By Mark Gutglueck
In Week 16 of the Colonies Lawsuit Settlement Public Corruption Case prosecutors sought to use the gravitas of two legal heavyweights in making a case that Rancho Cucamonga Developer Jeff Burum bribed two members of the board of supervisors and the chief of staff of one of their board colleagues a decade ago.
A 29-count indictment handed down by a grand jury in May 2011 alleges that Burum, who with Dan Richards was a managing principal in the Colonies Partners, first used intimidation, threats, blackmail and extortion followed up with $100,000 kickbacks to persuade Bill Postmus and Paul Biane, who were then the chairman and co-chairman of the San Bernardino County Board of Supervisors, to support paying out $102 million to settle a lawsuit the Colonies Partners had brought against the county and its flood control district over drainage issues at the Colonies at San Antonio residential and Colonies Crossroads commercial subdivision in northeast Upland first lodged in 2002. By 2006, with the litigation having dragged on for over four years, the indictment alleges Burum conspired with former sheriff’s deputies union president Jim Erwin to use highly personal derogatory information about Postmus and Biane to create “hit piece” mailers designed to harm their political careers which ultimately were withheld to pressure them to vote in favor of the settlement. Over the seven months that followed Postmus and Biane joining with then-supervisor Gary Ovitt to support and pass by a bare 3-2 majority the $102 million settlement on November 28, 2006, Burum and Richards made two $50,000 donations to two political action committees controlled by Postmus and his associates along with separate $100,000 donations to political action committees controlled by Biane and his associates, Erwin and Mark Kirk, who at that time was Ovitt’s chief of staff. Those donations were, the indictment alleges, thinly veiled bribes to Postmus and Biane for their votes in favor of the settlement and to Kirk for his having influenced Ovitt to support the settlement. Erwin was rewarded for his effort in having carried out the extortion and bribery scheme, prosecutors allege. Though Burum was indicted, Richards was not. Postmus, who had been charged along with Erwin with involvement in an extortion and bribery scheme growing out of the same set of overt acts laid out in the indictment, initially pleaded not guilty to those charges, as had Erwin. But 13 months later in March 2011, Postmus entered guilty pleas to 14 felony counts and agreed to turn state’s evidence. He was then the star witness before the grand jury that indicted the four current defendants. The charges in the indictment supersede the charges earlier brought against Erwin. It is anticipated that next month Postmus will testify as the central witness for the prosecution in the trial.
While the two prosecutors handling the case, California Supervising Deputy Attorney General Melissa Mandel and San Bernardino County supervising Deputy District Attorney Lewis Cope, initially sought to reference the underlying civil litigation as background to the circumstances that led to the alleged extortion and bribery and propound that the $102 million settlement was excessive and unjustifiable, the defense, led by Burum’s attorney, Stephen Larson, has pursued a strategy of countering the prosecution by seizing upon the minutiae of the civil litigation in an effort to suggest the $102 million settlement was reasonable. As a consequence, the prosecution has spent a considerable amount of its focus thus far in addressing the defense contentions that the Colonies Partners was due the $102 million. This relitigation of the civil trial has distracted both the prosecution and the two juries hearing the case from the criminal allegations.
In weeks twelve and thirteen, the prosecution had called to the witness stand deputy county counsel Mitch Norton, the attorney who had guided the county through all of the civil litigation with the Colonies Partners. On direct examination by Mandel, Norton had done a thorough job in laying out the county’s legal position in the civil lawsuit, articulating the strengths of the county’s case, while illustrating the efforts by Postmus, and to a lesser extent Biane, to stampede the county into a settlement of the lawsuit on terms favorable to the Colonies Partners.
Nevertheless, Norton had an Achilles heel the defense team, particularly Larson, was able to exploit. Following the settlement of the lawsuit, Norton had been given the assignment of pursuing the county’s effort to recover from its insurance carriers a significant portion of the $102 million that had been paid to the Colonies Partners. When one of those carriers, the California State Association of Counties Excess Insurance Authority, balked at making those payments based upon a contention similar to that propounded by the prosecution, namely that the settlement was tainted by graft and corruption, Norton had been obliged to assert that the settlement was both justifiable and reasonable. Those assertions had been made in court papers and in arguments before a court. Ten years after the $102 million settlement, the county is still seeking to have the California State Association of Counties Excess Insurance Authority make good on its indemnification of the county. Thus, Norton, two weeks ago under a withering cross examination from Larson, was forced to concede that given the totality of considerations and in the full light of hindsight, the $102 million payout to the Colonies Partners was “objectively reasonable.”
After Norton’s departure from the witness stand, the prosecution has sought to recapture the momentum Norton had given the county when he was being questioned on direct examination, before Larson was able to compromise him. Thus, Ron Reitz, who had been Norton’s boss when he was county counsel from 2003 until 2006, was put on the witness stand by the prosecution after Norton. Reitz, who was unhampered by having argued that the settlement with the Colonies Partners was justified, was able to assert and consistently reassert the position the county had taken in opposing the Colonies Partners’ assertions in its lawsuit. Moreover Reitz was able to shed further light on the mad rush Postmus was engaged in while forcing the county toward settlement back in 2006. This week the prosecution followed Reitz with two other lawyers who had opposed the Colonies Partners and its lawyers in the lawsuit. The first of those, who testified on Tuesday and Wednesday, was Paul Watford, who was at the time of the settlement negotiations an attorney with the law firm of Munger Tolles & Olsen, which represented the county in the litigation with the Colonies Partners in 2004 and 2005. Watford in June 2012 garnered an appointment as a federal judge on the U.S. Ninth Circuit Court of Appeals. The second attorney to testify this week was Ruth Stringer, the first woman to serve in the capacity of San Bernardino County Counsel, the highest ranking in-house lawyer for the county.
In 2012 Watford was then with the law firm of Munger, Tolles & Olson and was working closely with another of the firm’s attorneys, Steve Kristovich, on representing the county. Watford testified about a document he and Kristovich had generated for the county consisting of a “preliminary assessment” of the Colonies Partners’ claims for damages to its Upland property in which at that point Burum and Richards and their attorneys were asserting, he said, a “$61 million claim for land value for the loss of 67 acres.”
According to that document, Watford and Kristovich said, “We estimate the Colonies’ damages would be in the $18 million to $20 million range.”
In its assertion of damages, the Colonies Partners had claimed that the land had a value of $225,000 a lot and that the county’s vectoring of water onto the property had rendered it entirely undevelopable.
But the matter was not that simple, according to Watford and Kristovich, as at least 31 of those 67 acres were subject to flood control easements recorded by the county in the 1930s, giving the county the right to use property for drainage purposes. And the claimed damages involved action by other parties, including the California Department of Transportation, known by its acronym CalTrans, the City of Upland, which held land use authority in the area, and the regional transportation agency, known by its acronym SANBAG. The water vectored onto the Colonies Partners’ property came from the 20th Street Storm Drain, which the county had built at the behest of the City of Upland and Caltrans to alleviate flooding on the then-newly constructed 210 Freeway and the area north of the freeway. It was his and Kristovich’s assessment that the county should not bear the full brunt of the potential $18 million to $20 million damages sustained by the Colonies because, Watford testified, that cost should have been “split among the other entities. The [county flood control] district should not bear the entire cost of the damages since the other entities were more responsible for the damage that was being caused. The flood control district was caught in the middle.”
Over time, the Colonies Partners’ claims on the value of its property escalated, reaching $1.5 million per acre. Watford testified that he and Kristovich considered the property and the amount of damages the Colonies Partners was asserting “to be significantly inflated in two respects.” One of those consisted, he said, in the “number of acres” the Colonies Partners claimed the county would be monopolizing for flood control purposes. He said the size of the water basin the county was going to use could be reduced from 67 acres. “We could still argue that the footprint for that basin had shrunk,” he said.
Moreover, he said, the Colonies Partners had cataloged much of the property as developable residential property when it was in fact zoned by the City of Upland as open space.
“We thought it should be valued as open space,” Watford said. “They wanted it valued as if you could build houses on it. It had been zoned as open space.”
Watford, who said the passage of more than a decade had weakened his memory of what had occurred, was asked about a watershed event in the dealings between county officials and the Colonies Partners that has been a major focal point in the criminal trial, a March 25, 2005 meeting at Biane’s Rancho Cucamonga office involving Postmus, Biane, Burum, Richards, Watford, Kristovich and Norton, as well as two attorneys for the Colonies Partners, Scott Sommer and Heidi Timken, and then-recently retired state senator Jim Brulte, who was working for the Colonies Partners as a consultant and lobbyist. Watford, Kristovich and Norton had come to the meeting in the aftermath of an appellate court tentative ruling that had overturned a previous decision by San Bernardino County Superior Court Judge Peter Norell in which Norell had declared that the county had abandoned the flood control easements on the Colonies Partners’ property. The reconfirmation of those easements, the county’s lawyers felt, put the county into a stronger legal position, and they had believed this would result in the Colonies Partners, as well as the county’s decision makers consisting of the board of supervisors coming to an accommodation on the Colonies Partners’ claims against the county at a monetary level far below what the Colonies Partners had been previously demanding. But during the course of that meeting, after the lawyers for both sides had given those present conflicting interpretations of the significance of the appellate court’s tentative ruling, all of the lawyers were asked to leave the conference room, after which ensued a lopsided negotiating session between Postmus and Biane for the county and Burum and Richards for the Colonies Partners refereed by Brulte, who was working for and being paid by the Colonies Partners. The upshot of that session was that Postmus and Biane agreed to a $77.5 million settlement, consisting of the county paying the Colonies Partners $22 million and turning over to the company surplus flood control property in Rancho Cucamonga valued at $55.5 million.
In his testimony, Watford was able to recall several salient issues in that meeting, which he said was supposed to be relatively limited in scope but soon ranged well beyond its intended parameters.
“It was our understanding the meeting was very preliminary and was to be geared toward the issue of the court of appeal’s tentative decision to see if that changed the dynamics between the two parties enough to start the dialogue toward settlement,” Watford said, adding that the appellate court’s tentative decision reestablishing the easements “undercut the basis of their [the Colonies Partners’] claims,” such that the county’s lawyers anticipated settlement at a far lower figure than what had previously been discussed. Watford said he recalled “a pretty spirited dialogue with the Colonies’ lawyers.”
He also testified that “We felt strongly the county’s position had improved, and on the other side, for reasons we could not understand they felt the opposite” and that “We did not feel we made much progress.”
At some point, Watford said either one or both of the supervisors “asked the lawyers to leave the room. We waited outside in the lobby area while they talked among themselves. We waited with the expectation we would be brought back in to resume the discussion.”
Watford emphasized that “We weren’t there to settle the case that day” and that the county’s legal team felt that the tentative ruling from the appellate court would bring the parties “closer together” to push them beyond the “impasse” and that they were having the meeting on March 25, 2005 to see if the tentative decision had changed each side’s view to create “enough common ground to try for a settlement.”
Mandel asked, “Did the county’s position improve with the tentative decision?”
He responded, “In my view, yes.”
“Were you invited back into the meeting?” Mandel asked.
“No,” he said.
Watford said he was not bothered or surprised when the lawyers were asked to leave the room, because, as he put it, “Lawyers can sometimes get in the way” of achieving a settlement. Nevertheless, he indicated, the outcome of the negotiating session was shocking.
“What happened next?” Mandel asked
“Supervisor Biane came out by himself and said, ‘Great news! We’ve settled the case. While you pesky lawyers were out of the room, we resolved this,’” Watford said. After that, Watford recalled, “He gave us a sketch of the terms, which consisted of the $22 million in cash and the transfer of unused county flood control district land in Rancho Cucamonga to the Colonies Partners.”
Watford said Biane’s announcement was “startling” and inappropriate given that the tentative decision favoring the county was pending and waiting to be finalized, that the amount contained in the settlement was excessive, that the Colonies Partners had not documented the damage claims it was making and that the settlement ignored or bypassed the effort to have the other parties – Caltrans, SANBAG and Upland – share in defraying whatever liability existed.
“The timing of the settlement made no sense at this point in time,” Watford said. “These board members, for whatever reason, approved a settlement way in excess of what we thought was reasonable under the circumstances.”
Watford said that Biane then asked him and Kristovich to write a memorandum for the entire board of supervisors recommending that the $77.5 million settlement be ratified.
“We were not going to prepare that,” Watford said. Rather, he said, he drafted a memorandum dated April 4, 2005 in which were laid out in detail arguments against accepting the $77.5 million settlement. He and Kristovich made copies of the memorandum, which he then personally handed out to all five members of the board of supervisors during a closed session. After the memo was handed around, during the course of that closed session, Watford said, he and Kristovich explained the contents of the memo to the board. “We walked through it orally,” he said.
That memo read, in part, “As we have previously discussed, we believe the [county] flood control district has strong claims for contribution and indemnity against Caltrans, SANBAG and the City of Upland for any damages the flood control district is forced to pay the Colonies in their inverse condemnation case. If a judge or jury later determines that the settlement reached with the Colonies is unreasonable, the flood control district may be precluded from recovery on its contributions and in regard to the claims against the other entities.”
Watford said he and Kristovich explained to the board that if the county settled with the Colonies Partners without taking the matter to trial, “the county would have the burden of showing the settlement was reasonable. This settlement put in jeopardy the county’s ability to recover on the indemnity claim. We gave them pretty strong advice to not go forward with this settlement.”
“Did the board follow your advice?” Mandel asked.
“No, it did not,” said Watford.
“What happened next?”
“We somehow found out that the board had disregarded our advice and decided on a split vote to approve the settlement nonetheless,” Watford said.
Mandel asked what Watford, Kristovich and their firm did.
“We decided to withdraw from the representation of the county,” Watford said, with that departure becoming official on April 21, 2005, although Watford and Kristovich did represent the county in making its final arguments before the appellate court with regard to the decision to overturn Norell’s ruling when that decision was finalized.
Asked if the Munger Tolles & Olson firm’s withdrawal was an unusual one, Watford said it was. He said as lawyers they had “duties and obligations to other individuals” beyond Postmus and Biane. He identified those other individuals as the taxpayers of San Bernardino County.
Late Wednesday afternoon and early Thursday morning, April 19 and 20, Watford was cross examined by Stephen Larson, Burum’s lead attorney.
Larson, a former federal court judge who had been one of Watford’s colleagues when they both worked for the U.S. Attorney’s Office in Los Angeles in the 1990s, was far less aggressive in questioning Watford than he had been with deputy county counsel Mitch Norton two weeks previously. Such an effort to find and exploit holes and contradictions in a witnesses testimony in legal parlance is known as impeachment.
While Larson did not succeed in impeaching Watford, he did get him to acknowledge that as an attorney he had no experience or expertise with regard to inverse condemnation matters, which pertain to a private land owner contesting the government’s seizure of property without just compensation, as was at issue in the Colonies Partners’ litigation against the county.
Larson delved into an email Watford received from deputy county Counsel Mitch Norton on November 1, 2006, which was 16 months after Watford’s firm had ceased representing the county in the Colonies litigation.
In that email, Norton alluded to a proposed settlement derived during an October 19, 2006 mediation session with the Colonies Partners. Norton said he had put into the agreement “what I like to call poison pills” to the agreement.
Larson asked Watford what Norton’s poison pills reference meant.
“I honestly don’t know,” said Watford.
Norton earlier testified that the “poison pills” were elements meant to protect the county’s interests rather than to sabotage the settlement.
Jim Erwin’s attorney, Raj Maline, pressed Watford with regard to his experience in representing county government prior to taking on the Colonies assignment.
“If I had any at all, it was very little,” Watford said.
In response to one of Maline’s question, Watford also said that in arriving at a settlement, a party to a civil dispute might justifiably take into consideration more than just the legal aspects of the matter.
Brought on to testify after Watford was Ruth Stringer, who had spent her entire legal career with the office of San Bernardino County Counsel after she attended law school while working as a county employee in the human resources division in which she was a contract negotiator. The office of county counsel is the county’s stable of in-house attorneys. County counsel is the highest position in that office, with the staff attorneys referred to as deputy county counsels. In her time as an attorney with the county, Stringer had risen from the position of deputy county counsel to chief deputy county counsel, then assistant county counsel overseeing operations, becoming acting or interim county counsel three weeks before the $102 million settlement with the Colonies Partners was voted upon in November 2006. She was elevated to the position of county counsel – the county’s top attorney – in March 2007, remaining in that capacity until she retired in 2010. She was the first, last and only woman to hold that position in San Bernardino County.
In her testimony on Thursday afternoon under direct examination by San Bernardino County Supervising Deputy District Attorney Lewis Cope, Stringer reprised and strengthened testimony from previous witnesses that advanced in some measure the prosecution’s theory of guilt.
One of those issues was a recounting of how Postmus was exerting pressure to have the Colonies Partners’ lawsuit with the county settled. Postmus was chairman of the board of supervisors throughout that time in 2006, when the series of events occurred which the prosecution alleges were orchestrated by Burum and Erwin to strong arm the county into the $102 million settlement. Stringer testified that Postmus’ efforts in that regard intensified in the immediate aftermath of his return from a trade mission to China on behalf of the county in September 2005. Previous testimony at the trial placed Burum in China during that trade mission. Prosecutors maintain that it was while in China that he and Burum entered into an unholy alliance to impose a settlement on the county that was contrary to the financial interest of the taxpayers but highly lucrative for the Colonies Partners.
Cope focused Stringer upon Postmus’ attitude and comportment prior to and then after that sojourn to China.
“Prior to the trip to China, it did not appear that he was that intricately or intensely involved in the litigation of the case,” Stringer testified. “After the China trip, he became a very different person in approaching this particular litigation. He wanted to settle it on the terms he saw fit. He wanted to settle along the lines the Colonies seemed to request.”
To buttress that, Cope displayed on the courtroom’s overhead visual projectors an email dated October 5, 2005 from Postmus sent by means of his Blackberry communication device to Stringer, who was then assistant county counsel, and Ron Reitz, who was then count county counsel. It said, “Per my direction don’t do ANYTHING further on Colonies until you talk with me!” Stringer verified the email’s authenticity.
In her testimony, Stringer underscored previous testimony with regard to pressure Postmus was heaping upon Reitz to settle the case, including one incident in which Postmus berated Reitz for “not controlling outside counsel and not getting this case settled the way he wanted it settled.”
Outside counsel refers to law firms, such as Munger Tolles & Olson, which have expertise in areas of law that outruns the expertise of the county counsel staff. Outside firms are retained to represent the county in legal actions requiring such expertise.
On another occasion, Stringer said, Postmus had broached with her and Reitz the subject of “moving forward with a study to contract out our office,” which would have entailed firing Reitz and the entirety of the office of county counsel and bringing in lawyers from outside firms to handle the county’s legal work and analysis. Postmus did this, Stringer said, because it would “supposedly help resolve issues,” that is, bring about the settlement of the Colonies Partners lawsuit.
Shortly after this occurred, Stringer said, Reitz told her “he had decided to resign. He was not going to participate in the Colonies action any further.”
Unilaterally, Stringer said, Postmus then hired his own personal attorney, Dennis Wagner, to serve as county counsel after Reitz’ departure.
“I had been at a meeting in Northern California, so I was out of the office for approximately a week,” Stringer said. “I came back the first part of May and was called to a meeting in Mr. Postmus’ office.” As she was outside Postmus’ office, someone told her that Dennis Wagner was going to be hired as county counsel. Stringer said she asked Postmus about it when she went into his office. She said Postmus “responded by saying it is already done.”
In her testimony, Stringer recollected an incident in the fall of 2006 in which she had direct contact with Jeff Burum. She said this occurred while settlement negotiations were ongoing between the county and the Colonies Partners, during which a settlement involving a land trade component, in addition to a monetary payout, was under discussion. The county’s provision of land it owns to another party, by policy and law requires a 4 to 1 or 5 to 0 vote of the board of supervisors to be ratified. She said that Burum and his partner, Dan Richards, took issue with county counsel’s position that at least four votes were needed to accomplish a land assignment.
During her testimony, Cope displayed some handwritten notes that were taken by Stringer of a discussion on April 10, 2006 with lawyers from the law firm of Jones Day, the firm that replaced Munger Tolles & Olson as outside counsel with regard to the Colonies litigation. Among those participating in the conversation, among others, were Jones Day attorneys Thomas Malcolm and Brian Toohey. Those notes show that as of that date, more than seven months before the $102 million settlement, the potential that criminal acts were being perpetrated with regard to the Colonies lawsuit effort were being considered by the county’s lawyers.
Stringer was not yet subject to cross examination and her further testimony under direct examination by Cope is anticipated next week before Larson will begin his cross examination of her.
Earlier this week, on Wednesday morning, there were proceedings in the case which excluded one of the juries. The allegations against Burum, Biane and Kirk are being considered by one jury and the charges against Erwin are being heard by a separate panel. Both juries are present for most of the testimony and presentation of evidence. However, because some evidence which emanated from Erwin is being used as evidence against him, the jury for Burum, Biane and Kirk is not privy to that. This is because it is presumed Erwin will assert his Fifth Amendment right to not testify. Under the Sixth Amendment, all criminal defendants have the right to confront their accusers and the evidence presented against them. Thus, any evidence originating with Erwin has been deemed inadmissible against his three codefendants. For that reason, there are two juries, so the jury for Burum, Biane and Kirk will not be present to hear this conflicted testimony and evidence.
Last Thursday and Wednesday morning, before just Erwin’s jury, Alan Mohill, who had been Erwin’s attorney in two lawsuits brought against him by the county and the union representing the county’s prosecutors and public defenders, testified about payments he had received from different entities to do that legal work.
In addition to the bribery charges leveled at all four of the defendants in the case, Erwin faces differing charges relating to failure to disclose income and not paying income tax on that income. After Mohill’s testimony concluded on Wednesday morning, again just before Erwin’s jury, California Franchise Tax Board senior special agent Christopher Herrmann testified about the investigation into Erwin’s tax situation.
Mandel handled the direct examination of Herrmann. A major focus of that round of questioning was Erwin’s Form 540 return for 2008, which would have been due April 15, 2009. In a set of selectively framed questions, Mandell elicited from Herrmann that Erwin did not file his 2008 tax return by the due date and did not get around to filing an adjusted return for 2008 until April 2011.
Herrmann testified that in 2008 Erwin earned $120,870. By her questions, Mandel obtained answers from Herrmann that seemed to indicate Erwin had purposefully skipped out on paying $3,264 in his 2008 taxes, which represented the difference between the $5,230 that had been withheld from his various paychecks and his total tax due of $8,494.
Hermmann, under cross examination by Erwin’s attorney, Raj Maline, acknowledged that his investigation had been triggered by a request from the San Bernardino County District Attorney’s Office and the California Attorney General’s Office. Moreover, Herrmann testified to Maline’s questions that he was not aware that all of Erwin’s financial records had been seized during a search of Erwin’s home in January 2009, three months before Erwin’s 2008 tax filing was due.
“Were you aware in this case there was a search warrant at Erwin’s home in 2009, where district attorney investigators took all of his records?” Maline asked Herrmann. Herrmann said he was not.
Herrmann also testified that he had been in contact with investigators from the district attorney’s office, who had possession of the records Erwin needed to make his filings. He indicated the district attorney’s office investigators had not told him they had the records and had not provided him with them.
Herrmann testified that with a single exception of when Erwin had asked for an extension to October of 2003 to file his income tax returns, he had consistently made a timely filing of his taxes every year, with the exception of the filing for 2008 in April 2009.
Upon further questioning by Maline, Herrmann revealed that he had provided false testimony to the grand jury that indicted the four defendants in May 2001. In late April 2011, Herrmann told the grand jury that Erwin had never filed his 2008 return. In actuality, however, Erwin had filed his 2008 return nearly two weeks prior to that, on April 15, 2011, with total adjusted income at $133,160. Herrmann said it was more than a year after his grand jury testimony that he learned of Erwin’s return and that he had thus provided misinformation to the grand jury.
As Maline wended his way through this thicket of information, showing that Erwin had consistently filed his tax returns and paid his taxes in a timely manner and that Erwin’s failure to do so with regard to 2008 was a consequence of the district attorney having seized possession of the documentation Erwin needed to make an accurate filing, Mandel made repeated objections to the questions, which Judge Michael Smith consistently overruled.
When Maline persisted through Mandel’s objections and obtained from Herrmann an acknowledgement that Erwin had subsequently made arrangements to pay the past taxes due along with penalties he was assessed as a consequence of the district attorney’s office’s holdup of his records, based upon the facial expressions and body language of several of the jurors during this portion of the proceedings, Mandel’s credibility with the jury appeared to be waning.
By Mark Gutglueck