Whistleblowers, Aguirre Sue Utility Watchdog

Whistleblowers, Aguirre Sue Utility Watchdog
Utility Watchdog Hounded by FBI, Whistleblowers
March 9, 2012
By Rob Davis
VOSD

When the Utility Consumers' Action Network began the process of dissolving, its executive director described the effort as a ruse to elicit a lawsuit from former city attorney Mike Aguirre.

If so, it worked. Aguirre, who represents two UCAN whistleblowers, filed suit Friday, alleging that the organization's board and top leaders had breached their fiduciary duty by failing to take internal complaints about UCAN's financial management seriously. (Read the lawsuit here.)

We broke down the bulk of the complaints against UCAN when the organization filed to dissolve:

UCAN filed its intent to dissolve in San Diego Superior Court, saying in papers that it faced an "imminent threat to its ability to carry on," due in part to legal threats by members of its own staff. Still, it insisted the organization would remain viable, despite the major crisis it clearly faces.

The move comes a week after an FBI agent subpoenaed UCAN's internal records and nearly a year after two employees alleged that UCAN had embezzled money, awarded illegal bonuses, set up suspicious bank accounts and failed to properly audit its books. The organization says it has investigated those complaints and found them unsubstantiated.

What The Plaintiffs Seek: Audits of UCAN's books and all of executive director Michael Shames' payments and bonuses. Damages, restitution and attorneys fees. (No amounts were specified.) And they want declarations that UCAN's members can elect the organization's board and decide whether the group should dissolve.

Why They Sued: Aguirre explained it this way in a press release: "Every red flag for financial mismanagement and fraud has been raised as the result of internal inquiries by UCAN’s employees. But instead of investigating with a public audit as required by the organization’s charter, UCAN’s Board has met secretly with Michael Shames to conduct an orchestrated cover-up.”

What Shames Says: He said he hadn't seen the suit yet but believed it was likely rehashing allegations that UCAN had already investigated and found unsubstantiated. "I will be looking for tangible evidence, documents, something, to support their allegations and not a continuation of the insinuations we've seen thus far," he said.
One Substantiated Issue The Suit Alleges: That UCAN didn't properly audit its books in 2006 as required by state law. Shames acknowledged today that the organization should've conducted an audit that year by a certified public accountant. He said an accounting firm was in the process now of auditing its books for last year and 2006.

Allegation in lawsuit: Mayor Jerry Sanders or one of his deputies fired a high-level San Diego whistle-blower

Salacious City Lawsuit Nears Trial
Jul 17, 2011
by Liam Dillon
Voice of San Diego

The two-year-old allegations are as salacious as they come: Mayor Jerry Sanders or one of his deputies fired a high-level city of San Diego employee because he was helping investigate contracting involving one of the mayor's supporters.

And the lawsuit that makes those allegations doesn't show signs of going away.

Last month, the City Council approved an additional $250,000 to defend the case on top of the $200,000 the city has already spent on outside attorneys. The $450,000 cost doesn't include more than a year of work by the City Attorney's Office before it bowed out of the case. A trial date in San Diego Superior Court has been set for Oct. 7.

The city's outside lawyer, Janice Brown, said the money for her bills is well spent. The former employee's current settlement offer is at least three to four times the entire bill, she told the City Council.

The gulf between the two sides is as wide as the allegations' seriousness.

Former city deputy economic development director Scott Kessler filed suit in July 2009, alleging the Mayor's Office directed him to bend contracting rules to favor Marco Li Mandri, a well-known civic leader in the city's Little Italy neighborhood and a Sanders supporter. Kessler says he refused. Kessler also argues the Mayor's Office ultimately fired him after he gave a copy of a joint FBI and San Diego Police Department investigation he obtained about Li Mandri's involvement in a North Bay parking and business improvement district to the city's Ethics Commission. (That criminal case never came to anything. San Diego District Attorney Bonnie Dumanis' office didn't pursue charges in that case, and Li Mandri has denied any wrongdoing.)

Sanders' office says it never told Kessler to improperly favor Li Mandri. It maintains Kessler wasn't laid off for his cooperation with any investigation. Instead, it argues it laid off Kessler, along with numerous other high-level managers, as part of mid-year budget cuts in 2008.

The lawsuit has been contentious and included a rare deposition of Sanders. The mayor has denied repeatedly all of the allegations including as recently as in an interview last week. Brown, the city's outside attorney, said the same to City Council last month.

"We believe that we'll have an opportunity in front of a jury to show that they're not true," she said. "That's why we're opposing it."

But for the last eight months, the case hasn't focused on these scandalous claims. Instead, both sides have fought primarily over an administrative issue: whether Kessler needed to complain formally to the city's Ethics Commission about his firing before filing suit.

This legal defense, Brown said, not only protects the city in this case, but also sets a precedent for any future employment lawsuits against the city. If successful, she said, it could save the city time and money going forward. Brown, who is a former federal Justice Department attorney and former board member of the city's downtown redevelopment agency, added she has cut her hourly rate almost in half to $260 for her work on the case. Through the end of May, lawyers at her firm had spent more than 700 hours on the lawsuit, invoices show.

Settling the case hasn't been an option because Kessler is asking for too much money, Brown added. His most recent settlement offer is for $1.5 million. The city hasn't bothered countering.

"Do you respond to that in real numbers or do we say, 'You're out of the stratosphere?'" Brown said in an interview.

Kessler's attorney, Joshua Gruenberg, said the city should bother with a counter offer. It's typical for plaintiffs to take less than their initial demand, he said. Gruenberg added that he made his first settlement offer in November 2009 for less than $1 million. The cost has increased because of all the hours he's worked since.

"I don't know if I've ever spent more time on a case than this one," Gruenberg said. He added he believed Kessler would prevail in court.

Regardless, both Gruenberg and Brown said they were open to settlement talks before the Oct. 7 trial. A lot of legal issues remain. Gruenberg is trying to depose the mayor for a second time and Brown is fighting it. The question about Kessler needing to make a formal complaint about his firing to the Ethics Commission before filing a lawsuit is unresolved. Then, of course, there's Kessler's actual wrongful termination claims to decide.

Asked if the cost of defending the lawsuit was justifiable, Sanders replied, "I would imagine you would want an attorney defending you if you were sued also."

[Maura Larkins comment: Of course we would, Jerry. But we'd have to pay for it. The problem here is, the taxpayers are paying for your expensive lawyers. You should have settled long ago.]