10:00 PM PDT on Tuesday, July 26, 2011

By DUG BEGLEY and DAVID DANELSKI
The Press-Enterprise

Lawyers who thought San Bernardino County supervisors were making a mistake in settling with Colonies Partners over a flood control easement had few options other than the vigorous opposition they expressed in meetings, letters and memos to officials, legal experts said.

“Those lawyers were in a very difficult position, even if they smelled rats,” said Stephen Yeazell, a UCLA law school professor and former dean who specializes in civil procedure and litigation.

“They, I think, could not just pick up the phone and call the DA.”

Lawyers for the county unanimously opposed settlement proposals negotiated in hours of private meetings with a mediator during two different attempts by supervisors to settle the case, according to grand jury testimony and exhibits released last week.

Attorneys described the $102 million settlement orchestrated by Supervisors Bill Postmus and Paul Biane as not in the county’s best interests and possibly a gift of public funds.

“We determined, as a law firm, we could not participate in this process because we would be essentially facilitating or aiding and abetting what we considered to be a breach of fiduciary duty or a gift of public funds, which is a crime,” attorney Thomas R. Malcolm, formerly with Jones Day, testified before the grand jury.

Prosecutors allege the settlement was tainted by threats of political retribution and offers of financial support in exchange for a favorable land or cash deal.

Postmus was charged last year in connection with a sweeping corruption probe and has cooperated in the Colonies investigation.

After hearing from 45 witnesses and reviewing more than 250 exhibits, a grand jury in May indicted Biane; Supervisor Gary Ovitt’s chief of staff, Mark Kirk; Postmus’ former aide Jim Erwin; and Colonies principal Jeff Burum.

STEPPED ASIDE

Hamstrung as they were by legal ethics and confidentiality, two outside legal firms, including Jones Day, resigned when the county refused to follow their legal advice.

The county did not renew a contract with another attorney because he argued against the settlement.

The $102 million settlement, over a flood basin near Highway 210 in Upland, was not approved by any legal counsel for the county.

Lawyers in the county counsel’s office could only inform the supervisors they were making a mistake — not force them to decline the settlement.

“They have a right to ignore their legal counsel,” said Dennis Wagner, who resigned as county counsel before the settlement was approved.

Wagner, the only lawyer on the case who responded to questions this week, said he did not believe at the time that the settlement was tainted by bribery and conspiracy, as authorities now allege.

“Nobody had any evidence of criminal wrongdoing,” Wagner said.

“It just seemed like a deal that didn’t make sense at this price.”

Wagner said he could not speak at length about the settlement.

A waiver of attorney-client privilege allowed him and other lawyers to testify before the grand jury that indicted Biane, Kirk, Erwin and Burum.

His successor, Ruth Stringer, declined to discuss any aspect of the case with a reporter.

“The case is properly in the court of law,” Stringer said.

“That’s where it should be.”

Vocal opposition

Lawyers raised concerns about the settlement three years before the deal was done.

Supervisors did not renew Thomas Winfield’s contract when he insisted the county’s liability was far less than what Colonies contended.

Those worries also led Winfield’s replacements to resign.

An attorney with that firm, Munger, Tolles & Olson LLP, raised red flags in April 2005 after Postmus and Biane kicked the lawyers out of a meeting with Colonies officials and later announced they had reached a tentative settlement when the attorneys were absent.

The settlement would have awarded Colonies $77.5 million, and the county would have been responsible for completing construction work on a flood basin.

In a memo to the Board of Supervisors, Stephen Kristovich of Munger, Tolles & Olson wrote that the proposed settlement could be found unreasonable and jeopardize the county’s ability to be compensated by other involved agencies, including the city of Upland, Caltrans and San Bernardino Associated Governments.

The proposed deal valued the land at a residential price of $1.5 million per acre, the Kristovich letter said. The 67 acres in question, however, were zoned for open space “and thus cannot currently be used for the construction of homes.”

Kristovich added that the county should follow through with plans to argue the case in the Court of Appeals.

County attorneys and lawyers retained by the county were particularly concerned that the Colonies team couldn’t document $102 million in damages.

Mitch Norton, the deputy county counsel, referred to the binders of documents that Colonies officials provided to Supervisor Josie Gonzalez the evening before the settlement as a “bunch of crap,” according to a Dec. 8, 2006, email written by Norton.

In his testimony, Norton said binders contained only records of basic expenses and payments to subcontractors.

Other attorneys agreed. Malcolm, the Jones Day lawyer, pointed out in a letter four days before the Nov. 7 settlement was ratified: “Colonies has been unable or unwilling to document their alleged damages.”

Malcolm estimated the county’s exposures at “less than $20 million or approximately one fifth of the amount demanded by Colonies.”

“In the event that the Board votes to approve, or announces an intent to accept a settlement of this nature, the firm will need to withdraw from this representation,” Malcolm wrote.

Few options

Law professors said the limits placed on lawyers, especially in California, mean the tersely written memos are about the only option they have.

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