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The People Ex Rel. Kamala D. Harris, As Attorney General v. Robert A. Rizzo et al

March 20, 2013

THE PEOPLE EX REL. KAMALA D. HARRIS, AS ATTORNEY GENERAL, ETC., PLAINTIFF AND APPELLANT,
v.
ROBERT A. RIZZO ET AL., DEFENDANTS AND RESPONDENTS.



(Los Angeles County Super. Ct. No. BC445497) APPEAL from a judgment of dismissal of the Superior Court of Los Angeles County, Ralph W. Dau, Judge.

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

CERTIFIED FOR PUBLICATION

Judgment is reversed and remanded with directions.

When it appears that a charter city is under the control of individuals who are looting the city's coffers for their own benefit, can the Attorney General, on behalf of the city, bring an action against the allegedly corrupt individuals, to remove the city from their control and require them to pay restitution to the city? We conclude that the Attorney General may bring such an action, and seek recovery from the corrupt individuals to the extent their acts were unauthorized.

This case concerns the City of Bell (City), a charter city with a population of 38,250. It was discovered that the Chief Administrative Officer of the City, the Assistant Chief Administrative Officer, and five City Councilmembers were receiving salaries well in excess of the amounts paid similar individuals in similarly-sized cities, and that these seven individuals went to great lengths to conceal their salaries from public knowledge. It was also revealed that the Chief Administrative Officer had hired an individual to serve as Chief of Police at a high salary; the terms of his employment contract were structured so as not to disclose the true extent of his salary.*fn1

When the true salaries of these individuals were made public, a scandal erupted. It became clear that legal action should be taken. However, as the City was still under the control of the apparently corrupt officials, the City brought no action against them. Therefore, the Attorney General brought the instant action, challenging the excessive salaries and seeking reimbursement for the City. Shortly thereafter, the District Attorney filed criminal proceedings.*fn2 Ultimately, following a recall election, city management changed. Although the City had initially opposed the Attorney General's pursuit of this action, the City now fully supports the Attorney General's right to bring this action on its behalf.

The defendants demurred to the operative complaint, arguing, among other things, the Attorney General's lack of standing, immunity for legislative acts, and the doctrine of separation of powers. The trial court sustained the demurrers of defendants without leave to amend,*fn3 and dismissed the action. The trial court concluded that the allegedly excessive salaries were legislative acts for which the defendants were immune. Relying on the doctrine of separation of powers, the court concluded that the judiciary had no jurisdiction to interfere with the City Council's legislative decisions regarding compensation.

On appeal, we conclude that the Attorney General does have standing to pursue this action on behalf of the City. We further conclude that, although separation of powers and legislative immunity bar pursuit of this action with respect to acts within the discretion of City officials, these doctrines do not prevent the action from proceeding with respect to defendants' allegedly ultra vires acts. We therefore hold that the trial court erred in sustaining the demurrers without leave to amend. Finally, we address the trial court's denial of the Attorney General's motion to stay proceedings in this case pending resolution of the criminal actions against defendants. While we agree that the trial court did not abuse its discretion in denying the motion, we note that subsequent events may justify reconsideration of the motion.

FACTUAL AND PROCEDURAL BACKGROUND

1. Allegations of the Complaint

The operative complaint*fn4 focuses on the excessive salaries and benefits paid defendants, as well as efforts to hide those salaries and benefits from public knowledge. We discuss the allegations against each defendant briefly.

Defendant Robert Rizzo was the Chief Administrative Officer of the City from May 1993 through at least July 2010. Under section 603 of the Bell Charter, the Chief Administrative Officer "shall be paid a salary commensurate with the responsibilities of chief administrative officer of the City." Rizzo's base salary in 2010 was $787,500. This salary is allegedly "over three times what cities of comparable population in the Los Angeles region pay to their city managers on average." In 2008, when other city employees were being laid off, Rizzo received five new employment contracts providing for 12 percent annual increases to his salary. Rizzo's 2008 contracts provided that he would accrue service credit with the California Public Employees' Retirement System at double the normal rate, allowing for double retirement benefits. In 2008, Rizzo was provided with 107 vacation days and 36 days of sick leave (out of approximately 250 working days) per year. In 2009, Rizzo sold back over 130 days of leave time for over $360,000, bringing his total salary for that year to a total in excess of $1.1 million. The Attorney General also alleged that Rizzo's 2008 contracts were procedurally unauthorized; the contracts were not approved by the city council; instead, they were signed by one councilmember, who signed as the purported mayor. However, that councilmember was not the mayor at the time.

Defendant Pier'angela Spaccia was hired by Rizzo, first as Assistant to the Chief Administrative Officer, then as Assistant Chief Administrative Officer. In 2010, her base salary was $336,000. This amount is more than 40% higher than the salary for city managers (not assistant city managers) in the Los Angeles region with populations comparable to that of Bell. In 2008, when other city employees were being laid off, Rizzo approved a contract providing Spaccia with a 20% raise and automatic 12% increases thereafter. Like Rizzo, Spaccia was granted 143 days of vacation and sick leave per year, which she was permitted to sell back to increase her pay. In 2009, she sold back leave time for nearly $175,000.

Defendants Oscar Hernandez, Teresa Jacobo, George Mirabal, Victor Bello, and George Cole (collectively, Councilmember defendants) were councilmembers (and some, at times, served as mayor) of the City. Under section 502 of the Bell Charter, Councilmembers "shall receive compensation for their services as may be prescribed by ordinance or resolution, but with respect to service as a Council member not to exceed the amount which Council Members of general law cities of similar population would receive under State law." Under state law, a city with a population between 35,000 and 50,000 shall pay its councilmembers no more than $400 per month.*fn5 (Gov. Code, § 36516, subd. (a)(2)(B).) In 2010, the Councilmember defendants who were still on the city council were to receive $8000 per month in salary.*fn6

Randy Adams*fn7 was hired by Rizzo as the police chief of Bell from May 2009. Adams had a base salary in excess of $457,000, an amount which "grossly exceeds" salaries of police chiefs of cities of comparable population in the Los Angeles region. Adams was also granted "excessive and wasteful benefits," including lifetime health insurance benefits for his dependents. Rizzo also agreed, on behalf of the City, to support Adams's claim for medical disability retirement upon his retirement from Bell. This gives rise to the inference that Rizzo hired Adams at an excessive salary to perform a job which Rizzo already believed Adams was, at least in part, disabled from performing.

It was further alleged that the defendants defrauded the public as to the extent of their compensation. Specifically, it was alleged that the Councilmember defendants passed an ordinance which was titled as an ordinance "limiting compensation for members of the City Council," (emphasis added) when, in fact, the ordinance nearly doubled their compensation. We refer to this as the "misleading ordinance." Similarly, it was alleged that in September 2008, at Rizzo's direction, a memorandum was prepared to be given by the city clerk to any member of the public who inquired about the salaries of city officers and employees. The memorandum falsely stated that Councilmember defendants were paid $673 per month, when they were actually paid $7,600 per month, and that Rizzo was paid $15,478 per month, when he was actually paid over $52,000 per month. We refer to this as the "misleading memorandum."*fn8

Finally, the complaint contained allegations relating to the City's Supplemental Retirement Plan, which provided retirement benefits "to a small group of City officers and employees," including the defendants. It was alleged that Rizzo and Spaccia modified the terms of the retirement plan to provide "unique benefit[s] to them that [were] not available to other" members of the retirement plan.

2. Causes of Action

Based on the above alleged facts, the Attorney General alleged the following causes of action. First, the Attorney General pled a cause of action against all defendants for waste of public funds under Code of Civil Procedure section 526a,*fn9 with respect to the excessive compensation paid all defendants. It will be critical to our analysis whether the ordinances and employment agreements were within the discretion of the city council and chief administrative officer or were, instead, unauthorized ultra vires acts. In this respect, the Attorney General's complaint is not clear. That is to say, the Attorney General alleged that the actions of defendants in approving the ordinances and contracts constituted both abuses of discretion and unauthorized ultra vires acts.

The cause of action for waste was the only cause of action in the complaint which named the City itself as a defendant. In connection therewith, the Attorney General sought appointment of a receiver to facilitate operation of the City. The Attorney General did not seek damages from the City, and, in fact, sought an order requiring the other defendants to make restitution to the City for their excess compensation.*fn10

The second cause of action, against Rizzo and the Councilmember defendants, was for negligence in authorizing the wasteful expenditures of public funds. It alleged that the Councilmember defendants negligently failed to exercise due care and reasonable diligence in approving the employment contracts of Rizzo and Spaccia. It similarly alleged that Rizzo failed to exercise due care and reasonable diligence in approving the employment contracts of Spaccia and Adams. Although this cause of action did not specifically allege that the excessive salaries of Rizzo, Spaccia, and Adams were unauthorized expenses, it incorporated by reference all earlier allegations.

The third cause of action, against Rizzo and the Councilmember defendants, alleged fraud in connection with the misleading ordinance. The fourth cause of action, against Rizzo alone, alleged fraud in connection with the misleading memorandum.

The fifth cause of action, against Rizzo and Spaccia, alleged violation of Government Code section 1090, which prohibits city officers from entering into contracts in which they have a personal financial interest. The Attorney General alleged that Rizzo and Spaccia violated Government Code section 1090 by their modification of the City's Supplemental Retirement Plan to "create[] particularized benefits to themselves."

The sixth cause of action, against all defendants, alleged breach of fiduciary duty.*fn11 Specifically, the defendants were alleged to have "breached their fiduciary duties to the City and its citizens" by awarding themselves excessive and wasteful compensation. They were also alleged to have breached their fiduciary duties by deceiving the public as to their full compensation.

3. Motion for a Stay

Shortly after the trial court ruled on Rizzo's demurrer to the initial complaint, the Attorney General and the District Attorney (who was not a party) jointly moved to stay this action pending resolution of the criminal proceedings against Rizzo, Spaccia, and the Councilmember defendants. They argued that a stay was appropriate for three reasons: (1) the defendants were improperly seeking civil discovery for benefit of their criminal defenses; (2) conservation of judicial resources; and (3) defendants were invoking their Fifth Amendment privilege against self-incrimination in civil discovery.

The trial court denied the motion, on the basis that the situation was entirely of the Attorney General's own making, in that this action was brought when the Attorney General knew that the defendants would be asserting their Fifth Amendment privilege.*fn12 As to any issues regarding potential abuse of the civil discovery process, the Attorney General and District Attorney conceded at the hearing on the motion that there had not yet been any violations of criminal discovery rules, only a potential for such a violation. The trial court indicated that it would properly deal with any specific discovery issues if and when they arose. Ultimately, the trial court concluded that the Attorney General could choose to dismiss the instant action without prejudice and refile it after the criminal proceedings were resolved.*fn13

4. Demurrers

All defendants demurred to the operative complaint.*fn14 Taken together, they raised the following arguments: (1) the Attorney General lacks standing, both under Code of Civil Procedure section 526a and in general,*fn15 to pursue this complaint; (2) the action is barred because the Attorney General does not allege compliance with the Tort Claims Act; (3) the doctrines of legislative immunity and separation of powers prevent judicial review of a City Council's properly-enacted ordinances regarding compensation; (4) Rizzo and the Councilmembers have statutory immunity for acts taken within their discretion; and (5) the absolute privilege of Civil Code section 47, subdivision (a) and the legislative privilege of Civil Code section 47, subdivision (b) bar the fraud causes of action. The defendants also raised specific challenges to the individual causes of action.

With respect to every cause of action except the fifth, for violation of Government Code section 1090, the trial court sustained the demurrers without leave to amend. The court concluded that the amount of reasonable compensation paid City officials and employees is entrusted to the legislative body of the City, and the doctrines of separation of powers and legislative immunity prevented court intervention on the issue. At the hearing on the motion, the Attorney General argued, "we have not only alleged that [the compensation] is wasteful and excessive, we've alleged that it's illegal." Moreover, the City noted that information had since been discovered that some of Rizzo's employment contracts were backdated and never approved by the City Council. If true, this would establish that the contracts were not only excessive but unauthorized. Nonetheless, the trial court concluded that the Attorney General alleged only excessive compensation approved by ordinance, which triggers legislative immunity. The court found this issue dispositive of all causes of action except violation of Government Code section 1090, and therefore did not reach the issue of standing with respect to anything ...


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