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Thursday, July 6, 2006 | Attorneys in the city of San Diego’s high-stakes battle over a decade’s worth of employee pension benefits returned to court Wednesday to argue the relevance of an appeals court decision that came down last week in the middle of the judge’s deliberations.
City Attorney Mike Aguirre said the ruling, which dealt with a bribery case in the city of Carson, punctuated the oral arguments he delivered in court last week and served “as a timely reminder” of the power of state Government Code 1090. The city attorney argues that pension officials violated the conflict-of-interest statute, rendering void benefit boosts given to employees in 1996 and 2002 – a proposition that he hopes would halve the city’s estimated $1.4 billion pension deficit.
Opposing attorneys for the pension system, unions and retirees told the judge the appeals court ruling has little in common with the case at hand; their original arguments still hold true to the current case, unaffected by the appeals court decision, they said.
“Carson changes nothing,” said Michael Leone, an attorney for the San Diego City Employees’ Retirement System.
The appeals court decision in the Carson case came down suddenly last week, throwing a new twist into a case that will determine the next stage of the city of San Diego’s attempts at financial recovery. Judge Jeffrey B. Barton was in the midst of ruling on a motion from Aguirre asking the judge to forgo a jury trial and rule that pension deals struck in 1996 and 2002 are void.
Attorneys said after the hearing they expect Barton’s ruling either this week or the following week. If he were to deny Aguirre’s motion, the case would likely be headed for a lengthy jury trial.
In the Carson case, the city of Carson sued to recover a low-interest $850,000 loan it had made to the owners of a senior housing project, claiming that the public financing was obtained as part of a corrupt deal that violated the 1090 statute. Michael and Bertha Padilla, the owners of the housing complex, had paid former mayor pro tem Agapito Diaz Fajardo a $75,000 bribe in order to help secure the low-interest loan for their project.
The court ruled that the benefits of any contract tainted by a 1090 violation are automatically forfeited. The Padillas had argued that forfeiture was not automatic and should instead be determined on a case-by-case basis.
“Regardless of whether the third party who obtained the contract is an innocent victim, the public entity is entitled to recover all consideration it paid to the third party,” the June 28 ruling states.
The ruling continues: “We have sympathy for their ordeal, and they may be placed in an economic bind by the disgorgement, but their interest must yield to the greater interest of the public.”
Aguirre argues that a violation of 1090 occurred in 1996 and 2002, alleging that pension board trustees who were also city employees were enticed to allow the city minimize its annual pension bills in exchange for beefed-up benefits. As such, he contends that all benefits given to all employees as part of the 1996 and 2002 deals should be wiped clean from the city’s books.
Parroting a conclusion reached by the judges in the Carson case, Aguirre said that nothing stops employees and the City Council from returning to the bargaining table after the benefits are voided and reaching new labor agreements “without tainted benefits.”
“Once the violation occurs, the benefits are done,” he said.
Aguirre was joined by Anthony Taylor, the attorney who argued the case on behalf of the city of Carson. The City Attorney’s Office was able to locate him over the holiday break and hired him to assist in the case.
Ann Smith, an attorney for the Municipal Employees Association, said the Padillas of the Carson case can hardly be compared to the city employees who would be impacted by a benefit rollback.
“A party who pays a bribe in order to get a contract is not an innocent party in that contract,” he said.
Smith argued that a new deal simply cannot be crafted because employees cannot forfeit the labor they’ve already given under the current labor contracts. Also, she said the pension deals were made up of a number of components, not simply one contract as in the Carson case.
Leone argued that it was the city itself that paid the bribe in the pension deals, so if there were a 1090 violation, the city would have to give back the money it shortchanged the pension system dating back to 1996.
Joel Klevens, who represents the firefighters union, said in Carson the court was asked to rule on only one new thing: whether extortion was considered a violation of 1090, something not relevant to the case at hand.
“That’s it. Nothing else is new,” he said.
Smith and Leone also repeated their previous arguments why the benefits shouldn’t be revoked, saying that the pension deals represent not a contract but legislation, and the court can’t be asked to interpret motive and influence in legislation. Smith also reiterated her assertion that the judge can’t void the benefits because police officers, deputy city attorneys and some retirees aren’t represented by attorneys in this specific case.
Barton, for his part, didn’t ask attorneys on either side any questions Wednesday. In order for him to grant Aguirre’s motion for a speedy judgment, he would have to determine there to be no factual disputes surrounding a 1090 violation that would require a jury trial. He would then have to rule that he has the legal authority in this case to void the benefits.