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Laws may have been broken involving Central Basin Water District's trust fund

The offices of the Central Basin Municipal Water District in Los Angeles County are seen in Commerce, Calif., in a Wednesday, June 12, 2013 photo. The state has hundreds of local water districts, which often deal with millions of dollars but operate as quasi-government entities with very little oversight or public scrutiny. They pay six-figure salaries, dole out millions in contracts and sometimes have the same type of unfunded pension liabilities that have led to so much trouble for the state. Dozens of them even ignore annual requests by the state controller for salary and staffing information, choosing to hide their operations from state government agencies. (AP Photo/Damian Dovarganes)
Damian Dovarganes/AP
Central Basin Municipal Water District headquarters in Commerce.

A confidential draft report obtained by KPCC suggests the former general counsel of the Central Basin Municipal Water District may have violated laws regarding conflict of interest and misappropriation of public monies in regards to the handling of a litigation trust fund.

The draft report prepared by the law firm Arent Fox is an analysis of whether Central Basin broke open meeting and other laws in setting up a $2.7 million dollar trust fund. Arent Fox presented a letter to the board on Monday summarizing some of its findings, which included its conclusion that Central Basin violated California’s open meetings law when it set up the trust fund in a closed session on June 28, 2010.

KPCC has obtained a copy of the full 48-page draft Arent Fox report.  It chronicles how Central Basin set up the trust fund to pay for litigation-related services and an environmental impact report for a proposed groundwater storage plan.  At the time Central Basin was in a legal fight with another water district, the Water Replenishment District (WRD), over groundwater storage rights. 

Arent Fox said Central Basin board, staff and its then general counsel Doug Wance (at the time working for the Sedgwick law firm) were concerned public discussion of the EIR plan "would prompt immediate political, legislative or public opposition from other stakeholders, including WRD."

Sedgwick lawyers then advised the board "that it could discuss the groundwater storage plan in closed session based on the 'pending litigation' exemption to the open-meeting requirements of the Ralph M. Brown Act," which requires public agencies to conduct their business in public, the draft report said.

In the June 2010 closed session, the Central Basin board gave then General Manager Art Aguilar and Wance authority to "provide resources and enter into Agreement for ongoing litigation," Arent Fox noted.

Arent Fox concluded that "it was not reasonable" for Wance to advise the board that it faced a serious threat of litigation over the groundwater storage plan, and thus the Brown Act exemption did not apply.

RELATED: What happened to the $2.7m in Cenral Basin's trust fund?

For the next two and half years following the June 2010 meeting, Wance and his law firms Sedgwick and Buchalter Nemer hired a series of consultants and vendors on Central Basin’s behalf to work on the groundwater storage plan, outside of public view. They were paid out of the trust fund, according to the draft report.

One of the vendors was HDR Engineering, which entered into two contracts, both signed by Wance.  The Arent Fox report suggested Wance may have violated California’s conflict-of-interest law (Section 1090 of California’s Government Code) when he failed to disclose his "personal relationship" with HDR Vice President David Cobb. 

A general counsel of a California public agency is considered a public official and subject to financial disclosures, according to Gary Winuk with the California Fair Political Practices Commission.

Arent Fox said it could not find any public record of Wance disclosing his relationship with Cobb when he signed agreements with HDR Engineering.  It also said it believed a "prosecuting authority" may be interested in investigating whether Wance  "had at least 'a small or indirect interest' in awarding the contract to HDR," and whether it was for personal gain or the public good.

Arent Fox also said it has "reason to believe that a prosecuting authority would investigate" whether Wance violated Section 424(a) of the California penal code, which relates to the misappropriation of public monies by officials with some level of control over those funds for "his or her own use or the use of another" .

Wance did not return a call seeking comment.

The draft report concluded that the Central Basin board and general manager Aguilar did not intend to violate the Brown Act or any other laws, because they were simply following the advice of their lawyers.

Arent Fox did question whether Aguilar and his staff followed proper procurement policies when Wance’s law firms hired consultants for work on the groundwater storage plan and litigation.

The draft report found Aguilar and Central Basin staff did not get the Board’s authorization for trust fund contracts worth more than $25,000. Central Basin rules require the general manager to get board approval for contracts worth more than that amount, and most of the contracts paid out of the trust fund fell into that category, according to Arent Fox’s investigation.

KPCC has learned one of those contracts went to Democratic political consultant Mark Fabiani, who according to Central Basin sources was paid $270,000 out of the trust fund.  Fabiani and his firm, CSL Strategies, were hired in January 2012 by Buchalter Nemer at $30,000 a month to assist with "various litigation and other related matters" involving Central Basin.  Fabiani confirmed to KPCC the $30,000 monthly rate but said he could not recall the total amount he received.  He also said he was not sure if he could disclose which services he provided, saying that he needed to check with Buchalter Nemer to determine whether that information is protected by attorney client privilege.

Arent Fox found another consultant contract was signed in December 2010 and made retroactive to August 2010.  KPCC has obtained a contract between Tom Calderon and Sedgwick which was signed December 14, 2010 but was retroactive to July 1, 2010.  According to the contract, Calderon was paid $1,000 a month to provide "advice concerning local and state issues that could arise within water litigation in California." Last month Calderon and his brother Ron were indicted on unrelated corruption charges.

Arent Fox said "there is no reason to believe that CBMWD did not receive value for its money," and that "no one ever raised concerns that the consultants’ work was unsatisfactory." However, it added that it was "not within the scope of our investigation to forensically audit the actual work performed by the consultants, particularly those [contracts] written retroactively, to determine the quality and level of the work performed."

At Monday’s Central Basin board meeting, Arent Fox attorney Michael Zweiback said the final report will be delivered in 30 days. So far, Arent Fox has billed the agency more than $350,000 for legal services, a good portion for its work on the trust fund investigation.

In another development, the Association of California Water Agencies Joint Powers Insurance Authority or ACWA/JPIA,  which acts as an insurer to Central Basin,  meets Wednesday. Its staff plans to recommend to the ACWA/JPIA  board that it drop its coverage of Central Basin, citing, among other things, the dysfunction of its board.  That could force Central Basin to pay for its own workers' compensation and liability costs.