Tuesday, Aug. 26, 2008 | Despite the pending replacement of four of its nine members and the controversy swirling around its chairman, the board of directors of the Southeastern Economic Development Corp. has a hefty agenda set for its next board meeting Wednesday.
The lame duck board will consider the approval of two agreements worth a combined total of $1.17 million. It will be asked to approve amendments to two other contracts worth at least $500,000 combined and it’s scheduled to discuss three high-profile lawsuits currently pending against the agency and its ousted president, Carolyn Y. Smith.
It will discuss whether to indemnify Smith in a $250,000-plus lawsuit brought against her by City Attorney Mike Aguirre over the bonus program that led to her termination. It will also discuss a fraud lawsuit that’s pending against Smith and will consider the validity of Smith’s $100,350 severance package, which was recently challenged in a lawsuit that claims it violates the state open meetings law.
In total, there is unfinished business on Wednesday’s agenda that has the potential to cost taxpayers as much as about $4 million. The legal issues due to be considered at the meeting could put the city on the hook for much more if the board decides to indemnify Smith for her actions as an SEDC employee, and if it clears the way for Smith’s $100,350 severance payment.
The meeting is a critical moment for Smith.
Previous board meetings have shown that the outgoing president has the staunch support of the four board members up for replacement. They’ve consistently spoken up in her defense and have also supported board Chairman Artie M. “Chip” Owen, who has himself faced pressure to step down because of his ongoing ties to a developer that has won SEDC development deals.
In contrast, three of the five board members who will remain after the new members are approved Sept. 2 have been openly critical of Smith and her management of SEDC.
The Mayor’s Office and Council members Tony Young and Ben Hueso, who represent the areas of the city that SEDC oversees, have made it clear that they want to revamp the board and insert what they call “reform-minded” board members to oversee an agency beset by troubles.
On Monday, Jay Goldstone, the city’s chief operating officer, sent Owen a memo targeting an SEDC board subcommittee’s plans to discuss the hiring of an executive search firm to look for a replacement for Smith. That meeting will take place Tuesday, a day before the full board meeting.
Goldstone asked the SEDC board to refrain from “inappropriate” action for an outgoing board. Pending the completion of a performance audit of the agency, the memo states, SEDC’s board should avoid “making personnel decisions with long term implications.”
Mayoral spokesman Darren Pudgil said the Mayor’s Office is also aware of the scope of Wednesday’s meeting agenda and is looking into it.
“It’s certainly on our radar screen, but the mayor hasn’t decided yet if he wants to weigh in on this,” Pudgil said.
Councilman Tony Young said the outgoing board is “deteriorating the public’s view of SEDC.”
“This is not being done in the best interests of the people of San Diego,” Young said. “They should realize there’s a new group of people coming in.”
The board will consider extending a contract with an environmental consulting services company and an amendment to the agency’s contract with real estate consultants Keyser Marston Associates, Inc. on Wednesday.
And the board will consider three cases currently pending against SEDC or Smith.
The board often meets in closed session to discuss ongoing or pending litigation and two of the three cases it will discuss Wednesday have been considered during previous board meetings.
The first is a lawsuit that was brought against SEDC and Smith last year for breach of contract and fraud. That suit has been in mediation for months as both sides attempt to negotiate a settlement.
It concerns an agreement negotiated and signed between Smith and a local couple that promised the couple a warehouse on one of SEDC’s projects, Valencia Business Park. The couple alleges SEDC subsequently reneged on the deal and that Smith duped them into giving up their claim on the land. The couple is seeking as much as $2 million in damages.
The second lawsuit to be considered on Wednesday was filed Aguirre against Smith earlier this month in the wake of revelations that Smith paid herself and her staff more than $1 million in hidden bonuses and extra compensation over the last five years. It alleges that Smith breached her employment contract “by approving and awarding compensation to herself and others without authority to do so.” Aguirre has said he is seeking at least $265,000 for the unauthorized payments.
In reference to Aguirre’s lawsuit, Wednesday’s agenda states that SEDC has received a request for indemnification of an employee which will be discussed in the meeting. Smith is the only employee named in the suit.
Thirdly, the SEDC board is being asked to consider a lawsuit brought against SEDC and Smith last week by community activist Ian Trowbridge.
That suit claims that Smith’s severance payment of $100,350 is illegal because it was agreed in a closed session of the SEDC board. It claims that the state’s public meetings law, known as the Brown Act, expressly forbids a public body from discussing a termination payment in private.
On Wednesday, SEDC’s board will be asked to consider in open session whether or not it violated the Brown Act when it decided on the severance payment. It will be asked if it wants to nullify the agreement and if it wants to approve a termination agreement for Smith.
If the payment is discussed and voted on in open session, it could satisfy the Brown Act complaints. So Smith’s $100,350 parachute, that’s currently being challenged under state law, could be approved and legitimized at Wednesday’s meeting.
Aguirre said the meeting’s agenda is troubling. He said he will be working “all out” on Tuesday to persuade the board “not to go down a road that won’t be beneficial to anybody.”
“They should not be short-circuiting the process,” Aguirre said. “These are decisions that should be made by the new board.”
SEDC corporate counsel Regina Petty said by e-mail that she could not comment on closed session items of SEDC board meetings. Calls to an agency spokesman were not returned.