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Charges Dismissed Against Former Retirement Board Officials

Audio

Aired 1/29/10

The California Supreme Court dismissed conflict-of-interest charges against five former San Diego retirement board officials early this week. How might the state Supreme Court's ruling impact future conflict-of-interest cases involving public officials?

GLORIA PENNER (Host): We want to get to the State of the Union later in the program but first, there was a very interesting court decision that came down a couple of days ago and we’ll turn ourselves to that. Eight years ago, six members of San Diego’s pension board voted to underfund or put less money into the pension system than was needed to keep it adequately funded. At the same time, a labor deal was struck that increased pension benefits, including the benefits for all six of these people who voted to underfund the pension system. Almost five years ago, District Attorney Bonnie Dumanis charged the six with breaking the state’s conflict of interest law. It’s a criminal offense and the case went to court. The claim was that the six essentially voted for a measure that benefited each of them financially. John, did I explain that correctly?

JOHN WARREN (Editor/Publisher, San Diego Voice & Viewpoint): Yes, yes.

PENNER: Okay. So, John, first of all, how did the case get to the State Supreme Court?

WARREN: Well, it got there because what happened when they were first charged by the district attorney, and you have to be charged first, the DA felt they had probable cause to do so. They went into the court, and the magistrate agreed with the district attorney, but the lawyers approached this from a procedural standpoint. And so procedurally, they filed for a writ of prohibition with the Court of Appeals to set aside the trial court’s decision to go forward with a trial. They just had a preliminary hearing. And the Court of Appeals, of course, agreed with the trial court, which set it up to go to the Supreme Court. The Supreme Court sent it back at one point for another opinion, a written opinion. The Court of Appeals, they agreed the second time and the Supreme Court decided to hear this. And what it comes down to is the whole idea under Section 1091 of the California Government Code dealing with conflicts of interest. There’s a question of whether or not these five people benefited from taking a vote. And under 1090, yes, they benefited but under the exception, which is found under Section 1090, part 5, I think it’s E-3 or something like that…

PENNER: Oh, but, John, you’re not going to walk us through all the letters and everything.

WARREN: No, I’m just going to tell you where to find it because it’s very important procedurally. And what happened is, it says that these five people were part of a larger class of 20,000 people and, therefore, they did not benefit directly as the trial court had suggested. So they never had to go to trial on the substance of the matter, it was all from a procedural standpoint and that’s important because the case in the federal court, the SEC, the fraud charges against some of these people, was held in abeyance until this Supreme Court decision has come down. The one person left out there is the former fire chief in terms of them finding that he benefited so directly because the numbers showed exactly how he would’ve increased and he knew that he was going to increase his retirement benefits, and so he can go to trial. So that’s the essence of it. It never got to whether or not the people were to be tried based on what the DA put forth, and it came down on a procedural point, which is the best way to win if you have to go forward.

PENNER: I need to go back to law school, John, to follow. I need to start law school to follow that.

WARREN: I’m sorry. It’s been many a year so…

PENNER: That’s okay. But I am going to make one correction. Ron Saathoff was not the fire chief. He was the head of the fire…

WARREN: Of the fire union, the union, thank you.

PENNER: Firefighters union, right.

WARREN: Yes.

PENNER: Okay. Gentlemen, I hope you were both following this because I’m going to grill you now. Kent, in reading about this, what do you see as the reasoning that the justices used to arrive at this decision that the five pension board members were not guilty of conflict of interest?

KENT DAVY (Editor, North County Times): Well, first of all, I guess I would say, welcome to “Alice In Wonderland.” The court’s reasoning that because they are part of a general population, therefore there wasn’t a specific pecuniary benefit going to them individually, therefore the conflict of interest doesn’t – criminal law doesn’t apply, maybe that’s the case without spending any time in the procedure or the case law about it. But it does defy common sense to – when you stop and think about what a conflict of interest – what it means in just normal language to the extent that a set of people say, yes, I am going to make decisions that will benefit my own pocket and everybody else in my group, but my own pocket. Then, obviously, it’s – on a common sense basis, it’s a conflict of interest. It’s part of the structural problem I think we’ve got with a lot of these public employee pensions.

PENNER: Well, this conflict of interest law, Joe, was passed to prevent public officials from self-dealing. Now the court argued that the benefit the defendants gained was part of this 20,000 benefit – I’m sorry, the benefit that 20,000 other retirement members – members of the retirement system gained. Does that make it easier now for public officials to participate in lining their own pockets as long as they line the pockets of the group that they belong to?

JOE GARREN (Editor, San Diego Daily Transcript): No, I don’t think so. I think you could maybe make the argument that these people weren’t necessarily truly public officials. They were – I know at least one of the people was forced to sit on the board. It was – She was assigned to a seat on the board. She had no choice and she had to make the decision on behalf, and these are just ordinary people who were, you know, not necessarily running for office or seeking anything more as far as that, they’re just civil servants. So I don’t know if they would, you know, you would call them a public official. And I think people who are in the – public officials, they might be warned that, lookit, they’re – the district attorneys are looking very closely at any malfeasance suspicion and they’re going to, you know, go after them.

PENNER: John.

WARREN: Well, I think you have to remember that under the board as it was constituted when the charges were brought, those people sat there as a result of the positions they held, the auditor’s position, the treasurer, the police organization, police officers, the firefighters union, all these people sat as a result of the positions that they held. And so they were not in that – as if they had run independently for it and they were benefiting from that standpoint. That’s the key when you say that the people didn’t ask for the positions. Of course, it’s been changed now with the mayor having more appointment power, the numbers have been rearranged in terms of who can sit, and it’s a different world.

PENNER: Well, Steve in Clairemont wants to weigh in on that question that we raised about whether they’re public officials or not. Steve, you’re on with the editors.

STEVE (Caller, Clairemont): Yes, I just wanted to comment that a lot of the people involved in all of this, being city employees and being chosen or going for positions that would represent their class, that is not a conflict of interest when – That’s the point. You have to have – they’re – By the law, the city employees represented on these – on the pension board, and so they’re deciding things that everyone knows they will also have an effect on them but it’s for the class that they’re working for. So it’s not common sense that this would be a conflict of interest.

PENNER: Okay, Kent.

STEVE: So I’ll take my answer, you know, off air.

PENNER: Yeah, sure. Thank you. And thank you for weighing in on this, Steve.

DAVY: Well…

PENNER: Kent.

DAVY: …that’s an articulation of exactly what the court’s ruling was in saying that this is not a criminal conflict of interest. My point was that on a common sense basis, if you think about putting people in this – in a position in which they have to decide something that benefits them, whether it’s because they are part of a whole class or not, it, in fact, creates a ‘do I do this for me, or do I do this because it is for the benefit or the best thing for the city and the city’s taxpayers and voters,’ so on and so forth.

PENNER: Do you see it that way, Joe?

GARREN: Well, yeah, I agree with him. And also, though, I think another thing to keep in mind is that the Supreme Court, the State Supreme Court, I believe there’s seven justices, they wrote a unanimous to this, to – and that shows that not one of them – there was no dissenting opinion whatsoever. They all thought this was obviously not a conflict of interest.

PENNER: But there is something interesting here. According to the justices, John, that law exempts votes on salary from conflict of interest prosecution. So what would keep public officials or people appointed to boards from finding ways of increasing their own income if salaries are exempt from that prosecution?

WARREN: Well, that’s always a very good question. You’ve got to remember first that legislative bodies are charged with legislating and doing their salaries is one of the duties given to them. I mean, the city council votes to give itself pay increases. It has the authority to do so. They all benefit as a particular class. The benefit is not greater to one individual than it is to the others. The key thing here, if you look at this, is that what the DA did, it went to the Penal Code and decided to use a provision that allows them to go after people who are benefiting based on a old common law rule that says one cannot serve two masters at once. And so if you’re serving yourself and you’re serving the city, then you have a conflict. Here they’re saying you’re serving yourself in the context of the job that you have and, therefore, there’s not the same – it’s passing a special law for your own separate interests.

PENNER: And what about these justices? Joe mentioned it was a unanimous position – opinion, and there are seven justices. Six of them were appointed by Republican governors, one by a Democratic governor. Does this reflect any particular political bent, Kent?

DAVY: I – I don’t – I don’t know. Can’t answer that question.

PENNER: Okay. All right. What do you think, John?

WARREN: I don’t think it’s a question of bent. I think from the way the justices looked at it, it’s so clear to them in terms of what they saw in – with the exemption provision and the way they looked at the case. If you read the whole case, it’s about 80 pages, if you go through it and look at the discussion and how the motions came, who offered the motion, the discussion, it was never a meeting that we’re going to get together to restructure the pension so that we benefit. We’re going to change the ceiling in terms of what’s the percentage rates that we’re giving and we’re going to put – They put the system in jeopardy, that’s where the problem came because when they changed the mix, they put it in jeopardy. Now you’ve benefited from a mix that you knew would make a difference based on what the actuary had already told you, that all makes it much different than the city council or legislative people giving themselves a pay raise.

PENNER: Okay, well, and on that I thank you very much for a very interesting discussion. When we come back, we’re going to be talking about the State of the Union and get some opinions on that as well. This is the Editors Roundtable. I’m Gloria Penner.

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