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Friday, June 30, 2006 | The judge overseeing the challenge to a decade’s worth of employee pension benefits has called a special hearing for Wednesday after an appellate court issued a ruling that could impact City Attorney Mike Aguirre’s contention that pension deals in 1996 and 2002 are void.

The ruling, issued in a case involving the city of Carson Redevelopment Agency, appears to run parallel to Aguirre’s theory that the judge should wipe away hundreds of millions of dollars in pension benefit boosts given to city of San Diego employees because pension trustees violated the state’s conflict-of-interest laws in approving deals in 1996 and 2002.

In his primary argument, the city attorney contends that the judge must throw out the contracts because of the violations of state Government Code 1090. Benefits granted to all employees, regardless of their involvements in the deals, should be declared illegal, he argues.

In the Carson case, the appeals court upheld a ruling that a contract between the owners of a housing complex and the city of Carson Redevelopment Agency must be voided after it was revealed that the owners paid a $75,000 bribe to Carson’s former mayor pro tempore in order to receive an $850,000 loan from the agency at 4 percent interest.

“Regardless of whether the third party who obtained the public contract is an innocent victim, the public entity is entitled to recover all consideration it paid to the third party,” the state’s 2nd District Court of Appeals found.

Judge Jeffrey Barton, who is overseeing the San Diego pension case, found the ruling may be relevant to Aguirre’s case. Barton has called a hearing for next Wednesday at 9 a.m. to address the appeals court’s ruling.

On Monday, Barton heard arguments from Aguirre and his opponents in the case – the pension system and City Hall employee unions. Aguirre has asked the judge to issue a summary judgment in the case, a motion that, if successful, would forgo a lengthy jury trial. The city attorney claims his challenge would halve a pension deficit estimated to be at least $1.4 billion.

Barton is in the midst of issuing his ruling and said Monday not to expect a decision this week.

The Carson case does contain some notable differences from the city attorney’s case, but it forced the appeals court to closely analyze one of the key issues with which Barton has been asked to grapple: whether third parties that didn’t violate the 1090 statute can suffer because of someone else’s conflict.

The conflict-of-interest statute forbids public officials from creating contracts in which they have a financial interest.

That is the heart of the city attorney’s argument – that pension trustees approved a deal that offered them, and all city employees, benefit boosts in exchange for allowing the city to pay less into the pension system annually.

However, in the Carson case, the public official, Agapito Diaz Fajardo, didn’t have the direct financial interest in the contract typical of many 1090 cases.

Instead, he was found to have taken part in straight extortion, according to the ruling. Fajardo received $75,000 in extortion money from the owners of the senior housing complex, Michael and Bertha Padilla.

As such, the Padilla’s argued that the contract cannot be voided because Fajardo didn’t have a direct financial interest in the contract. For example, a standard 1090 case oftentimes will involve a public official having a direct business interest in a contract that the official helped craft.

The appeals court decided the existence of extortion does constitute a violation of the 1090 code and upheld a ruling that the Padilla’s must repay the $850,000 to the redevelopment agency.

“The principle issue in this appeal, the interpretation of section 1090, is a far-reaching one that calls upon us to examine the public policy of the State of California and carefully analyze when, if ever, individuals can retain consideration paid to them pursuant to a public contract that was secured through payments extorted by a corruption public officials,” the ruling states.

The ruling continues: “Section 1090 was designed to protect the public; to hold as the Padillas urge would subvert the purpose of section 1090 by giving life to contracts born of conflicts of interest.”

At one point during Monday’s hearing in the pension case, Barton asked Aguirre if a conflict-of-interest violation wouldn’t simply void the benefits of those who committed the violation, not the benefits of all employees. He has also questioned whether he would be able to void the benefits of employees who aren’t represented in the court proceedings.

Attorneys for blue-collar and white-collar employees, firefighters and a group of retirees have joined the pension system in challenging Aguirre’s suit, but other retirees, deputy city attorneys and police officers have not entered the case.

Michael Leone, the lead attorney for the pension system, argues that the benefits aren’t part of a contract, but legislation passed by the City Council. The court cannot interpret influence and motive in judging legislation, he argues. Doing so, Leone says, would have the court legislating.

Aguirre also argues that the pension deals violated local and state laws forbidding municipalities from going into debt without a vote of the public. Leone says that provision applies to the city, so it cannot be relevant in a lawsuit brought by the city against the pension system.

Please contact Andrew Donohue directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.

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