Thursday, June 16, 2005
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C.A. Rejects Ex-Official’s Malpractice Suit Against Agency Counsel
Panel Says Port Commissioner Who Pled Guilty to Conflict of Interest Cannot Blame Lawyer’s Advice
By Kenneth Ofgang, Staff Writer/Appellate Courts
A public official claiming to have been misadvised by his or her agency’s counsel as to the effects of a conflict of interest law cannot maintain a malpractice suit based on the consequences of a criminal conviction for violating that law, the Fourth District Court of Appeal ruled yesterday.
Div. One granted a writ of mandate directing that David Malcolm’s suit against the San Diego Unified Port District and its former counsel, David R. Chapman, be dismissed on the basis of public policy. Public officials who break the law cannot pin responsibility on their lawyers, Presiding Justice Judith O’Connell said, because they “cannot obtain indemnity for [their own] criminal wrongdoing.”
Malcolm is a former member of the port commission, to which he was appointed in 1995. He had previously served on the Chula Vista City Council—the port district is a joint powers authority made up of that city plus San Diego, National City, Coronado and Imperial Beach—and was a member of the California Coastal Commission.
In 1999, he and two others formed Public Benefit Power for the purpose of entering into transactions with Duke Energy Power Services and communities that wanted to decommission aging power plants.
Power Plant Deal
Those transactions were to be modeled on a 1998 arrangement in which the district agreed to acquire San Diego Gas & Electric’s South Bay Power Plan and lease it to Duke, which would operate it, pay rent, and then cover the costs of decommissioning at the end of the lease term.
Later, however, PBP decided to go into the consulting business, entering into a $20,000-a-month contract with Duke under which Malcolm would advise Duke as to how it could modernize the South Bay plant and “similar generating facilities” throughout the country.
Duke also agreed to pay a one-time bonus of 1.5 percent on any funding Malcolm secured on Duke’s behalf for the construction of a modernized plant in the South Bay. The agreement also had a conflict-of-interest clause that barred Malcolm from advising, counseling, or assisting any competitor or potential competitor of Duke.
The contract was made public by the San Diego Union-Tribune in late 2001. Malcolm resigned from the commission the following January.
A subsequent District Attorney’s Office investigation resulted in Malcolm agreeing to plead guilty to a single felony count of willfully violating Government Code Sec. 1090, which prohibits an officeholder from having any interest in a contract made by his or her agency.
The charge Malcolm admitted was that he knowingly violated Sec. 1090 in late 2000, when the commission voted to expand an existing enterprise zone to include the South Bay Power Plant, thus making Duke eligible for financial incentives.
In suing Chapman, and the port district as his employer, Malcolm claimed that he told the district counsel about his plan to work for Duke months before he signed the contract. Malcolm also alleged that Chapman told him his relationship with Duke would be proper as long as he disclosed it and refrained from voting on Duke-related issues.
Jail Time
Only later, Malcolm claimed, did he learn that he should have resigned when he entered into the deal. As a result of the bad advice, he alleged, he was forced to go through the criminal case—he served 78 days in a work-furlough program and paid more than $260,000 in fines and court costs—and has lost other business opportunities.
He is also permanently barred from holding any office in the state.
The port district argued that Malcolm, not the district or its counsel, must bear the consequences of the former commissioner’s corruption. Chapman has insisted in court documents that he still believes Malcolm did not violate Sec. 1090, although the district insists that Chapman did not have all of the relevant facts when he rendered his opinion.
Besides the criminal prosecution, Malcolm was charged in a Political Reform Act suit by brought by Sacramento lawyer and onetime acting Secretary of State Tony Miller, who claimed that Malcolm failed to fully disclose his financial interests while serving as a port commissioner.
The district agreed to settle that lawsuit in April 2002 for $600,000 and paid more than $800,000 to the attorneys representing Malcolm. It has also spent well over $500,000 defending the malpractice suit, in which Superior Court Judge John S. Meyer denied the district’s motion for summary judgment.
Trial Court Ruling
Meyer found that the action was not barred by public policy concerns because the “public should be able to trust that its public attorney would provide proper legal advice so as to avoid the scandal as well as the expense of a criminal prosecution.”
But Presiding Justice Judith O’Connell, writing for the Court of Appeal, disagreed.
O’Connell questioned whether Chapman and Malcolm had an attorney-client relationship, since Chapman represented the district and not the individual commissioners. But even if such a relationship existed, she wrote, it should not give rise to an action for malpractice, she said.
The presiding justice cited a Texas case in which two men, convicted of bank fraud for diverting borrowed funds from a development project back to one of the banks they had borrowed from in order to conceal a shortfall in the bank’s assets from federal regulators, sued the law firm that had prepared the loan documents.
The men claimed the law firm was negligent in failing to inform them of the potential for criminal prosecution and misrepresented the legality of the loan transaction. The court, however, said that public policy bars criminals from recovering damages for injuries arising from their crimes.
That principle applies even more strongly in Malcolm’s case, O’Connell wrote, because “Malcolm seeks recovery from a public entity that section 1090 is designed to protect.” It would “shock the public conscience,” O’Connell wrote, to allow the plaintiff “to recoup from the public fisc losses he incurred as a result of his self-dealing, regardless of any negligent advice from Chapman.”
The case is Chapman v. Superior Court (Malcolm), 05 S.O.S. 2862.
Copyright 2005, Metropolitan News Company