Wednesday, January 28, 2015
C.A. Revives Coliseum Corruption Suit Against Rave Promoters
By KENNETH OFGANG, Staff Writer
The Court of Appeal for this district yesterday revived claims by the Los Angeles Memorial Coliseum Commission against concert promoters accused by the commission of paying kickbacks to the facility’s former general manager and another executive.
Div. Five said Pasquale Rotella and Reza Gerami, and their companies, Insomniac, Inc. and Go Ventures, Inc., can be held liable to the commission if it proves its claims that they knowingly made payments to public employees who were not entitled to receive them.
The lawsuit, and related criminal charges, grew out of an investigation into 37 electronic music festivals, or raves, held at the Coliseum and the Los Angeles Sports Arena—also under commission management—beginning in 1998. Investigators concluded that Rotella and Gerami had conspired with Patrick Lynch, who resigned in 2011 after 17 years as general manager of the Coliseum, and Todd DeStefano, the director of events, to deprive the commission of a huge sum of money, including nearly $2 million diverted to DeStefano and his wife through two companies they controlled, LAC Events and Private Event Management.
DeStefano quit his commission job in 2011 to work exclusively for Rotella and Gerami.
Los Angeles Superior Court Judge Terry Green sustained the promoters’ demurrers to all of the commission’s causes of action. The Court of Appeal, however, in an opinion by Justice Richard Mosk, said the commission stated causes of action against the promoters for violation of the state conflicts-of-interest statute, conspiracy to defraud, and violation of the Unfair Competition Law, and for an accounting.
Mosk said the trial judge was incorrect in ruling that under Government Code §§1090 and 1092, a defendant is only entitled to disgorgement if it received “public funds.” Proof that a defendant received a benefit in return for benefits paid to a public official or employee is sufficient, the justice said.
The commission Mosk wrote, properly alleged that such a conflict existed and that it “is entitled to recover from Insomniac and Ventures any and all benefits those defendants derived from the rental agreements because the agreements were made by DeStefano, a public employee, in his official capacity while he had a financial interest in them, i.e., the agreements were tainted with corruption in violation of section 1090.”
The justice distinguished Klistoff v. Superior Court (2007) 157 Cal.App.4th 469, holding that a private party cannot be held liable for conspiring with a public official to violate §1090.
“Although the decision in Klistoff…made references to the receipt of ‘public funds’ in analyzing the conspiracy theory before it, that case did not state or imply that when a private party to an agreement made in violation of section 1090 does not receive public funds under the contract directly from a public entity, disgorgement is not available,” Mosk wrote. “Rather, because in that case the benefit derived from the tainted franchise agreement—the ‘substantial sums’ paid by the city under it to a separate entity—came from public funds, the court analyzed the issue within that framework.
Fiduciary Duty Breached
Mosk went on to say that the plaintiffs pled a cause of action for conspiracy to defraud, based on allegations that DeStefano breached a fiduciary duty by acting on behalf of the promoters without disclosing his financial arrangement with them to the commission.
“DeStefano’s employment and agency relationship with plaintiffs was fiduciary in nature because he had voluntarily undertaken to act on their behalf and for their benefit in negotiating the rental agreements with defendants,” the justice said.
Attorneys on appeal were Burke, Williams & Sorensen’s Charles E. Slyngstad and Brian S. Ginter for the commission; Gary J. Kaufman, Colin A. Hardacre, and Natasha L. Hill of The Kaufman Law Group for Insomniac, Inc. and Rotella; and Eric J. Glassman of Mennemeier Glassman for Gerami.
The case is Los Angeles Memorial Coliseum Commission v. Insomniac, Inc., B252838.
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