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Hub City Solid Waste Services, Inc. v. City of Compton

July 19, 2010

HUB CITY SOLID WASTE SERVICES, INC., ET AL., PLAINTIFFS, CROSS-DEFENDANTS, AND APPELLANTS,
v.
CITY OF COMPTON, DEFENDANT, CROSS-COMPLAINANT, AND RESPONDENT.



APPEAL from a judgment of the Superior Court of Los Angeles County, Joanne O'Donnell, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC323801).

The opinion of the court was delivered by: Epstein, P.J.

CERTIFIED FOR PUBLICATION

This conflict of interest case grew out of a suit and cross-action centering on the activities of appellants Michael Aloyan and HUB City Solid Waste Services, Inc. (HUB). The city of Compton had awarded a 15-year waste collection franchise to HUB. Some years later, Compton terminated the franchise. HUB sued for breach of contract. Compton cross-complained against HUB and Aloyan, seeking to void the contract and disgorge funds from appellants.

The trial court found that Aloyan was HUB's alter ego, and granted summary adjudication in favor of Compton on its claim for declaratory relief that it did not breach the franchise agreement when terminating it. At trial, Compton advanced two conflict of interest theories under Government Code section 1090 (section 1090), arguing that Aloyan had a prohibited financial interest in the franchise because of his role in managing Compton's in-house waste division, and the franchise was void because members of the Compton city council had illegal interests related to campaign contributions and favors given by HUB and Aloyan. A jury unanimously found that appellants had violated section 1090 and were liable for over $22 million in damages to Compton. Compton's motion for non-suit was then granted as to appellants' complaint.

This appeal followed. Appellants argue section 1090 does not apply because neither Aloyan nor HUB was an official or employee of the city, and there was insufficient evidence to prove bribery of city council members. We disagree. Evidence presented at trial supported a finding that Aloyan, through AUS, acted as a public official in advising Compton on its waste collection operations. There also was sufficient evidence showing that the campaign contributions and jobs for the council members' relatives were provided in return for the council members' approval of the franchise agreement with HUB. The trial court did not abuse its discretion in allowing the introduction of evidence about Aloyan's prior involvement with payments to public officials in connection with government contracts.

Appellants also claim that the trial court erred in determining that Aloyan was HUB's alter ego, and that disgorgement was not the appropriate remedy. As we shall explain, we do not agree.

FACTUAL AND PROCEDURAL SUMMARY

Following well-established rules on appellate review after a trial on the merits, we construe the facts in the light most favorable to the judgment. (Woodman Partners v. Sofa U Love (2001) 94 Cal.App.4th 766, 771.)

Private vendors held franchises for Compton's waste collection operations. These agreements were due to expire in 2000. In 1999, Compton's assistant city manager, Lawrence Adams, was instructed to study the feasibility of the city internalizing its waste management services. Requests for proposals for new franchise agreements were suspended. A feasibility study and an associated business plan projected more than $700,000 in annual savings for Compton if it brought its waste management "in-house."

Beginning in 1999, Aloyan advised Adams and other city staff about Compton's efforts to establish an in-house waste management division. Aloyan had been involved with the city's waste management in the early 1990's, and Adams valued his expertise. In May 2000, Compton entered into a management agreement with Aloyan's company, American Utilities Services Limited Liability Company (AUS).*fn1 Under the management agreement, AUS was an independent contractor but assumed many of the city's waste management needs; Adams described AUS as "providing the private management" of the city's in-house waste operation. Before the city began collecting waste in September 2000, Aloyan identified vendors, and negotiated to acquire trucks, refuse containers, and real estate on behalf of the city. He negotiated a transfer station disposal contract and a contract for a maintenance facility. Aloyan had discretion over which vendors to solicit, and influenced the city's staffing decisions. He assisted Compton with the acquisition of insurance, and discussed the possibility of outsourcing waste hauling operations to a private contractor. Under the agreement Aloyan acted as the director of the in-house waste division, working alongside city employees, overseeing day-to-day operations of Compton's waste management division, and taking responsibility for public education and compliance with state mandated recycling and waste reduction efforts. The agreement remained in force until February 2001.

In 2000, Compton decided to terminate the city's police department and contract with the Los Angeles County Sheriff's Department for law enforcement services. In the summer of 2000, Compton's controller released a report showing an unexpected transition liability of $5 million arising from severance pay for police officers and other costs. Shortly thereafter, Aloyan approached Adams and offered Compton $5 million in return for taking over the in-house waste disposal operation on a franchise basis. A day or two later, Aloyan submitted a written proposal to that effect on behalf of AUS. Aloyan's proposal was later reduced to a $2 million initial fee plus $700,000 in annual fees for a 15-year contract. Aloyan proposed licensing the city's newly purchased trucks, equipment and facilities from Compton, and hiring the city's waste management employees.

Adams recommended to the city council that, because of the urgent need for funding to address the police department liability, Compton negotiate with AUS rather than solicit bids for a franchise. In September 2000, Aloyan created HUB, and substituted that entity as the proposed franchisee. HUB had no trucks, equipment, or facilities.*fn2

In December 2000, the city council held a public hearing on the proposed franchise with HUB. The no-bid process was a topic of discussion, as was Aloyan's reputation and character. The council voted 4-1 in favor of awarding the franchise to HUB. As we discuss in detail, post, in February 2001, shortly after franchise operations began, HUB made contributions to council members Delores Zurita, Amen Rahh, and Mayor Omar Bradley. All had voted in favor of the franchise. HUB was the largest contributor to each council member's campaign. The only council member who voted against the franchise did not receive a campaign contribution.

After the franchise was awarded, HUB hired several of Bradley's relatives. Bradley's brother, Henry Bradley, was hired although he had no experience in waste management, because he was valued by Aloyan as "the biggest bookie in Compton." HUB also hired or gave monetary gifts of approximately $1,000 each to other relatives of Bradley and council member Zurita, including Wayne Bradley, Janna Zurita, Fatin Bradley, Jerome Taylor, Charlotte Bradley, and Jamal Bradley.

In September 2004, the city council voted to terminate the franchise agreement. The termination was based on HUB's failure to file required campaign finance disclosures for contributions to Compton's city council members, its alleged violation of section 1090, and Aloyan's conviction in federal court for attempted bribery in connection with a trash contract with the City of Carson. Appellants commenced this action later that month. The operative complaint was filed by HUB against Compton in December 2004, and claimed breach of contract, bad faith, unjust enrichment, and declaratory relief. In January 2005, Compton filed a cross-complaint against appellants, asserting claims for violation of section 1090, declaratory relief, and alter ego liability against Aloyan for HUB's actions. Answers were filed and the actions were consolidated.

The trial court denied Compton's motion for summary adjudication of its cause of action seeking declaratory relief as to whether its termination of the franchise agreement amounted to breach. The court found that appellants had raised triable issues of fact. In December of 2005, both parties filed motions to bifurcate the trial on the issue of alter ego liability, but disputed the order in which that issue would be tried. The trial court decided to try Aloyan's alter ego liability before the merits of the parties' claims. After a bench trial, the court found that Aloyan was the alter ego of HUB for purposes of the cross-complaint.

In July 2006, the trial court, acting sua sponte, reconsidered its denial of Compton's motion for summary adjudication. Following briefing and argument, the court entered summary adjudication as to Compton's cause of action for declaratory relief, finding that Compton did not breach the franchise agreement by terminating it without providing Aloyan notice, hearing, or an opportunity to cure.

In a motion in limine, appellants unsuccessfully sought to exclude evidence about prior acts of Aloyan. The challenged evidence showed that Aloyan offered to sell AUS to an executive of the Waste Management Corporation, and Aloyan threatened that if Waste Management did not purchase AUS, Aloyan would advise other cities to bring their waste management services in-house, depriving Waste Management of business. Aloyan told the executive about his plan to purchase Compton's in-house waste division, and suggested that he was well acquainted with Compton officials. The challenged evidence also showed that Aloyan had been involved with payments to Compton city council members in the 1990's related to government contracts, and had been convicted of attempted bribery of a member of the City of Carson city council for which he served five months in a federal prison camp. Appellants also challenged the introduction of evidence that HUB had paid $48,000 to an organization controlled by an individual named Albert Robles.*fn3

Jury trial commenced in October 2006. The issues remaining were appellants' claim for money owed under the franchise agreement prior to termination, and Compton's cross-claim for restitution of all amounts paid to HUB under the franchise agreement. At the close of appellants' case-in-chief, Compton moved for non-suit, arguing the franchise was void because it lacked a mayoral signature; after trial the motion was granted. The jury returned a unanimous verdict, finding the franchise was obtained ...


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