Friday, Oct. 31, 2008 | Last month, city attorney challenger Jan Goldsmith called on incumbent Mike Aguirre to lay out exactly how much of the city’s money has been spent on outside counsel during the four years the incumbent has been in power.

The city’s spending on outside counsel has been a bone of contention at City Hall since Aguirre took power. The incumbent’s nemeses on the City Council have long chided the city attorney for, they say, bringing in expensive outside lawyers to aid him in his myriad crusades while simultaneously neglecting his office to the point that outside attorneys must be hired to do the everyday legal work of the city.

Goldsmith claims that Aguirre has wasted public money by hiring outside counsel where in-house attorneys would do the job just as well. That’s a policy the challenger said he will largely put a stop to if he wins Tuesday’s election.

“At the City Attorney’s Office, you’ve got 135 lawyers and you’ve got several hundred backup staff; to say you’re understaffed is ridiculous,” Goldsmith said. “I’m going to exercise discretion. With litigation, I’m going to err on the side of keeping it and not giving it away.”

Aguirre said his choice of using outside counsel has given the city access to complex, highly specialized litigation that it could never have handled on its own. Outside attorneys, working on a contingency fee basis for the city, have brought in millions of dollars for the city in taking on tough malpractice suits, Aguirre claims, and defense lawyers working for the city have saved taxpayers further millions, showing that the strategy of using outside counsel is working.

The true picture of whether the city is better or worse off because of Aguirre’s penchant for the use of outside counsel is difficult to access.

During the last four years, the city has hired dozens of outside law firms to work on scores of different cases. Some of those contracts were initiated by Aguirre, others were unavoidable because using in-house attorneys would have been a conflict of interest, and some contracts were initiated before Aguirre was elected and therefore can’t fairly be pinned on the incumbent.

But a document drafted by the City Attorney’s Office in response to a California Public Records Act request from goes some way towards explaining how much Aguirre’s office has spent on outside lawyers and how much the city has won in cases where it was represented by outside counsel.

During Aguirre’s tenure, the city’s spending on outside counsel has fallen into one of two broad categories: Lawyers who were hired to work on lawsuits related to the fallout from the city’s pension scandal, often hired on a contingency fee basis, and firms who were hired to defend the city in lawsuits brought against it.

Executive Assistant City Attorney Don McGrath, who oversees much of the city’s litigation, said outside attorneys have won almost $17 million for the city in the last four years. That money has been won in malpractice lawsuits against former city consultants and lawyers who worked on pension-related matters for the city and in a long-running legal battle with South Bay developer Roque de la Fuente.

Attorneys brought in by Aguirre won settlements against four different firms in lawsuits tangentially related to the city’s pension crisis. The largest of those lawsuits, brought against Callan Associates, an investment consulting firm that had advised the pension system, netted a total settlement of $4.5 million. After contingency fees, the city got almost $2.9 million.

It similarly settled for $4.35 million with Vinson & Elkins, a law firm hired to investigate the city’s possible securities violations. Its investigation was later deemed to lack independence by auditors and the SEC.

The $17 million far overshadows the amount the city has spent on outside lawyers brought in to defend the city in other lawsuits, McGrath said, and it’s indicative of Aguirre’s visionary tenure as city attorney.

“No city’s ever recovered that much for malpractice,” McGrath said. “Municipalities have never done that, they just don’t know how to do it. Goldsmith wouldn’t even know what it was.”

Goldsmith said many of the cases Aguirre has used outside counsel for could have been won by “an experienced lawyer, a backup chair and a paralegal.” Without singling out any of the lawsuits the city has won, he said Aguirre should have been much more stringent about hiring outside lawyers and could have saved millions of dollars in contingency fees by handling at least some of the lawsuits in-house.

But the city attorney of San Jose and a senior official at the City Attorney’s Office in San Antonio, two cities comparable in size to San Diego, said Aguirre’s use of outside counsel represents the cutting edge of municipal law.

“The use of outside counsel on a contingency basis can be very productive,” said Martha Sepeda, first assistant city attorney in San Antonio. “Most city attorney offices aren’t equipped for those sorts of large lawsuits, and by using outside counsel you’re not taxing your bare-bones staff.”

Apart from the money the city has won using outside lawyers on a contingency basis, San Diego has also hired outside attorneys to defend it against several high-profile lawsuits.

Since Aguirre took office, the city has spent $6.39 million defending itself in a slew of lawsuits brought by the Police Officers Association, according to the document released by the City Attorney’s Office. The city has also spent $1.3 million on outside counsel to defend several employment cases and has so far spent more than $1 million defending litigation brought by Sunroad Enterprises in the wake of last year’s scandal over an office building in Kearny Mesa.

And the city has racked up millions of dollars in legal fees for several law firms who have represented city employees, including members of the City Council, in an investigation into the city by the Securities and Exchange Commission and the Justice Department.

City Councilman Scott Peters, long a critic of Aguirre, who recently endorsed Goldsmith, said the POA cases and the SEC investigation are two good examples of how Aguirre has wasted the city’s money on outside law firms. The POA cases represented “basic defense work” that should have been handled in-house, he said, and the city should never have had to pay for outside counsel for the SEC investigation.

“The first fight I got into with Mike Aguirre was when he came in and told us (the City Council) that every person’s going to have to hire their own attorney. I said, ‘Whoa, wait a second. There’s absolutely no reason why the city’s attorney couldn’t defend all the city employees,’” Peters said.

McGrath said the city was forced into hiring outside lawyers in both of those cases because the City Council members, who were named defendants in both cases, insisted on having their own lawyers.

And he said that the tactic of using outside lawyers for defense work has proved highly successful for the city. The POA has lost all of its lawsuits against the city, thanks to the expertise of the lawyers at Latham & Watkins, the firm used by the city to defend the case, he said, and none of the many employment lawsuits brought since Aguirre was elected have resulted in adverse judgments against the city.

“The outside lawyers have done an excellent job,” McGrath said. “In those sorts of cases, the opposing lawyers were hammering us, they had the horsepower and we didn’t but firms like Latham & Watkins do.”

On other spending, McGrath was less generous about his office’s record. During Aguirre’s early days in office, the city brought in the law firm Heller Ehrman LLP to work on Aguirre’s flagship pension litigation. McGrath said that, at his urging, the lawyers working on the lawsuit were paid on an hourly basis, rather than working for a contingency fee. Before long, the firm had racked up more than $1.3 million in fees from the city.

“That was a mistake,” McGrath said.

The list of lawsuits provided by the City Attorney’s Office also simply ignored several other lawsuits in which the city hired outside attorneys, including two lawsuits brought against the city in the wake of landslides in La Jolla.

McGrath said those lawsuits are part of the city’s everyday, nitty-gritty legal needs, and that Aguirre shouldn’t be blamed for them, which is why they weren’t on the city attorney’s list. “That only includes the cases we caused to happen since we’ve been here,” he said of the document.

But Goldsmith dismissed the city attorney’s list of lawsuits as “partial and self-serving.” He said any discussion of the city’s use of outside counsel should include all the city’s spending, not just a portion of it.

He pointed to a separate list that he received from the city after filing his own public records request. That document shows the city’s spending on outside counsel since Aguirre’s election at more like $30 million. Much of that spending is Aguirre’s doing, Goldsmith said, but without analyzing each case in turn, there’s no way to establish how much Aguirre has cost the city in outside legal fees.

In comparison, the City Attorney’s Office of San Antonio has spent about $2 million on outside attorneys each year since 2004. The San Jose City Attorney’s Office spent about $500,000 a year in 2004 and 2005, $1.1 million in 2006 and $730,000 in 2007, not including attorneys the city hired for bond disclosure.

Neither of those two cities has been through the sort of political and financial turmoil that San Diego has seen for most of the 2000s, and McGrath said the city of San Diego, with its forest of pension-related lawsuits and investigations, has had much more on its plate legally than most other cities.

But Peters said the city’s financial woes compound the recklessness of Aguirre’s choice to use outside attorneys so often. That sort of spending on outside lawyers is inconceivable, he said, and is indicative of Aguirre’s failure to properly manage his office and retain skilled staff.

“If you spend money on outside attorneys, in particular on basic defense lawyers, that’s money that doesn’t go into streets and neighborhoods and everything else we have to do,” Peters said. “Off-budget, it has to be picked up by somebody else.”

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