Skip to comments.CA: Board told in 2004 it likely broke state law (San Diego)
Posted on 10/10/2005 7:40:17 AM PDT by NormsRevenge
A lawyer for San Diego's retirement system determined in May 2004 that board members likely had broken the state conflict-of-interest law a conclusion reached in private one year before prosecutors brought charges against six current and former pension trustees.
In a May 13, 2004, memo, Michael A. Leone wrote that it was "probable" that a court would find that the law was broken when the trustees voted to adopt a city proposal to continue underfunding the pension system while simultaneously enhancing future benefits for city workers.
The memo is one of 60,000 documents and e-mail messages released last week in response to a public records request from The San Diego Union-Tribune and other news organizations.
Leone's memo seems to buttress the conflict-of-interest case filed in July by District Attorney Bonnie Dumanis against former and current board members, though a lawyer for one of the accused pension trustees cautioned against giving too much weight to the document.
"Different lawyers have different opinions," said Bob Rose, attorney for board member John Torres.
Rose said he had not seen the 36-page memo and could not comment extensively on it.
Dumanis filed charges against Torres, vice president of the San Diego Municipal Employees Association, the city's largest labor union; Ron Saathoff, president of the firefighters union; Mary Vattimo, former city treasurer; Terri Webster, former acting auditor for the city; Cathy Lexin, former human resources director for the city; and Sharon Wilkinson, a city management analyst.
Lexin faces two felony charges and the other defendants face three, all stemming from the board's decision in 2002 to continue a practice the City Council started in 1996 of underfunding the pension system. The 2002 underfunding plan was tied to the City Council approving pension benefit increases in union contracts.
The conflict-of-interest law, contained in Government Code Section 1090, prohibits public officials from making a contract in which they have a financial interest.
Leone is a lawyer with the firm of Seltzer Caplan McMahon Vitek, which the board of the San Diego City Employees' Retirement System hired to defend it against three lawsuits attacking the underfunding plan.
The failure to fully fund the retirement system has contributed to a growing pension deficit that is at least $1.4 billion and has led to an investigation by federal authorities that began 18 months ago.
The pension board long had sought to keep the recently released records private, saying they were protected by attorney-client privilege. Federal authorities investigating the city's financial problems had subpoenaed the records, which the board released after a federal judge ordered it to do so.
The records provide an extraordinary look into the inner workings and behind-the-scenes discussions among retirement system officials and the pension fund's lawyers and advisers.
Leone's memo analyzes a variety of legal issues stemming from the civil lawsuits and weighs the overall risks and benefits of settling the cases rather than going to trial. At the time, a settlement in the case was pending.
Defense lawyers have argued that under state law public officials are exempt from conflict-of-interest charges if the financial interest in a contract includes salary. They have argued that pension benefits constitute a form of salary and fall under the exemption.
In his analysis, Leone discusses this issue. He notes that the law on whether pension is salary is "unsettled, unclear and under accepted principles of statutory construction, contradictory."
However, he wrote, when invoking the exceptions to the law, public officials must disclose in public what their interest is, and that must be noted in the official records.
In this case, neither was done and those defenses could not be invoked.
Leone said another problem for the board was a move that allowed Saathoff to add union salary to his firefighter's salary to calculate his pension benefit. This also was not disclosed or recorded in the board's records and could lead to voiding the proposal.
With the exception of Rose, lawyers for the other defendants did not return calls or declined to speak.
Rose said it was important to note that the memo was written in the context of settling a civil lawsuit. In civil cases, the standard of proof is far lower than in criminal cases, where prosecutors must prove the charges beyond a reasonable doubt.
Rose said that it sounded like Leone was analyzing one possible scenario.
"It sounds like this was done in the context of litigation on what to do or what not to do," Rose said.
He also noted that the memo was written nearly two years after the board's votes.
The advice board members were given when they were voting is more pertinent to the criminal case, Rose said.
Prosecutors also declined to comment on how the memo might affect their case. A preliminary hearing is scheduled Oct. 26.
Last year, the pension board tried to address the conflict-of-interest issue, according to some of the documents released last week. In August 2004, the board placed on its agenda a resolution to disclose that some board members receive a salary from the city. This was an effort to properly invoke the exemptions under the conflict-of-interest law.
The system's private and in-house lawyers were not convinced such a blanket disclosure complied with the law.
The board's lawyer, Lori Chapin, wrote in an Aug. 10, 2004, e-mail to Leone that while the resolution "may be in the best interests of individual board members it is NOT in the best interests of the board."
"I think it puts us at risk of more litigation," Chapin wrote.
In a reply 45 minutes later, Leone pointed out that the law requires specific disclosures for each board member and not a general statement. He wrote that he doubted the resolution, "standing alone, will be effective to invoke" the exemptions under the law.
It is only taxpayer money - they can always get more...
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