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City Attorney Mike Aguirre is dropping his civil lawsuit against outgoing Southeastern Economic Development Corp. President Carolyn Y. Smith in order to “clear the way” for a criminal investigation by District Attorney Bonnie Dumanis, Aguirre said.

Mayor Jerry Sanders met with Dumanis yesterday and asked her to investigate SEDC officials after a long-awaited audit of the agency concluded that the actions of agency staff “rose to the level of fraud.”

Aguirre filed a lawsuit against Smith in early August in the wake of a scandal over hidden bonuses Smith was paid by SEDC. The lawsuit sought as much as $260,000 from Smith.

Aguirre’s complaint alleged that Smith breached her employment contract “by approving and awarding compensation to herself and others without authority to do so, and in excess of the budget approved by both the board of directors of SEDC and the San Diego City Council and in excess of the amount set forth in her employment contract.”

A second cause of action in the complaint alleged that Smith breached her fiduciary duty “by approving unauthorized compensation to herself and others.”

“The best way to do this is to put the civil case on the sidelines for right now, you can always reinitiate the civil case,” Aguirre said.

In a meeting of the SEDC board of directors in late August, the board, four of whom were due to be replaced imminently, voted in closed session to grant Smith limited indemnity from Aguirre’s lawsuit. The board had been warned by the mayor, Aguirre and a city councilman not to act on any of the items on its agenda that could have a lasting effect on the agency.

Aguirre said that indemnity, and a termination agreement for Smith that was drafted without public discussion, could seriously hinder the effectiveness of his lawsuit. Now Dumanis has said she is examining the case, Aguirre said he’s stepping aside to allow possible criminal charges to proceed.

He said he doesn’t want to create the impression that criminal charges are being pursued in order to place pressure on Smith in Aguirre’s civil lawsuit against her.

“The mayor is the city. The mayor has now asked for a criminal case. I can’t pursue a civil case that we might gain an advantage on while at the same time we’re asking for a criminal case to be done,” he said.

But Aguirre said he can take up the lawsuit again at any point. He would not, however, commit to resurrecting his civil lawsuit if Dumanis does not file criminal charges, because SEDC has chosen to pay Smith’s legal bills. That indemnity could end up costing taxpayers, Aguirre said, so he would need to think carefully about whether to restart his civil lawsuit against Smith.

But Aguirre said the new board of directors, which had its first meeting last night, could vote to rescind Smith’s indemnification, which would make things simpler for his lawsuit.

Aguirre also said his criminal division is looking at the case so that it can take over from the District Attorney’s Office if Dumanis does not file charges.

WILL CARLESS

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