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San Diego’s Legal Costs Mount With Software Settlement

September 26, 2011 1:12 p.m.

The city of San Diego has paid $1.9 million to settle a lawsuit brought by a computer software contractor it fired for missing deadlines that put the project more than a year behind schedule and $16 million over budget.

Related Story: San Diego’s Legal Costs Mount With Software Settlement

Transcript:

This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

CAVANAUGH: Suing the City of San Diego results in a big payday for some clients and their larceny. This is KPBS Midday Edition. A new investigative report focuses on the nearly $2 million settlement by the city to a computer software contractor. The number and amount of lawsuit payouts is on track this year to be one of the highest ever. Each after the beach booze ban, citizen it is of Pacific Beach say there's still too much drinking going on. But their City Council man is not on board with a new proposed restriction. And after a study on eyewitness reliability, San Diego police review their follow-up procedures. I'm Maureen Cavanaugh. KPBS Midday Edition is next: First the news.

CAVANAUGH: Cash strapped San Diego is spending a pile of money on civil lawsuits. And there's a new chapter to the claim of too much booze in Pacific Beach. This is KPBS Midday Edition.
I'm Maureen Cavanaugh. It's Monday, September 26th.
An analysis by an investigative reporting unit has uncovered not only the amounts the city is paying but the complex set of reasons the city uses either to defend or settle a suit filed against San Diego's municipal agencies. My guests, Kelly Thornton is coauthor of the article in today's Union Tribune. Kelly is a reporter with investigative news source, a journalism nonprofit based at San Diego state university. Welcome.
THORNTON: Thank you.
CAVANAUGH: And Andrew Jones is head of civil litigation for the San Diego City attorney's office. Andrew, welcome to the program.
JONES: Thank you very much.
CAVANAUGH: Kelly, let me start with you since we're basing our talk here on your article. How much has the city paid out in lawsuit this is year, and how does that compare to years past? Through July 12th of 2011, the city spent about 13.1 million fighting and handling lawsuits compared to about 31.2 million for the entire year of 2010. That puts it on pace for it to potentially approach its highest year, where.
CAVANAUGH: Explain how investigative news source went about compiling this data and, how did you do your analysis?
THORNTON: Craig is our numbers guy. He's brilliant. He gets all the numbers from the city and comes up with what the city is spending on these things. We get our figures from the risk management department.
CAVANAUGH: The largest single payment so far has been a settlement with a computer software contractor, axon solutions. How much was that?
THORNTON: That was for 1.9 million this year. And basically, that was the highest of this first six months of the year. Which is a pretty high figure. And I should say, and Andrew will say, that the city attorney's office position is they don't expect that trend to continue in the second six months of the year. That's a particularly high settlement.
CAVANAUGH: Remind us how the problems between the City of San Diego and axon solutions began.
THORNTON: Well, the city contracted with axon in 2007 as a result of a lot of the problems the city was having with the pension related investigations and financial issues. And they decided to go forward with this sub in order to be better about disclosing their financial situation and to just get on the same page in terms of their systems. They had multiple systems that they needed to put into one system. So they contracted for the installation of that. And they accused this company of having so many delays and cost overruns that they needed to end that relationship and hire the actual manufacturer of the software to take over and put into place.
CAVANAUGH: Anybody who was here in the mid-thousands remembers the audit delays and how the City of San Diego couldn't borrow any money because it couldn't prove what its fiscal health was because all these audits were delayed. And the city maimed a lot of that on Axon solutions and this computer software. So Andrew Jones, my question is, why didn't the city pursue litigation in this particular instance? Why did the city decide to settle?
JONES: Well, it's very complicated analysis. However, basically you can take the example of someone who gets a contract to billed a roof for you. Say you're going to spend $10,000 on that roof, and for some reason, part of that construction you don't want agree with. You think it was done poorly. Well, obviously, you would owe that contractor the part that was done properly and not owe them the part that was not done properly. You can pay them the $2,000, sue to get the $2,000 pack, or pay the $8,000 and fight it out. In this case, axon felt that the six owed them $6.4 million. So we could have paid the 6.4 and fought it out. Instead, we settled for 1.9, and in essence saved the city $4.5 million by doing that. That was a decision by the Court that, in fact, the case should go forward. That was an analysis done by Joe Corlione who's been practicing law for 35 years and has extensive knowledge of this area. We value-weighted the case, evaluated the evident, evaluated the law, made a recommendation that was reviewed by a number of people. And I can talk about how that process works.
CAVANAUGH: It is a very complex process as you're delineating here. Was there a projection made as to how much it would have cost to pursue this litigation?
JONES: Yes, it's all part of the evaluation. How much it would cost, for instance, to pay for experts and those types of things, in our opinion would have been extensive.
CAVANAUGH: Mike Aguirre did not agree with the city's decision to settle this lawsuit. He commented for your story. What did he say?
THORNTON: Well, I think that he and some other folks had felt that for a company that supposedly had done the city so wrong and put this whole thing $16 million over budget and a year delayed that it didn't seem right to then turn around and pay them $2 million. I think that's the point of that.
CAVANAUGH: And I'm wondering, what's your response to that, Andrew?
JONES: With all due respect to Mr. Aguirre, I think Mr. Goldsmith has done an excellent job evaluating risk. We've got an excellent team of attorneys who looked at this. It's handled not just by the attorney who handled case. The mayor, the city attorney, the City Council. There are a number of people who look at this. And with all due respect, they all disagree with Mr. Aguirre.
CAVANAUGH: Let me make the argument, though, that perhaps there are some lawsuits that should be continued and fought for principle rather than the bottom line. And that seems to be Mike Aguirre's comment was that there was this group that he contends did so much damage to the city for so many years that we should basically not pay them one red cent. So does that idea of principle ever factor into the decisions you make whether to go ahead with the litigation or not?
JONES: Once in a while it does. It's certainly not a driving force behind the decisions we make. Our job is to be sure that the City of San Diego gets out of litigation for the least possible cost. And sometimes principle can cost you a lot of money. Kelly wrote a first article, and talked to an attorney who complained to the City of San Diego not settling lawsuits.
CAVANAUGH: Kelly, you found that there was also a large amount paid out to outside legal counsel. How much was that?
THORNTON: I believe that figure was 1.4 million in the first six months of this year. I think that overall, that number, if you look at the past 5, 6, 7 years, that number is down significantly. But it's about on par with what was spent last year.
CAVANAUGH: I'm going to ask Andrew this, but what did the city tell you for the need for outside counsel?
THORNTON: Generally, the city needs outside counsel when there is a conflict of interest for city attorneys or a lack of expertise in a certain area.
CAVANAUGH: Do you concur with that? Are there any other reasons?
JONES: Absolutely, the city attorney, Jan Goldsmith, is committed to reducing outside counsel to the least possible cost. Initially, when this study was done. If you do the analysis, you'll see over a five-year period, the city was paying $6.8 million a year. Last year, we reduced it to down to 3.1 million, and this year we're expecting to pay 2.8. We're attacking the problem aggressively.
CAVANAUGH: Do you negotiate with the outside counsel attorneys? The outside attorneys to maybe not charge the city as much as they would another client?
JONES: Absolutely. That's all part of the problem, it's part of the contracting process. And we certainly do that. And we've done that actually on contracts that we inherited from the Aguirre administration where we actually reduced the hourly rate on a contract that already existed. We've done that in every case that we can.
CAVANAUGH: The attorney, Kelly, who represented city firefighters who fraught suit against the city for being forced to attend a gay pride parade, those attorneys got a lot more money than their clients didn't they?
THORNTON: Significantly more. It was one attorney, Charles Amanry, I believe, his law office, anyway, and he got almost a million dollars in legal fee, and his clients received about $34,000, a jury verdict.
CAVANAUGH: That was a jury verdict against the city. And I want to make it clear, that's not the outside counsel that we were just talking about. These were the attorneys who brought suit against the city representing the city firefighters. Is it common in civil suits that the lawyers will make more than the clients?
JONES: It's not common. But there are cases when attorneys' fees are an issue. It's another factor that we evaluate and weigh, determining whether to settle a case or not. But certainly the right type of case, and this particular type of case, would involve attorneys' fees.
CAVANAUGH: Is it always the situation if a claimant win ace suit, that the city be forced to pay their legal fees?
JONES: No, in those cases -- a typical tort case, for instance, there are no attorneys' fees involved. But cases that involve civil rights issues, those cases could have attorneys' fees associated with them.
CAVANAUGH: What did you find out about where the money comes from?
THORNTON: In the case of axon, we found that most of it comes from a public liability fund, which is funded by the general fund, taxpayer dollars. About one -- I think it was 1.4 million or so, but then they also grab money from enterprise funds like sure and city district funds, so money comes from all over the city covers. And it's a few thousand here, a few $0.10, a thousand there. Of so it's interesting how the entire city pay enforce some lawsuits to be settled.
CAVANAUGH: You would think it would be budgeted, a certain amount of money for potential lawsuits because every city faces lawsuits and claims against it. Is there no fund designated for that, Andrew?
JONES: If you think about it, legally it has to be that way, and this is why. An enterprise fund, for instance the water department, has to pay for itself. Of it's the water ratepayers that pay the costs of that. So there's a lawsuit that involves the water department, they have to pay for that. That amount cannot come out of the general fund because the population as a whole shouldn't have to pay for a water loss, for instance. So there's an evaluation done of who should be responsible for paying that loss, and that department is charged for their appropriate share.
CAVANAUGH: One of the things that fascinated me about this article was the -- toward the end, you talked about the ongoing cases that the city has been adjudicating for quite some time, such as the suit with the San Diego police officers' association. That's been going on, if I'm not mistaken, for years.
THORNTON: Yes.
CAVANAUGH: Can you give us a brief background on that case?
THORNTON: Well, the San Diego police officers' association sued the city in a number of cases. And this one was for back-wages for the overtime they spent getting ready for their shifts doing human being things like putting on uniforms and protective gear, answering e-mails and such. So they wanted to have backpay for that. And they lost, as I recall, and then there was a lot of back and forth in appeals. And the city -- the bulk of them, like over a thousand officers got out of the case, and dropped it. But there are about 100 plaintiffs that have remained. And so it's costing the city a few hundred thousand dollars a year, or at least in the first six months of the year to continue fighting that.
CAVANAUGH: A few hundred thousand dollars this year, and this has been going on for several years. Why would the city not to decide just to assassin a lawsuit like that since it seems like it's a yearly drain on the city?
JONES: That's a case where you'll look at it and say on principle, this case needs to go forward. The reason for that is because it costs the city millions of dollars in the future if something like that were to happen. If you were to agree to allow those wages to be included in, for instance, your pension.
. It could cost the city hundreds of millions of dollars. So it's something we have to fight and something we did fight. And we were very successful in winning that lawsuit. It's over, by the way, at this point.
CAVANAUGH: And who won?
JONES: We did. The city.
CAVANAUGH: Just to make sure.
THORNTON: Well, when was that? Because if there's still bills coming to bear for the city, like several hundred thousand dollars in the first 60 month, when is it completely over?
JONES: There's still an appeal going on. There's a lawsuit that the police officers filed against their own attorneys. There's lots of things going on. But the underlying case is over.
CAVANAUGH: It's a very complicated case. Andrew, I'm wondering, do you keep track to how San Diego is doing in these civil lawsuits as compared with other cities in the region? Do you ever city how much San Diego has paid out? How much the city of long beach has paid out?
THORNTON: That kind of thing?
JONES: That's an impossible analysis. I was reading the other day in a journal that I receive, a case that happened in Sacramento. It was a dangerous condition case. In that particular case, they decided to fight it. The jury -- they ended up paying $6 million in that case in an $18 million reward. So it's impossible to compare.
CAVANAUGH: I want to thank you both for breaking down a very complicated subject for us in a short period of time. Even speaking with Kelly Thornton, who with coauthor Kevin Crowe with investigative news course, produced this article. And investigative news source is a journalism nonprofit based at San Diego state university. And my guest, also, has been assistant San Diego City attorney Andrew Jones. Thank you to both of you.
THORNTON: Thank you Maureen.
JONES: Thank you very much.