Tow Franchise Lawsuit On The Brink Of Exposing Decades of SB Corruption

By Mark Gutglueck
The City of San Bernardino appears to be headed toward a trial in which two generations of the city’s political leadership, ten of its city managers, nine of its police police chiefs and dozens of its police officers ranging from the rank of captain down to that of sergeant and other city officials over the years are on tap to be exposed as having been enmeshed in a long running scheme that allowed for the trading of lucrative franchises in return for payoffs and career advancement.
While the pay-to-play scheme has locked in the advantage of what has essentially been the same six separate tow companies that have been placed on the police department’s rotation to deal with vehicles parked in no parking zones, left on the streets in a specific location for more than 72 hours or those of individuals arrested for driving under the influence or those taken into custody after a traffic stop or arrest, the franchise system did not prevent other companies from engaging in business involving the public in general, such as towing broken down vehicles or conveying cars from one place to another. Still, with each police department-authorized tow, the car’s owner is subject to a tow fee, another service fee and a per-day impound fee that begins to accrue immediately upon the tow company removing the vehicle to its operations yard. Placement on the city’s towing rotation virtually ensures a towing company’s viability as a going concern. The competition to obtain a franchise is fierce, involving intimidation tactics employed against not only rival franchise applicants but city officials and the elected leadership who serve as the ultimate arbiters of who is to receive a franchise and who will not. As a matter of course, many or in fact nearly all of those elected decision-makers – the mayor and city council – have simultaneously found themselves to be the recipients of the largesse offered by the franchised tow companies in terms of political donations intended to keep those who have voted to approve the continuation of the franchises in office, and in a subset of those cases of bribes and kickbacks.
The city managers who led the city over the last 33-plus years, who under the city’s code and charter served and serve at the pleasure of the council, and the litany of police chiefs who have served under those city managers, out of a sense of professional survival or a craven lack of fortitude, have consistently refused to defy their political masters, and have proven unwilling to make an issue of the consideration that at least some of the tow service franchisees failed to meet the city’s specified standards for them to be afforded the special status that was vouchsafed to them. As political animals themselves, those city managers and police chiefs were informed by their own direct inquiries or through indirect osmosis of who was contributing how much to the mayors’ and city council members’ electioneering funds. Calculating that the council members and the mayors would take a dim view of any official action that interrupted the flow of money to the politicians’ campaign donors, they remained silent about the manner in which some of the city’s tow franchise operators were cutting corners. In some cases, police department personnel actively made misrepresentations in an effort to support the city council and mayor in sustaining the franchise set-up.
Those involved include a virtual Who’s Who of the San Bernardino political and municipal establishment going back more than three decades, with former mayors Eveline Wilcox, Bob Holcomb, Tim Minor, Judith Valles, Patrick Morris, and Carey Davis, current and former city council members Gordon Quiel, Jack Reilly, Esther Estrada, Steve Marks, Ralph Hernandez, Dan Frazier, Jack Strickler, Mike Maudsley, Betty Dean Anderson, Gordon McGinnis, Valerie Pope-Ludlum, Joe Suarez, Wendy McCammack, Susan Lien, Frank Schnetz, Neil Derry, Chas Kelley, Rikke Van Johnson, Dennis Baxter, Tobin Brinker, Virginia Marquez, Jason Desjardins, Robert Jenkins, Jim Mulvihill, Benito Barrios, Henry Nickel, John Valdivia, Bessine Richard, Juan Figueroa, Sandra Ibarra, and Ted Sanchez, along with city managers John Matzer Jr., Ray Schweitzer, Shauna Clark, Fred Wilson, Mark Weinberg, Charles McNeely, Andrea Travis-Miller, Allen Parker, Mark Scott and Teri Ledoux, alongside police chiefs Daniel Robbins, Wayne Harp, Lee Dean, Garrett Zimmon, Michael Billdt, Keith Kilmer, Robert Handy, Jarrod Burguan and Eric McBride having at the least tolerated the circumstance and in some cases having actively perpetrated it. Among the most prominent of those is Valdivia, who acceded to the mayor’s position in 2018, more than seven years after his 2011 election to the city council representing the city’s Ward Three.
Over the years, some tow operators have made efforts from time to time to break into the ranks of the franchised, with little or virtually no success. A sense of entitlement has descended upon those already given franchises, born of the advantage their status entails. Outsiders have been excluded from the club. When it has been suggested that the number of franchises might simply be increased to include any operation that meets the standards imposed by the city, those proposals have been shot down. Nevertheless, an argument often asserted by the defenders of the franchise status quo is that those who have been granted entrance into the fraternity have made substantial investments in vehicles, equipment and facilities in order to qualify for their special status, and that the franchises they have been individually granted are a reflection of their willingness to make the outlays that guarantee the city and the public the level of service they are providing, which very likely would not be matched, they claim, by those would-be franchisees. This has served, in many cases, as the justification for leaving the system as it its. It is worth noting, however, that some of those tow companies with franchises do not meet all of the city’s standards, and that there have been applicants for tow franchises that, while satisfying the essential gist of the city’s requirements, have had their franchise applications rejected.
Though most of those entities which sought a franchise in San Bernardino only to be rejected have dropped out of the competitive process without further ado, one of those, Pepe’s Towing, has not.
More than 19 years ago, Manny Acosta, who inherited that company from his father, began a committed effort to obtain a position on the City of San Bernardino’s towing rotation. Frustrated at every turn, Acosta persisted. Having found himself hemmed in and prevented from obtaining a franchise no matter how he approached the matter, Acosta on October 24, 2018 filed a federal lawsuit against the city and 13 individual defendants, including Sixth District Councilwoman Bessine L. Richard, then-former City Manager Mark Scott, City Councilman James L. Mulvihill, then-City Manager Andrea Miller, City Councilman Fred Shorett, then-Mayor R. Carey Davis, San Bernardino Police Captain Paul Williams, then-City Councilman Benito J. Barrios, then-Police Chief Jarrod Burguan, then-City Councilman John Valdivia, then-City Attorney Gary D. Saenz, then-City Councilwoman Virginia Marquez and then-former Chief Assistant City Attorney Jolena Grider.
At that time, Councilman John Valdivia and Mayor R. Carey Davis were locked in an election battle for mayor, which was to be decided in the election held on November 6, 2018.
The suit, filed in the U.S. District Court for the Central District of California, alleged the defendants violated the company’s rights of free speech and equal protection in the course of rejecting Pepe’s Towing’s efforts to contract with the city to handle police and code enforcement towing duties.
For years, the City of San Bernardino had rejected expanding its towing rotation beyond the group of six towing contractors that presently have a franchise. Acosta had been the most energetic of the tow company operators pressing the city to reopen the request for proposal process to all qualified tow companies. According to Acosta’s legal team, which includes former Federal Judge/former Assistant U.S. Attorney Stephen Larson; , former Los Angeles City Attorney Carmen A. Trutanich; former Ventura County Deputy District Attorney/former Redondo Beach Prosecutor’s Office Attorney William Dance; attorney Jonathan Phillips; and attorney R.C. Harlan, “Pepe’s Towing of San Bernardino spent 18 years attempting to provide towing services for the City of San Bernardino. The San Bernardino Police Department currently uses six tow companies, most for nearly 20 years without them having been subjected to competition. Several of those are significantly lacking in the facilities and quality of service required to comply with their contracts. In fact, Pepe’s is regularly called on by the city to provide services the existing tow operators cannot provide.”
Furthermore, according to Acosta’s legal representatives, “To stymie Mr. Acosta’s effort, in 2011 the city placed an additional barrier to competition by instituting a new requirement, mandating that new city tow contractors have outdoor storage of at least 65,000 square feet. This requirement was not applied to the existing six tow companies. Four of the six present city towing contractors do not meet this requirement. It should be noted that this requirement affects only new tow contractors that contract with the city. That requirement appeared to be a needless disqualifier for any new competition. The city did not apply this 65,000-square foot requirement to the existing tow contractors, just new ones that may apply, thereby grandfathering an exemption to the storage space requirement for existing tow contractors. It should further be noted that one of the two complying tow contractors merged with another, non-contracting towing company to garner a combined, partially unpaved outdoor storage space of 65,000 square feet, achieving numerical compliance. This new 65,000 square foot requirement forced any new tow contractors to compete on an uneven playing field with existing tow contractors and was apparently designed to ensure that no new towing companies could qualify as city tow contractors.”
In addition, Pepe’s suit alleged that all six current tow contractors failed and continue to fail to comply with many key contract terms, including the Clean Water Act and other environmental laws. It is further alleged against the City of San Bernardino that the city retaliated against Pepe’s Towing when Acosta brought these breaches of contract to the attention of the public.
Initially through its suit, Pepe’s Towing Service sought reconsideration of the decision not to reopen the bidding process and of its application, and to enforce strict scrutiny of the contract terms and compliance upon existing tow contractors. The complaint also sought to abolish the 65,000-square foot requirement imposed in 2011 and made applicable only to those who seek to qualify since that time for new towing contracts. The suit sought to have Pepe’s Towing evaluated in the bidding process on the same terms as all the current authorized tow contractors.
While there at first seemed to be some prospect that the filing of the suit would prompt the city to make a quick settlement by which the existing six tow contractors would have been saddled with the city increasing to seven the number of tow franchises, that did not occur. As the matter has proceeded, Acosta has not relented, as some on the city’s side of the equation were hoping he might. Rather, he has continued, accruing hefty legal costs along the way. That is not all that has been accrued. Acosta’s legal team has succeeded in arming itself with more and more facts and tidbits relating to questionable dealings, most but not all in relation to the tow franchises, ones in which there are accounts of the fashion in which city officials and the police hierarchy have become aware of shortcomings on the part of certain franchisees while powerful and elite city officials insisted that any reference to those shortcomings be buried under an avalanche of bureaucratic obfuscation, even as procedural and legal corners were being cut hand in hand with graft, quid pro quos and outright bribery taking place.
A telling consideration in the power struggle between Pepe’s Towing and the city was that early in the going, prior to the Acosta resorting to a federal suit, he had sought to gain leverage by retaining Jim Penman, San Bernardino’s former city attorney, to represent his company in its petition to the city council to enter the towing rotation. Penman had been San Bernardino’s elected city attorney from 1988 until 2013. Occupying that position for the quarter of a century during which the now-known exploitation of the tow franchise system had taken root, Penman doubtless had further insight into the depravation inherent in the city’s awarding of advantages to the various franchisees, and how that favoritism had come about.
At some point within the last year, a growing number of city officials, reportedly including the city council’s three newest members – Third District Councilman Juan Figueroa, Second District Councilwoman Sandra Ibarra and First District Councilman Ted Sanchez – have come to recognize that the city’s prospects for prevailing in the legal contest against Acosta are dim. Additionally, Mayor John Valdivia, whose acceptance of bribe money had served to perpetuate the graft-ridden franchise arrangement, was acutely aware of just where a trial of the case Acosta has brought would lead, which would include the revelation of the kickbacks he has received. Those revelations would play out not in the venue of San Bernardino County’s notoriously corrupt court system where the judges and district attorney would very likely ignore what was brought out, but rather in the venue of a federal court before a U.S. District judge, which in all likelihood would entail the sordid facts of the case falling under the scrutiny of both the U.S. Attorney’s Office and the FBI. Thereafter, the prospect of Valdivia hearing the sound of a prison door clanking behind him would not be insubstantial.
For a combination of reasons, will on the part of the entire city council to reach a settlement with Acosta has manifested. The snag at this point is that the formula for a settlement is no longer a simple one that consists of allowing Pepe’s towing onto the rotation but one that includes coming to terms with Acosta’s legal team. The settlement figure over which the city council is now choking, the Sentinel is reliably informed, is in the low seven figures, somewhere under $5 million. On a daily basis, as Acosta’s lawyers engage in further preparations to go to trial, that amount continues to escalate.
Meanwhile, the degree to which the city has something to fear is illustrated by how the city’s law firm, Best Best & Krieger and its attorneys assigned to the case, Richard Egger, Damian Northcutt and Avi Rutschmann, successfully sought a protective order for what Best Best & Krieger asserted was “confidential, proprietary or private information for which special protection from public disclosure and from use for any purpose other than prosecuting this litigation may be warranted.”
For the time being, the lawyers for Acosta and Pepe’s Towing have assented to going along with the order, and Judge Sheri Pym granted it.
Within the next month, the case is scheduled to go to trial before Judge Stephen V. Wilson and a jury yet to be chosen.
This week, the city council went into a closed session to discuss whether it could agree to forging a a settlement. At what was ostensibly the last opportunity for the council to meet in a regularly scheduled setting to settle the matter before it goes to trial, its members collectively declined to accept the terms that Acosta’s and Pepe’s Towing’s legal representatives have said they consider to be fair, and which the city officials, struggling with diminishing revenues and a substantial deficit in the about-to-end fiscal year 2019-20 and an even more forbidding deficit in upcoming 2020-21, believe to be beyond the city’s means.
Among more than a score of weak points in the city’s defense are some pronounced vulnerabilities knowledgeable entities believe the city will be hard-pressed to overcome.
One of those is a report dated July 18, 2018 put together by then-Police Chief Jarrod Burguan and Captain Paul Williams, referred to as a “smoking gun.” In the report, Burguan and Williams state that in response to an August 23, 2017 petition by Pepe’s Towing to be added to the city’s towing rotation, that request had been denied, and that in November 2017, Pepe’s Towing had appealed that decision, alleging the city had not taken seriously nor investigated assertions that Pepe’s Towing had made that the existing tow franchisees were out of compliance with the city’s standards.
According to Burguan and Williams, “The police department conducted inspections of all six tow carriers. Requirements of the TSA [tow service agreement] were documented and items that were non-compliant were presented to each carrier with a timeframe for curing the items. The timeframe for cure of items considered non-compliant is still active within the time granted. Several of the items are cost neutral while other items carry a considerable cost. The TSA has disciplinary actions available that will be used if compliance is not met.”
The Burguan and Williams report noted that the number of tow franchises was limited on the basis of population density, with the tow service agreement allowing one carrier per 35,000 residents. Since the City of San Bernardino’s population had grown to 216,239 as of 2016, the chief and captain said, the city was by the spring of 2018 prepared to add a seventh carrier to those on the rotation. Pepe’s Towing along with another company submitted bids to be considered as the city’s seventh carrier, the report stated. “SBPD traffic unit conducted an inspection at the Pepe’s Towing facility on March 27 and 28, 2018,” the report said. “The lot size was found to be 39,834 square feet. This was 25,166 square feet below the requirement set forth in the RFP [request for proposals] and TSA. The second bidder did not meet the requirements and has not appealed its denial.”
According to Burguan and Williams, Pepe’s Towing subsequently fell short of the city’s minimum requirements when it failed to acquire, as it said it was seeking to do, a secondary lot to augment its existing yard and provide it with the required storage space.
The bottom line, Burguan and Williams asserted, was that “Pepe’s Towing did not meet the requirements of the RFP and TSA. Therefore their request was denied. Pepe’s Towing did not meet the requirements of the RFP and TSA (minimum 65,000 square feet of outside storage space) and failed to obtain a second lot to meet the requirement. The requirement of 65,000 square feet of outside storage space was negotiated with the tow carriers. In order to change this requirement, the city would have to get the consent of each of the six existing tow carriers.”
While Burguan’s and Williams’ report asserted that “noncompliant items are being addressed [and] the timeframe given for correction is still active and disciplinary actions will be taken if needed,” Pepe’s Towing’s legal team has ascertained that at least four of the six franchised tow companies were and remain out of compliance with the same regulation the city maintains disqualified Pepe’s towing, and that no disciplinary action was taken against any of the other existing franchisees.
Pepe’s Towing’s legal team has since documented that “none of the current tow companies are in compliance with the 65,000 square foot outside storage requirement for tow operators approved by the mayor and city council in April of 2011.”
Additionally, three of the current tow carriers, City Towing, Hayes Towing, and Wilson Towing, were sold since they first contracted with the city and failed to notify the city of a change in ownership pursuant to Section 15 of the agreement, constituting, Pepe’s Towing’s lawyers assert, a violation of the agreement, which, under Section 17 c of the agreement, should trigger the suspensions of the City Towing, Hayes Towing and Wilson Towing franchises.
Further, according to documentation compiled by Pepe’s Towing’s legal team, only Big Z Towing and Hayes Towing have the equipment necessary to tow Class B, medium, vehicles. This puts the remaining four current carriers in violation of Section 3 a, 5 j and 6 b of the tow services agreement. None of the six tow carriers have the equipment necessary to tow all Class C heavy (big rig) vehicles, putting all six tow carriers out of compliance with Section 3 a, 5 j and 6 b of the tow services agreement. Pepe’s Towing does possess such equipment, and at times, was called upon by the city to perform in that regard.
Pepe’s Towing is prepared to demonstrate in court that none of the six tow carriers have sufficient space to store 200 vehicles on paved surfaces impenetrable to certain liquids, allegedly in violation of Sections 3 a and 5 a of the agreement. This, Pepe’s Towing’s attorneys are purposed to demonstrate, puts the city itself in violation of certain state and federal laws pertaining to the prevention of the discharge of oil, solvents and other chemicals into the soil, and subsequently into the groundwater. Investigators hired by Acosta are prepared to reveal photographs and other evidence to demonstrate that certain tow companies listed on the city’s rotation list routinely park towed and other vehicles on unimproved surfaces.
At least some of the city’s current franchised tow service providers are not equipped, the law team can demonstrate, to preserve the towed vehicles and their contents in a secure circumstance that will prevent potential evidence to be used in criminal proceedings from being tampered with. This requirement in the city’s franchise agreement calls for the tow carriers to have ‘indoor’ space that is sufficiently secure to store evidence, including vehicles impounded by the San Bernardino Police Department. Lack of such secure indoor storage for evidence is in violation of Sections 3 a and 5 b of the agreement.
One piece of evidence in the arsenal of the lawyers representing Pepe’s Towing is an affidavit signed under the penalty of perjury by one of Mayor Valdivia’s former legislative field representatives, Don Smith. According to Smith, he was present in October or November 2018 for a 1 a.m. rendezvous Valdivia had with Danny Alcarez, the owner of Danny’s 24 Hour Towing, Inc., when Alcarez provided Valdivia with “a thick white envelope that appeared to contain a large amount of money,” which Smith said he believed was a kickback provided to Valdivia for his support of city tow franchises remaining in the exclusive possession of several of the city’s towing operations.
Individuals involved with the City of San Bernardino over the last three decades both in elected and staff capacities told the Sentinel that the circumstance with regard to the city’s tow franchises represents a multigenerational acceptance of quid pro quo arrangements by which the city’s tow franchises were locked in for a relatively small number of operators, and that otherwise good people – mayors, council members, city managers, police chiefs and police department commanders – had simply acquiesced to the ethos set by a small handful of politicians who had accepted donations and money from tow truck company operators who in return expected that there would be favoritism shown toward them, which ultimately manifested in franchises being conferred upon them. These officials painted a picture of corruption having become encrusted, layer upon layer over the course of succeeding mayoral administrations, which was accepted by the city’s administrators and its police chiefs and the department’s command echelon in deference to the power of the city’s various elected officials, a majority of whom were provided benefits in terms of often hefty political support through their relationships with the tow franchise owners.
There are signs, the Sentinel is informed, that the current council has come to recognize the extent and depth of the problem, and that there is some impetus among its members to undertake reform, but doing so is problematic because of the expense inherent in Pepe’s Towing’s demands in the settlement negotiations because of the legal fees that must be paid to Pepe’s Towing’s attorneys, as their fees have escalated after several years of litigation.
Insisting to the Sentinel that “I am unable to comment on closed session discussions” carried out by the city council, Councilman Henry Nickel, said, “This case raises serious concerns as to the alleged misconduct that occurred over the course of many years. As a consequence, the city confronts significant potential liability.”
Nickel said, “It is only appropriate that franchised city services be subject to fair and regular periodic procurements. Competition is good. It holds vendors accountable for providing the best quality services within our community at the best price. I have consistently raised concern over our tow service agreements throughout the time I have served on the city council. I do not recall any procurement for tow services during the six years I have served on the city council. Yet, we have procured many other services.”
Nickel said the city is caught in a viciously treacherous strait. “I am extremely concerned what additional damaging allegations and facts may emerge during the course of discovery and trial,” he said. “If the city were to lose, our community will suffer not only financial loss but so too acquire a terrible stain upon both our collective reputation as well as upon those individuals who held positions of authority and allowed alleged improprieties to continue year after year.”
Nickel propounded, “Culture is often described as ‘the way we do things around here.’ A dysfunctional culture in turn can establish the banality of evil. Good people can be brought to do bad things. In many cases I don’t think there was anything deliberate, but everybody involved in this had dirty fingernails. Everyone who touched the tow contract was in some way implicated. We must reject any such corrosive cultural tendencies. We must practice propriety and fairness with all those who honestly seek to provide essential city services within our community. I expect for the sake of the city and those individuals involved in any alleged misconduct, either by choice or circumstance, that we can reach an amicable settlement before trial.”
The Acosta/Pepe’s Towing legal team is primed, in its own words, to demonstrate the “perpetuation of a monopoly in favor of privileged parties by assuring their continued placement on the San Bernardino Police Department’s tow rotation list.”
Stephen Larson, who now leads that team of attorneys, told the Sentinel, “While there are and have been many good, dedicated, and honorable men and women serving the City of San Bernardino, I anticipate that the trial will showcase what I believe is a history of recurring corruption in long-suffering San Bernardino.”

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