last time I checked, my Mom's garden club wasn't running around, spending $50,000 dissolving government agencies.

See, Taxpayers Watch? That's where you screw up. You're intriguing. That's the exact same problem Pandora Nash-Karner has in Los Osos. She makes for a dynamite story.

Journalistically speaking, all-y'all are the best.



  • This comment has been removed by the author.

    By Blogger Realistic1, at 3:14 PM, August 27, 2008  

  • "their bitter, vindictive lawsuits, their failed dissolution attempts, their silly petitions..."

    Two lawsuits: one to overturn the illegal Measure B (which the pre-recall board had accomplished and PZLDF appealed), the other to recover taxpayer monies paid to the Foolish Five's political cronies...along with the mis-spent bond and fire monies

    ONE dissolution attempt, which includes the ONE petition they circulated...

    Why are you exaggerating, Ron?

    By Blogger Realistic1, at 5:28 PM, August 27, 2008  

  • Ron,

    Your 'story' is just that...a story; in the sense that it is entirely fiction. And even if it were true, nothing you alledge is or was illegal.

    As for a TW website, go fish. If you want to understand TW, just watch what happens in judge LaBarera's court on Sebtembet 10 and October 6; as well as the soon-to-be squashed nonsensical 'discovery' attempt by the CSD-5 (on September 17), and the soon-to-be denied Motion for Summary Judgement Motion petitioned by the CSD-5 against the CSD's Insurance Company.

    Regards, RBL

    By Blogger Richard LeGros, at 8:20 AM, August 28, 2008  

  • What I don't understand, and really pisses me off... is why didn't the CSD sue Taxpayer Watch to recover legal and administrative costs they incurred fighting the failed dissolution attempt?

    If LAFCO can recover those costs the the CSD could've also. It would've been nice to get those funds back for the community from the nasty, vindictive, recalled board members that caused the expense. Why is noone holding Taxpayer Watch responsible for all that wasted time and money?

    By Blogger Steven, at 9:28 AM, August 28, 2008  

  • Ron,

    You tell us that dissolution is a "legal loop hole". I am curious about this. What is the basis for your claim that this is a loop hole? I read the LAFCO governing documents a while back and it seems that dissolution requests was something that was intended to be in the LAFCO purview. Could you ellaborate a bit?

    For the record, I was somewhat opposed to dissolution at the time, but recognize that the deck was stacked ... that LAFCO acted only out of a desire to protect the financial interests of the County and did not appear to consider at all the question which is supposed to take a central role in any dissolution request ... the question of whether the district is capable of functioning and meeting their obligations.

    You tell us dissolution was a legal loop hole ... but it seems like a natural (if perhaps vindictive) question to me.

    By Blogger Shark Inlet, at 10:42 AM, August 28, 2008  

  • Give Me A Break....
    I was the first one that posted that LAFCO was a political entity and ANY dissolution attempt was destined to failure.
    Still is.
    The decisions of that august body can only be overturned by expensive litigation
    Its a WAAAY stacked deck.

    Travel update, click on me.

    By Blogger Mike Green, at 12:34 AM, August 30, 2008  

  • Ron,

    If you want to understand TW, please read.

    This is a lawsuit about the accountability of public officials. The defendants clearly want none of it. They argue that they have complete legislative discretion, and even if not, the financial disasters they released on the Los Osos Community Services District (“CSD”) are all (however implausibly) the fault of the plaintiffs, who either laid the groundwork for defendants’ subsequent failures, or, alternately, didn’t do enough to halt defendants’ reckless actions. On the factual level, defendants attempt to escape liability by simply ignoring key facts, rewriting CSD financial history concerning others, and simple denial when all else fails. In opposition to this motion, plaintiffs Taxpayer Watch, Joyce Albright and Gordon Hensley will show:

    1) Defendants have not met their initial burden of showing they have a complete defense or that the plaintiffs cannot establish an essential element of their claims.
    2) There are clearly triable material issues of fact that preclude summary adjudication of any claim.
    3) The evidence shows not only reckless conduct by the defendants, but clearly unlawful expenditures of public funds, including expenditures of bond revenues, special taxes and State loan funds for unauthorized purposes. Amazingly, the defendants essentially admit to such illegal expenditures in their moving papers.
    4) The evidence also shows violation of conflict of interest laws and a blatant gift of public funds to a law firm that had served the “Concerned Citizens of Los Osos” – of which Defendants Tacker and Schicker were closet members -- in past lawsuits against the CSD, i.e. the public agency defendants now controlled. To complete the reward, defendants hired the law firm – Burke, Williams & Sorenson (“BWS”) as new special counsel for the CSD on the same day the settlement agreements were signed.

    To be sure, this is partly a case about “waste” of public funds in the ordinary sense of the word. The defendants are five political zealots who oppose a wastewater treatment project for a community that desperately needs one. Defendants took control of a public agency by a razor-thin majority vote in a recall election, and promptly suspended (and ultimately fired) every competent official and legal counsel who might give them unwelcome advice. The defendants then embarked on a jihad against the State of California which resulted in multiple multi-million dollar lawsuits against the CSD by the State agencies and CSD contractors, numerous lesser claims by CSD’s own constituents, and fines exceeding $ 6 million for violating State pollution control laws. In the process, defendants violated legally binding commitments to complete the Tri-W wastewater project already begun by the CSD, and in which the CSD had already invested millions of dollars of bond revenues, assessment funds approved by CSD voters, and funds loaned by the State. Not surprisingly, the defendants drove the CSD into bankruptcy within less than a year after taking majority control.

    But the case is not about “waste” alone. In this opposition, plaintiffs will show that in order to finance their efforts, the defendants plundered bond revenues and State loan funds which could not legally be accessed for their purposes. Defendants also used restricted State loan funds to pay off – and then hire – outside counsel, with whom at least two of the defendants had been secretly collaborating, under guise of “settling” cases which the same attorneys had pursued against the CSD and lost. While defendants claim to represent the “will of the people,” it can be safely assumed that even the narrow majority of voters who elected defendants did not intend them to bankrupt the CSD, make behind-closed-doors deals to pay off their political allies’ legal bills, or illegally spend restricted fire tax revenues, assessment bond revenues and funds from an already-recalled State loan.

    The unincorporated community of Los Osos consists of several thousand homes and businesses, mostly on small residential lots concentrated south of Morro Bay. Unlike virtually any other residential community of its size, Los Osos does not have a community sewer system. Human and other wastes are flushed into septic tanks and then leach, in quantities approaching 1 million gallons a day, into the local groundwater table. This massive pollution contaminates not only the local groundwater, but the water quality of adjacent Morro Bay and its estuaries and wetlands.

    In 1983, the state Regional Water Quality Control Board (“RWQCB”) issued Order 83-13, prohibiting discharge from individual septic systems within an area defined as the “Prohibition Zone.” Since 1983, no new building has been allowed within that zone, and severe restrictions have been imposed on the landowners due to the risk of polluting Morro Bay. Individual property owners further face the risk of abatement actions and massive fines imposed by RWQCB if they continued to utilize individual septic systems. The only practical solution to the problem is the construction of a community wastewater collection, treatment and disposal facility; i.e., a sewer system.

    Notwithstanding the RWQCB order, there was initially strong resistance to the sewer system in Los Osos based on costs, complaints about local control, and a certain level of denial about the seriousness of the pollution problem. County efforts to construct a sewer system were fiercely resisted. Nevertheless, in 1998, the voters established the CSD to develop a locally managed community wastewater system. Initial planning and environmental studies were completed, and in May of 2001 CSD voters approved (on an 83% vote) a $ 20,435,000 special assessment to fund land acquisition and initial development costs for what is generally known as the “Tri-W” project. (Declaration of Bruce Buel, 5-6.) Bonds were sold in reliance on the assessment revenue. (Buel Decl., 6-11; Def. Exhs. A, B.) The CSD was now financially committed to the Tri-W project. The CSD also worked, however, under threats of $ 10,000/day fines if it failed to timely complete the project. (Exh. 8, p. 73.) To secure additional financing, the CSD negotiated and ultimately secured a $ 134,761,398 low-interest loan from the State Revolving Fund (“SRF”) program administered by the State Water Resources Control Board (“SWRCB”). (Buel Decl., 14-19; Exhs. 4, 6, 7.) The CSD was now further committed. Contracts were let and actual construction began in August, 2005.

    Meanwhile, a backlash against the Tri-W project developed within the community. CSD Board members Lisa Schicker and Julie Tacker were elected on an anti-Tri-W platform in late 2004. Tacker was a founding member and president of a local opposition organization called Concerned Citizens of Los Osos (“CCLO”), but claimed to resign in October, 2004. Schicker claims never to have been a member or officer of CCLO, but signed a contract for legal services for CCLO in February 2004. (Schicker Deposition, p. 38:7-9; 39:18-19; pp. 40:19-41:25; Exh. 32, p. 244.) Unknown to Los Osos citizens, however, both Schicker and Tacker continued to participate in managing litigation commenced by CCLO against the CSD. (Exhibit 12.) Schicker and Tacker were also instrumental in engaging new counsel, Julie Biggs of Burke, Williams & Sorenson (“BWS”) to represent CCLO when its former attorneys grew tired of not being paid. (Exh. 12, pp. 94-95.)
    In September, 2005 the growing split in the community resulted in the recall of three pro-Tri-W members of the CSD Board (Hensley, Legros and Gustafson) by a razor-thin margin. (Hensley Decl., 7.) Defendants Cesena, Fouche and Senet joined Schicker and Tacker on the CSD Board. Defendants promptly suspended or terminated every CSD officer they considered a threat to their plans, including long term General Manager Bruce Buel and district counsel John Seitz. (Hensley Decl., 8; Exh.15, pp. 146, 148.) Defendants then embarked on their principle objective of unraveling the Tri-W project in violation of legal obligations to CSD bondholders, assessment payers and the State of California, in the face of approximately $ 20 million in sunk costs, and in violation of State compliance orders that would soon result in imposition of $ 6 million dollars in fines on the CSD.

    The full details of the ensuing legal and financial disasters need not discussed here. Suffice it to say that in December, 2005 the SWRCB recalled the SRF Loan and demanded immediate repayment of $ 6,530,484. (Exh. 9.) In January, 2006 the RWQCB imposed a $ 6,627,000 fine on the CSD. (Exhs. 8, 11.) Breach of contract claims were filed by CSD contractors and other suits by the RWQCB as well as Taxpayers’ Watch. (Exh. 22, pp. 177-178.) By August, 2006 the CSD was bankrupt.

    None of this deterred the New Board from pursuing its war on the Tri-W project. Suits were defended, counter suits were commenced and consultants hired to study supposed alternatives. (Hensley Decl., 35-36; Exh. 22.) The new Board also did not forget its friends. In late November 23, 2005 the Board, with no public disclosure, approved “settlements” of five lawsuits, four of them effectively already won by CSD, resulting in promised payments of some $488,623 to the BWS lawfirm which represented the plaintiffs in these actions. (Schicker Decl., 20-21; Def. Exh. K.) On the same day, and also without public disclosure, the New Board hired BWS to serve as new Special Counsel for the CSD. (Schicker Deposition, p. 111:2 – 112:17; Exh. 32, p. 256.) There was no money in the CSD budget to pay BWS. So, when the first installments became due, defendants illegally paid BWS from SRF Loan funds dedicated to the Tri-W project, over the objections of RWQCB and its own chief financial officer, and despite the fact that the SRF Loan had already been recalled. (Declaration of Patricia McClenahan, 8, 11-12; Exhs. 1, 2.)

    As the war continued, defendants began to drain other dedicated fund sources. Property tax (including special tax) revenues intended for fire services were illegally spent before the CSD’s biannual $ 760,000 contract payment to CDF became due. (Schicker Decl., 12.) Defendants’ solution was to take the $ 760,000 from restricted assessment bond proceeds held in the CSD’s LAIF account. (Schicker Decl., 12; Buel Decl., 12-13.) Next, special assessment revenues collected to make Bond payments were spent for unknown purposes, resulting in a near default on Bond payments. (Schicker Decl., 27.) Defendants’ solution was to borrow from a bond Reserve Fund, thus essentially ensuring that assessment payers would wind up paying twice to make up for the lost assessment revenues. Apparently only the subsequent filing for bankruptcy prevented further abuses by the New Board.


    Defendants make it clear in their papers that they would rather avoid discussion of their legal obligations, and focus on the alleged transgressions or failures of others. They also appear to contend that “legislative discretion” is an excuse for unlawful or arbitrary conduct. None of these arguments provide a legal excuse for the defendants’ actions in this case.

    A. Legislative Discretion is Not a Defense to Illegal Conduct

    As a background theme, defendants suggest that they have absolute legislative discretion over public funds, and simply cannot be held accountable by a separate branch of government, i.e. the court. This is not the law. It is settled that Courts have authority, granted by the State Legislature itself in Code of Civil Procedure § 526a, to remedy manifest abuses of government fiscal authority. Further, while elected officials have considerable discretion to allocate general funds among various public objectives, they have no discretion to approve expenditures that are flatly illegal. When they violate this basic principle of law, they may be held personally liable under Stanson v. Mott (1976) 17 Cal.3d 206, 225-226. Illegal expenditures include the following:
    1) Expenditures made in violation of conflict of interest laws. (Govt.Code § 1090 et seq.)
    2) Expenditures of restricted funds for an improper purpose, i.e. a purpose unrelated to those for which the funds were received or held. (Stevens v. Gelduldig (1986) 42 Cal.3d 24, 32; Stanson, 17 Cal.3d at 213.) Restrictions may arise from constitutional, statutory or contractual limitations such as those imposed on revenues derived from special taxes, bond revenues, and state or federal loans or grants for specified purposes.
    3) Gifts of public funds. (Jordan v. California D.M.V. (2002) 100 Cal.App.4th 431, 450.)
    Defendants in this case are guilty of all of the above.

    B. Defendants Cannot Escape Liability By Blaming Others for Their Own Illegal or Reckless Actions

    Defendants’ second overriding defense theme is the “blame Hensley” argument. Defendants do not seriously assert this as an affirmative defense; it is neither stated as such in the motion nor supported by citation to real evidence or legal authority. Nevertheless, defendants appear to believe they can sway the Court by blaming and maligning plaintiffs, the former CSD Board majority and officials, and anyone else who has objected to their actions. These tactics have certainly served defendants well in the political arena, but they have no place in this Court. Plaintiffs of course strongly disagree with the ludicrous claims advanced – without benefit of more than mere accusation – by defendants. (See Hensley Decl., 33-36.) Plaintiffs, however, will not waste the Court’s time with similar claims or unnecessary counter-argument.

    C. The Case Is Not Barred by Plaintiffs’ Alleged Failure to Timely Demand Corrective Action

    Defendants also contend this case is barred because they should have been given “notice and an opportunity to correct errors” before being sued for their transgressions. On the facts of this case, the defense borders on the cynical. Defendants first ignore the fact that this action was first commenced in October, 2005 before the actions now at issue even occurred. (Hensley Decl., 10.) Defendants cite no rule prohibiting plaintiffs from amending the complaint to address new unlawful acts after they occur. Beyond, this, the simple fact is that that the alleged violations in this case did not occur in public proceedings where objections could be heard before the actions were taken. After defendants actions were exposed, there was either considerable public outcry which defendants simply ignored, or it was too late to do effectively cure the violations, e.g. the illegal expenditure of assessment revenues (see section III.C.) (Hensley Decl., 15-28; Exhs. 20-25.) The plaintiff in a C.C.P. § 526a action need not make pre-litigation demands for cure where such demands would be unavailing. (Briare v. Mathews (1927) 202 Cal. 1, 9; Bank of America National Trust & Savings Assn. v. Cory (1985) 164 Cal.App.3d 66, 84.)

    With respect the illegal settlements with BWS, the decisions were made in closed session without public notice as required by the Brown Act. (Hensley Decl., 15-19, 22; Exhs. 16-18.) When word of the settlements leaked out, there was massive public outcry and demands for corrective action by plaintiffs and others, culminating in a Grand Jury investigation which defendants stonewalled. (Hensley Decl, 20, 22; Exhs. 14; 18, p.159; 19, p. 162.) Given the collusive nature of the settlements and the fact that defendants had already hired BWS as CSD special counsel, it also cannot seriously be believed that further requests to abandon the settlements or have BWS return funds would have had any effect.

    As far as the behind-the-scenes illegal use of SRF Loan funds to pay the settlements, defendants were warned by their own chief fiscal officer as well as the SWRCB that such expenditures were illegal. (McClenahan Decl., 11-12; Exhs. 2, 10.) Their response was to fire the messenger (Ms. McClenahan), ignore the SWRCB and make further payments to BWS with SRF Funds. (McClenahan Decl, 12, 14; Exhs. 1, 3; Def. Exh. L.) There is no evidence that the use of these funds was publicly disclosed until well after the fact.

    With respect to illegal expenditure of fire revenue funds, objections were made as soon as these expenditures were detected through Public Record Act requests and ongoing monitoring of CSD activities, and in spite of consistent non-cooperation by new CSD staff. (Hensley Decl., 24-27; Exhs. 20-24.) Ironically, defendants themselves claim that CSD financial affairs were in chaos and beyond tracking during this period under their new Interim General Manager Daniel Bleskey. (Schicker Decl., p. 12:11-19.) Defendants were nevertheless warned that the LAIF funds could not be used to pay the CDF contract after these expenditures were discovered. (Exh. 24, p. 182.) Defendants did nothing to cure the violation. However, given the CSD’s admitted near-bankrupt position at this point, it is also impossible to see how any further demand for repayment of the funds would have been meaningful. (Schicker Decl., p. 12:26 – 13:5; 13:20-23.)

    There is also no evidence that defendants ever publicly disclosed their misuse of assessment revenues before the fact. Nevertheless, when the shortage was discovered, objections were quickly raised. (Exhibit 24.) Defendants attempted to avoid the issue by raiding the Bond Reserve Fund. Defendants fail to acknowledge that resort to the Bond Reserve Fund was simply the consequence (although with further consequences for CSD assessment payers) of their previous fait accompli, i.e. the undisclosed previous expenditure of assessment revenue funds. Given the CSD’s Board-induced dire financial status, it may well be that the New Board had no alternative means of making Bond payments. By the same token, any demands for alternate corrective action would clearly have been futile.


    Unfortunately for defendants, they cannot prevail on a motion for summary judgment simply by forcing plaintiffs to respond to a hodgepodge of arguments and concocted factual allegations. “First, and generally, from commencement to conclusion, the party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) Consequently, before the opposing party is even required to respond with counter evidence, “the party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact.” (Id.) To satisfy this burden, a moving defendant must present evidence that one or more elements of each cause of action at issue cannot be established, or that “there is a complete defense thereto.” (Id. emphasis added; C.C.P. 437c(p)(2).) Only once this initial burden of persuasion has been satisfied does the burden shift to the plaintiff to establish that there is a triable issue of material fact as to the asserted defense or disputed element of the cause of action.

    As discussed in greater detail below, defendants have failed miserably to carry their initial burden of proof on virtually every substantial issue. In some cases, defendants rely on incompetent or conclusory evidence which is insufficient to establish their claim. On other issues, defendants appear not to understand the full extent of the issues actually raised in the complaint. Finally, defendants offer no evidence at all on such issues as whether defendants exercised due care in taking the illegal actions alleged. (Stanson, 17 Cal.3d at 225-227.)

    Although plaintiffs could rest on these deficiencies alone, they will also show that there are indeed issues of material fact that preclude summary judgment or summary adjudication of any claim. Nevertheless, in considering the motion, the Court should first determine whether defendants have even met their initial burden of proof in light on any issue in light of the legal standards governing plaintiffs’ claims.


    Paragraphs 13-15 of the Second Amended Complaint allege that the settlements resulting in payments to BWS were invalid on conflict of interest grounds, and that the settlements were illegally paid with SRF Loan Funds. Defendants dispute the conflict of interest challenge, claim the settlements are a valid exercise of legislative discretion, and simply do not address the last issue. All three issues are entitled to go to trial.

    1. Conflict of Interest
    Under California law, elected public officials may not vote on contracts in which they have a personal interest. A settlement agreement is, of course, a contract. A codification of the basic common law doctrine is found in Govt. Code § 1090. Govt. Code § 1090 provides in relevant part “Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members.” The prohibited financial interest in a contract need not amount to cash payments directly to the public official. It may be any type of economic or other benefit, direct or indirect, conveyed to the official, a spouse, or a business, corporation or other entity in which the official is an interested party. (People v. Honig (1996) 48 Cal.App.4th 289, 315-318.) The objective of the statute “is to remove or limit the possibility of any personal influence, either directly or indirectly which might bear on an official’s decision. . . .’ (Id. at 314, quoting Stigall v. City of Taft (1962) 58 Cal.2d 565, 569.) There is no requirement that the contract at issue be fraudulent or even unfair (although such elements certainly are present in this case). (Thomson v. Call (1985) 38 Cal.3d 633, 648-649; Honig, 48 Cal.App.4th 289, 314.) The statute is intended to eliminate temptation and even the appearance of impropriety as well as impropriety itself. (Id.) Any contract made in violation of Government Code § 1090 is void ab initio if any board member has a prohibited personal interest in the contract. (Klistoff v. Superior Court (2007) 157 Cal.App.4th 469, 481; Thomson, 38 Cal.3d at 649-650.) Willful violations of Government Code § 1090, moreover, constitute a criminal offense. (Govt. Code § 1097.)

    The law grants limited or partial exceptions for some contracts with non-profit agencies. Govt. Code § 1091 provides (emphasis added):

    “(a) An officer shall not be deemed to be interested in a contract entered into by a body or board of which the officer is a member within the meaning of this article if the officer has only a remote interest in the contract and if the fact of that interest is disclosed to the body or board of which the officer is a member and noted in its official records, and thereafter the body or board authorizes, approves, or ratifies the contract in good faith by a vote of its membership sufficient for the purpose without counting the vote or votes of the officer or member with the remote interest.

    (b) As used in this article, “remote interest” means any of the following:
    (1) That of an officer or employee of a nonprofit entity exempt from taxation pursuant to Section 501(c)(3) of the Internal Revenue Code (26 U.S.C. Sec. 501(c)(3)) or a nonprofit corporation, except as provided in paragraph (8) of subdivision (a) of Section 1091.5

    This partial exemption is subject to an important limitation. Subsection (c) of Govt. Code § 1091 provides that “This section is not applicable to any officer interested in a contract who influences or attempts to influence another member of the body or board of which he or she is a member to enter into the contract.” Therefore, a contract in which an officer or employee of a nonprofit corporation votes on in his or her official capacity, or even merely advocates for, is illegal and void. (See 85 Ops.Cal.Atty.Gen. 176 (2002); 84 Ops.Cal.Atty.Gen. 158 (2001); 78 Ops.Cal.Atty.Gen. 230, 237-238 (1995). Similarly, the contract is illegal if the interested official fails to publicly disclose the interest, or the official’s interest is not disclosed in the official records. (Id.; Govt. Code § 1091(a).)
    Conflict of interest restrictions also apply to members of non-profit organizations. Under Govt. Code § 1091.5(a)(7) an unsalaried member of a nonprofit corporation may vote on the contract, but only “provided that this interest is disclosed to the body or board at the time of the first consideration of the contract, and provided further that this interest is noted in its official records.”

    These limited exemptions for contracts with non-profit corporations reflect a balancing of interests. While a government agency’s ability to do business with genuine publicly-interested nonprofit organizations should not be unnecessarily restricted, the public obviously has a strong interest in knowing that contractual decisions are not being unduly influenced by favoritism or lack of objectivity towards non-profits whose officers, employees or members also happen to sit on official boards or commissions.

    2. Tacker and Schicker Failed to Disclose Their Interests and Illegally Voted on the Settlement Agreements
    In this case, all the defendant New Board members claim to have had no interest whatsoever in the settlement agreements approved in November, 2005. Although the issue is perhaps debatable with respect to Senet, Fouche and Cessna, it is clearly a lie with respect to Schicker and Tacker.

    Defendant Tacker admits being a member, and indeed the president and an incorporor of CCLO in 2004. (Tacker Decl., 3.) Tacker claims to have “resigned” from CCLO in the fall of 2004 before taking office as Boardmember of the CSD. (Tacker Decl., 5.) Current CCLO president Keith Swanson attests to the same, and further declares that “decisions about the activities of CCLO are made only be officers of the corporation:” (Swanson Decl., p. 1:9-10, 18-22.) Schicker claims never to have been a member or employee of CCLO. (Schicker Decl. 9-10.) The evidence shows Schicker and Tacker are not truthful.

    In February, 2004 both Tacker and Schicker signed a legal services agreement with the Parker Hawley lawfirm on behalf of CCLO. (Schicker Deposition, p. 38:7 – 41:25; Exh. 32, p. 244; Exhibit A to Swanson Decl., p. 2.) In light of this, Schicker can hardly claim to be a mere bystander. E-mail correspondence obtained through Public Record Act requests further shows that both Schicker and Tacker were actively involved in corresponding with CCLO’s litigation attorneys (Parker & Hawley) and in formulating CCLO’s litigation strategy long after they assumed office as CSD Board members in late 2004. (See Exhibit 12.) This rebuts Tacker’s claim that she “resigned” from CCLO before taking office, and further rebuts Schicker’s claim that she was “never” a member or employee of CCLO. Further, when Parker & Hawley apparently became insistent on being paid, Schicker and Tacker were instrumental in engaging Julie Biggs of BWS to serve as replacement counsel, and then continuing to cooperate with her on CCLO litigation. On February 8, 2005, Schicker gave Biggs a dollar “so we could be confidential,” but advised that Biggs could not be expected to work free. (Exh. 12, p. 94-95.) (In that at least, Schicker was certainly honest.) After BWS assumed control of the litigation, Schicker and Tacker apparently became more circumspect about traceable communications concerning their role in the CCLO litigation. Nevertheless, Schicker continued to consult with Biggs on potential litigation and other matters not only up until the time of the recall, but during the time BWS was actively negotiating its attorney fee demands in October. (Exh. 13.)

    laintiffs have no doubt that defendants have concealed extensive additional evidence of their true role in CCLO. Nevertheless, there is clearly sufficient evidence that a trier of fact could conclude that both Tacker and Schicker were not only active members, employees, or even officers of CCLO under CCLO’s own definition, i.e. persons making decisions on behalf of the organization. (Swanson Decl., p. 1:9-22.)

    Government Code § 1090 et seq. does not define the term “employee” to include only paid employees. The statute also does not define “members” of a non-profit organization to include only registered badge-wearers. Absent special definition, words in a statute are to be construed in their common and ordinary sense, as well as in a manner consistent with the intended purposes of the statute. (Dyna-Med, Inc. v. Fair Employment & Housing Comm. (1987) 43 Cal.3d 1379, 1386-1387.) In ordinary parlance, and particularly in the context of non-profit organizations. a “member” is simply an active or ongoing participant in organizational activities. Badges and certificates are not required. Moreover, this simply definition is certainly consistent with the purposes of Government Code § 1090 et seq. Certainly from the public point of view, favoritism toward a particular organization is no less problematic because it springs from personal financial interest as opposed to a public official’s indirect interest in the financial wellbeing of an organization to which the member has strong personal ties, whether it be Planned Parenthood, the Chamber of Commerce or an advocacy organization like CCLO. The controlling consideration, regardless of whether the official’s interest is deemed small or indirect, is “whether it is such as deprives the [agency] of his overriding fidelity to and places him in the compromising situation where, in the exercise of his official judgment or discretion, he may be influenced by personal considerations rather than the public good.’” (Honig, 48 Cal.App.4th at 315, quoting Terry v. Bender (1956) 143 Cal.App.2d 198, 207-208.)

    The statutes do not automatically void a contract in this situation, but they do require full public disclosure and official acknowledgement of the potential conflict of interest. (Govt.Code § 1091(a), 1091.5(a)(7); Honig, 48 Cal.App.4th at 317-318.) In other words, honesty of the type disdained by defendants here. Defendants make no claim that that such public disclosure or acknowledgement occurred here, nor do the relevant Board minutes indicate that they were. (Hensley Decl., 17-19, 21; Exhs. 16-18.) It is also undisputed that Schicker and Tacker voted on the settlements, which they certainly could not do if they had even an indirect interest under Government Code § 1091. (Schicker Deposition, pp. 72:11-15, 76:14-77:20; Exh. 32, pp. 252-253.) Lastly, given Schicker and Tacker’s senior status on the New Board and their closet relationship with BWS and CCLO, it is impossible to believe they did not influence the votes of other members. Whether or not defendants Fouche, Cesena and Senet also had conflicts, or were privy to the conflict or merely dupes is at this point immaterial. The settlements are void, and at least Schicker and Tacker liable for unlawful expenditures of public funds.

    3. Gift of Public Funds
    Under Article XVI, section 6 of the California Constitution, no public agency in California may make a “gift” of public funds or “any other thing of value” to private entities. Payments made in settlement of litigation do not normally qualify as “gifts” since the public agency usually receives valid consideration as part of the settlement. The pendency of litigation, however, cannot be used as a mere excuse for giving away public funds to favored constituents or interest groups. Payments made in settlement of an invalid claim are an unlawful gift of public funds, as are payments which clearly exceed the maximum probable liability that the public agency might otherwise incur. (Jordan, 100 Cal.App.4th 431, 450.)

    Defendants recite general principles about the validity of settlement agreements, but provide no evidence to show that the amounts of the settlements were reasonable, or that there was any valid basis for the attorney fee claims at all in four of the five suits. They have thus failed to carry their initial burden of proof on this issue. In any event, there is ample evidence from which a trier of fact could conclude that the settlements amounted to an illegal giveaway of public funds. The salient points may be summarized as follows:
    • None of the cases involved claims for money damages or other direct financial liability by CSD.
    • As defendants admitted to the Grand Jury, the settlement amounts were agreed to with utterly no documentation or substantiation for the amounts claimed as attorney fees. (Exhibit 14, p. 142.) Defendants thus effectively simply allowed BWS to fill in the amount on blank checks written by CSD.
    • The circumstances strongly suggest collusion if not outright corruption. The conflict-of-interest issue is discussed above. The fact that BWS was secretly hired as special counsel for CSD the same day the settlements were signed, and that defendants were colluding with BWS long before the settlements were even proposed further strongly supports a conclusion of corrupt motives.
    • Above all, although the settlement amounts were nominally awarded in compromise of possible attorney fee claims, CSD was actually the prevailing party in every case. There was thus utterly no legal basis for an award of attorney fees to CCLO or CASE.

    A full discussion of this last point will have to await trial. It may be noted, however, that the nominal pretext for the settlement was to resolve claims for attorney fees under the “private attorney general doctrine” codified in C.C.P. § 1021.5. To obtain any award of attorney fees under C.C.P. § 1021.5, however, the fee claimant first must actually be a “successful” party in the litigation. (Marine Forests Society v. California Coastal Comm. (2008) 160 Cal.App.4th 867, 877; Urbaniak v. Newton (1994) 19 Cal.App.4th 1837, 1842.) Next, the fee claimant must establish that the litigation (1) vindicated important public rights, (2) conferred a substantial benefit on the general public or a large class of persons; and (3) that the costs of the litigation were disproportionate to any private benefit reaped by the claimant. (Concerned Citizens of La Habra v. City of La Habra (2005) 131 Cal.App.4th 329, 334.)

    Defendants have not even attempted to show that CCLO had a colorable claim for attorney fees under these standards in any of the four lawsuits initiated or participated in by CCLO. Again, defendants fail to meet their burden. The actual evidence further shows that all four of these cases either were filed and never even litigated, or comprised an unbroken string of defeats for CCLO and CASE before being “settled” for large sums. (Defs. Exh. K; Seymour Decl., 8-13; Exhs. 26-29.) To be a “successful” party for purposes of C.C.P. § 1021.5, the plaintiff must obtain an actual favorable judicial decision or, at a minimum, show that the action resulted in some recognized change in the legal relationship of the parties. (Marine Forests, 160 Cal.App.4th at 877-879; Miller v. California Comm. on the Status of Women (1985) 176 Cal.App.3d 454, 457-458 [“There must be some relief to which the plaintiff’s actions were causally connected.].) Mere temporary procedural successes that are later reversed or rendered moot do not qualify a party as “successful.” (Id.)

    Defendants contend there was a colorable basis for an attorney fee award in the CASE v. Superior Court litigation because CASE succeeded in keeping Measure B on the ballot despite the fact that the measure was found illegal by this Court both before and after the election. (Exh. 30.) However, defendants provide no evidence that the amount paid to BWS was in any way reasonable or proportionate to fees actually incurred in the litigation. (See Press v. Lucky Stores (1983) 34 Cal.3d 311, 322 [attorney fee awards under C.C.P. § 1021.5 must be based on lodestar calculations based on attorney hours reasonably spent in litigation].) In any event, defendants have not requested and cannot obtain summary adjudication on the validity of only one settlement agreement. (C.C.P. § 437c(f)(1).)

    4. Illegal Use of Restricted Funds

    The final problem with the illegal settlements is that defendants illegally used restricted funds to pay the settlements. (Second Am. Comp., 14.) Defendants do not offer evidence of the source of funds used to pay BWS, and therefore fail to meet their initial burden on this issue. CSD records show, however, the source was SRF Loan funds which defendants had utterly no legal ability to use for this purpose. (McClenahan Decl., 11-12; Exhs. 1, 2.) Moreover, defendants were fully warned that these expenditures were illegal before they were made. Defendants were first warned by CSD’s own chief financial officer Administrative Services Manager and chief financial officer Patricia. McClenahan that SRF Loan funds could not (McClenahan Decl., 11; Exh. 2.) As the last surviving CSD officer apparently still willing to resist the New Board on legal and ethical grounds. Ms. McClenahan was predictably thereafter terminated for her efforts. (McClenahan Decl., 14; Exhibit 3.) Defendants were subsequently warned to cease and desist payments to BWS from SRF Funds by the SWRCB itself after the state learned of the settlements in December, 2005. (Exh. 10.) Even more incredibly, these illegal payments continued even after the SWRCB terminated the SRF Loan and demanded immediate payment of all funds on December 13, 2005. (Exhibit 9.)

    Defendants cannot seriously contend that the SRF Loan funds could be used to pay off BWS for attorney fees incurred by defendants’ political allies in past litigation. The history and terms of the SRF Loan Agreement make it absolutely clear that funds were loaned solely and expressly for construction costs for the Tri-W Project. (See Buel Decl., 18-19; Exhibit 4.) These funds could not be used as a slush fund for the New Board’s favorite political supporters or attorneys.

    The defendants start their argument on misuse of fire funds with the remarkable admission that when it came time to pay the annual CDF contract fee, they had already expended the property tax revenue funds collected to pay fire expenses. (Schicker Decl., 26.) This is in itself an admission of liability. The evidence shows, and defendants do not seriously dispute that the only major source of funding for CSD fire and emergency services are property tax and special tax revenues collected by the County and remitted to the CSD. (Buel Decl., 21-23.) Defendants further admit that these funds are largely committed by contract to payments to the CDF/SLO County Fire Department which actually provides fire services. (Schicker Decl., 25; Def. Exh. P.) Given these facts, defendants’ admission that they had already spent their sole fire revenue funds on other matters is sufficient to support a claim for waste of public funds.

    There is more, however. A substantial portion of the CSD’s fire revenues comes from special taxes. (Buel Decl., 23; Exh. 5.) Pursuant to Ordinance No. 2005-01, which established the special tax in effect in 2005-2006, these special taxes could be used for fire and emergency service expenses only “and for no other purpose.” (Exh. 5, p. 62, Section 2.) This is no mere recital but a requirement of state law. (Govt.Code §§ 50075.1(b), 53978(e) [special taxes for fire services may be used only for that purpose].) Defendants’ use of these funds for other purposes was a classic illegal expenditure of public funds.

    Having already essentially admitted liability for illegal expenditures, defendants dig themselves in even deeper by admitting that they paid the $ 760,000 CDF contract payment with funds from CSD’s restricted LAIF account. Defendants admit that the funds in the LAIF were originally derived from the 2002 Wastewater Project bond sales, but contend the funds left in the LAIF account in June, 2006 represented Bond funds that were still owed to fire reserves to repay an interfund loan to the Wastewater Project in 2002. (Schicker Decl., 4, 26; Defs. Exh. C; but see Buel Decl. 12-13.) Defendants, however, are simply wrong. While the CSD did advance substantial funds from fire and water reserves to the Wastewater Project against expected Bond proceeds in 2002, these funds were repaid pursuant to Resolution No. 2002-48 soon after the Bond proceeds were received. (Buel Decl., 13.) The LAIF funds raided by defendants in 2006 were thus Bond proceeds which by law could only be used for the Tri-W project. (Buel Decl., 7-8.)

    However noble the goal of maintaining fire service, defendants cannot seriously claim that the Wastewater Project Bond proceeds could lawfully be used to make up for misspent fire revenues. The Bond Agreement and CSD Resolution No. 2002-33 required Bond proceeds (subject to minor exceptions that are immaterial here) to be treated as a special “Improvement Fund” and used exclusively for Wastewater Project costs or reimbursement of assessments. (Def. Exh A, p. 10; Def. Exh. B, p. 19.) These restrictions simply reflect settled principles and state statutory law governing use of bond funds. (See Streets & Highway Code §§ 10424, 10602.) Defendants had no discretion to effectively steal money held in trust, particularly where they utterly no hope of repaying or any plan to repay the funds.

    Defendants begin their defense concerning the illegal expenditure of Bond funds with another startling admission. They assert that when the annual bond repayment installment became due in 2006, they had insufficient funds to pay the $ 716,000 due. (Memorandum, p 15:21-24; Schicker Decl., 27.) Under the terms of Resolution 2002-33 and the Bond Agreement, however, CSD was required to make the bond payment with assessment revenues held in the Redemption Fund established for that purpose. (Buel Decl., 7, 8.a; Def. Exh. A, p. 10, Exh. B, p. 18, sec. 8.) The assessment revenues were in turn held in trust for bondholders. (Id.) In other words, defendants essentially admit that they had already illegally spent the assessment proceeds pledged to repayment of the bonds on other uses. Defendants do not claim the shortfall occurred because LOCSD property owners failed to pay their annual assessments during the previous assessment period.
    Defendants apparently imagine that they can ignore this admitted illegal expenditure of assessment revenues by contending the shortfall was made good from the bond Reserve Fund established pursuant to Resolution 2002-33 and the Bond Agreement. There are two rather obvious faults with this argument. First, it does not address the problem that the assessment revenues were illegally diverted to begin with. (See Second Amended Complaint, 17-18.) Second, the funds held in the Reserve Fund were not free money, but funds derived from the original bond proceeds and assessment revenues which would have to be paid either to bondholders or refunded to assessment payers at some date. (Def. Exh. B, pp. 20-21.) By using these funds to cover a shortfall caused by their own illegal expenditures of assessment revenues, were essentially imposing a new illegal assessment or tax on CSD property owners to repay the illegal expenditure of the previous annual assessment. While it is too late to enjoin defendants’ use of the Reserve Fund, it is not too late to require defendants to reimburse the Reserve Fund for their improper use of assessment funds.

    Defendants have failed to show that they are entitled to summary judgment or summary adjudication on any issue. The motion should be denied.

    Date: August 19, 2008

    Philip A. Seymour
    Attorney for Plaintiffs Taxpayers Watch, Joyce Albright and Gordon Hensley

    By Blogger Richard LeGros, at 9:54 AM, August 30, 2008  

  • It will be very interesting to see if Ron responds to this.

    By Blogger Sewertoons, at 1:02 PM, August 30, 2008  

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