The Colonies Partners, the Rancho Cucamonga-based development company that became the object of obloquy after one of its managing principals was accused of and prosecuted for bribing public officials as part of what the San Bernardino County District Attorney’s Office and the California Attorney General’s Office alleged was an elaborate scheme to loot taxpayers of more than $100 million, this week inched closer to making good on a threat to sue the county and several of its current and former officials for not defraying the cost of the legal defense the company had to make in the face of those criminal charges.
The Colonies Partners legal counsel, former federal judge Stephen Larson, filed a $45 million claim against San Bernardino County yesterday, December 14, based on his contention that the county was required, under the terms of the 2006 settlement that brought to a close the legal wrangling between his client and the county over flood control issues at the Colonies at San Antonio residential and Colonies Crossroads commercial subdivisions, to indemnify the company with regard to any action growing out of the settlement. The settlement, which was approved in a 3-2 vote with supervisors Bill Postmus, Paul Biane and Gary Ovitt supporting it and supervisors Josie Gonzales and Dennis Hansberger dissenting, entailed the county paying the Colonies Partners $102 million.
After the settlement was made, between March and the end of June 2007 two of the Colonies Partners managing principals, Jeff Burum and Dan Richards, arranged to have the Colonies Partners make separate $100,000 contributions to political action committees controlled by former sheriff’s deputies union president Jim Erwin, Biane and Mark Kirk, the chief of staff to then-supervisor Ovitt. The Colonies Partners also made two $50,000 contributions to each of two political action committees controlled by Postmus. In 2010, the district attorney’s office and the state attorney general’s office filed charges against Postmus and Erwin, alleging extortion, bribery, misappropriation of public funds, conflict of interest, fraud, perjury and tax evasion in conjunction with the settlement. Both pleaded not guilty, but the following year Postmus entered guilty pleas to all of the charges against him and turned state’s evidence, testifying before a grand jury which in May 2011 indicted Erwin along with Biane, Kirk and Burum. That 29-count indictment cataloged prosecutors’ allegations that prior to the November 2006 vote to approve the settlement Erwin and Burum had bullied Postmus and Biane with threats to expose their personal vulnerabilities, including Postmus’s drug use and homosexuality and Biane’s financial difficulties. Prosecutors alleged that Burum and Erwin thus successfully blackmailed Postmus and Biane into supporting the settlement and then provided them both $100,000 each in kickbacks after the settlement and that those bribes had been hidden, or laundered, in the form of the political donations. Similarly, the indictment described the $100,000 provided to Kirk’s political action committee as a kickback to reward him for helping convince Ovitt to support the $102 million settlement.
After round after round of advance legal sparring, the main event finally took place when the case against Erwin, Biane, Kirk and Burum went to trial in January 2017. Ultimately, the two juries did not want to buy what the prosecution was selling, and Biane, Kirk and Burum were acquitted of all of the charges against them, and the jury hearing the case against Erwin deadlocked on all counts, unable to reach a verdict. Subsequently, the prosecution, consisting of a combined district attorney’s office/state attorney general’s team, moved to have all of the charges against Erwin dismissed and the motion was granted by Judge Michael Smith, who had presided over the case.
In a letter dated yesterday, December 14, 2017, addressed to the county board of supervisors, county counsel Michelle Blakemore, the county’s risk management division, county flood control district director Kevin Blakeslee and Todd Theodora, one of the county’s outside legal representatives, Larson stated, “Colonies Partner, LP hereby submits notice regarding claims it has against the county and flood control district based on the November 28, 2006 settlement agreement between the county, the district, and Colonies Partners, LP. Colonies Parners, LP’s claims are based on the county’s and the district’s breaches of the settlement agreement by failing to defend and indemnify Colonies Partners, LP in two subsequent legal actions, failing to defend the validity of the settlement agreement, and assisting the San Bernardino County District Attorney’s Office and California Attorney General’s Office in their efforts to invalidate the settlement agreement and criminally prosecute Jeffrey Burum. The two actions subject to indemnity and defense are the criminal prosecution of Mr. Burum, Jim Erwin, Mark Kirk, and Paul Biane in People v. Riane et al , San Bernardino County Superior Court Case No. FSB 1102102 , and the civil action filed February 6, 2012 by two taxpayer groups against Colonies Partners, LP, the county, and the district entitled The Inland Oversight Committee, et al. v. County of San Bernardino, et al., San Bernardino County Superior Court Case No. CIVDS 120 1251. Under the settlement agreement, the district agreed to indemnify and defend Colonies Partners, LP against ‘all actions whatsoever’ arising out of, among other things, the district’s obligations under that settlement. The taxpayer action and criminal action are subject to this indemnity and defense obligation because both actions were based on the theory that the district’s payment of $102 million to Colonies was illegal. The county and district also breached the settlement agreement and violated the implied covenant of good faith and fair dealing by failing to support and uphold the validity of the settlement agreement. Instead, employees of both the county and district, including former county counsel and others, actively worked to undermine the validity of the settlement and improperly collaborated with prosecutors during the criminal action.”
According to Larson, “Colonies Partner LP’s injuries result from the wrongful conduct of current and former county and district employees, or their agents, including, but not limited to San Bernardino County Supervisor Josie Gonzales; San Bernardino County Supervisor Dennis Hansberger (former); San Bernardino County Counsel Ruth Stringer (ret.); San Bernardino County Counsel Jean-Rene Basie (ret.); San Bernardino Deputy County Counsel Mitchell Norton; and San Bernardino Assistant County Counsel Charles Scolastico (ret.).”
Larson’s claim on behalf of the Colonies Partners is the second to be filed against the county in the aftermath of the trial. The attorney for Erwin, Rajan Maline filed a claim on behalf of his client on November 1, seeking $25 million while alleging malicious prosecution, false arrest/imprisonment, fabrication of evidence, negligence, intentional infliction of emotional distress, retaliation, and civil rights violations.
On November 14, Larson had a demand letter, together with an inch think stack of documents cataloging the Colonies Partners’ expenses in defending Burum and the others against the criminal charges filed against them, hand delivered to the board of supervisors and other county officials. He then read most of the demand letter in which he said the county owed the Colonies Partners $45.2 million, and suggested that the board consider very carefully the submission of material he was making. His three-minute time allotment elapsed before he could complete the reading of the demand letter, which concluded with the statement, “Otherwise, we will have no choice but to once again vindicate both Colonies’ and Mr. Burum’s rights through litigation.”
Under California law, a claim against a government entity is a necessary precursor to a lawsuit naming that governmental entity. Such claims must be filed within one year of the cited violation of rights or damage suffered by the claimant. Only upon rejection of the claim or a statutorily specified failure to respond can the claimant then initiate a lawsuit.
Raphael Scalema, who has an intimate knowledge of the details relating to the 2006 settlement and the criminal case which eventually grew out of it, said Maline and Larson are “bluffing” and that neither will file a lawsuit, given that such a legal action would require that their clients and others involved in the circumstance submit to depositions and ultimately testify in public at trial. “Not one of the defendants testified during the trial,” Scalema said. “They all took the Fifth. If they filed a civil action, it would fall apart as soon as the questioning started. They’d be under oath. If they lie, that’s perjury. If they tell the truth, they lose.”
Rather, Scalema suggested, both lawyers are talking big and hoping the county does not have the stomach for further back and forth in court, and will confer settlements on their clients short of the filing of any legal action. “$45.2 million?” Scalema said. “Come on. Give me a break. They might be able to get a couple million, maybe.”
The county’s spokesperson, David Wert, said, “The county carefully considers all claims and acts in the best interests of everyone involved. Specifically regarding this case, the board of supervisors will determine what course the county will take, but the initial reaction of the county’s attorneys is that neither the Colonies Partners nor the flood control district intended for the indemnity clause in the settlement to cover criminal defense costs for bribery-related charges.”
Dan Richards, one of the co-managing principals of the Colonies Partners along with Burum and two others, said, “The filing of this claim, which is not a lawsuit, allows San Bernardino County to forward our demand to honor the indemnity agreement to their insurance company and, should they choose, to promptly enter into negotiations with us to resolve the indemnity issue. We are hopeful the board of supervisors will engage with us in meaningful negotiations. The Colonies Partners want to move beyond this and continue to be a positive influence in the Inland Empire.”
-Mark Gutglueck