Friday, May 11, 2018
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$20 Million Judgment Against Beverly Hills Schools Reversed
Switching Status of an Employee to That of Independent Contractor Did Not Render Her Beyond the Reach of a Conflict-of-Interest Statute, Court of Appeal Declares
By a MetNews Staff Writer
Div. Six of this district’s Court of Appeal yesterday reversed a judgment for more than $20 million against the Beverly Hills Unified School District, determining that a conflicts-of-interest statute applies to an independent contractor.
Although this district’s Div. One found in 2013, in a criminal case involving the same independent contractor, that the statute applies only to government employees, that opinion has since been overruled by the California Supreme Court.
Yesterday’s decision, coming in an opinion by Presiding Justice Arthur Gilbert, reverses a judgment in favor of plaintiffs Karen Christiansen and her company, Strategic Concepts, LLC.
Christiansen formed the limited liability company when the school district in 2006 converted her status from that of an employee, paid $113,000 a year as director of planning and facilities, to that of an independent contractor receiving more than $1.3 million a year, though performing the same duties as before. She then persuaded the district to award her a $16 million contract in 2008, without competitive bidding, for consulting services in connection with a bond issue.
Contracts Declared Void
The Board of Education eventually gained an awareness of what was going on, and declared the contracts with Strategic to be void, under Government Code §1090. That section provides, in part:
“Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members.”
Violation of §1090 is rendered a felony by §1097.
A law firm representing the district made a demand for the return of $4.9 million paid to Strategic. Christensen and Strategic sued, seeking damages of about $7 million, and the district filed its own action, treated as a cross-complaint.
Czuleger’s Instruction
Los Angeles Superior Court Judge J. Stephen Czuleger told the jury:
“On August 13th, 2009, the Beverly Hills Unified School District notified Strategic Concepts that it was declaring their contracts with the school district void for claimed violations of Government Code section 1090. However, the court has determined in this case, and you are instructed, that [Strategic’s] contracts did not violate Government Code section 1090 and that the claimed violation of that statute...was not a legally valid ground for voiding the contracts.”
Czuleger based his instruction on Div. One’s 2013 opinion in People v. Christiansen. The court reversed Christensen’s conviction (on which she had been sentenced to a four-year prison term and ordered to pay $3.5 million in restitution).
Rothschild’s Reasoning
There, then-Associate Justice (now Presiding Justice) Frances Rothschild said the statute, on its face, only applies to employees. She wrote:
“Under the common law test, independent contractors are not employees….Because it is undisputed that at all relevant times Christiansen was an independent contractor, she was not an employee within the meaning of section 1090—so her convictions must be reversed and the charges against her dismissed.”
Rothschild acknowledged that two civil cases say that independent contractors may sometimes be treated as employees, but said:
“No published criminal case has so held….At least for purposes of criminal liability under section 1090, an independent contractor is not an employee.”
In yesterday’s opinion, Gilbert said of Rothschild’s stance:
“The court reasoned that for the purposes of criminal law, section 1090 did not apply to independent contractors. The court declined to decide the scope of section 1090 as applied to civil actions.”
High Court’s Repudiation
Gilbert pointed out that Christiansen was disapproved last year in People v. Superior Court (Sahlolbei).
There, Justice Goodwin Liu pointed to the “perverse consequences” of holding out an employee as an independent contractors in order to avoid the conflict-of-interest statute. He said this is “a scenario illustrated by the facts of Christiansen.”
Pointing to the lucrative contracts Christiansen wangled, Gilbert declared:
“Using a position of public trust or influence to obtain such contracts is a clear violation of section 1090….There is a reason why our Supreme Court in Sahlolbei used the facts of Christiansen’s case to illustrate why section 1090 applies, not why she was simply negotiating her own compensation.”
On remand, the jurist said, the district may press its request for an instruction on the need to comply with competitive bidding statutes.
Justice Martin J. Tangeman wrote a brief concurring and dissenting opinion.
The case is Strategic Concepts, LLC v. Beverly Hills Unified School District, B264478.
Christiansen was criminally charged in December 2010 along with Jeffrey Hubbard who, while superintendent of the school district, authorized a $500 monthly auto allowance for Christiansen and $20,000 stipend without board approval. Div. One of this district’s Court of Appeal, in an opinion by Rothschild, reversed his conviction under Penal Code §424.
The California Supreme Court in 2016 reversed the Court of Appeal. Justice Mariano-Florentino Cuellar wrote:
“Public officers face criminal liability under section 424 when they misappropriate public funds and when their control over such funds amounts to being charged with the funds’ ‘receipt, safekeeping, transfer, or disbursement.’ The statute does not make liability conditional on a public officer’s possessing exclusive control over public funds, or unfettered discretion to decide on their disposition. Instead, it requires that the public officer have the sort of actual authority that confers some degree of material control over the funds’ disposition. The evidence here supports the jury’s conclusion that Hubbard had such control….”
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