HomeMy WebLinkAboutPolicy - Denied Request by Garofalo for defense and indemnif In The Matter of the Recidef Councilmember Apill:z
e Ralph M. Brown Act
David Garofalo for Defense and Indemnification for a
Pending Fair Political Practices Commission/ 1,�,�C�Iq
Subject: District Attorney Investigation '�1�jJ
GALL HUTTON, City Attorney
s 30-0/
STATEMENT FOR MAYOR PRIOR TO CLOSED SESSION
ACTION OF CITY COUNCIL
Date: June 4, 2001 _ �Ilrrer
f I `�ON N
1. MOTION TO RECESS TO CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54956.9( O Tel '
CONFER WITH ITS ATTORNEY REGARDING PENDING LITIGATION WHICH HAS BEEN INITIATEC'P90LLY
AND TO WHICH THE CITY IS A PARTY. (CHECK ONE.)
x c)
_ The title of the litigation is
Orange County Superior Court Case No. o •�--� 'w'
r�
pCD ,
Identification of such litigation would jeopardize the city's ability to effect service of process upon M5.
unserved parties;or
Identification of such litigation would jeopardize the city's ability to conclude existing settlement r}gotiaVons to its
advantage.
2. X MOTION TO RECESS TO CLOSED SESSION TO CONFER WITH ITS CITY ATTORNEY REGARDING PENDING
LITIGATION PURSUANT TO GOVERNMENT CODE SECTION:
_ 54956.9(b)(2)(A) (Facts and circumstances that might result in litigation against the local agency but which
the local agency believes are not yet known to a potential plaintiff or plaintiffs,which facts
and circumstances need not be disclosed.)
Number of Potential Cases
X 54956.9(b)(2)(B) (Facts and circumstances, including,but not limited to, an accident,disaster, incident,or
transactional occurrence that might result in litigation against a member of the Board of the
agency and that are known to a potential plaintiff or plaintiffs,which facts or circumstances
shall be publicly stated on the agenda or announced.)
54956.9(c) (Based on existing facts and circumstances,the legislative body of the local agency has
decided to initiate or is deciding whether to initiate litigation.)
Number of Potential Cases
3. MOTION TO RECESS TO CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54956.8 TO GIVE
INSTRUCTIONS TO THE CITY'S NEGOTIATOR, , REGARDING NEGOTIATIONS
WITH CONCERNING THE PURCHASE/SALE/EXCHANGE/LEASE OF THE PROPERTY LOCATED AT
Instruction will concern: Price Terms of Payment Both
4. MOTION TO RECESS TO CLOSED SESSION TO MEET WITH ITS DESIGNATED REPRESENTATIVES
REGARDING LABOR RELATIONS MATTERS PURSUANT TO GOVERNMENT CODE SECTION 54957.6.
Agency Negotiator:
Name
Employee Organizations
Unrepresented Employees
5. MOTION TO RECESS TO CLOSED SESSION TO CONSIDER PERSONNEL MATTERS PURSUANT TO
GOVERNMENT CODE SECTION 54957.
6. MOTION TO RECESS TO CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54956.7 TO MEET
WITH AN APPLICANT FOR A CITY LICENSE AND THE APPLICANTS ATTORNEY.
7. MOTION TO RECESS TO CLOSED SESSION PURSUANT TO GOVERNMENT CODE SECTION 54957 TO MEET
WITH THE CHIEF OF POLICE REGARDING MATTERS OF PUBLIC SECURITY.
VOTE:
(5) June 4, 2001 - Council/Ag*y Agenda- Page 5
Revised Page
Presentation — By Mayor Pam Julien Houchen to area high school students who have served
as a member of the Human Relations Task Force. Councilmembers Shirley Dettloff and Ralph
Bauer will assist the Mayor in presenting certificates:
Jay Wu Marina High School
Hadeel EI-Ahraf Edison High School
Shannon Inouye Huntington Beach High School
Mai Dang Ocean View High School
Sharon Singer Fountain Valley High School
Katie Sotolongo Westminster High School
Mark Edwards Huntington Beach High School
Presentation — From Ron Shenkman, Senior Vice President of Rainbow Disposal Co., to Mayor
Pam Julien Houchen and the City Council; a check for$1,500 for the Huntington Beach Library
Patrons Foundation for the Oakview Library Branch.
--► [Approved Motion to Deny Garofalo's request for defense
and indemnification for a pending Fair Political Practices
Commission/District Attorney investigation 5-1-1 (Green No;
Garofalo Absent)]
[Councilmember Green in response to public comment relative to
301-H waiver granted to O.C. Sanitation District presented an
information sheet from the O.C. Sanitation District.]
From: Bob Polkow Fax: +1(714)962-4810 To: City Clerk Fax: +1(714)374-1557 Page 1 of 1, Monday, June 04, 2001 7:16am
Facsimile Cover Sheet
To: City Clerk
Company:
Phone:
Fax: +1(714)374-1557 c c
o
-a
C-- C
From: Bob Polkow z o -�G
Company:
Phone: +1(714)962-4810 D
Fax: +1(714)962-4810
Date: 6/4/a 1
Pages including this
cover page: l
Comments:
SUBJECT: Support of our elected officials(Agendized closed session
item No. 3)
If we, the taxpayers pay the legal fees of hired or appointed personnel
such as police employees and department heads when they are accused of
misjudgment, any reluctance to pay an elected official 's such as
Councilman Garofalo 's is a blatant display of political arrogance and
an insult to the constituents that voted Dave Garofalo to represent
them. The council has no choice but to bou,T to the taxpayers and the
law of the land and pay Dave Garofalo's legal expenses. This
councilman is innocent until his political foes prove him guilty.
BOB POLKOW, 21772 Ocenview Lane, Huntington Beach, Ca 92646-8215
(714)962-4810
NOTE to City Clerk: It is respectfully requested this letter be read
in its entirety as late correspondence at the Council Meeting.
Thanks
C�sib ASS loci
In The Matter of the Request of Councilmember David Garofalo
for Defense and Indemnification for a Pending Fair Political
Practices Commission/District Attorney Investigation Name _
Subject:
CONFIDENTIAL
MEMORANDUM FROM THE CITY ATTORNEY CONCERNING A CLOSED SESSION
BEFORE THE CITY COUNCIL OF THE CITY OF HUNTINGTON BEACH
TO: Honorable Mayor and Members of the City Council AECEWED F j
Ray Silver,City AdministratorAND CajW� � w A J�
FROM: Gail Hutton,City Attorney 0 OF
CONIC gppCKWAYkdTY moo
SUBJECT: , CLOSED SESSION TO DISCUSS PENDING LITIGATION
(Government Code Section 54956.9) ITEM#" '
The reasons and legal authority for holding a closed session on June 4,2001,for the purpose of conferring with and/or receiving
advice from its legal counsel concerning pending litigation are as follows:
1. Litigation has been formally initiated to which the city is a party. The title of said litigation is
Orange County Superior Court Case No. Said closed session is held under the authority of
California Government Code Section 54956.9(a).
2. Facts and circumstances that might result in litigation against the local agency but which the local agency believes are
not yet known to a potential plaintiff or plaintiffs,which facts and circumstances need not be disclosed. Said closed
session is held under the authority of California Government Code Section 54956.9(b)(2)(A).
3. X Facts and circumstances, including,but not limited to,an accident,disaster, incident,or transactional occurrence that
might result in litigation against a member of the Board of the agency and that are known to a potential plaintiff or
plaintiffs,which facts or circumstances shall be publicly stated on the agenda or announced. Said closed session is
held under the authority of California Government Code Section 54956.9(b)(2)(B).
4. Based on existing facts and circumstances,the legislative body of the local agency has decided to or is deciding
whether to initiate litigation. Said closed session is held under the authority of California Government Code Section
54956.9(c).
STATEMENTS OF FACTS AND CIRCUMSTANCES SUPPORTING THE HOLDING OF A CLOSED SESSION UNDER
PARAGRAPHS 2,3 OR 4,ABOVE:
Dated: May �G ,2001
GAIL HUTTON,CITY ATTORNEY
NOTE: This document is protected by the attorney-client privilege and is exempt from disclosure pursuant to Government Code
Section 54956.9. The form itself must be submitted prior to the closed session,if feasible,or at least one week
thereafter.
Conf.DG 6-4-01
HBHUNTINGTON BEACH CITY ATTORNEY
CONFIDENTIAL LAWYER-CLIENT COMMUNICATION
LAWSUIT STATUS SHEET
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: GAIL HUTTON, City Attorney
DATE: Council Meeting—June 4, 2001
CASE: In The Matter of the Request of Councilmember David Garofalo
for Defense and Indemnification for a Pending Fair Political
Practices Commission/District Attorney Investigation
This lawsuit status sheet incorporates the city attorney's recommendation and attached
outside counsel analysis as appropriate.
CITY ATTORNEY RECOMMENDATION FOR COUNCIL ACTION:
1. That the City Council consider whether to provide a defense for David
Garofalo to any criminal action or quasi-criminal action brought against
him by the District Attorney or the FPPC for violations of Government
Code Section 1090 or Government Code Section 87100.
2. That the City Council consider whether to make the following findings:
A. That any criminal action or quasi-criminal action brought against
Dave Garofalo for violations of Government Code Section 1090 or
Government Code Section 87100 will be brought on account of an
act or omission that he made within the course and scope of his
employment;
B. That providing City-paid defense counsel to the pending
investigation and any subsequent criminal filing would be in the best
interest of the City; and
C. That any actions or omissions of Dave Garofalo were made in good
faith, without actual malice and in the best interests of the City.
3. That if the City authorizes providing a defense, that it further authorize the
City Attorney to negotiate a contract to provide a defense with Steven G.
Churchwell of the law firm of Livingston &Mattesich, and direct that the City
Attorney bring back the contract to the next City Council meeting.
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Suitstat:2001:Dave Garofalo 6-4-01
5/30/01
C f • •
4. That if the City Council authorizes a defense, that the Council further
authorize the cost of the defense counsel be paid from the Risk
Management Budget Litigation Defense Account No. E-IC-AS-870-43-05-
00.
1. NATURE OF CASE: Attached hereto please find the following documents:
(1) Letter of May 9, 2001 from Steven G. Churchwell to Gail Hutton, requesting
defense and indemnification for Dave Garofalo.
(2) Letter of May 22, 2001 from Assistant City Attorney Scott Field to Steven G.
Churchweil.
(3) Informal advice letter from Fair Political Practices Commission to City
Attorney regarding Councilmember Garofalo.
(4) Memorandum of June 19, 2000 from City Attorney to Dave Garofalo
regarding conflict of interest laws and Government Code Section 1090.
(5) Memorandum of June 29, 2000 from City Attorney to Dave Garofalo
regarding conflicts of interest in connection with advertising revenues
received by David Garofalo & Associates, Inc.
(6) Memorandum dated June 29, 2000 from City Attorney to Dave Garofalo
regarding request for FPPC opinion re:whether advertising revenues area
conflict of interest.
(7) Letter from David Garofalo to Gail Hutton, dated July 12, 2000.
As the above documents show, the question of whether the advertising revenues paid
for the Visitors Bureau Guide and other publications of David Garofalo &Associates
resulted in a conflict of interest has been addressed on a number of occasions. One
critical event was the obtaining of an informal advice letter from FPPC. At that time,
based upon information provided by Mr. Garofalo, representation was made to the FPPC
that he had sold his advertising publications to Coatings Resources. (See, page 3 of
FPPC advice letter, Attachment No. 3.) As later correspondence shows, issues
subsequently arose concerning the nature of the sale to Coatings Resources and
whether Mr. Garofalo was continuing to receive advertising revenues.
In July 2000, both the FPPC and the District Attorney began an investigation of this
matter. We are uncertain on exactly what allegations they are pursuing, but we assume
that they are related to Mr. Garofalo voting on matters concerning advertisers in one of
the publications. We are awaiting additional information on the nature of the
investigation to be received from Mr. Garofalo's attorney, but because of the statutory
timeline to consider requests for a defense, we are bringing this matter forward to the
Council now.
For the reasons set forth in our letter to Mr. Garofalo's attorney, we believe that whether
the Council may extend defense coverage to Mr. Garofalo is within the sound discretion
of the City Council. Certain findings must be made in order to provide such a defense
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Suitstat:2001:Dave Garofalo 6-4-01
5/30/01
counsel which are described in our recommendations. The Council may make these
findings either on June 4, 2001, if it wishes immediately to provide defense counsel, or
Council may wish to deny the request without prejudice, pending receipt of additional
information from Mr. Garofalo's attorney.
2. DEFENDANT & CO-DEFENDANTS: The District Attorney and FPPC are
currently investigating this matter. The likely defendant is Dave.Garofalo.
3. PLAINTIFF & CO-PLAINTIFFS: People of the State of California
4. BEING HANDLED INTERNALLY OR EXTERNALLY: The City Council has the
discretion as to whether to appoint defense counsel to represent officers and
employees in criminal matters. If the City Council makes certain findings, then it
may appoint defense counsel to represent Mr. Garofalo.
5. IN-HOUSE ATTORNEY LIAISON: Scott Field, Assistant City Attorney
6. OUTSIDE FIRM: The City Attorney recommends that the City Council
consider whether to make the findings described above and appoint defense
counsel.
7. FUNDS APPROVED BY COUNCIL TO COVER COSTS OF SUIT Over$30,000
in attorneys fees have already been incurred. It is requested that if the Council
authorizes that the cost of defense be paid, it should be paid from the Risk
Management Budget Litigation Defense Account No. E-IC-AS-870-4-05-00.
8. FUNDS EXPENDED TO DATE: None
9. AMOUNT OF ADDITIONAL FUNDS ANTICIPATED: To date, Messrs. Silver,
McClain and Dilks all testified before the Grand Jury. Since they are no longer
targets of any investigation, we are notifying Ms. Keller and Mr. Lowenstein to
provide no further services to their clients without specific authorization from the
City Attorney. We do expect that fees incurred if the Council authorizes
continued representation for Messrs. Beardsley, Jones and Noble will amount to
tens of thousands of dollars, and will be in excess of$100,000 if indictments are
issued.
3
Suitstat:2001:Dave Garofalo 64-01
5/30101
10. DATE SUIT FILED & COURT: No indictment has been issued.
11. TRIAL DATE: N/A
12. ANTICIPATED DATE OF RESOLUTION OF SUIT: Unknown.
13. SETTLEMENT OFFER FROM PLAINTIFF: None to date
14. IS OUT-OF-COURT SETTLEMENT LIKELY: Unknown
15. SETTLEMENT COMMITTEE AUTHORITY: N/A
16. LIKELIHOOD OF WINNING SUIT: N/A
17. FINANCIAL IMPACT IF WE WIN SUIT: N/A
18. FINANCIAL IMPACT IF WE LOSE SUIT: N/A
19. ARE PUNITIVE DAMAGES ALLEGED: There is no threat of litigation
against the City.
20. COMMENTS:
Pursuant to California Government Code § 825(a), the City must defend and indemnify
its officers and employees in connection with any civil liability. However, under
Government Code § 995.8, the City may provide a defense in,a criminal proceeding if
the City Council finds that
(1) The criminal action or proceeding is brought on account of an act or
omission made within the course and scope of City employment;
(2) The City determines that such a defense would be in the best interests of
the City and that the employee acted, or failed to act, in good faith,
without actual malice in the best interests of the City.
In order to make these findings, the City Council must consider the specific facts of the
case. We believe that the above summary of the facts, as well as the documents
provided with this report provide the City Council sufficient information in order to
determine whether to provide legal counsel.
4
Suitstat:2001:Dave Garofalo 6-4-01
5130101
i •
21. INSURANCE: None
-� Date: May JO , 2001
GAIL HUTTON, City Attorney
c: Ray Silver, City Administrator
- Bill Workman,Assistant City Administrator
Attachments: (as noted above)
5
Suitstat:2001:Dave Garofalo 6-4-01
5/30/01
LIVINGSTON 0 MATTESI ( H � .,, ,,;•. �•, t1. � 2
STEVEN G. CHURCHIYELL May 9 2001
ATTORNEY AT LAW
VIA FACSIMILE AND FEDERAL EXPRESS
Gail Hutton
City Attorney LMNGSTON & K1,TTESICH
City of Huntington Beach LAW CORPORATION
1201 K STREET, SUITE 1100
2000 Main Street, 4th Floor SACRA.NENTo, CA gg81.}-393$
Huntington Beach, CA 92648
FACSIMILE: (916)448-1709
E-JIAIL: SCHURCH%VELL@Ld[L.1tv.NET
Re: Request for Defense and Indemnification—Dave Garofalo TELEPHONE: (916)442.1111 EXT.30_
Dear Ms. Hutton:
As you may be aware, I have been representing Councilmember Dave Garofalo for
several months in connection with an investigation by the Fair Political Practices
Commission and the Orange County District Attorney of conflict of interest
allegations. Now that I have exhaustively reviewed the facts of this case, several
themes emerge.
First, each and every alleged violation arose from his position on the Council and as
Mayor of the City of Huntington Beach, and in each instance he was acting within the
scope of his employment. Second, Mr. Garofalo sought and followed assiduously the
legal advice he received concerning each potential conflict. Third,the conflict of
interest laws in this state are arcane at best, and could fairly be described as
incomprehensible to the average public official. Finally,it is the rare public official
of any prominence who will not at some point in their tern of public service be the
subject of a complaint to the Fair Political Practices Commission or the District
Attorney. The complainants these days rarely care about any perceived wrongdoing.
Rather,they use these laws as a weapon to neutralize any public official who does not
agree with their point of view.
For these reasons, I am asking that the City Council provide a defense and
indemnification for Mr. Garofalo. I am asking that the defense cover attorney fees
incurred to date (the approximate amount is $30,000) as well as those incurred in the
future. This may include an additional attorney with a criminal defense practice.
1IVINCSTON 0 MITTESICH
May 9, 2001
Page 2
These fees would be subject to any reasonable limitations and conditions the Council
may impose. The indemnification we are seeking is from administrative and civil
penalties. In the unlikely event of any criminal fines, they would not be covered.
I have great faith in our system of justice, and the presumption of innocence, as I am
sure you do. In addition,providing a defense and indemnification will send the right
message to persons in your great city who might be considering public service.
Mr. Garofalo has paid a very high price for his service to the citizens of Huntington
Beach. That price should not include financial ruin for him and his family.
Sincerely,
STEVEN G. CHURCHWELL
SGC:sp
iAschurchwelAgarofaloftnon re defense&indermdoc
f • •
1N6fpp '
OFFICE OF
CITY ATTORNEY
IIIrr P.O. Box 190
2000 Main Street Telephone
Gail Hutton Huntington Beach, California 92648 (714) 536-5555
City Attorney Fax (714) 374-1590
May 22, 2001 Via Fax (916) 448-1709 and U. S. Mail
Steven G. Churchwell, Esq.
Livingston &Mattesich
1201 K Street, Suite 1100
Sacramento, CA 95814-3938
Re: Your request for defense and indemnification of Dave Garofalo
Dear Mr. Churchwell
I am in receipt of your letter of May 9, 2001, requesting that the City Council defend and -
indemnify Mr. Garofalo in connection with a pending FPPC/District Attorney investigation. It is
my intent to present this request to the City Council at its meeting of June 4, 2001.
In order for my office to provide the City Council with the information it needs to evaluate your
request, it is critical that you provide a complete statement of the conduct and potential violations
that might be alleged against Mr. Garofalo. I note that your letter states that you have
"exhaustively reviewed" the facts of this case. You further state that "each and every alleged
violation arose from [Mr. Garofalo's] position on the Council and as Mayor of the City Council."
Consequently, you should be able to provide a full and complete statement of facts that are the
basis of the"alleged violations." In addition, given that both the FPPC and the District
Attorney's Office began this investigation in July 2000, please provide me with any changed
facts or circumstances that have caused you to now request a defense and indemnification on
behalf of Mr. Garofalo.
I would also like to share with you my preliminary legal research. First, I'm unaware of any
cases directly holding whether allegations of a violation of Government Code Section 1090 or
Government Code Section 87100 constitute acts within the course and scope of employment.
Second, our preliminary review is that you are requesting a defense to a criminal matter, and
consequently Government Code Section 995.8, not Section 995 applies. Under Section 995.8,
providing a criminal defense is entirely within the discretion of the City Council. This is
different than the requirement of Section 995 that a defense shall be provided to civil actions
arising from an act or omission within the scope of employment.
The basis for this conclusion is as follows.
Page 2
Steven Churchwell
Re: Dave Garofalo
First, the sanctions for violation of the Political Reform Act, or Government Code Section 1090
are generally criminal or quasi-criminal. Specifically, pursuant to Government Code Sections
91001(a) and 91001.5, the District Attorney has jurisdiction to seek criminal penalties for
violation of the conflict of interest laws. While the FPPC has authority to impose administrative
sanctions pursuant to Government Code §83115, et. seq., we perceive these penalties quasi-
criminal in nature.* Consequently, any defense to them must be considered under Government
Code Section 995.8.
Admittedly, the District Attorney also has the authority as a civil prosecutor to impose civil
penalties pursuant to Government Code Sections 91001(b), 91001.5, and 91003, as well as to
authorize the FPPC to file a civil suit. This authority to pursue the matter either criminally or
civilly might suggest that at least a defense to the FPPC could be considered under Government
Code Section 995. However, other considerations cause us to believe that even it still must be
considered as a request to defend a criminal matter. This conclusion is based upon our analysis
of the case law addressing what constitutes the "scope of employment."
At issue in Farmers Insurance Group v. Santa Clara Counn- (1995) 47 Cal.Rptr.2d 478, was the
request of a deputy sheriff and his howeowners' insurance carrier for defense and indemnity after
a sexual harassment action against the deputy and County was settled as to the deputy and
damages were awarded against the County. In order to adjudicate the request, the Court had to
determine whether the sexual harassment was within the"scope of employment such that the
officer was entitled to defense and indemnification under Government Code Section 995. The
Supreme Court held that "scope of employment"was intended to "make applicable the general
principles that the California courts use to determine whether the particular kind of conduct is to
be considered within the scope of employment in cases involving actions by third persons against
the employer for torts of his employee." 47 Cal.Rptr. 2d at 485-86. In other words, whether the
employer must provide a defense turns on whether the conduct in question is the type for which
the employer should be liable. Using this standard, the Supreme Court held that sexual
harassment was not within the scope of employment.
This issue was addressed again very recently in Stone v. Regents of University of California
(1999) 77 Cal. App. 4736, 92 Cal. Rptr. 2d 94. There, in a case involving alleged"egg stealing"
by a doctor employed by the University of California,the Court of Appeals explained that "the
term'scope of employment' means the same under the [Tort Claims Act] as it does in actions
against an employer for torts of his employees." 92 Cal.Rptr.2d at 101. The Court concluded
that the test is whether the employee's conduct is "not so unusual or startling that it would seem
unfair to include the loss resulting from it among other costs of the employer's business." 92 Cal.
Rptr. 2d at 101.
These two cases hold that the question of whether to provide defense and indemnification turns
on whether the employer can be vicariously liable for the act of the employee. However, in this
There can be no question that Section 1090 imposes criminal penalties.
SFF 01 letters:Garofalo5-18
Pace 3
Steven Churchwell
Re: Dave Garofalo
case, the City cannot be vicariously liable for the acts or omissions of Mr. Garofalo. First, as
explained above, both the District Attorney or the FPPC, if they pursue this at all, will be
pursuing it as a criminal or quasi-criminal matter. If convicted, the City can neither pay Mr.
Garofalo's fines nor serve his sentence. Even if the D.A. or FPPC pursue civil penalties, we see
no basis for them to file suit directly against the City on any theory of vicarious liability. Given
these facts, it is our preliminary conclusion that Mr. Garofalo is not entitled to a defense under
Government Code Section 995 and of course, could not be indemnified under this Code section.
Instead, under Government Code Section 995.8, the City may provide a defense in a criminal
proceeding if the Council finds that:
1. The criminal action or proceeding is brought on account of an act or omission
made within the course and scope of City employment;
2. The City determines that such a defense would be in the best interest of the City
and that the employee acted or failed to act, in good faith, without actual malice in
the best interest of the City.
In order to make these findings, the City Council must consider the specific facts of the case.
This brings us back to our original concern. It has been nine months since the FPPC and the
District Attorney undertook this investigation, and we have no information as to what the alleged
violations may be. Moreover, you note in your letter that Mr. Garofalo "sought and followed
assiduously the legal advice he received concerning each potential conflict." Since we do not
know what specific conflicts of interest violations have been alleged, we do not know what
specific legal advice he relied upon. Again, any information you can provide to this office as
quickly as possible so we can fully advise the City Council will be much appreciated.
As you know, under Government Code Section 995.2, the City would be required to respond to
your request within 20 days if this were a civil matter. As a practical matter, June 4th is the
earliest date that this matter can be brought to City Council. While I recognize that this is
outside of the 20 day period, I hope this does not cause your client or yourself any
inconvenience. As a practical matter,given the little information we have concerning the facts
of this matter, it is critical that we thoroughly analyze and consider your request based upon
such additional information as what you can promptly provide us.
Sincerely,
SCOTT FIELD
Assistant City Attorney
/s
SFF 01 letters:Garotalo5-18
P
FAIR POLITICAL PRACTICES ` CONINIISSION
P.O. Box 807 • 4291 Srrcct•- Sacramento.CA 95812-0807
(9161322-5660 - Fax(916)322-0886
October 20, 1998
Gail Hutton -
City Attorney
City of Huntington Beach "-
Post Office Box 190 ;�".'�'
E )
2000 Main Street
Huntington Beach, California 92648 =" =-
rrt-
Re: Your Request for Advice -- —
w
Our Fite No.1-98-220
Dear Ms.Hutton:
This letter responds to your request for advice on behalf of Huntington Beach City _
("City") Councilmember David Garofalo about the Political Reform Act (the"Act").t Because
you have not inquired about a particular government decision, we treat you' request as one for
informal advice.'
I. QUESTIONS'
(1) May Councilmember Garofalo participate in governmental decisions regarding
advertisers to the Local News, the Huntington Beach Visiror's Guide, and the Chamber of
Commerce Directory before December 15, 1998?
(2) May Councilmember Garofalo participate in govemn7erital decisions regarding
advertisers to the Local News, the Huntington Beach Visitor's Guide, and the Chamber of
Commerce Directory after December 15, 1998?
Govenunent Code sections 81000-91014. Corrunission regulations appear at title 2,sections 18109 -
18995,of the California Code of Regulations.
2 Informal advice does not confer the partial immunity chat formal advice does. See Section 831 14(b):
Kegulation 18329(c)(3).
3 Your original advice request also asked for advice about a decision involving funding for the Visitor's
Bureau. You have subsequently informed me that this issue has become moot; therefore,we are not responding to
that part of your request.
—1 S9 13:30 91532?2025 98x P.02
•
•
File No. I-98-220
Page 2
II. CONCUCSIONS
(1) While Mr. Garofalo continues to have an economic interest in a given advertiser
because that advertiser is a source of$250 or more in income to him during the 12 months
preceding a particular decision,he may not take part in the decision if the decision is
substantially likely to have a material financial effect on the advertiser. This is a case-by-case
(that is, decision-by-decision and advertiser-by-advertiser) determination.
(2) A source of income, such as an advertiser, is an economic .interest of a public official,
such as Mr. Garofalo, for twelve months after the income is received. Since Mr. Garofalo sold
the publications on December 15, 1997, the advertisers all will have ceased to be his economic
interests by December 15, 1998. At that point, they will no longer be sources of potential
conflicts of interest for iL r. Garofalo (assuming, of course, that they have not become his
economic interests in some other fashion in the interim).
III. FACTS
Mr. Garofalo was elected to the City Council in November 1994. He is the sole
shareholder of the David Garofalo Corporation ("Garofalo Corporation"). Until last December,
the Garofalo Corporation owned and operated the Local News, a senu-monthly paper circulated
in the cities of Huntington Beach, Fountain Valley and Westminster. The Garofalo Corporation
also had published the Huntington Beach Visitor's Guide on behalf of the Huntington Beach
Convention and Visitor's Bureau. Finally, the Garofalo Corporation published the Chamber of
Commerce Directory. (Hereafter, these three publications are collectively referred to as the
"publications.")
Mr. Garofalo owned, operated and served as the publisher of the Local News until
December 15, 1997. The Local News is published semi-monthly. Its over 100,000 annual copies
are distributed through direct mail, bundled drops, and "throwaways," 90 percent of which are
distributed in the city, and the balance in Fountain Valley and Westminster. The populations of
the three cities are as follows: Huntington Beach,population 181,519 (households 69,057);
Fountain Valley,population 53,691 (households 17,407); Westminster, population 78,1 IS
(households 25,077).
Prior to taking office, Mr. Garofalo submitted a proposal to the Huntington Beach
Convention and Visitors' Bureau(the "Bureau") to publish the Huntington Beach Visitors' Guide
(the "Guide"). That contract was awarded in 1993, with two automatic extensions. The Bureau
did not pay Mr. Garofalo for publishing the Guide; instead, his compensation is any advertising
net revenue he can obtain through selling advertisements in the Guide, after paying publishing
_ costs. The Bureau is a nonprofit, tax-exempt (IRC § 501(c)(6)) corporation. At one time,
Mr. Garofalo served as an unpaid member of the Board of Directors of the Bureau. While his
term has expired, he still serves as an ex-officio member. The Bureau's sole funding is through
OCT-20-19se 13:30 916327202E 98i P.03
•
File No. I-98-220
Page 3
an annual$190,000 grant from the.city; however, none of this grant money is paid to
Mr. Garofalo.
Mr. Garofalo's corporation also printed and published the Chamber of Commerce
Directory. The Chamber of Commerce does not pay him directly, but his potential compensation
is the sale of advertising space. Mr. Garofalo assumed all the risk associated with supplying a
complete publication to both organizations.
The gross revenues of the Garofalo Corporation through all three publishing ventures was
approximately 5350,000 for calendar year 1997.
On December 15, 1997, Mr. Garofalo sold all three publications to Coatings Resources,
Inc. ("Coatings"). This corporation has annual revenues of approximately S10 million.
Mr. Garofalo then contracted with Coatings as a consultant to provide a number of services to
Coatings independent of the print media products. His agreement calls for his consulting on non-
sales issues relating to the publishing properties sold to Coatings. Specifically, by agreement
between buyer and seller, Mr. Garofalo consults on the mechanical and technical aspects of
publishing. The majority of his $100,000 per year consulting fee is for other unrelated business
activities performed For Coatings.
A number of advertisers paid in excess of 5350 per year to Mr. Garofalo's corporation for
advertising. This is in excess of one-tenth of one percent of the gross revenues of 5350,000 that
was received by the Garofalo Corporation.
Mr. Garofalo is trying to determine if these advertisers pose a conflict of interest after
December 15, 1998, twelve months after the last receipt of advertising revenue through the
Garofalo Corporation.
IV. ANALYSIS
The Act's conflict-of-interest provisions ensure that public officials will perform their
duties in an impartial manner, free from bias caused by their own financial interests or the
interests of persons who have supported the (Section 8Specifically,i financial inter p s ppo m (S t n 1001(b).)
Section 87100 prohibits any public official from making, participating in making, or otherwise
using his or her official position to influence a governmental decision in which the official has a
financial interest.
As mentioned above, you have not identified particular advertisers, nor have you
specified particular government decisions in your advice request. Therefore, we can provide
only informal advice. The following analysis is intended to provide guidance that you and
Mr. Garofalo may use as particular decisions arise involving the advertisers. This guidance is
File No. I-98-220
Page 4
provided in the framework of the eight-step process recently adopted by the Commission for
analyzing potential conflicts of interest.
A. y1r. Garofalo is a public official subject to the conflict-of-interest rules, and
council actions affecting the advertisers fall within those rules.
- The Act's conflict-of-interest provisions apply only to "public officials." "Public
official," for purposes of the Act, is defined to include every member, officer, employee, or
consultant of a state or local agency (with certain exceptions not relevant here). (Section 82048;
Regulation 18701.) As a Member of the City Council, Mr. Garofalo is a public official for
purposes of the Act.
Also, the Act's conflict-of-interest provisions apply where a public official will be
making, participating in making, or influencing or attempting to influence a government
decision. (Section 87100; Regulations 18702-18702.4.) If\Mr. Garofalo takes part in decisions
affecting the advertisers by deliberating, voting, etc., he will be making, participating in making,
or influencing or attempting to influence a government decision, within the meaning of the
conflict-of-interest rules.
B. Mr. Garofalo's economic interests.
j, Introduction
The Act's conflict-of-interest provisions apply only to conflicts arising from economic
interests. The "economic interests" from which conflicts of interest may arise are defined in
Regulations 18703-19703.5. There are five kinds of such economic interests:
0 A public official has an economic interest in a business entity in which he or she has a
direct or indirect investment` of S 1,000 or more, or,in which he or she is a director,
officer, partner, trustee, employee, or holds any position of management(Regulation
18703.1);
• A public official has an economic interest in real property in which he or she has a direct
or indirect interest of S 1,000 or more (Regulation 18703.2);
An indirect investment or inrerest means any investment or interest owned by the spouse or dependent
child of a public official,by an agent on behalf of a public official,or by a business entity or trust in which the
official, the officiul's agents,spouse,and dependent children own directly,indirectly,or beneficially a 10-percent
interest or greater. (Section 8710.3.)
T— — 98 13:31 9163272026 9e% P.05
•
File No. I-98-220
Page 5
• A public official has an economic interest in any source of income which aggregates to
S250 or more within 12 months prior to the decision (Regulation 18703.3);
A public official has an economic interest in any source of gifrs to him or her if the gifts
aggregate to S290 or more within 12 months prior to the decision (Regulation 18703.4);
• ' A public official has an economic interest in his or her personal expenses, income, assets,
or liabilities, as well as those of his or her immediate family—this is known as the
"personal financial effects" rule (Regulation 18703.5).
3 Persons who paid S250 or more to advertise in the Dybticati ns while Mr. Garofalo
owned them are sources of income to Mr. Garofalo for twelve months thereafter.
There are two relevant rules of law here. First, the Act provides that an individual's
"income"includes a pro rata share of income received by a business entity of which he or she
owns 10 percent or more. (Section 82030(a).) Second, any person who provides income of S250
or more to a public official becomes an economic interest of the public official, and continues to
be so for twelve months afterwards. (Regulation 18703.3.)
Applying this law to the facts you provide, Mr. Garofalo owned 100 percent of the
corporation that owned the publications. Therefore, 100 percent of the advertising revenue �--
received from any particular source is attributed to him as incomes The advertisers who paid
S250 or more to advertise in the publications while Mr. Garofalo owned them thereby became
sources of income to him, and continue to be so for twelve months afterwards. Once this twelve-
month period lapses with regard to any particular advertiser, that advertiser is no longer an
economic interest of Mr. Garofalo's and no longer is a potential source of a conflict of interest
(that is, on the basis of having been an advertiser). Note that this determination must be made on
an advertiser-by-advertiser basis.
S It is unclear whether Mr.Garofalo owned the Visitors'Guide!and Directory,or merely produced them
for the visitors' Bureau and the Chamber of Commerce,respectively;in the larter case, the two entities could be
construed as the"owners"of the publications. However,it is not necessary to resolve this issue further because the
advertisers will be considered sources of income to Mr. Garofalo in tither case. If Mr.Garofalo actually owned the
publications(which is how we interpret your advice request), the advertisers are clearly sources of income to him.
However,even if Mr.Garofalo was not the technical owner of the publications, the nature of his compensation
agreements with the Visitors'Bureau and Chamber lead to the same conclusion. The most attenuated possibility is
that Mr.Garofalo's relationship to the Bureau and the Chambcr was analogous to the relationship between a
salesperson and his/her principal; i.e.,Mr.Garofalo as salesperson found advertisers for the entities' publications.
and the payments his corporation received from the advertisers were analagous to"commissions." Undcr the
Commission's regulations, the source of commission income includes tFe agent's principal and the custorner. (Sec
Regulation 18703.3(c)(formerly Regulation 18104.3).)
., c yP.06
File No. I-98-220
Page 6
Mr. Garofalo's corporation sold the publications on December 15, 1997. Advertising
revenue received after that date is not attributable to him-as income.
(Although you have inquired only about the advertisers, we note that the Chamber of
Commerce and the Visitors' Bureau appear also to be sources of income to Mr. Garofalo, and
therefore,potential sources of a conflict of interest. Because your request focuses on the
advertisers, this is not addressed further.)
C. As particular governmental decisions arise, Mr. Garofalo must evaluate whether
it is reasonably foreseeable that each decision will have a material financial effect on one or
more of the advertisers who are still his economic interest(s).
Once Mr. Garofalo has decided that a given advertiser is still his economic interest for a
given decision, he must decide if it is reasonably foreseeable that the decision will have a
material financial effect on the advertiser. There are three steps to making this evaluation. First, G
he must determine whether each of the advertisers is directly involved in the decision or not.
(Regulations 18700(b)(4), Regulation 18704 et seq.) Because you have not provided facts
regarding particular situations, we can address this issue only generally. We assume that most,
if not all, of the advertisers who are still economic interests of Mr. Garofalo are businesses. For
such businesses, the rules for determining degree of involvement in a decision are found in
�jRegulation 18704.1.
// Based upon the degree of involvement, Mr. Garofalo must then choose the right standard
for evaluating whether the financial impact from the decision on the advertiser will be material.
Assuming that the advertiser is a business entity, if the advertiser is directly involved in the G_
decision, the relevant materiality standard is found in Regu ation r8705.1(a). Again assuming
that the advertiser is a business entity, if the advertiser is indirectly involved, the relevant < 1
materiality standard is found in Regulation 18705.1(b). The latter regulation prescribes
alternative rules, which vary according to the size of the business.
Once the applicable materiality standard is identified, Mr.Garofalo can frame the critical
question. is it substantially likely that the materiality standard will be satisfied as to that
advertiser as a result of the decision? (See Regulation 18706.) If the answer is yes, then
Mr. Garofalo will have a conflict of interest unless the"public generally exception"applies: If
the answer is no, then he will not have a conflict of interest. 'We stress that this is a case-by-case
(that is, decision-by-decision and advertiser-by-advertiser) determination.
D. The "public generally exception."
This exception exists because a conflict of interest seems less likely when a large part of
the community feels essentially the same impact from a governmental decision that the public
official's economic interests feel. If the public official can show that a"significant segment"of
File No. 1-98-220
Page 7
the jurisdiction is affected in a manner"substantially similar' to the impact on his or her
economic interest, then he or she usually does not have a conflict. (See Regulation 18707.)
Again, it is impossible to draw comprehensive conclusions in absence of facts about a
particular decision involving a particular advertiser or advertisers. Assuming for the moment
that Mr. Garofalo will have a conflict of interest arising from an advertiser, the exception will
apply only if a significant segment, as defined in Regulation 18707(b)(1), of the jurisdiction or
his district is affected in substantially the same manner, as defined in Regulation 18707(b)(2), as
the manner in which the advertiser is affected.
In addition to the basic version of the public generally exception, there are a number of
special purpose variations of the exception. You have inquired about one of them, the exception
for"Sources of Income to Owners of Retail Business Entities." (Section 87103.5; Regulation
18707.5.) Section 87103.5 provides,
"Notwithstanding subdivision (c) of Section 87103, a retail
customer of a business entity engaged in retail sales of goods or
services to the public generally is not a source of income to an
official who owns a 10-percent or greater interest in the entity if the retail customers of the business entity constitute a significant
segment of the public generally, and the amount of income
received by the business entity from the customer is not
distinguishable from the amount of income received from its other
retail customers."
Regulation 18707.5, interpreting Section 87103.5, sets out a two-pronged test; both
prongs must be satisfied if the exception is to apply. First, "the retail customers of the business
entity during the preceding 12 months"must be either"sufficient in number to equal 10 percent
or more of the population or households of the jurisdiction"or"number at least ten thousand."
(Regulation 18707.5(a)(1), (2).)
If this numerical threshold is met, then subsection (b) of Regulation 18707.5 provides that
the amount of income received from a particular customer is not distinguishable from the amount
received from other customers if the amount spent by that customer during the preceding 12
months is less than one-tenth of 1 percent of the gross sales revenues of the business for the
preceding fiscal year.
Applying this law to the facts you present, we consider advertisers in newspaper-type
publications to be retail customers of the publications. (Hertz Advice Letter,No. I-90-663.)
-- Thus, the exception is potentially applicable to M aWs situation.
9
File No. I-98-220
Page 8
However, based upon what appears to be the only available facts, we are unable to
conclude that the exception applies here. Taking up the first prong of the Regulation 18707.5
test, you tell us that you are unable to provide circulation figures for the publications. In the past
we have accepted circulation figures to be a reliable estimate of the number of customers of a
publication. (Hertz. supra.) However,without a count of the number of customers of the
publications, or at least a reliable estimate, we cannot assume that the first prong of the
Regulation 1.8707.5 test is met. Therefore,we must advise that the exception does not apply. If
further facts become available, we are, of course, ready to advise you further at that time.
If you have any other questions regarding Us matter, please contact me at
(916) 322-5660.
Sincerely,
Steven G. Churchwell
Gener Counsel
By: P1
oherg I
Staff Counsel, Legal Division
SGC:TV:tls.
I:Mdvicc LtnA1Y9220.wpd
• -j -, -,
Fair Political Practices Commission
428 J Street, Suite 450
Sacramento, California 95814
Phone: (916) 322-5660
Fax: (916) 327-2026
FAX COVER SHEET
FAX NUMBER TRANSMITTED TO:
To: Gail Hutton
Of. City of Huntington Beach t72
• N
n�
Fax No.: (714) 374-1590 Uj
From: Tara Stock -
Date: October 20, 1998
D5E..J—1 EI�T'I'F n-;•r•,:r r„ -�:.,•���:-:: :�;::,t. .... rr. . .,,.,. ,�; r----;�•- ---- `..
Letter No. I-98-220 8
COMMENTS:
*Not including cover sheet
IF YOU DO NOT RECEIVE A"PACES.PLEASE TELEPHONE US IMMEDIATELY AT
(916)322-5660.
c
ko- CITY OF HUNTINGTON BEACH
Inter-Department Communication
TO: Honorable Dave Garofalo, Mayor
FROM: Gail Hutton, City Attorney
DATE: June 19, 2000
SUBJECT: Your Request for Advice Regarding Compliance with
Conflict of Interest Laws and Government Code § 1090
Pursuant to your request, we are prepared to request a formal opinion from the Fair Political
Practices Commission on the following matters:
1. Whether Mayor Garofalo may participate in governmental decisions regarding
advertisers who have made payments to the David Garofalo Corporation.
2. May you vote on planning matters related to projects located within 2500 feet of
your home, such as the CIi I/Blocks 104/105 Project?
3. What impact, if any does your purchase and sale of a home located in St.
Augustine, Huntington Beach, affect your ability to vote?
4. Whether the contract between the Visitors Bureau and the Local News to publish
the Visitors Guide violates Government Code § 1090?
At this time, you have already provided us with some information as to Questions Nos. 2 and 3
and we have already provided you with the opinion as to Question No. 2. We are also awaiting
Q
additional information from you concerning Questions 1 and 4. Aain,Q once when receive that
o �
information, we will forward it to the FPPC for a formal opinion.
In the meanwhile, it is our recommendation that pending receipt of this information and an
opinion from the FPPC, that you not vote on any matters concerning Blocks 104/105 or any
other advertisers in the Visitor's Guide.
You also should declare a conflict of interest on the record in connection with these matters.
In order to declare a conflict, you should either declare it orally at the City Council meeting or by
way of letter to the City Clerk, delivered in advance of the City Council meeting.
,The reason for this recommendation is that when the FPPC previously advised that you could
vote on advertisers, the FPPC's opinion was based in part upon your representations that you had
sold the publishing business to Coatings Resources, and'then entered into a consulting contract
with Coating Resources. As stated at page 3 of the FPPC opinion:
SF:2000 Memos: Garofalo 6-14
&19100-41
Honorable Mayor Dave Ga 4 to
june 19, 2000
Page 2 of 2
"Mr. Garofalo then contracted with Coatings as a consultant to provide
a number of services to Coatings independent of the print media
products. His agreement calls for his consulting on non-sales issues
relating to the publishing properties sold to Coatings. Specifically, by
agreement between buyer and seller. Mr. Garofalo consults on the
mechanical and technical aspects of publishing. The majority of his
$100,000 per year consulting fee is for other unrelated business
P b
activities performed for Coatings."
More recently, you have informed our office that while you have sold the Local News that
produces the Visitor's Guide, you have not sold the corporate entity that owns the Local News.
Consequently, advertising revenues are paid to the David Garofalo Corporation, a company you
'wholly own. The monies are then paid over to Coatings Resource.
The problem with this arrangement is that the advertising revenues, at least superficially, are a
"source of income" to you, and any source of income of over 5250 is a conflict of interest. This
situation is further complicated because you are personally involved in the sale of advertising
space in the Visitor's Guide. Together, these two factors create at least the appearance of
impropriety. Consequently, we recommend that you not vote on these matters until the FPPC
addresses this matter.
GALL HUTTON
City Attorney
c: City Council Members
Ray Silver, City Administrator
SF:2000 Memos: Garofalo 6-I1
6i 19/00-*t
•
J�
CITY OF HUNTINGTON BEACH
Inter-Department Communication
TO: Honorable Dave Garofalo, Mayor
FROM: Gail Hutton, City Attorney
DATE: June 29, 2000
SUBJECT: Conflicts of Interest in connection with advertising revenues
received by David Garofalo & Associates, Inc.
In our previous memo to you dated June 19, 2000 (attached), we recommended that until the
FPPC can formally address this matter, it was our recommendation that you not vote on any
matters concerning advertisers who paid $250.00 or more to the David Garofalo & Associates,
Inc., or its dba, The Local News. This would further include any advertising checks made
payable to Coatings Resources or the AQC Company.
The purpose of this memo is to clarify seveial points. First,when a public official is disqualified
from voting pursuant to the Political Reform Act, the disqualification includes both voting on the
matter as well as participating in the making of a decision, or using his or her official position to
influence the making of that decision at any level of the decision-making process. This means
that not only are you prevented from voting on matters concerning these advertisers,but you may
not participate in any City Council or staff level meetings, nor contact staff concerning any of
these advertisers.
The second clarification is that at the time of the June 19, 2000 memo, our office had not
specifically examined the Visitors Guide to determine who the individual advertisers were.
Consequently, the only specific advertiser mentioned in our June 19 memorandum was CIM.
We have now reviewed the 2000 Visitors Guide and the Chamber of Commerce directory and
prepared the attached lists of advertisers. (We have not reviewed The Local News.) While we
recognize that some advertisers may have paid less than$250 for their ads appearing in all these
publications, based upon the size of the ads in the Visitor's Guide, we recommend that you not
vote on any matters, nor participate in any discussions nor contact City staff concerning the
following advertisers:
■ Boeing
CIM Group
■ Chimayo at the Beach
■ Dukes Huntington Beach
■ Dynamic Cooking Systems
■ Ezralow Retail Properties
SF/s:SF-2000 Memos: Garofalo 6-29
6129/00-$3
Honorable Dave Garofalo, Mayor .
June 29, 2000
Pa-e 2
■ Hearthside Homes -
■ Inka Grill
■ Ocean Promenade
■ PLC
■ Quicksilver
■ Ruby's Surf City Diner
■ Sea One Village and LaQuinta Hermosa Apartments
■ Shea Properties
■ Waterfront Hilton
If you have any questions, please do not hesitate to contact us.
GALL HUTTON
City Attorney
Attachments: 1) Memo from Gail Hutton dated,June 19, 2000 -
2) 2000 Visitor's Guide Ad Breakdown
3) Chamber Member Directory
c: Members of the City Council
Ray Silver, City Administrator
SF/s:SF-2000 Memos: Garofalo 6-29
6129/00-#3
• 0
•
V9 CITY OF HUNTLNGTON BEACH
Inter-Department Communication
TO: Honorable Dave Garofalo, Mayor
FROM: Gail Hutton, City Attorney
DATE: June 19, 2000
SUTBJECT: Your Request for Advice Regarding Compliance with
Conflict of Interest Laws and Government Code § 1090
Pursuant to your request, we are prepared to request a formal opinion from the Fair Political
Practices Commission on the following matters:
I. Whether Mayor Garofalo may participate in governmental decisions reaardina
advertisers who have made payments to the David Garofalo Corporation.
2. May you vote on planning matters related to projects located within 2500 feet of
your home, such as the CIM/Blocks 104/105 Project?
;. What impact, if any does your purchase and sale of a home located in St.
Augustine, Huntington Beach, affect your ability to vote?
4. Whether the contract between the Visitors Bureau and the Local News to publish
the Visitors Guide violates Government Code § 1090?
At this time, you have already provided us with some information as to Questions Nos. 2 and 3
and we have already provided you with the opinion as to Question No. 2. We are also awaiting -
additional information from you concerning Questions 1 and 4. Again, once when receive that
information,we will forward it to the FPPC for a formal opinion.
In the meanwhile, it is our recommendation that pending receipt of this information and an
oin the FPPC that you not vote on an matters concerning Blocks 104/105 or an
opinion fr y y y
other advertisers in the Visitor's Guide.
You also should declare a conflict of interest on the record in connection with these matters.
In order to declare a conflict, you should either declare it orally at the City.Council meeting or by
way of letter to the City Clerk, delivered in advance of the City Council meeting.
The reason for this recommendation is that when-the FPPC previously advised that you could
vote on advertisers, the FPPC's opinion was based in part upon your representations that you had
sold the publishing business to Coatings Resources, and then entered into a consulting contact.
with Coating Resources. As stated at page-3 of the FPPC opinion:
SF:2000 Memos: Garofalo 6-14
6119100-X"l
Honorable Mayor Dave G0 .0
June 19, 2000 •
Page 2 of 2
"Mr. Garofalo then contracted with Coatings as a consultant-to provide
a number of services to Coatings independent of-the print media
products. His agreement calls for his consulting on non-sales issues
relating to the publishing properties sold to Coatings. Specifically,by
agreement between buyer and seller. Mr. Garofalo consults on the
mechanical and technical aspects of publishing. The majority of his
$100,000 per year consulting fee is for other unrelated business
activities performed for Coatings."
More recently, you have informed our office that while you have sold the Local News that
produces the Visitor's Guide,-you have not sold the corporate entity that owns the Local News.
_ Consequently, advertising revenues are paid to the David Garofalo Corporation, a company you
wholly own. The monies are then paid over to Coatings Resource.
The problem with this arrangement is that the advertising revenues, at least superficially, are a .
"source of income" to you, and any source of income of over S250 is a conflict of interest. This
situation is further complicated because you are personally involved in the sale of advertising
space in the Visitor's Guide. Together, these two factors create at least the appearance of
impropriety. Consequently,we recommend that you not vote on these matters until the FPPC
addresses this matter.
GAIL HUTTON
City Attorney
c: City Council Members
Ray Silver, City Administrator '
SF:2000 Memos: Garofalo 6-14
6/19/00-�"I
Huntington Beach Conference & Visitors Bureau
2000 Visitor's Guide Ad Breakdown
Advertiser Size of ad Page #
Airtech Advanced Materials..................................................1/4-page...........................3 5
BaciRestaurant......................................................................1/4-page.............................9
Boeing....................................................................................1-page..................... .....18 .
CafePlaka..............................................................................1/4-page...........................12
CIM-Group.............................................................................1/2-page...........................32
Chimay6 at the beach.............................................................1/2-page...........................27
Cold Stone Creamery.............................................................1/6-page...........................20
ComfortSuites.......................................................................1/2-page...........................28
Debbie Stock Photography ....................................................1/4-page...........................36
Don Racoon's Mexican Restaurant..........................................1/4-page...........................I
Duke's Huntington Beach.......................................................1/2-page...........................26
Dynamic Cooking Systems....................................................I-page..............................24
Ezralow Retail Properties:
The Crossings at Huntington.................................................1-page..............................43
FashionIsland........................................................................1/2-page...........................10
Fountain Bowl........................................................................1/6-page...........................26
Gecko's...................................:...............................................1/6-page...........................17
German Restaurant Bakery &Deli........................................1/8-page....................,......I I
Golden West College.............................................................2/3-page...........................11
Hearthside Homes. ................... ............................................1-page..... .......................30
H.O.M.E. (Home Organized Move Experts).........................1/4-page...........................15
Huntington Beach Realty........................................................1/4-page...........................34
Hurricane's Bar& Grill........ 1/4-page.............................9
InkaGrill................................................................................1/2-page...........................17
Irvine Spectrum Center..........................................................1/2-page...........................20
Jessica McClintock Company Store......................................1/6-page...........................27
Konika....................................................................................l-page..............................42
Lucci's....................................................................................1/4-page...........................14
MarketBroiler........................................................................1/4-page...........................12 _
..Motel Directory.. ...................................................................1/3-page...........................28
Best Western
Huntington Surf Inn
Ocean View Motel
Pacific View Motel
Sun W Sands Motel
Surf City's Beach Comfort Hotel
NewOrleans Cafe..................................................................1/4-page...........................13
OceanPromenade ...............................................................0..1-page..............................31
-Orange County Performing Arts Center................................1/6-page...........................28
PLC: Huntington Seacliff................................:.....................I-page..............................33
PierRealty.................................................................................1/4-page...........................35
g:\rod\HBCVB ads
Advertiser Size of ad Page
Pierside Pavilion....................................................................1-page..............................38
Huntington Surf& Sport
Louise's'Trattoria
Gallagher's Pub & Grill -
Mr. K's Karaoke
Quiksilver................:..............................................................1-page..............................21,
Rocky Mountain Chocolate Factory......................................1/4-page...........................34
RubyPalace ...........................................................................1/4-page...........................15
Ruby's Surf City Diner...........................................................1/2-page...........................32
Seawind Village & La Quinta Hermosa Apartments.............1/2-page...........................37
SheaProperties.......................................................................1/2-page...........................36
TheSugar Shack....................................................................1/8-page...........................25
Waterfront Hilton................:...................................................2-page spread................2-3
Woody's Diner.......................................................................1/4-page...........................14
Zack's Beach Resort...............................................................1/4-page...........................36
Total: 45 Advertisments 22 1/12 pages
g:lrodMCVB ads
• • 6/28/00
Chamber Member Directory:
1. 3D Instruments, Inc.
2. Abundant Living Enterprises _
3. I Academy for the Performing Arats
4. All basses covered
5. Armstrong, Alan Leigh—Attorney at Law
6. I Atlas World Travel
7. Autowerkes, Inc.
8. Baci Italian Restaurant
9. Best Value Tire &Auto Centers
10. Best Western Regency Inn
11. BMWK Auto Center
12. Carden Academy of Huntington
13. I Century Publishing
14. Chamber of Commerce
15. Coast Community College District,Coastline Community College,
Golden West College, Orange Coast College, and KOCE-TV sponsored _
by Dave Garofalo,the Local News,a community service
16. I Cully,Michael-Esq.
17. David P. Garofalo &Associates, Inc. as publishing staff
1". -DeGuelle Glass Company
19. 1 Don Ramon's Mexican Restaurant
20. E1Dorado Bank
21. Evans,William D.P.C. -Lawyer
22. Fountain Bowl &Ozzie's Sports Bar
23. Fountain Valley Regional Hospital&Medical Center
24. GTE
25. HB Blvd of Cars—Norm Reeves Honda,Daewoo,Toyota of HB,Terry
York Ford,DeLillo Chevrolet,Beach Lincoln Mercury,HB Mitsubishi,
HB Chrysler Jeep'Hummer,HB Dodge
26. HB Community Clinic
27. HB Hair Company
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• 6/28/00
28. Hearthside Homes
29. Hoag Hospital
30. Huntington Beach Hospital
31. Huntington Shores Motel
32. HVN Environmental Service Co.Inc.
33. ISU Insurance Services
34. Lexus of Westminster
35. Louise's Trattoria
36. Lucci's Deli Bakery
37. MaggiFlags
38. , Marie Callenders
)
19. Martynec & Deering, CPAs
40. I Minuteman Press
41. Orange Coast Memorial Medical Center
42. Pacific Liberty Bank
43. ` PNC Mortgage
44. I Rainbow Disposal Co.,Inc.
45. Real Orange
46. S &S Auto Leasing
47. Seawind Village/La Quinta Hermosa Apts.
48. Servpro of HB
49. Slaney McConnell Company
50. Surf City Backhoe
51. The Mail Secretary
52. I Time Warner Communications
53. User Friendly Computers
54. Washington Mutual
_: f i n;ta a_:,wns uhimilcrakk e-n iscm.do:
f •
CITY OF HUNTINGTON BEACH
Inter-Department Communication
TO: Honorable Dave Garofalo, Mayor
FROM: Gail Hutton, City Attorney
DATE: June 29, 2000
SUBJECT: Request for FPPC Opinion re: Whether Advertising Revenues are a
Conflict of Interest
Attached please find a draft of the information that we intend to send to the FPPC concerning
advertisers in the Visitors Guide, the Chamber of Commerce directory and The Local News.
Please note that our information is incomplete in some respects. We specifically need to receive
copies of any 1099s issued by Coatings Resources in your favor for 1998 and 1999 showing your
compensation. We also need to receive copies of that portion of Coatings' financial statements
for 1998 and 1999 showing how they treated revenues for The Local News, including retirement
of the promissory note. Alternatively, a copy of Coatings 1998 and 1999 corporate income tax
return, or at least that portion of the return dealing with The Local News, should be satisfactory.
Please let me know when we can expect this information, or if there is a problem in producing it.
GAIL HUTTON
City Attorney
Attachment
SF/s:SF-2000 McmosAcquesc for Info from DG 6-29
1 CITY OF HUNTINGTON BEACH
Inter-Department Communication
TO: Paul D'Alessandro
FROM: Scott Field
DATE: June 30, 2000
SUBJECT: Letter to the FPPC regarding whether advertising revenues received
by David P. Garofalo & Associates,Inc. results in a Conflict of
Interest for Mayor Dave Garofalo
I suggest the following language be incorporated into your letter to the FPPC.
On October 20, 1998, the FPPC issued Informal Advice Letter I-98-220. The issue in
that opinion was whether then Councilmember Garofalo could participate in
governmental decisions regarding advertisers to The Local News, the Huntington Beach
Visitors Guide and the Chamber of Commerce Directory after December 15, 1998, a date
that was one year after Mr. Garofalo had sold the publications. In that opinion, the FPPC
advised that Mr. Garofalo could participate in such decisions because the advertisers will
have ceased to be his economic interest.
Recently,we have obtained additional information concerning the sale of the
publications. We are hereby requesting that you issue a new, formal opinion on whether
these advertisers pose a conflict of interest in light of these additional facts. These facts
are as follows:
SF-2000 Memos: PDA—Garofalo 6-29
6/30/00-#3
Attached please find copies of the Agreement to Purchase The Local News (the
"Agreement") and the Amendment to-the Agreement To Purchase The Local News (the
"Amendment"), both between David P. Garofalo & Associations, Inc: ("DPGA") and
Coatings Resource Company ("CRC.") These are the agreements by which the sale of
the publications was accomplished. Although the agreements speak for themselves and
your opinion should be based upon the text of the agreements,we would like to point out
the following provisions and provide certain additional information:
1. The Agreement provides for the sale of"the rights to" The Local News
and other publishing properties. The purchase price under the original
agreement was S220,000 paid at the rate of$20,000 down and the balance
due on January 2001. Interest on the balance shall accrue at the annual
rate of seven percent.
2. In I-98-220,page 3, you indicated, without having received a copy of the
actual Agreement,that the"agreement calls for his consulting on non-
'sales issues relating to the publishing properties sold to Coatings.
Specifically, by agreement between buyer and seller, Mr. Garofalo
consults on the mechanical and technical aspects of publishing. The
majority of his $100,000 per year consulting fee is for unrelated business
activities performed for Coatings." However,that statement is not entirely
accurate. Please note that in the Agreement, Mr. Garofalo is to act as
publisher throughout the 36-month period. He acts as publisher in all
respects, including solicitation of advertising.
SF-2000 Memos: PDA—Garofalo 6-29
6130100-#3
3. In addition, neither the Agreement nor the Amendment sets compensation.
Rather, it provides that compensation will be established by a separate
agreement. In fact, we have since learned that there is-no such separate
agreement. However, as a practical matter, Mr. Garofalo was paid as a
consultant. Attached please find a copy of his IRS 1099 for 1998 and
1999. These indicate that he was paid as a consultant $ for
1998 and S. for 1999. In addition, enclosed please find a
copy of that portion of Coating Resource Company's financial statements
for 1998 and 1999 regarding The Local News.
4. Notwithstanding the sale of the publishing rights, Mr. Garofalo has
continued to be the sole shareholder in DPGA. In addition,DPGA owns
"The Local.News" as a dba. In fact, most advertising checks were paid
either to DPGA, or The Local News bank accounts. In some cases, they
were paid to CRC. Ultimately, all such revenues were applied to the
publishing costs and expenses for The Local News, as is reflected in the
Coatings financial statements. As indicated in the financial statements and
as is provided pursuant to the amendment to the agreement,the profit for
1998 was $ and the profit for 1999 $ , and both these
amounts were paid to Mr. Garofalo to reduce the original promissory note.
5. Please also note that the Amendment provides that:
"Garofalo agrees to transfer all of the books and records of TLN to
Coatings and Garofalo will establish a new bank account for TLN.
SF-2000 Memos: PDA—Garofalo 6-29
6/30/00-#3
Coatings will own the account and have all rights to the monies in
the account with Garofalo having check signing authority to run
and publish TLN and to pay down the Promissory Note and to pay
his compensation for publishing TLN."
6. At this time,given that DPGA(which is owned by Mayor Garofalo)has
received advertising funds, we have advised him not to vote on any
matters concerning advertisers who have paid more than$250.00 in
advertising fees within the last year notwithstanding the fact that the
advertising revenues belong to CRC. We have indicated to Mr. Garofalo
that he should follow that advice until the FPPC can issue a formal
opinion on this matter. This advice was provided because Mayor
Garofalo: (1) owns DPGA which received some of the advertising
revenues, (2) controls the checking account of The Local News, which
received most of the advertising revenues, (3) acted as publisher of The
Local News ,and solicited advertisers, and (4) had an incentive to obtain
ddvertising revenue to pay down the promissory note. Given these facts,
we concluded that these advertisers probably constituted sources of
income to Mayor Garofalo that disqualify him from participating in any
ti
decision regarding the advertisers.
SF-2000 Memos: PDA—Garofalo 6-29
6/30100-#4
AGREEMENT TO PURCHASE
THE LOCAL NEWS, ET. AL.
This Agreement is by and between David P. Garofalo & Associates,
Inc., and the rights to THE LOCAL NEWS AND OTHER PUBLISHING
PROPERTIES (TLN) and Coatings Resource Corporation, (CRC), their
President and CEO, Edwin Laird (Laird), this day of 1998 in
Orange County, California.
CRC has made an offer to acquire TLN and publishing rights to
other magazine products currently produced by TLN. The purchase price
is $220,000 (two hundred and twenty thousand dollars.) It is to be paid at the
rate of$20,000 (Twenty thousand dollars) down, the balance in 36 months
from the date of this transaction. Interest on the balance shall accrue at the
annual rate of 7% (seven per cent).
This is a Promissory Note. The Purchase Price has been deferred for
an agreed period of time as a convenience to the buyer. All funds are due
and payable under the conditions of this agreement unless otherwise
mutually agreed to. Both parties agree to pay any legal cost necessary to
enforce the Agreement to the aggrieved party.
David P. Garofalo & Associates, Inc. (Garofalo) will act as Publisher
during the-thirty-six month final payment period. As a consultant,
Independent Contractor, Garofalo shall advise on printing,
newspaper/magazine layout, typesetting. graphic design, demographic
research, staff development, news generation and assist in creating new
editorial, real estate, classified type special pages for the various products.
Compensation shall be agreed to under separate cover.
CRC President Laird intends to take an active role in the develop of TLN,
author columns and manage the sales and marketing activities of the
products listed above as President and CEO of Coatings Resource
Corporation, the parent company.
The statement: "A Coatings Resource Company" shall appear on all
products produced under this Agreement regardless of any dba's currently
in use or developed in the future.
This is the entire Agreement. All issues pertaining to the execution
of any issues deriving from this Agreement shall be adjudicated in Orange
County (Huntington Beach), California as a matter of record.
This Agreement can be changed by mutual consent during the course
the terA- e
David P. Inc Coatings Resource Corporation
Davi . al Edwin Laird - President
AMENDMENT TO AGREEMENT TO
PURCHASE THE LOCAL NEWS, ET. AL.-
This Amendment is made February 25, 1998 by and between Coatings
Resource Corporation (Coatings) and David P. Garofalo & Associates, Inc.
(Garofalo)regarding the Agreement to Purchase The Local Mews and other
publishing properties (TLN) as set forth in the Agreement to Purchase dated
January 14, 1998, Due to certain personal matters concerning Edwin Laird and his
wife, Coatings and Garofalo agree to the additional terms set forth in this
Amendment.
Garofalo agrees to undertake-the actual printing of TLN for.Coatings, along
with performing the obligations of Garofalo under the Agreement. Given that
Coatings is required to pay the purchase price of$2.20,000 under the Agreement
regardless whether TLN makes a profit, Garofalo will attend to the publication of
TLN for the exclusive benefit of.Coatings. A1.1 of the profits generated by TLN
. .shall belong exclusively to Coatings. Coatings plans on applying' the profits from
TLN-to pay down the promissory note (first.to interest, then to the principal) set
forth in the Agreement during the thirty six month period.following the purchase. .
by Coatings. Coatings will pay Garofalo the balance owing on the note, if any, at
the end of the thirty six month period.
Given that Garofalo was not going to act as the publisher of TLN under the
Agreement,.Coatings will agree to compensate Garofalo for agreeing to remain as
the acting publisher for Coatings. Garofalo and Coatings agree that they will
discuss the exact amount of compensation to be paid to Garofalo during the term
of the Agreement. Garofalo agrees to allow Coatings to take over the publishing
function of TLN immediately upon Coatings written request.
Garofalo agrees to transfer all of the books and records of TLN to Coatings
and Garofalo will establish a new bank account for TLN. Coatings will own the
account and have all rights to the monies in the account with Garofalo having _
check-signing authority to run and publish TLN and to pay down the Promissory
Note and to pay his compensation for publishing TLN.
All other matters contained in the Agreement remain unchanged.
9vid Garofalo Assoc.,.Inc. Coatings Resource Corpo anon
David P. Garofalo - President Edwin C. Laird -President
DAVIT P. GAROFALO
A J(l r_
' GUERRILLA MARICUING IN A HIGN TicN sorlusTicATEo WomLO 630 MAIN S rRt
HUNTINr,TpN BEACH, CA 92
r„ly 12, 2000
Cn
Ann* Gail Hutton 1
City Allumey
This letter sets forth the facts regarding my sale ofmy corporation's in!erests in"The I-O Mi Ncws"
( TLN')and related publishing rights and my subsequent activities. It is my understanding at this time.
that the sale allnwed me to sub sequenrly participate in discussions and decisiotLs regarding advertisers in
TLN and related publications sold by my corporation.
F_llowin;months cf discussions with F.d Laird.!!it CI-.0 of Coati-- Resource Corporation
("CRC."), my utrporation, David P.Garofalo&Associates,Inc. ("Corp")entered into an agreement with
('R('for the sale of All of illy Corporation's rights in T1.N and the publishing rights to other magazine
products produced by'rL.N. The total purchase price was 5220,000. The purchase Agroenicnt was entered
into on January 14, 1998
Sheerly after this_l;:'N:aonl:yeas siE ncd,Mr.Laird's:!^:a, -ho at the time was b2!tlin ..ii! ese
took a turn rorthe worse. Mr. laird subsequently askeJ tnc if 1 would be willing to do hits a favor and
operate TLN for the benefit of CRC. 1 was reluctant to do so for ury own personal health reasons. Mr.
Laird told me that I would be paid for my time by CRC and if TLN generated any profit,Mr.Laird said he
would use the profit to pay down the,,romis-ciry note,which CRC owed my Corp for the purchase. In any
event,Mr.Laird acknowledged that CRC owed(aud owes)the balance of the purct)asc price regardless of
the succ_s.,•ur failure of'!'LN and the related publications. my Iong time personal relationship
A% Laird and his wife, and even though I was beginning to experience medical problems of my own
(which is the main reason 1 cold the Corn's publishing busincSs in the first place) I agreed to work for CRC
by acting as the publisher for CRC of TLN.
CRC and the Corp entered into an Amendment to[lie Agreement on February 25. 1998, tht Ccm
agreed to undertake Elie printing of TLN for CRC. All of the profit.;of'FLN(as well as all of the loses,if
any)belong exclusively to CKC. The unconditional obligation of CRC to pay the Corp the purchase price
retwined unchanged
In effect,af(er the sale(on February 25, 1998),1 becatne in independent contractor i::scd by CRC
to act as the publisher l reixived no direct benefit from this job from third parties(i.e.,advertisers)
Although CRC used profits generated from its ownership of TLN to pay tire fl)r my services to CRC anti tt)r
payment on CRC's proniissoty note ubligation,CRC could have used monies from any of its sources of
income to do so,and it was obliga!ed to do so,whether or not TIN generated any profit or any revenuc.
CRC subsequently sold its rights under the Agreerrci t and Amendment to Air Qu_.tit,
Consultants, Inc.("AQC"). From that time,at the request of AQC,I have;been acting as the publisher for
AQC-all olhLT conditions and arrangements remained the same. CRC retrains fully liable for the payment
of the balance orthe purchase pI ice to the Corp. The accountant for the Corp and the accountant for-CRC
and AQC have been handling the accounting marters regarding the sale. 1 war paid a consultinv/publishing
fee of S 10,000 for my work for CRCIAQC far 1998 and there was a$25,000 pay down on the note balance.
This amount included princil).yl and inti.rcBt nn the hal:tnce outstanding at 7%intem,�t The same
arrangement applied for 1999 and has applied thus far in 2000. 1 expect to receive the final numbers for
1999 f om the accountants in the near tit!i_re.
TKE-PHONE: (714) 53G-1220 - (714) 694 G252 EMAIL: hbnews'. aol.com FAX:(714) 374.19fi1
JUL-21-2000 16:14 714 893 2322 95% P•01
Zl' cuuU rn1 IUtU, ozo 4,)c4 kuacings resource W UUZ/UUZ
Gail Hutton
Palre 2
July 12,2000 '
All of the monies generated by TLN and rclatul publishing rights for January 14, 1995 belonged
exclusively to CRC and, after The transfer by U%C,to AQC. All transactions regarding TLN were known
to and approved by CRC and AQC. Although t11e paperwork was not the best,this was due in large part to
my personal medical probienls and those of my son T had an angioplasty procedure in 1998,and again ill
1999. In 2000.1 had open-heart surgery. My own medical problems were overshadowed by those of my
sort, and our illnesses dc-tracxed greatly from my focus on the business paperwork for die publications
owned by CRC and AQC Nonetheless, the facts show that 1 had no fittattcial incentive to act as the
publisher of TLN or related publications. MC owed(arid owes)the balance of the purchase price whcthet
1 or someone else acts as the publisher(or if no one published,the money is still owed to the Culp). T
merely acted as publisher as a favor to my long time friends,Mr.&Mrs. Ed Laud.I wtu paid for illy
services from the funds owned by CRC and AQC. CRC could have clwsctl to pay down the note from any
of its sources of income and was free to terminate me as tha publisher at any tune. The same applies to
AQC.,and AQC can cease using me as the acting publislicr at any time. CRC still owes me the balance due
oil the note from the sale, attd will pay rue the balance from its own funds. Given my relationship with
CRC:and AQC,1 have not been involved in any decisions concerning CRC or AQC.
1 believe some have raked the position that 1 atn unable to vote on any matters affecting advertisers
in the'11.N or the related publications that were sold. I do not agree with this assertion. The argument fails
its that there is no direct benefit that 1 am receiving froat such advertisers. Just as if 1 was an employee at a
factory which sold 5300 widgets to individuals or businesses,the fact that I am an ernploycc and receive
payment for my services from my employer would not bar me from making decisions regarding matters
affecting customers of my employer who purchase the widgets. In addition, my request fur opinions from
the City Attorney's Office has been.a series of steps getting me from a ptivatc citizen to a public ofrcial.
As those issues were brought forward,further and further adjustments were accommodated to protect both
the private citizen and public official, at least to the best of my ability to anticipate and deal with each of
those issues.
These are the facts regarding my sale of TLN aed the related publishing rights. The only incentive
I had to agree to act as the publisher of'I`1,N was(and is) goy long tern friendship with Mr.Laird and his
wife. Mr.Laird and especially his wife continue to struggle with personal medical matters. I care for them
very deeply and I am willing to do all T canto assist them. I hope that Ills irtfuttuation will assist you in
your review of t1tis matter. Should you have any quesUotts,phase feel free to call me.
Very Tntly Yours,
David P.Garofalo,Mayor
City of Huntington Beach
DG/sw
JJL-21-2000 16. 14 714 893 2322 95% -•-82 —
RECOVED FROM0 0 ANDMADEAPARMFIRE
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OFFICE OF TW cM
J ' COWME BROCKWAY.Cf N CLERK
• ITEM#-�
CITY OF HUNTINGTON BEACH
Inter-Department Communication
CONFIDENTIAL: ATTORNEY-CLIENT PRIVILEGE
To: HON. MAYOR AND MEMBERS OF THE CITY COUNCIL
From: GAIL HUTTON, City Attorney
Date: June 4, 2001
ITEM NO. 3 ON THE CLOSED SESSION AGENDA FOR THE JUNE 4
Subject: 2001 CITY COUNCIL MEETING, ENTITLED "In the Matter of the Request
of Councilmember David Garofalo for Defense and Indemnification for a
Pending Fair Political Practices Commission/District Attorney Investigation
We received this morning a request from Steven G. Churchwell, counsel to Councilmember Dave
Garofalo,that the above-entitled matter be continued for two weeks. As part of the attached
request, Mr. Garofalo's attorney waives any rights he has under the Government Code to have
this matter heard on June 4, 2001.
We concur in the request for the continuance. Our office has not yet had the opportunity to
consider the matters stated in the enclosed letter. A two-week continuance will allow us to
further advise the City Council on this issue.
In addition,we have recently received the following two questions:
Q. Must the City Council consider this item in closed session?
A. No. The City Council always has the discretion whether to
adjourn to closed session.
Q. May Councilmember Garofalo vote on this matter?
A. Yes, for the reasons stated in the attached decision of the FPPC.
GAIL HUTTON
City Attorney
Attachment: Letter dated June 1, 2001 from Steven G. Churchwell, Esq. to Scott Field, Esq.
FPPC Advice Letter to Phillip Romney, No. A-99-292
�:_- l `14 0�
LIV INC STON 0 MITT ESICH
t i C!F'�'.�,f
STEVEN G. CHURCHWELL June 1, 2001
AT[00.NEY AT LAW
VIA FACSEMME AND FEDERAL EXPRESS
Scott Field,Esq. LIVINGSTON& MATTESICH
Assistant City Attorney LAW CORPORATION
City of Huntington Beach - 12o1 K STREET,SUITE 1100
2000 Main Street, 4th Floor SACRAMENTo, CA 95814-3938
Huntington Beach, CA 92648 FACSIMILE: (916)448.1709
E-MAIL: SCHL'RCHWELL@LMLAIV.NET
TELEPHONE: (916)442.1111 EXT.3042
Re: Request for Defense and Indemnification—Councilmember Dave Garofalo—
Response to Your Letter Dated May 22,2001
Dear Mr. Field:
Thank you for responding to our request for a defense and indemnification. I trust
that our responses to your questions will assist your office in advising the Council
regarding this important decision. We remain firm in our position that a mayor and
member of the City Council,when participating in decisions of the City Council, is
acting squarely within the scope of his employment and, therefore, is entitled to a
defense and indemnification at City expense.
Also,we believe that it would be in everyone's best interests to continue this matter
for two weeks. We hereby waive any argument that we could assert as a result of that
14 day delay.
Initially, I would like to address a slight misperception in your letter that both FPPC
and Section 1090 penalties generally are criminal. First,you state on page 2: "[T]he
sanctions for violation of the Political Reform Act,or Government Code Section
1090 are generally criminal, or quasi-criminal." Later,on page 3,you state,"[A]s
explained above,both the District Attorney or the FPPC,if they pursue this at all,will
be pursuing it as a criminal or quasi-criminal matter."
LIVINGSTON 4 MATTESICH
June 1, 2001
Page 2
These statements are incorrect. In fact, the vast majority of all alleged violations of
the Political Reform Act are charged under the administrative penalty provisions of
the Act. A very small percentage are filed as civil cases, and less than one percent are
pursued as criminal prosecutions. You also may recall that the District Attorney is
the civil prosecutor for local officials, and often assists the FPPC in its investigation
without taking any action.
Similarly, Government Code section 1090 and its predecessor sections have been in
place for 150 years in California. The most common penalty imposed by far is a civil
judgment ordering repayment of the funds paid by the government to the public
officer/contractor. In fact,there are only six published decisions involving criminal
convictions under Section 1090 in the state's history. The prototypical 1090 case is
Thompson v. Call(1985) 38 Cal.3d 633. There, a City resident brought a taxpayers'
suit challenging validity of contract under which a corporation, in exchange for a
permit, agreed to purchase a parcel of land from a city councilmember and convey it
to the city for use as public park. The Supreme Court held that the city
councilmember violated Section 1090; therefore, the city was entitled to retain the
land and recover purchase price plus interest from the city councilmember. A harsh
result indeed, especially given the fact that the City Attorney had advised the
councilmember that he could vote,but certainly not a criminal prosecution.
Second,we invite you to revisit your analysis of the case law addressing what
constitutes the"scope of employment." Your letter describes two cases(Farmers and
Stone)in which California courts found that certain extreme conduct on the part of
public entity employees did not fall within the scope of the employees'jobs for
purposes of triggering a duty to defend or indemnify.
Even a superficial review of these cases makes clear that the transgressions
perpetrated by the employees are in no way similar to the conduct giving rise to Mr.
Garofalo's request for a defense. In Farmers, a sheriff deputy subjected other
deputies,including a trainee under his supervision,to "inappropriate touching and
requests for sexual favors."' He"lewdly propositioned and offensively touched"
1 Farmers Ins. Group v. Santa Clara County(1995) 11 Cal.4t'992, 997.
LIVINGSTON 0 MATTESICB
June 1, 2001
Page 3
these women and then sought defense and indemnity from his employer, the County.2
The facts of Stone are perhaps even more egregious. There, a physician on the
faculty of U.C. Irvine was also a partner in a private fertility clinic. He and his clinic
were sued by a woman who alleged that the physician took her eggs without her
consent as part of a"conspiracy to misappropriate and misuse [her] eggs."' The
physician took the position"that his private practice at [his clinic] was within the
scope of his employment"with the university and that the university therefore owed
4
him a defense.
Not surprisingly,the court in both of these extraordinary cases supported the
government entity's decision not to defend and indemnify the employee. However,
the rule of law applied in these cases indicates quite clearly that the allegations
against Mr. Garofalo stem entirely from actions taken within the scope of his
employment. It is only because the facts of Farmers and Stone are so different from
the facts of Mr. Garofalo's case that the employees in those cases were denied a
defense.
Since your letter reveals a significant misreading of the legal analysis involved in
determining the scope of a person's employment,we will clarify the rulings of
Farmers and Stone. Your letter states,"These two cases hold that the question of
whether to provide defense and indemnification turns on whether the employer can be
vicariously liable for the act of the employee. (Emphasis in original.) This
interpretation almost certainly stems from the fact that in both Farmers and Stone,
both the public employee and the public entity were being sued in tort by third
parties. In that situation, the vicarious liability shortcut provides a workable answer
to the question of whether an employee's actions were within the scope of his
employment.
2 Farmers, at P. 998.
3 Stone(1999)77 Cal.App.4'736,749.
4 Stone, at p. 748.
iAIC
LIVINGSTON 0 MITTESICH
June 1, 2001
Page 4
In a case like the present one,however,where a public employee is being investigated
b government officials one must look further to determine whether the employee's
Y g
acts were within the scope of his employment. Thus,while vicarious liability itself is
not the test for scope of employment, the law of vicarious liability does provide the
analytical tools for making that determination. As laid out in Farmers, "[a]risk arises
out of the employment [and the employer should therefore defend] when, in the
context of the particular enterprise. . . the risk was one that may fairly be regarded as
typical of or broadly incidental to the enterprise undertaken by the employer."5
Here,the enterprise undertaken by the employer is that of governing the City of
Huntington Beach. In the context of that particular enterprise,the risk that a mayor
might be sued for improperly participating in a city council vote is certainly"broadly
incidental"to the enterprise. This is particularly true where, as here, the mayor voted
only after being advised to do so by the City Attorney. Following the advice of the
City Attorney and voting on matters before the city council are certainly activities
within the scope of a mayor's role in city governance.
The Farmers and Stone cases also provide alternatives tests for determining the scope
of a person's employment. Both cases hold that an employee's conduct is within the
scope of employment if it is"not so unusual or startling that it would seem unfair to
include the loss resulting from it among other costs of the employer's business.s6 In
this case, as stated above,the employer's business is that of governing Huntington
Beach. Where Mr. Garofalo's conduct is simply that of participating in City Council
votes on the advice of the City Attorney,Huntington Beach certainly cannot claim
that this conduct is unusual or startling.
Another way to recognize that strict focus on vicarious liability is flawed is to assess
the implications of that interpretation. As you point out, "the City can neither pay
Mr. Garofalo's fines nor serve his sentence." If this fact alone were sufficient to
indicate that Mr. Garofalo's conduct was outside the scope of his employment,public
5 Farmers, at p.1003. (Emphasis in original. Internal quotations omitted.)
6 Farmers, at p. 1004; see also Stone,at p. 748.
LIVINGSTON 4 MATTESICH
June 1, 2001
Page 5
entities would never have the duty or even the right to defend an employee in a
criminal action. Government Code section 995.8,however, shows that this is not the
case. As you point out in your letter,that Code section sets out the conditions under
which a public entity can provide such a defense. This fact makes it clear that
adherence to the vicarious liability or the"City can't go to jail"rule of analysis
proves far too much.
Like you,we are unaware of any published California court decisions addressing
whether alleged violations of Government Code sections 1090 or 87100 constitute
acts within the course and scope of employment. However, one state has addressed
the issue of a government entity's obligation to defend a public official from criminal
allegations stemming from that official's participation in government body votes.
We refer you to the New Jersey case of Powers v. Union City Board of Education.
The relevant New Jersey statutes mirrors California's Government Code sections 995
and 995.8. In order for the governmental entity to provide a defense,the statute"not
only requires that the criminal action involve an act or omission arising out of the
performance of the board member's duties but also in the course of the same."7 In
Powers,the court pointed out that there are certain instances in which alleged
conduct,though criminal, arises in the scope of a public official's employment. Since
that case involved a member of a board of education rather that a member of the city
council,the court's examples focus on board of education activities. Nevertheless,
they are highly instructive in this case since they point out voting by a public official
is precisely the sort of activity that can give rise to criminal allegations but still be
within the scope of the official's employment. Examples cited by the Powers court
include a board member voting"to exclude a child from a public school because of
race, creed, color, etc." and voting"for the disbursement of public money or the
creation of an obligation in excess of appropriations,"both of which are criminal acts
in New Jersey.8
7 Powers v. Union City Bd. of Education (1973) 308 A.2d 71, 74.
8 Powers, at p. 75.
LIVINCSTON 0 MITTESICH
June 1, 2001
Page 6
The Powers court held that although these activities are criminal, their defense would
trigger the indemnity provision of the New Jersey statute"because the gravamen of
the litigation took place when and where the individual performed his duties and
while he was fulfilling the duties of a board member." The same facts present
themselves in Mr. Garofalo's case. His allegedly wrongful actions (voting on matters
before the city council on the advice of the City Attorney)took place precisely when
and where he performed his duties as mayor and while he was fulfilling those duties.
Certainly,Mr. Garofalo's participation in the city council votes in question was an
activity within the scope of his employment as mayor.
Moreover,the FPPC has been asked on many occasions to review defense/
indemnification issues arising under the same circumstances and allows the affected
public official to participate fully in the discussion and vote on the issue under the
"compensation" exception to the definition of income.
"In certain circumstances, a defense and indemnification are part of
the `terms and conditions' of public office or employment. Therefore,
a public official who takes part in such decisions about himself or
herself is not disqualified from `making,' `participating in making' or
`influencing' governmental decisions because of the regulatory
exceptions. Thus, Councilmembers Johnson and Garfield may
participate in decisions about whether they will be indemnified for
general or special damages and payment of attorneys' fees for their
defense,because the city/agency is obligated to provide such if they
were acting within the scope of their employment or office." (Romney
Advice Letter,FPPC No.A-99-292 [citations omitted].)
Your letter also asks for"a complete statement of the conduct and potential violations
that might be alleged against Mr. Garofalo." There are two problems with that
request. First,you will need to ask the District Attorney and FPPC for that
information. They have chosen not to share it with me to date. Second,if I were to
disclose my opinion from my review of the facts,I would waive the attorney work
product privilege and would breach the attomey-client privilege as well. Thankfully,
there is no basis for such drastic measures in the present case. Your office is as
familiar with the circumstances that led to the complaint and current investigation as I
am,perhaps more so. All in all,the City Council has adequate information from
11VINCSTON 0 MATTES ICH
June 1, 2001
Page 7
which to make the determinations required by the statute. Nevertheless,we will
strive to provide anything before the meeting that the members of the Council or your
office may require.
Finally,your letter implies that I could have asked the City to provide a defense
sooner,but you also state that such requests may not be made until all of the facts
about the case are revealed. I could deem those statements to be incongruous,but
instead,I will take it as an indication that the timing of our request was just right.
Again,thank you for your review of this request and the issues involved. Please do
not hesitate to contact me or my associate Marty Carr if you have any questions.
Sincerely,
:�STEVEN G. CHURCHWELL
SGC:sp
cc: Gail Hutton, City Attorney
Councilmember Dave Garofalo
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Citation Search Result Rank 1 of 57 DatabaE
CA FPPC Adv. A-99-292 CA-ETH
(Cite as: 2000 WL 311531 (Cal.Fair.Pol.Prac.Com. ) )
California Fair Political Practices Commission
*1 PHILLIP H. ROMNEY, CITY ATTORNEY
FPPC File No A-99-292
March 23, 2000
Phillip H. Romney
City Attorney
City of Santa Paula
970 Ventura Street
Post Office Box 569
Santa Paula, California 93061
Re: Your Request for Advice
Dear Mr. Romney:
This letter is in response to your request for advice on behalf of
Councilmembers Donald Johnson and James Garfield regarding the conflict of
interest provisions of the Political Reform Act (the "Act") . [FN1] Both
councilmembers were defendants in the lawsuit John Stockdill v. Donald Johnson,
with different causes of action brought against each of them and also against
the City of Santa Paula.
During our telephone conversation on February 3, 2000, you informed me that tr
lawsuit regarding Mr. Garfield has been settled. In addition, on March 9, 2000,
you advised me that neither councilmember participated in nor voted on the
issues of scope of duty or whether the city would provide a defense for them.
Please be advised that we can only advise prospectively and cannot render advic
relating to past conduct (Regulation 18329 (b) (8) (A) ) . Therefore, we will only
answer questions of a prospective nature pertaining to the councilmembers.
QUESTIONS
1 . May Councilmember Garfield participate in decisions regarding whether he
should be indemnified for general or special damages and payment of attorneys '
fees arising out of his defense?
2 . May Councilmember Johnson participate in decisions regarding settlement .of
the lawsuit against him and whether he should be indemnified for general or
special damages and payment of attorneys ' fees arising out of his defense?
CONCLUSIONS
1 . Councilmember Garfield may participate in decisions regarding whether he
will be indemnified for general or special damages and payment of attorneys '
fees for his defense.
2 . Councilmember Johnson may participate in decisions regarding settlement of
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CA FPPC Adv. A-99-292
(Cite as: 2000 WL 311531, *1 (Cal-Fair.Pol.Prac.Com. ) )
the case, whether he will be indemnified for general or special damages and
payment of attorneys ' fees for his defense .
FACTS
Donald Johnson and James Garfield are both members of the city council for the
City of Santa Paula (the "city") .
In the lawsuit John Stockdill v. Donald Johnson, Councilmember Johnson was sue
for allegedly violating Government Code Section 1090 . A separate cause of actic
alleged that Councilmember Garfield violated Government Code Section 87100 et
seq. , when he participated in and voted on various land use decisions. Mr.
Johnson' s case is on appeal; Mr. Garfield' s case has been settled.
Counsel was retained by the city to defend both councilmembers in the lawsuits
pursuant to Government Code Section 995, which requires the city to provide its
councilmembers with a defense upon request, subject to certain exceptions . Both
councilmembers made that request and a defense was provided under separate
reservation of rights agreements . However, you informed me that neither
councilmember participated in nor voted on the issue of whether they were actir
within the scope of their official duties and whether the city would provide
them with a defense . Attorneys ' fees have been billed in excess of $10, 000 for
each councilmember. Separate counsel was secured to represent the city.
*2 No punitive damages have been sought in either case, nor has any
intentional, knowing or malicious act been ascribed to the conduct of either
councilmember.
ANALYSIS
Section 87100 prohibits any public official from making, participating in
making or otherwise using his or her official position to influence a
governmental decision in which the official has a financial interest. Public
officials have a disqualifying conflict of interest if the governmental decisic
has a reasonably foreseeable and material financial effect on a financial
interest which is distinguishable from the effect on the public generally.
(Regulation 18700 (a) . ) The Commission has adopted an eight-step analysis for
determining whether an individual has a disqualifying conflict of interest in
given governmental decision. Because of specific regulatory exceptions regardii
the city' s provision of a defense and payment of expenses, evaluation of this
situation does not require the entire eight-step analysis .
1 . Public Official
As city councilmembers, both Mr. Johnson and Mr. Garfield are public official:
(Section 82048 . )
2 . Making, participating in making or using official position to influence
governmental decisions
The next issue is whether the councilmembers may make, participate in making
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CA FPPC Adv. A-99-292
(Cite as: 2000 WL 311531, *2 (Cal.Fair.Pol.Prac.Com.) )
influence the city council decisions about the litigation. (Section 87100 . ) Sor
specific exceptions exist under Regulation 18702 .4 whereby the Commission has
determined that public officials are allowed to make, participate in making anc
influence decisions affecting their own compensation and the terms and
conditions of their own employment or contract . (Regulation 18702 .4 (a) (3) and
(b) (3) ; Schectman Advice Letter, No. A-87-226 . )
Regulation 18702 .4 (a) (3) provides that a public official does not make or
participate in making a governmental decision if the action relates to the
official ' s "compensation or the terms or conditions of their employment or
contract . " Similarly, Regulation 18702 .4 (b) (3) provides that a public official
is not influencing a governmental decision where the official "negotiates his c
her compensation or the terms or conditions of his or her employment or
contract . " If the public official is not making, participating in making or
using his or her official position to influence a governmental decision, he or
she does not have a conflict of interest under the Act . (Regulation
18700 (b) (2) . )
Accordingly, these two exceptions have formed the basis of our advice about
decisions regarding litigation in which public officials are named as indivi.du�
defendants . [FN2] In certain circumstances, a defense and indemnification are
part of the "terms and conditions" of public office or employment . (Schectman,
supra; Smith, supra. ) Therefore, a public official who takes part in such
decisions about himself or herself is not disqualified from "making, "
"participating in making" or "influencing governmental decisions because of tt
regulatory exceptions.
*3 Thus, Councilmembers Johnson and Garfield may participate in decisions abot
whether they will be indemnified for general or special damages and payment of
attorneys ' fees for their defense, because the city/agency is obligated to
provide such if they were acting within the scope of their employment or offic(
Therefore, a conflict of interest will not result from the public officials '
participation in these decisions. However, the exception does not apply to
decisions concerning punitive damages. (Smith, supra; Section 825 (a) . ) In
addition, Councilmember Johnson may participate in decisions regarding
settlement of the case against him.
If you have any other questions regarding this matter, please contact me at
(916) 322-5660 .
Sincerely,
Luisa Menchaca
Assistant General Counsel
By: Jill Stecher
Staff Counsel
Legal Division
FN1 . Government Code sections 81000 - 91015 . Commission regulations appear at
title 2, sections 18109 - 18996, of the California Code of Regulations .
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