Last week, KPBS's media partner inewsource published a story about a religious charity, called Basic Faith Foundation, that San Diego County Supervisor Bill Horn ran for decades.
Experts said the operation ran counter to state and federal laws.
After publication, Horn's lawyer, Jim Sutton, sent inewsource's Executive Director and Editor Lorie Hearn a "legal response," which is transcribed here.
Sutton's letter below is followed by a response from inewsource's lawyer, Guylyn Cummins.
Go to the Basic Faith project page created by inewsource to see more on this story.
RE: Legal Response to Potentially Defamatory Article Regarding San Diego County Supervisor Bill Horn
Dear Ms. Hearn:
We were very surprised to see that inewsource chose to ignore relevant facts and law and to print potentially defamatory statements about our client, San Diego County Supervisor Bill Horn, in the article by Brad Racino which appeared today (“Bill Horn’s Basic Faith”).
Even though the memorandum which we sent you yesterday provided important details about Basic Faith’s legal and reporting requirements, as well as context and explanations for Supervisor Horn’s prior comments, inewsource chose to print comments made by third parties about Supervisor Horn’s involvement with the charity, even though these third parties clearly did not have all relevant facts when they made their comments. The article does not indicate whether you sent our memorandum to the outside experts — which would obviously be the most appropriate course of action, both in terms of journalistic ethics and to make certain that inewsource is not publishing defamatory information. Did you send the experts our memorandum and give them the opportunity to modify their opinions based on the new information?
Especially troubling is that inewsource would claim that an elected official has undertaken possibly criminal conduct — intentionally violating the law — after inewsource was informed that Supervisor Horn had consulted the IRS about a charity serving as the facilitator for the section 1031 exchanges. This claim could damage Supervisor Horn’s professional and political reputation.
As you know, if inewsource or its reporter knew that any of the factual or legal claims in the article are false, or acted with reckless disregard as to the truth or falsity of these claims, then they may be liable for any harm or damages which the article causes to Supervisor Horn. To that end, our client has asked us to investigate all possible legal options available to him at this time.
Sincerely,
James R. Sutton
Response From inewsource's Attorney
Dear Mr. Sutton:
I am an attorney for inewsource. I have reviewed your letter of May 22, 2014, to inewsource’s Executive Director & Editor, Lorie Hearn, regarding the Bill Horn’s Basic Faith article (the Article).
Your letter does not identify any false statement of fact published by inewsource in the Article. You assert instead that inewsource “chose to print comments made by third parties” despite having the memorandum you sent to inewsource on May 21, 2014. You also assert that inewsource “claim[ed]” Supervisor Horn had “possibly [engaged] in criminal conduct — intentionally violating the law …”
As the published Article shows, inewsource did include the comments contained in your memorandum to inewsource in the Article, along with other experts’ opinions. Moreover, the Article did not claim that Supervisor Horn intentionally engaged in criminal conduct, but expressly indicated to the contrary.
The Article published Supervisor Horn’s statements that his conduct was in accordance with the law:
San Diego County Supervisor Bill Horn said he bought a charity decades ago for $25, called it the Basic Faith Foundation and used it to hold money from real estate deals.
Horn said he gave the interest to Christian missionaries in Mexico and South America.
“That’s a way that I was able to direct the money to where I wanted it to go,” Horn explained, “and I wouldn’t have to pay taxes on the money earned, and I could finish my transaction.”
During an interview with inewsource, Horn spoke openly and gave specifics about Basic Faith, for which he was chief financial officer.
He said he used the charity as a “facilitator” when he sold buildings through a special IRS Code called a 1031 tax-free exchange.
Here is how he explained the process:
“I would move $2 million into Basic Faith instead of going into escrow. I’d open an escrow but I’d just put in a small deposit. The money would sit in Basic Faith and earn interest — in some cases up to $50,000. The money would then go in to finish the transaction, but the residue — the amount of money that the principle earned in four months — would go to Christian missionaries in South America.”
The charity never filed tax returns, called Form 990s, because, he said, it “didn’t have to.”
To be required to file a tax return, “you have to make money,” Horn said. “We never made any money. All the big money that was in there was put in there in the ’80s [and] the first part of the ’90s.”
The attorney said “Horn confirmed with the IRS at the time that it was appropriate for a nonprofit organization to act as the ‘facilitator’” for his real estate transactions. Because it was so long ago, Sutton said, “tracking down details about any of these transactions would be difficult if not impossible.”
The Article further included tax expert Paul Dostart’s statement about Supervisor Horn’s belief that his conduct was legal, following expert McDowell’s statement that criminal actions generally need to be undertaken “willfully” to be actionable:
“Criminal actions generally have to be willful,” said McDowell from Steptoe & Johnson. “In order to be willfully breaking the law you have to understand the law, and intend to break it — so that’s a high bar.”
“Supervisor Horn clearly believed he was acting appropriately under law,” Dostart said. “Most of these politicians who get into problems end up getting indicted because of a coverup … of things that were wrong in the past. He’s not hiding anything; it’s evident that he believes that these events of 20 years ago were legal.”
In the realm of politics, Horn didn’t list Basic Faith on any of his statements of economic interest, called Form 700s, for the more than 15 boards he’s chaired or been a part of during his 20-year tenure. Horn reasoned he didn’t have to — and his lawyer agreed — because, according to Horn, he didn’t use Basic Faith while in office.
Finally, the Article includes the statement of FPPC’s Jay Wierenga confirming no Form 700 is required to be filed if there is no income, gifts, or travel payments, and Supervisor Horn’s assertion he derived no income from the charity:
Jay Wierenga, communications director for the FPPC, said, “In general, one would not necessarily have to disclose their position in a nonprofit if there is no income, gifts or travel payments.” But he said, “if there are gifts or travel payments, then there could be disclosure requirements.”
Horn maintains he never derived income from Basic Faith.
If you have any additional information you wish for me to review, please feel free to forward it to me at your earliest convenience.
Very truly yours,
Guylyn R. Cummins
for SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
