It appears increasingly likely that the legal teams representing a Rancho Cucamonga developer and three former county officials he is accused of extorting and/or bribing to achieve a $102 million legal settlement from the county in 2006 will attempt to construct a platform for their collective clients’ defense that uses as a primary plank arguments that the settlement payout the company received matched the damages the developer’s company sustained in its dealings with the county.
In this way, the fate of the four accused may hinge on two separate but related determinations by the judge, Michael A. Smith, hearing the case. The first determination will relate to whether the justification of the $102 million payout on civil or procedural grounds is relevant to the criminal case. The second determination will extend to whether offering any form of monetary inducement to public officials to influence their decision-making process is tantamount to bribery, even if the decision sought is a correct or legally justifiable one in other respects.
Recent and previous statements from the bench by Smith do not bode well for the defendants.
The Colonies Lawsuit Settlement Public Corruption Prosecution arose from the 3-2 decision of the county board of supervisors nearly nine years ago to confer a $102 million payout on the Colonies Partners development consortium to put to rest a lawsuit that company had brought against the county over flood control issues at the Colonies at San Antonio residential and Colonies Crossroads commercial subdivisions in Upland. The prosecution maintains that settlement was tainted by extortion, bribery, kickbacks, fraud and graft.
Jeff Burum, who with Dan Richards was one of the two managing principals in the 19-member Colonies Partners, was accused by prosecutors in a 29-count indictment handed down in May 2011 of having worked with former San Bernardino County sheriff’s deputy union president Jim Erwin to first extort and then bribe former county supervisors Bill Postmus and Paul Biane to get them to vote in favor of the settlement in November 2006 and then providing a kickback to Mark Kirk, the chief of staff to another former supervisor, Gary Ovitt, whose third vote for the settlement was crucial to its passage.
The indictment was built around the theory that Burum and Erwin, with the assistance of public relations consultant Patrick O’Reilly, conspired to threaten Postmus and Biane with exposure pertaining to their respective homosexuality/drug use and financial insolvency during the 2006 campaign season when Postmus was vying for county assessor and Biane was stumping for a measure to increase the pay of county supervisors. The indictment further charges that the conspiracy broadened and intensified with the provision of four separate $100,000 kickbacks provided to Postmus, Biane, Kirk and Erwin in the form of contributions to political action committees each of those parties set up or arranged to have set up after Postmus and Biane acceded to the threats and voted to approve the $102 million settlement. Kirk, according to the indictment, was rewarded with the $100,000 donation to his political action committee for having persuaded Ovitt to vote for the settlement.
The strength of the indictment in large measure hinged on guilty pleas by Postmus on a host of political corruption charges relating to the alleged scheme, including conspiracy, bribery, fraud and criminal conflict of interest. Both Postmus and Erwin had been previously charged in February 2010 with criminal wrongdoing in relation to the settlement and Postmus’s guilty pleas came in March 2011, one month before he became the star witness before the grand jury that indicted Burum, Biane, Erwin and Kirk.
The case has been bitterly fought by both sides for four years, resulting in an interminable delay in the trial. Prosecutors twice filed appeals with the Fourth District Court of Appeals to reestablish charges thrown out at the trial court and there were two appeals by the defense to throw out charges kept in by the trial court, and an appeal by the prosecution to the California Supreme Court to reestablish charges thrown out at the appeal court level. While the case is now scheduled to go to trial in February, the prosecution is contemplating appealing its most recent setback in the case, a ruling from the Fourth District Court of Appeals, to the California Supreme Court. Simultaneously, the defense has now intensified its challenge of the prosecution’s case scheduled to go to trial in February, lodging motions with the trial court aimed at narrowing or eliminating entirely the charges the defendants face.
Some of those pre-trial motions were heard last Friday and will again be considered by the judge today, November 6.
And while prosecutors continue to propound their theory that the $102 million settlement was tainted by conspiracy, bribery, extortion, graft, fraud, perjury and public corruption, the defense camp is seeking to establish that prosecutors offered a selective set of facts to the grand jury that indicted the four, leaving out crucial details suggesting the $102 million payout was a reasonable one that needed no illicit facilitation.
Of crucial moment is whether the judge hearing the case is willing to entertain defense arguments that the legal position the county assumed in civil court in seeking to get from its insurance carriers partial reimbursement of the $102 million payment after the settlement was made is relevant to issues at play in the criminal trial. The county’s lawyers who represented it in that insurance recovery effort were brought before the grand jury that indicted the defendants, offering statements in response to prosecutor’s questions that suggested the Colonies Partners were not entitled to any compensation for the county’s activity, which included constructing a storm drain system which conveyed water from the northwest corner of Upland along a route paralleling the 210 Freeway and deposited that water onto the Colonies Partners’ land. In the lawsuit the Colonies Partners brought against the county and its flood control district, the company maintained that the county’s action not only created a massive drainage problem on its property, it rendered property intended for development undevelopable and it delayed the sale of other property within the subdivision, resulting in monetary loss to the Colonies Partners. In response to the lawsuit, the county asserted it had the right, based upon flood control easements granted to the county by the former owner of the property, the San Antonio Water Company, in 1933, 1934 and 1939, to channel water onto the property.
The office of county counsel, the county’s in-house lawyers, including deputy county counsel Mitch Norton, had worked with two outside law firms – Munger, Tolles and Olson and Jones Day – in spiritedly denying the Colonies Partners’ contention that the county had done anything inappropriate in using quarries that had been converted to catch basins on the Colonies property, which was shown on regional maps as an undevelopable flood zone, as a repository for the storm drain water.
After Postmus, Biane and Ovitt approved the $102 million settlement in November 2006, the board of supervisors gave direction to county counsel to seek through the insurance polices the county had with the California State Association of Counties Excess Insurance Authority and Travelers Insurance a portion of the money paid out in the settlement. The same month that the board voted to confer the $102 million settlement on the Colonies Partners, it also elevated Ruth Stringer to the position of interim county counsel. The board bestowed upon her the title of county counsel the following year. During her tenure, the county soft-pedaled its previous representations to the effect that the Colonies Partners were due nothing in return for the county’s use of the flood control easements on that company’s property and instead pressed the case that the county was entitled to reimbursement from its insurance providers. In making that case, the county contradicted several elements in its position in the civil suit against the Colonies Partners.
Relatively early on, in 2007, Travelers Insurance provided the county flood control district $9.5 million to satisfy its indemnification responsibility with regard to the Colonies Partners’ lawsuit settlement. But the California State Association of Counties Excess Insurance Authority dragged its feet, seeing extenuating circumstances with regard to the settlement that potentially mitigated or obviated its indemnification of the county. Finally, 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 Norton and an outside attorney, Costa Mesa-based Todd Theodora and his law firm, filed a lawsuit alleging the California State Association of Counties Excess Insurance Authority 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 was entitled to an arbitration award against the California State Association of Counties Excess Insurance Authority 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 California State Association of Counties Excess Insurance Authority agreed to the payment of $14,502,465.43 to the county as a final settlement of the claim.
In making the county’s civil case, Norton and Theodora and members of Theodora’s law firm repeatedly posited an argument before a panel of arbitrators with the Judicial 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.
The lead attorney on Burum’s defense team, Stephen Larson, has seized upon the assertions made by Norton and Theodora in those court papers to posit the argument that prosecutors, when questioning Norton before the grand jury that indicted his client and the other defendants in 2011, failed to elicit from Norton testimony that would have potentially demonstrated to the jurors that the $102 million settlement was not unreasonable and Burum therefore had no reason to unduly influence, either by extortion or bribery, Postmus, Biane and Ovit through Kirk. To buttress his argument, Larson subpoenaed Norton, along with Stringer, who has since retired, Theodora, and the county’s chief executive officer, Greg Devereux, as well as former assistant district attorney Jim Hackleman, who was a part of the prosecution team that obtained the indictment against Burum, Biane, Erwin and Kirk. Hackleman is now retired but is a “volunteer” member of the prosecution team, according to the district attorney’s office.
By cross examining Norton, Stringer, Theodora, Devereaux and Hackleman, Larson intended to demonstrate to Smith that the district attorney’s office had knowledge of the exculpatory information that Norton and Stringer, who also testified before the grand jury, possessed, but that prosecutors intentionally hid that information from the jury. Additionally, defense attorneys have obtained information to the effect that Stringer, while serving in the capacity of county counsel, was secretly reporting to the district attorney’s office privileged information gleaned from closed door sessions of the board of supervisors, and that she was doing so without the consent of the members of the board. This was, Larson asserts, a violation of attorney-client privilege, and a violation of Biane’s constitutional rights against self incrimination.
The county sought to quash the subpoenas of Norton, Stringer, Theodora and Devereaux. The district attorney’s office in conjunction with the California Attorney General’s Office sought to quash the subpoena of Hackleman. Ultimately, with regard to the Norton, Stringer, Theodora and Devereaux subpoenas, Larson and the county arrived at a stipulated agreement by which the county agreed to turn over scores of documents and emails that relate to the issues Larson wanted to explore in his cross-examination of Norton, Stringer, Theodora and Devereaux. The Sentinel has learned that at least some of those documents and emails have been turned over to the defense, which is poring over them to find documentation and evidence of exculpatory evidence that was available to the prosecution that was hidden from the grand jury. It is anticipated that at least some of this material will be cited by Larson during oral arguments relating to a so-called Johnson Motion he has made, which if granted would dismiss the indictment because of prosecutorial misconduct in withholding such exculpatory information from the grand jury.
Despite the manner in which the defense is fortifying itself, suggestions around the courthouse are that Larson is digging a dry legal hole.
By the tenor of the decisions Smith issued on October 30, together with statements he made at that time as well as during the Summer of 2014 when a previous host of defense motions were heard, indications are that Smith, a former prosecutor, is disinclined toward nearly all of the legal theories Larson is propounding, no matter how thoroughly researched or eloquently stated. In addition, Smith has, if not consistently, more often than not sided with the prosecution on issues relating to the strategy of presentation, timing, and context.
One example of the latter was the insistence earlier this year by Larson and Erwin’s attorney, Raj Maline, that their clients go to trial no later than last month, the point beyond which Burum and Erwin had refused to grant further delays in their respective rights to a speedy trial. Smith refused to initiate Burum’s and Erwin’s trial in October, insisting that a case against all four of the defendants be put on at the same time and that the trial start in February. Another example was the prosecution’s request for a rare though not unheard of trial utilizing two juries. The prosecution wants a dual jury trial, and specifically sought Smith’s indulgence in having one jury consider the charges against Burum, Biane and Kirk and a differently composed jury deciding Erwin’s guilt or innocence. In making the request, prosecutors asserted that Erwin had been far more open with regard to public statements relating to the case than any of the others, having made some 121 utterances that are incriminating. They want to use at least some of those statements against him but do not want to risk a mistrial of any of the other defendants because though those statements may be deemed admissible against Irwin, they would be inadmissible against the others.
Mary Andrues, an attorney on Burum’s defense team, said the proper way to get around that dilemma would be to hold two separate trials, one for Irwin and one for the others. Given that the trial may go on for months, there is a real prospect that information heard by one panel will be shared inadvertently with the other, Andrues said.
Smith, however, sided with prosecutors, granting the motion for separate juries, while indicating defense attorneys would have an opportunity, through what are called motions in limine, to exclude certain of Erwin’s statements on an item-by-item basis.
Smith’s consideration and rejection of one of Larson’s motions, which called for the dismissal of misappropriation of public funds against all four defendants, presaged further rough sledding for Larson. Larson built his motion around the consideration that the Fourth District Court of Appeals in August dismissed a civil case brought on behalf of the Inland Oversight Committee and Citizens for Responsible and Equitable Environmental Development in April 2012 by attorney Cory Briggs, an Upland attorney. That case sought to have the Colonies Partners disgorge the $102 million based on the contention that the settlement should be null and void because it was tainted by bribery, extortion, conspiracy and other criminal acts as well as a conflict of interest involving Biane and Postmus. The Fourth District Court of Appeals ruled that the settlement was binding because a validation hearing for the settlement had been held in 2007 and a court at that time had upheld it. Larson asserted that the Fourth District Court of Appeals’ ruling confirming the validation judgment was tantamount to a declaration that the settlement was not only valid but lawful in all respects that that there was no probable cause to suspect or allege that the $102 million was appropriated without authority of law.
This resulted in Supervising California Deputy Attorney General Melissa Mandel, the lead member of the prosecution team, which also includes members of the San Bernardino County District Attorney’s Office, asserting the processing of the settlement had nothing to do with “bribes and the kickbacks,” which led to the settlement.
In a telling response, which echoed what he had said in a similar context last year, Smith concurred with Mandel, and dismissed Larson’s motion, saying that the appellate court’s decision in the civil matter did not preclude the filing of criminal charges, since the appellate court’s decision extended only to the question of whether the settlement was properly processed and did not pertain to the misconduct alleged to have been perpetrated by those who facilitated and approved the settlement.
“The criminal charges do not attack the validity of the settlement. They attempt to prosecute individuals for specific misconduct covered by the penal code,” Smith said.
This tears at the heart and soul of the defense Larson is constructing for Burum. What Smith appeared to be signaling was his acceptance of the prosecution’s theory that the $102 million settlement was conferred upon the Colonies Partners at least partially, if not wholly, as a result of the extortion that proceeded it and the bribery, in the form of kickbacks, that followed it.
What is not clear, at this point, is whether Smith’s ruling on the defense motions relating to relatively narrow and pointed issues of law prior to trial and with regard to allowing the case to go to trial will carry over to his rulings with regard to allowing Larson to make the same arguments in a slightly different form to the jury that will hear the case. Larson is doggedly angling at demonstrating the $102 million settlement was a reasonable one and that since the settlement was a defensible one, nothing untoward to effectuate it took place. Smith appears to be on the cusp of declaring that whether the settlement was justifiable or not is irrelevant entirely to the question of whether Burum, with Erwin’s assistance, first extorted Postmus and Biane and then bribed Postmus, Biane and Kirk and whether Postmus, Biane and Kirk then accepted those bribes.
On October 30, the specter of an even further delay in the trial descended over the courtroom as Mark McDonald, the attorney representing Biane, asked for a delay beyond the February 1 trial date. Larson and Maline, who have already raised strenuous objections to the delays in the case thus far, protested vigorously. Smith did not rule out a further delay, however, asking all attorneys to provide him with briefs on “finding good cause to continue the trial.”