City Legal Costs Are Increasing Despite Decrease In Lawsuits

If the volume of lawsuits filed against the City of San Diego has decreased, why has the cost of fighting them increased substantially over the last seven years? We speak to reporters from the Watchdog Institute about their investigation into the city's increasing legal costs.

Guests

Kelly Thornton, reporter for the Watchdog Institute.

Kevin Crowe, reporter for the Watchdog Institute.

Jan Goldsmith, San Diego City Attorney.

Read Transcript

Everyone knows that lawsuits are expensive. Defending claims and lawsuits filed against the City of San Diego is no exception. But that doesn't fully explain why the cost of handling those legal actions has risen in recent years. Earlier this year, the city auditor issued a reporter finding inefficiency and disorganization in San Diego's risk management department. Now a new investigative report from the watch dog institute finds that expensive legal battles including the high price of outside legal firms is costing the city millions each year. Joining me to discuss their findings are my guests issue reporters Kelly Thornton and Kevin Crowe. They're both here. Good morning to you both, Kelly and Kevin.

KELLY THORNTON: Good morning Maureen.

KEVIN CROWE: Good morning Maureen.

MAUREEN CAVANAUGH: They are from the watch dog institute which is a nonprofit investigative reporting center based at San Diego state university. Kevin, okay, let's say I slip and fall in city hall or a city stop sign falls down on my head, and I want to file a claim against the City of San Diego. What departments have a role in determining how to proceed once that claim or lawsuit has been filed against the city?

KEVIN CROWE: Well, if it's a claim, it's the responsibility of the risk management department initially. So you would fill out a form, you would file it with the department, and their employees would assess what kind of a claim it is. They would verify it, and they would see if, you know, on a limited basis, they would judge if the city's liability.

MAUREEN CAVANAUGH: Right. And then if the city is liable, then it goes through a number of channels depending on what you might be asking for as a claim act. If it's a lot of money, and it's a very important claim, then the city attorney's office is brought in.

MAUREEN CAVANAUGH: I see. I see [CHECK AUDIO].

KEVIN CROWE: Before you file a lawsuit. And so not all claims result in lawsuits, that is for sure. And not all lawsuits are the result of claims.

MAUREEN CAVANAUGH: I see.

KEVIN CROWE: So there are -- in most cases, you have to file a claim in order to file a lawsuit. But there are concern cases, matters of employment, discrimination, and a few others where a person could file a lawsuit against the city without having filed a claim 50.

MAUREEN CAVANAUGH: Kelly, can you give us some specific examples of how legal costs have increased in the City of San Diego since 2003.

KELLY THORNTON: Well, I guess they basically had a tripling of costs to handle claims and lawsuits in the last a lot years or so. And they've just had a lot of lawsuits filed that are kind of unusual, I think. They have had the land slide at mount Soledad is the most expensive case they have had so far. They have had about 15 years of litigation with Rocky de la Fuente, which is the case where the city lost in court. There was a $94 million judgment, I be believe. Which was extreme, and the city prevailed on appeal, but that is still pending. The real wrangling is still going on there. They just had a series of pretty expensive cases filed in the last several years, plus there were all those investigations that the city had to deal with we the feds, the state and the SEC.

MAUREEN CAVANAUGH: And also they have had one of the findings of the watch dog institute is that they have had a lot of outside legal cost, a lot of outside heel counsel involved in these lawsuits. Kevin, can you give us some details on how those outside legal costs have increased, let's say over the last eight years?

KEVIN CROWE: Well, in a way, that's tough to say, because for a period of about four or five years, from 2003 to 2007, the department responsible for keeping tack of these did not keep track of some of the outside counsel expenses. However, for a period of time, the city Estimates that it has spent about about 34-5 million dollars fiscal '07 on outside counsel cases. And those have -- that kind of hit a high in 2009, about $11.8 million, as some of the cases that Kelly mentioned earlier were coming -- either coming to a close or ramping up in litigation.

MAUREEN CAVANAUGH: Now, I know both of you have been really inside this data, inside these numbers for a while to come up with this report. And we're dona have Jan Goldsmith, San Diego City attorney on in just ask a few empties, and we'll address this question to him as well. But from an outside observer, someone who's not deeply involved in city management, why would the City of San Diego go to outside counsel when they have their own city attorney attorney and their own legal department, Kelly?

KELLY THORNTON: Well, the policy is, if the city has a contract on a case or it doesn't have the [CHECK AUDIO] then they go to outside counsel. Now, the city has -- ran into some trouble with the Rocky de la Fuente case, which was a dispute with a business owner, he owned, I believe a strip mall, some kind of development down in south bay. And he alleged the city had reneged on its agreement. And so that case, I think, triggered Casey Guinn, once they lost thought to hire Latham and Watkins, which is a really expensive but excellent law firm. And that firm was able to get that verdict reversed. So I think in that case, which was with some complicated legal issues, they brought in outside counsel of.

MAUREEN CAVANAUGH: And according to a city auditoree report that was released in August, and you also talk about your report from the watch dog institute. When it comes to that risk management department that we were talking about earlier, the people who see these claims before they become lawsuits against the city. There was a whole -- allegations of inefficiency and disorganization, and basically that they were not evaluating these claims in the best interests of the city. Did you get any response from anyone in the risk management department about those allegations? Kelly?

KELLY THORNTON: Well, we did. And I spoke to jay gold stone who's the chief operating officer, and who over sees that diameter. And his response to the audit was interesting, he felt that the audit didn't have any negative findings when it looked specifically at how risk management manages specific claims on a case by case basis, but the criticism the auditors had is that the -- the city doesn't communicate with each other to prevent claims, the city doesn't have a system wide approach to handling liability. And that is the biggest problem. So gold stone was -- thought that the odd identity was kind of over reaching in a way that they didn't find anything wrong in the first place with the limited audit, and then they expanded because they needed to find something wrong.

MAUREEN CAVANAUGH: I see, I see. Well, one of the things that they said was that risk management, when they got a claim about, let's say, a sidewalk that was broken, that somebody tripped on, and they paid out the claim, that there was no further action taken to maybe, like, fix the sidewalk.

KELLY THORNTON: Yes, I think there was one instance in which one pot hole which damaged thee cars in three days, and that cost the city $1,600 in repairs. It's an example of what they mean by there's no systematic way of department communicating to prevent claims from happening in the future.

MAUREEN CAVANAUGH: We are going to be speaking with San Diego City attorney jab Goldsmith to get his reaction to this watch dog institute report, right on the line with me now, however, is former San Diego city attorney Mike Aguirre. And good morning, Mr. Aguirre.

AGUIRRE: Well, good morning. And I want to congratulate KPBS and the Watchdog institute for getting into this what some people might think is opaque but extremely important area.

MAUREEN CAVANAUGH: Let me ask you specifically of course Mr. Aguirre, you have been cited in some of the response from the present city attorney's office, it's kind of like your fault that this was so much outside legal counsel and so much of that expense for the City of San Diego during the years that you were city attorney, and that of course you were thought of as rather litigious in your years as city attorney? How do you respond to those allegations?

AGUIRRE: Well, I think what what people have to understand is that there's a break down in internal controls of the city. For example, right now -- when rested the City Attorney office, we were getting the bonds out in time, and now we're not, because there is a basic lack of internal controls. And the lack of internal controls leads to lawsuits like the rocky de la Fuente case, the land slide case, the pension cases, because the rules aren't being followed. For example, when I took office, the SEC was investigating the city, the U.S. attorney's office was investigating the city, eventually HUD investigated the city all for the if same basic problems, and that hasn't changed. [CHECK AUDIO] is that there's going to be a better understanding that we really do need to hold people's feet to the fire. It's not about blaming each other. But it's about recognizing that our city just simply doesn't have internal controls.

MAUREEN CAVANAUGH: My final question to you if I could, Mr. Aguirre, is the idea that I believe it's your contention that the hiring of outside legal firms to handle some of these very complicated cases that were filed against the city actually saved the city a bundle of money.

AGUIRRE: Well, they did, in the rock rock case, they used an in-house counsel, he wasn't properly supervised, the city lost a hundred million dollar judgment, we were able to not only use effectively outside counsel to reverse that judgment, but also to cover some of the insurance money, so the costs of defense were paid. But the idea is this. We only need the outside counsel when the problems get catastrophic. But the old adage an ounce of prevention is worth a pound of cure. And that's the -- the problems when you get into a very serious open heart surgery or brain surgery type legal problems because the problems are allowed to grow out of control. And that's what we have to recognize. And so when our -- this all comes back, though to, our mayor. We have a strong mayor form of government. The mayor is the ultimate person who is responsible. And I hope he will respond to this important work that Kelly and the others at the watch do you go institute have done, and we can get some good, positive traction on this.

MAUREEN CAVANAUGH: Thank you for your comments of thanks for calling.

AGUIRRE: Thank you.

MAUREEN CAVANAUGH: That was Mike Aguirre, former San Diego City Attorney. Kelly Thornton, Kevin Crowe, they are from the watchdog institute. They have just released a report, an investigative report on the city's cost of legal battles and how they handle claims and lawsuits that are filed against the City. I'd like to introduce now the present San Diego City attorney, Jan Goldsmith, and thank you so much for waiting Mr. Goldsmith.

GOLDSMITH: It's a pleasure to be with you, and regards to the two reporter who is have done a good job.

KELLY THORNTON: Thank you.

MAUREEN CAVANAUGH: What's your response to the findings in this report?

GOLDSMITH: Well, obviously there's some -- the work the city has had to do to correct, I think, what was a dysfunctional situation, the city attorney's office back a couple of years ago was really dysfunctional as operating as a law firm and had really no relationship with the client. This was problems on training and super vision and quality control. And the result of that is that the city attorney lacked confidence, and the city attorney's office' ability to handle big cases. Let me just say one thing, given that scenario, if the city attorney believes that the office cannot handle those kinds of cases, then he has as an ethical obligation to go to the counsel and suggest outside lawyers.

Q. Are only two situations where you use outside counsel, one is where there is a conflict of interest, and one where is your professional judgment is that you don't have the man porand expertise to handle that case. So far if the office couldn't handle it, then Mike was correct to go to the City Council. What we've tried to do in the last two-year system we've turned an essentially dysfunctional law firm into a really cracker jack law firm. [CHECK AUDIO] a hundred and $77 million case, we have many others. We have a different law firm today. And so I can make the judgment that we can handle it.

MAUREEN CAVANAUGH: Kevin Crowe, give us an idea, if you would about how much the city spends per hour on outside legal counsel as opposed do their own city attorneys.

KEVIN CROWE: Well, I think an hourly rate that Mr. Goldsmith had quoted earlier, he said that Latham and Watkins had been receiving upwards of $750 an hour, and I think he quoted as I own city attorneys as making around $40 an hour, is that, Kelly.

GOLDSMITH: Yeah. And that's --

MAUREEN CAVANAUGH: [CHECK AUDIO] going up in recent years as the costs have gone up.

KELLY THORNTON: Well, the volume is actually slightly decreased, puthe costs have gone up pretty significantly.

MAUREEN CAVANAUGH: And do we know any reason for that? 'Cause this is sort of counter intuitive.

KELLY THORNTON: Well, I think Jan might have a better idea than I do about that. But from when we found, it's like I said, a lot of these wig cases came along, and we had all those investigations in the city, we had to pay fees for attorneys to represent its former officials.

GOLDSMITH: Yeah, and let me just point out, our goal is to get it back to the way it was in the [CHECK AUDIO] two years to outside counsel, and they all involved conflicts of interest, but then again we didn't face the SEC investigations and the lawsuits, and we have a functional law firm. Do not forget, Mike Aguirre lost a -- the turn over was enormous. A hundred and 24 lawyers. And how we tried to stabilize the office and be able to handle all these cases. There's a different scenario, faced with a law firm, if I don't feel that my lawyers can handle a case because of lack of expertise or lack of personnel, I would feel, and I am compelled to go ethically to my client and say we can't do it, we need either help and what I would give him an option, either go completely outside counsel which is very expensive, or bringing in some experts to help us do it. In two years, I haven't had to go to the council on that with regard to defense cases, because I've had confidence in our office. But if I didn't, I would do the same thing Mike would do if I concluded professionally if I concluded the city's office could not handle the case.

MAUREEN CAVANAUGH: Now, Mr. Aguirre, you have a new computer system, [CHECK AUDIO].

GOLDSMITH: Unbelievable. We were -- we brought our -- every major law firm has a case management system where you keep track of everything that's going on in a case, and all the documents you can see, and it's a software that management has view of. And all the Court appearances, and the research, and you can view things, you ask how many cases did we win, you just call it up in the computer. [CHECK AUDIO] we had a system similar to that, a little archaic, but when I took office, they were keeping track of that stuff on the outside of file folders. Same thing in the criminal division. They were archaic. No office is run that way. Two things we've done in the haft two years. Am we now bought the DA's office software, and we have the same for them on the case management system for criminal. That's totally separate for civil for ethical reasons. And this year, we brought in a case management system under budget, but in a time of decreasing budget, the mayor's office agreed with us, and they funded both, we installed it, we have been trained, and we are now inputting current cases into it. I don't know if we'll be able to get too much into the prior case.

MAUREEN CAVANAUGH: Right.

GOLDSMITH: But give you an example. I could call up -- I essentially am responsible along with my management team to -- for a hundred and 35 lawyers. And what they're doing. Plus 300 staff, if I could call up an instant on this case management system when everything's inputted and see what the work loads are of all the lawyers in the civil litigation and zoo who may have the ability to do more work. [CHECK AUDIO].

MAUREEN CAVANAUGH: Let me ask you really quickly, Mr. Goldsmith, because we're running out of time, did you do any projections as to how much this new computer system might actually save in dollar terms?

GOLDSMITH: Efficiency is all I'm bringing it up to, speed, and not missing court dates and all that. As they say, it may be 500,000 or 50,000 for that, but it's priceless in the practice of law. So it's priceless in the practice of law. It is a professional requirement. It is malpractice for a law firm not to have it. So it's priceless. It's sort of like being a reporter without the ability to use a computer or a typewriter or maybe even a pep of maybe you're back to the ink -- and you know, dipping the ink --

MAUREEN CAVANAUGH: In the ink well.

GOLDSMITH: Yeah, so it is prices 678 it's know absolute requirement. And we've now joined the nineteenth seven practice of law.

MAUREEN CAVANAUGH: Well, thank you. I appreciate your being here and speaking with us today, that's Jan Goldsmith, San Diego City attorney. And I want thank you both, Kelly and can have infer coming in today and sharing some of the results of -- we've only skimmed the surface during the time we have had. I want to had the even know that they can read your investigative report in its entirety on our website or on the watch dog institute website, Kelly Thornton and Kevin Crowe, thank you so much.

KELLY THORNTON: Thank you, Maureen.

KEVIN CROWE: Thanks for having us, Maureen.