Wednesday, July 21, 2010
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Court Upholds Award Against Contractor Who Bribed Officials
By KENNETH OFGANG, Staff Writer
A verdict of more than $22.4 million in favor of the City of Compton against a former contractor who bribed city officials to obtain an exclusive franchise while also running the city’s in-house waste division has been upheld by this district’s Court of Appeal.
Div. Four Monday affirmed the judgment against HUB City Solid Waste Services, Inc. and Michael Aloyan. Jurors found the defendants liable for violation of Government Code Sec. 1090, which prohibits a public official or employee from acting on a contract in which that person has an interest.
The waste franchise was tainted both by Aloyan’s securing it while working for the city, and by his paying what amounted to bribes to members of the City Council, Presiding Justice Norman Epstein wrote for the court.
The suit stemmed from Compton’s effort, which began in 1999, to bring its waste services in-house after years of granting multi-year franchises to private vendors. A study showed that the city could save $700,000 a year by collecting waste itself.
The city sought advice from Aloyan, a waste management expert it had consulted in the past. In May 2000, Compton entered into a management agreement with Aloyan’s one-man company, American Utilities Services, and evidence presented at trial showed that Aloyan had substantial discretion and control over the city’s waste collection efforts before the agreement expired in February 2001.
Initial Offer
Prior to the expiration of that agreement, Aloyan formed a new company, HUB, and approached city officials about taking over waste collection as a franchisee. He initially offered the city, which needed a substantial amount of money to pay severance and other transition costs associated with the abolition of its police department and transfer of law enforcement responsibilities to the sheriff, $5 million for the franchise.
He later modified the offer to $2 million up front and $700,000 per year for a 15-year franchise that might have been worth up to $100 million. City Council members voted 4-1 in favor of the franchise.
Among those favoring the contract were then-Mayor Omar Bradley and his aunt, then-Councilwoman Delores Zurita. Both subsequently received campaign contributions from HUB, which also hired or gave gifts to seven of their relatives.
In 2004, after voters changed its composition, the council voted to terminate the franchise on grounds that HUB made unreported contributions to local candidates and violated Sec. 1090, and that Aloyan had been convicted of attempting to bribe Carson officials in order to obtain a trash contract there.
Subsequent Suit
HUB subsequently sued the city, challenging the termination of its franchise and seeking payment for services rendered prior to termination, and Compton cross-complained seeking restitution of all moneys HUB received from the contract.
Los Angeles Superior Court Judge Joanne O’Donnell bifurcated the proceedings, and ruled after a bench trial that HUB was Aloyan’s alter ego for purposes of Sec. 1090. She subsequently granted summary adjudication in favor of the city with respect to HUB’s claim that the procedures resulting in termination of its franchise violated due process.
The case then went to trial before a jury on the company’s claim for payment for past services and the city’s claim for restitution. The jury found for the city in the amount of $22,402,759.10, and the judge awarded nearly $100,000 in costs.
Epstein said there was sufficient evidence to prove that Aloyan acted as a public official, that he had a conflict of interest prohibited by Sec. 1090, and that HUB was his alter ego.
Corporate Veil
Aloyan cannot hide behind HUB’s corporate veil, Epstein said, noting that the corporation had no employees other than Aloyan, was undercapitalized, and spent corporate funds on matters that had nothing to do with its business.
Nor can Aloyan claim that he was a contractor, rather than an officer or employee, and thus outside the ambit of Sec. 1090, the jurist concluded.
Noting that the statute had been applied to contract city attorneys in several cases, Epstein said the same rationale applies to corporate consultants, even if they lack the fiduciary duties of attorneys.
“Section 1090 is a prophylactic against personal gain at public expense,” he explained. “....An individual’s status as an official under that statute turns on the extent to which the person influences an agency’s contracting decisions or otherwise acts in a capacity that demands the public trust.”
The evidence shows Aloyan was clearly acting as a public official, Epstein said, and that he had a conflict of interest in doing so.
Epstein wrote:
“...Aloyan supervised city staff, negotiated contracts, and purchased equipment and real estate on behalf of the city. His activities served a public function, and he was intricately involved in the city’s waste management decisions. As HUB’s alter ego... Aloyan had a personal financial stake in the franchise agreement. That interest was neither remote nor speculative, and resulted in an immediate and obvious conflict of interest. It cast doubt on whether Aloyan was acting in Compton’s best interest when he proposed franchising the city’s waste management services and licensing city-owned equipment and facilities.”
The evidence also supported the city’s other conflict-of-interest theory, that HUB’s political donations to city officials were so closely related to the contract that they gave those officials a prohibited financial interest in it, the jurist concluded.
There need not, he explained, be direct evidence that someone agreed to give lawmakers contributions or gifts in exchange for a contract; such evidence will rarely exist .In this case, Epstein wrote, there was sufficient circumstantial evidence to support a jury finding of conflict.
He cited the timing of the donations, their size—$43,000 to Bradley, $12,000 to Councilman Armen Rahh, and $15,000 to Zurita—the fact that the council approved the contract over strong public opposition and despite the city’s then-recent decision to bring the operation in-house, the hiring of the council members’ relatives despite questions about their qualifications, and Aloyan’s other involvement in seeking to corruptly influence public officials.
Besides the Carson case that landed him in federal prison for five months, Aloyan was involved in an earlier Compton controversy, testifying under grant of immunity in 1996 that while working for a company looking to open a card casino, he gave then-City Councilwoman Patricia Moore a campaign donation after she threatened to “kill the project” otherwise.
He also testified, also under a grant of immunity, that while working at another waste management company, he delivered a campaign contribution to then-Compton Mayor Walter Tucker III—later a member of Congress—in exchange for Tucker’s support for a rate hike.
Attorneys on appeal were Philip D. Dapeer and Edward M. Medvene for HUB City and Aloyan and Gary J. Goodstein and Bruce A. Berman for the city.
The case is HUB City Solid Waste Disposal Services, Inc. v. City of Compton, B196639.
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