Suit Over SB Keeping Tow Company Off Rotation Two Decades Ends In $1.3 M Settlement

San Bernardino Mayor John Valdivia’s entanglement in circumstances suggesting he has been the recipient of bribe money from multiple sources, including those who hold towing franchises in the city, served as a consideration in the city council’s decision this week to settle a federal lawsuit brought against it by Pepe’s Towing, sources close to and involved in the decision have told the Sentinel.
Manny Acosta, the owner of Pepe’s Towing, pursued a lawsuit against the city in 2019 that alleged graft was a motivating factor in a series of decisions by succeeding city councils to confer no-bid tow contracts on six tow companies: City Towing, Hayes Towing, Wilson Towing, Big Z Towing, Armada Towing and Tri-City Towing.
In 1999, Acosta, who inherited the company from his father, initiated an effort to obtain a position on the City of San Bernardino’s towing rotation. He renewed that effort in 2005, 2011 and 2016. Frustrated at every turn, Acosta persisted. Having found himself hemmed in and prevented from obtaining a franchise in the City of San Bernardino 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 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.
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 bidding process to all interested tow companies, of which, he maintained, his company was the most qualified.
For Acosta, being placed on the towing rotation for the San Bernardino Police Department was not a matter of make-or-break. He already has contracts with 22 law enforcement agencies in San Bernardino, Riverside and Los Angeles counties, and he has tow yards located in San Bernardino, Colton, Fontana, Moreno Valley, Ontario and Rialto and five other locations from which he operates 73 trucks, some of which have greater hauling capability than any of those operated by City Towing, Hayes Towing, Wilson Towing, Big Z Towing, Armada Towing and Tri-City Towing. Indeed, the City of San Bernardino and its police department have turned to Pepe’s Towing to deal with super-large hauls that none of its current franchised tow companies could handle. Nevertheless, the city has persisted in denying Pepe’s a place on its municipal towing rotation.
In 2016, Acosta intensified his effort to break into the circle of franchised towing operators in the City of San Bernardino, carrying out an intensive investigation and exposure campaign, documenting that the city’s six franchisees were out of compliance with regard to the city’s requirements for tow service operations, and pointing out what he contended was favoritism on the part of the police department toward some of the tow truck operators that crossed the line into fraud and conspiracy implicating police officers and commanders who he alleged had falsified certifications of compliance relating to at least some of the franchises. That accusation may have derailed Acosta’s march toward obtaining the San Bernardino franchise he sought. The city by that time had indicated it was amenable to adding a seventh service provider to its rotation list for the police department. And while Pepe’s demonstrated it met or exceeded the requirements the city had set on the lion’s share of criteria and that some of the franchise holders did not, anger in the police department over the manner in which Acosta suggested Captain Paul Williams had phonied up the compliance certifications for the existing franchises resulted in the department making a finding that because Pepe’s Towing did not have sufficient outdoor storage space at its San Bernardino yard, it should not be granted the franchise.
Acosta, who had been represented at one point or another by a virtual who’s who of attorneys – including former San Bernardino City Attorney Jim Penman, 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 – sued the city. In that suit it was asserted that San Bernardino city officials extended contracts with the existing tow franchisees without conducting any sort of a competitive bidding process and while all of the companies were out of compliance with some or many of the city’s codified requirements for tow service operators.
According to the suit, “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 suit, “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. The suit further alleged that the city retaliated against Pepe’s Towing when Acosta brought these breaches of contract to the attention of the public.
In the face of the lawsuit, the city, represented by the law firm of Best Best & Krieger and its attorneys assigned to the case, Richard Egger, Damian Northcutt and Avi Rutschmann, engaged in legal maneuvering that for the most part it prevailed upon. One such example was the city’s request for a protective order guarding against the exposure of “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.” Judge Sheri Pym granted that motion.
The case was set to go to trial before Judge Stephen V. Wilson this summer, but a delay ensued. The Sentinel is reliably informed that attorney Richard Egger told the city council that while he and his colleagues Northcutt and Rutschmann believed that the city was in a relatively strong position, there was a potential that a jury might find Acosta’s version of events compelling, in which case the city might sustain a substantial verdict against it. The city council’s three newest members – Third District Councilman Juan Figueroa, Second District Councilwoman Sandra Ibarra and First District Councilman Ted Sanchez – were said to be particularly nervous about the city’s prospects for prevailing in the legal contest against Acosta. Mayor Valdivia, whose alleged acceptance of bribe money represented some of the strongest evidence that the city had allowed a graft-ridden franchise arrangement to perpetuate, was acutely aware of just where a trial of the case Acosta brought could have led, which would include the revelation of the kickbacks he has received.
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.
Whether or not Valdivia used all or some of that money for campaign purposes or whether he utilized it for his own personal expenses is unclear.
According to his campaign reporting documents for his successful November 2018 mayoral run against San Bernardino’s immediate past mayor, Carey Davis, Valdivia received $600 from Danny’s Towing between October 21 and December 31, 2018.
The Sentinel is informed that Valdivia did not obstruct the council’s decision to enter into a settlement with Acosta.
In July, the city was seeking to come to terms with Acosta and his lawyers, but were stymied in doing so because the latter were unwilling to consider a settlement of anything below $3 million.
Within the last fortnight, the city council accepted an arrangement with Acosta that heads off the prospect of a trial and will settle the matter “without an admission of liability,” such that the city is to provide Pepe’s Towing at some point this month with $700,000, to be followed by $200,000 in July 2021, $200,000 in July 2022 and $200,000 in July 2023.
Councilman Henry Nickel told the Sentinel, “To state the obvious, there are compounding allegations against the mayor, the majority of which did not bear on this case but which nonetheless may have made it difficult for the city to mount an adequate defense. This case has played out for a while now. I don’t think it was in our long term interest to go to trial.”
The backdrop, Nickel said, consists of a poor policy on the city’s part that has perpetuated the franchises without adequate oversight and accountability.
“These are not open contracts,” he said. “Competition is good for the public and good for the towing industry. Our position should have been that there was going to be an open bid process all along. It should not have gotten to this point. I felt it was appropriate to settle under the circumstances, after two years of legal costs and the prospect of a court case that we might have lost. Yes, I was certainly in favor of the settlement.”
Nickel said, “I had concerns about the accusations against the mayor. In the last several months there has been a significant shift in his base of power as we have heard more about his behavior and decisions over the years.”
Nickels’ reference was to claims filed against Valdivia by five former city staff members assigned to the mayor’s office who have said he was abusive, engaged in sexual harassment, falsified documents relating to both public money he had spent during junkets and gifts, some of which may have been tantamount to bribes, that he had received, and that he had been provided money in the form of cash stuffed in envelopes or paper bags. The city should have come to terms with what Valdivia was engaging in “sooner,” Nickel said. The payout of $1.3 million is part of coming to terms with that reality, Nickel said.
“$1.3 million is a lot of money, but it is a drop in the bucket compared to what this could turn into,” he said.
Taking the tow franchises out to bid, which is what is to happen next year, Nickel said, is long overdue. “Our management of this franchise has been substandard for decades,” Nickel said. “Those tow franchise holders are a cartel. You have a limited group of people who are in control. They have a unique license and franchise, which presents a moral hazard. All of these franchises – towing, taxis, ambulances, trash hauling – they tend toward becoming cartels or oligopolies. They are given power and money, which is abused. They spend the money they are getting to keep competition out.”
The city will put all of the franchises out to bid in April of the coming year, he said. “We will open this up for competition. There will be franchise fees paid, which will provide us with something to recoup our costs. In the past there were members of the city council looking for excuses to extend those franchises. My hope is that in the future there will be greater scrutiny on how our franchise arrangements are made.”
-Mark Gutglueck

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