By Mark Gutglueck
(June 12) The California State Association of Counties Excess Insurance Authority has agreed to pay San Bernardino County $14 million to settle a long-disputed insurance claim the county made for partial reimbursement of the $102 million payout it made in 2006 to close out a lawsuit brought by a Rancho Cucamonga-based development company against the county over flood control issues at a large scale residential and commercial project in northeast Upland.
The insurance authority’s willingness to satisfy the claim and the assertions the county made in pursuing it carry with them the potential to complicate the criminal prosecution of one of the principals in the company that received the $102 million payment and three former county officials prosecutors allege were involved in an extortion and bribery scheme related to the payout.
The matter pertains to a development plan by the Colonies Partners, a consortium of 19 developers headed by Dan Richards and Jeff Burum, which purchased 434 acres from the San Antonio Water Company Land Liquidation Trust in 1997 with the intent of developing the property both residentially and commercially. The land, however, was considered flood control property and was hamstrung with flood control easements, two of which were recorded in 1933 and 1934 and another recorded in 1939 after extensive flooding following the major deluges that hit the Southern California region in 1938. The property was shown on land use and zoning maps as dedicated open space and undevelopable. The Colonies Partners paid roughly $17 million for the property, which invited suggestions that the speculation the company was engaged in was fated to failure, especially given the consideration that earlier efforts to develop the property by three reputable entities – the Koll Company, the William F. Lyon Company and Lewis Homes/Lewis Development – had been shelved when the cost of providing adequate flood control and drainage facilities to render it developable in each case was deemed prohibitive.
Intrepidly, however, Burum and Richards proceeded, accompanying their proposal with a political action plan that included making hefty political contributions to Upland’s elected officials while simultaneously agreeing to cover the city’s costs for hiring consulting planners to work toward accommodating the project through the city’s public works, engineering, planning and community development departments, which in the preceding years had been pared back in an effort to reduce municipal costs. This led to a circumstance in which the city allowed the property to be rezoned and made eligible for development, even though key questions as to which entity – the Colonies Partners or the city and its taxpayers – would defray the cost of the considerable infrastructure needed to allow the project to proceed. The issue was complicated by the city’s effort to cure flood control and drainage issues originating at the northwest corner of the city, consisting of the construction of what became known as the 20th Street Storm Drain. The city engaged the services of the county flood control district to assist in the design and construction of that facility, which collected water at the upper northwest quadrant of Upland, conveyed it in a large-diameter pipe that ran along the length of the right-of-way for the 210 Freeway which at that time was under construction, ushering that water toward a flood control channel at the east end of the city of Upland near its border with Rancho Cucamonga.
With the turn of the millennium and the Colonies at San Antonio residential project proceeding, CalTrans purchased some 38 acres of the Colonies Partners’ property as right-of-way for the 210 Freeway, paying the Colonies Partners over $17 million.
The county, upon constructing the 20th Street Storm Drain so that it paralleled the northern edge of the freeway, with CalTrans’ consent, vectored the drain southward under the freeway when it reached the Colonies Partners’ property. The county, relying upon the 1930s easements, then terminated the storm drain at a spot on the Colonies property, which was previously owned by the San Antonio Water Company, where a catch basin had previously stood. The Colonies Partners, maintained that the entitlement to build it had obtained from the city of Upland obviated the land’s status as undevelopable open space dedicated for flood control purposes. The company demanded that the county construct a modern flood control basin to accommodate the water being deposited on its property from the storm drain, intending that the basin should also serve as a flood control facility to serve the Colonies development. The county, again relying on the rights granted to its flood control division, refused. After much back and forth, the Colonies Partners sued the county over the issue. Simultaneously, the Colonies Partners, particularly in the dual personae of Richards and Burum, stepped up their political activity. One phase of that political activity was to boost the fortunes of then-Rancho Cucamonga City Councilman Paul Biane. Biane challenged, and with the assistance of $70,000 in donations from Burum, Richards and the Colonies Partners, defeated incumbent Second District Supervisor Jon Mikels in the 2002 election. The Second District included Upland, and Mikels had been insistent that the developers of the Colonies at San Antonio residential and the accompanying Colonies Crossroads commercial subdivisions, built as they were on undevelopable land, defray their own infrastructure costs. Biane, who was active in real estate business, was more flexible on that issue. In addition, Richards and Burum were highly supportive of Bill Postmus, the young up-and-coming First District supervisor elected to that office in 2000 who by 2004 would accede to the positions of chairman of the board of supervisors and chairman of the San Bernardino County Republican Party. Similarly, they supported Gary Ovitt, the supervisor for the county’s Fourth District. In the early to mid- 2000s, after the Colonies Partners’ lawsuit against the county had been filed, an ongoing and running dialog aimed at a negotiated settlement of the lawsuit ensued between, on one side, Richards and Burum, and on the other, Postmus and Biane. This took place against a backdrop of legal developments in the case, which included the first judge hearing the matter, Peter Norell, ruling that the flood control easements were abandoned and the appeals court subsequently overturning Norell’s finding on that score. At one point, Postmus and Biane worked out an agreement with Richards and Burum to pay them $77 million to settle the suit, but public outrage at the concept of the county paying for the infrastructure on a project that would generate hundreds of millions of dollars of profit for its owners nixed that deal.
As settlement discussions foundered, the case moved to a bench trial, during which the judge hearing that case, Christopher Warner, seemingly defied the appellate court that had previously upheld the validity of the county’s flood control easements on the Colonies property when he ruled in the course of the trial that the easements had been extinguished by surcharge. Warner entered a verdict in favor of the Colonies Partners, but had not ruled with regard to the amount of damages. The trial coincided with the 2006 election season, in which Postmus was vying for county assessor and Biane was running for reelection as supervisor unopposed, while campaigning for a countywide initiative he had authored, Measure P, that would substantially increase the salary of members of the board of supervisors, boosting their pay from $99,000 per year to $151,000 per year plus substantial benefits. With hints that the county was purposed to appeal Warner’s final conclusion in the case as well as his ruling that the flood control easements on the Colonies property were no longer in effect, Burum again intensified his political activity, this time departing from his support of Biane and Postmus and hiring public relations consultant Patrick O’Reilly to create mailers that exposed Biane, campaigning on behalf of the supervisors’ pay-boosting Measure P, as teetering on the brink of personal bankruptcy, and Postmus, whose political career was based on his image as a no-nonsense, right-wing conservative and religious Republican, as a drug using homosexual. Though the prosection alleges the mailers were prepared and ready for distribution, Burum held off on disseminating them widely, and at the November 7, 2006 election, Measure P passed and Postmus was elected assessor. Three weeks later, on November 28, 2006, Postmus, Biane and Gary Ovitt voted to confer a $102 million payment on the Colonies Partners to settle the lawsuit. During the first six months of 2007, Burum and Richards provided three separate $100,000 donations to political action committees operated or controlled by Biane and his chief of staff, Matt Brown; Mark Kirk, who was Gary Ovitt’s chief of staff; and Jim Erwin, the former president of the county sheriff’s deputies union who worked as an intermediary to open up communications between the Colonies Partners and members of the board of supervisor, in particular Postmus and Biane, and who was subsequently appointed by Postmus to the position of assistant assessor. Burum and Richards also made two separate $50,000 donations to each of two political action committees operated or controlled by Postmus,
Subsequently, prosecutors working with both the California Attorney General’s Office and the San Bernardino District Attorney’s Office called witnesses before and presented evidence to a grand jury. Subsequently, Postmus and Erwin in February 2010 were charged in a criminal complaint with extortion, bribery, perjury, tax evasion, conflict of interest, fraud and the filing of falsified documents. Both pleaded not guilty to those charges but in March 2011, Postmus entered guilty pleas to fourteen charges against him, turned state’s evidence and served as the star witness before a second grand jury that met in April 2011. In May 2011, a superseding indictment naming Erwin, Burum, Biane and Kirk was handed down. That indictment alleged, essentially, that Erwin assisted Burum in extorting Biane and Postmus during the 2006 campaign season while the Colonies lawsuit was pending, thus pressuring them into voting to settle the case for the $102 million payout. The indictment further alleged that Burum then acted to bribe Postmus and Biane with the delivery of the $100,000 donations to their political action committees in return for their votes. Also according to the indictment, the $100,000 delivered to Kirk was a bribe paid for his having influenced Ovitt to support the $102 million settlement.
Even before the Colonies Partners’ lawsuit against the county had gone to trial, in July 2004 the county gave one of its liability insurance providers, the California State Association of Counties Excess Insurance Authority (CSAC-EIA), notice of the lawsuit and a detailed account of the Colonies Partners’ contention that the company had been damaged by the county’s construction and placement of flood control and drainage appurtenances on and around the Colonies development. The county maintained the memorandum of coverage between the county and CSAC-EIA obliged the authority to cover up to $10 million of the county’s costs arising out of the lawsuit brought by the Colonies Partners. CSAC-EIA, on July 30, 2004, informed the county in writing that it did not believe the memorandum of coverage provided coverage in the matter. The county kept CSAC-EIA apprised of developments in the trial and in May 2007, the county formally asked the California State Association of Counties Excess Insurance Authority to reconsider the position it had taken with its July 2004 letter. CSAC-EIA refused to do so at that point, which was in contrast to the position of another of the county’s insurance carriers, Travelers Insurance, which in 2007 provided the county flood control district $9.5 million to satisfy its indemnification responsibility with regard to the Colonies Partners lawsuit settlement.
Another year-and-a-half of correspondence between CSAC-EIA and the county ensued in which the county sought to have its claim for indemnification acknowledged as legitimate. In January 2009, the California State Association of Counties Excess Insurance Authority officially rejected the county’s claim. In October 2010, the county, represented by deputy county counsel Mitch Norton and an outside attorney, Costa Mesa-based Todd Theodora and his law firm, filed a lawsuit alleging CSAC-EIA skipped out on its coverage obligation. “The California Association of Counties never adjudicated this claim in good faith because it did not want to have to provide coverage for a loss of this magnitude,” that suit stated.
The matter went before the Orange County Superior Court and ultimately, on November 10, 2014, Orange County Superior Court Judge Franz Miller ruled in favor of the county and against the California State Association of Counties Excess Insurance Authority, finding the county damaged the Colonies Partners, and as such the county which was entitled to an arbitration award against CSAC-EIA for the $10 million it was owed as part of the insurance coverage plus legal costs and interest. In a document signed on April 15 and filed on April 16, 2015 the CSAC-EIA agreed to the payment of $14,502,465.43 to the county as a final settlement of the claim.
Also filed with the Orange County Superior Court and signed by Miller on April 23, 2015 was a stipulation to unseal the record relating to the lawsuit between CSAC-EIA and San Bernardino County. This has opened up the full record of what transpired in the case, including court filings to which Norton was a signatory, party or representative of the county.
The assertions made in several of those filings may present a problem to the prosecution team in the criminal case against Burum, Biane, Kirk and Erwin. The full record shows that Norton, who prior to the November 2006 settlement of the case was involved in maintaining the county’s position that the county’s assertion of its rights under the 1933, 1934 and 1939 flood control easements justified the county’s action in vectoring the water from the 20th Street Storm Drain onto the Colonies Partners’ property, reversed course after the November 2006 vote to settle the case, asserting the settlement should be validated when in March 2007, Marjorie Musser Mikels, the wife of Jon Mikels, challenged it. Norton and Theodora and members of Theodora’s law firm repeatedly posited an argument before a panel of arbitrators with the Judicical Arbitration and Mediation Services based in Ontario and the Orange County Superior Court that San Bernardino County had engaged in actions or “offenses or wrongful acts” against the Colonies Partners which resulted in “physical damage” to the Colonies Partners’ property and/or assets, such that the $102 million settlement was a reasonable one given that the value of one of the basins constructed on the Colonies Partners’ property to hold the storm water was $85 million, the Colonies Partners’ had estimated the cost of managing the basin over time at $75 million, the Colonies Partners valued at $43 million the lots the company claimed were devalued due to the cloud on their title which came about because of the county flood control district’s interpretation of its easements, the three-year delay the construction of Phase II of the project cost the Colonies Partners $36 million, and that the Colonies Partners sustained an $11 million loss because of higher infrastructure development costs as a result of the county’s action.
Norton was called by prosecutors before the grand jury that indicted Burum, Biane, Kirk and Erwin. The questions asked of him and the answers given supported the grand jurors’ decision to hand down the indictment. During his appearance before the grand jury, Norton was not asked by prosecutors questions that elicited any of the information contained in the legal papers and court filings he participated in presenting to the aforementioned arbitration panel relating to the county’s claim against the California State Association of Counties Excess Insurance Authority, some or even much of which would have been exculpatory with regard to Burum, Biane, Kirk and Erwin, demonstrating there was a legitimate rationale for the $102 million settlement unrelated to extortion or bribery. Motions based upon the omission of such testimony from Norton or the prosecution’s failure to elicit it, if granted by the trial court judge, could vacate the indictment. Even if the indictment is allowed to stand and the case proceeds to trial, Norton could become a very problematic witness for the prosecution, as several of the court filings in the county’s case against the CSAC-EIA commit him to statements indicating the $102 million settlement was a reasonable one.
Repeated efforts by the Sentinel this week to obtain verbal or written comment from Norton regarding the implication of his court filings in the county’s case against the California State Association of Counties Excess Insurance Authority in compromising the prosecution of Burum, Biane, Kirk and Erwin were unsuccessful.