Final Arguments Expected Today in Billings Trial

The scandal rocked Los Angeles City Hall, spurred ethics reform and helped persuade voters to elect Antonio Villaraigosa mayor last year.

The case of alleged fraudulent billing of city government by Fleishman-Hillard Inc. bloodied one of the nation’s premier public relations firms, costing it millions of dollars.

The principal players include political figures from the administrations of mayors Tom Bradley, Richard Riordan and James K. Hahn, and two former Fleishman-Hillard executives charged with conspiracy and fraud.

The U.S. District Court trial of Douglas Dowie, former head of Fleishman-Hillard’s Los Angeles office and once managing editor of the Los Angeles Daily News, and his deputy, John Stodder Jr., has shown how readily public servants transform themselves into the consultants they once hired. Closing arguments are scheduled today, and the jury is expected to begin its deliberations Friday.

City Controller Laura Chick, who helped shine light on the corrupt practices, said reforms have changed the environment that spawned the scandal.

City contracting has changed for the better, she said, especially in public relations, as most city agencies already provide such work from their own staffs. City taxpayers now pay just a fraction of the $13 million expended for public relations five years ago.

“The whole game has changed,” she said. “There’s a whole different kind of attention and scrutiny before any departments in the city are engaging in contracting public relations firms.”

How it all began is what jurors in the federal courthouse downtown will soon begin sorting out.

Monique Moret, a former Fleishman executive, spent 14 hours on the witness stand implicating Stodder in the overbilling scheme. She recounted the extraordinary pressure on the office from Dowie, through Stodder, to “make the numbers” -- to bill enough hours to meet monthly projections.

For two years ending in 2004, Moret testified, she regularly increased the hourly billing submitted by dozens of Fleishman-Hillard employees, at Stodder’s direction. Half a dozen other employees -- some recruited by Dowie to high-paying jobs after City Hall service -- testified that they did the same.

The testimony has focused on reams of drafts, bills and invoices to city departments, and on 1.2 million e-mails Fleishman-Hillard surrendered.

Among the hundreds of handwritten additions to time sheets that are central to the trial is one for the Port of Los Angeles covering a meeting on Sept. 23, 2003, that was attended by Stodder and an assistant, Eric Moses, once a top aide to Riordan and a former Daily News writer.

Moses testified that he filed for one hour, but 90 minutes was charged to the port.

When the firm needed to bill more, his time sheets were returned to him before they were sent to clients with the request to find more time to bill, Moses said.

“John had not told me to, quote, ‘pad’ the time, but the implication was there,” Moses testified.

A former top City Hall staffer, Steven Sugerman, has pleaded guilty to wire fraud in the case. He testified that he felt that Dowie gave him “specific direction” to falsify bills.

Dowie, 58, of West Hills, and Stodder, 50, of Palos Verdes Estates, contended that they were unaware of any false billing.

Neither Dowie nor Stodder testified on their own behalf.

Their attorneys plan to use closing arguments to try to show that the prosecution failed to prove that their clients intended to defraud anyone.

But the defendants’ former colleagues said each repeatedly justified their billing practices as “value billing,” which they described as charging for the value of the services provided rather than the hours worked.

Witnesses for clients, including the Department of Water and Power, testified that their contracts specified billing for hourly work.

Moret, who testified under a grant of immunity, said she falsely billed for months before a colleague’s resignation in 2003 led her to reevaluate her actions.

It wasn’t until Fleishman executive Fred Muir resigned, protesting the billing, she testified, that “a lightbulb went off in my head.”

The phrase “value billing” does not appear in the code of ethics for the Public Relations Society of America, said Mike Cherenson, who heads the group’s advocacy section.

“The core practice of public relations has a relatively clean reputation,” said Cherenson, who is with an agency in New Jersey. The society put out a memorandum to its 20,000 members when the scandal surfaced, reminding them that “we only charge for the work we do,” Cherenson said.

He noted that reaction was particularly intense in Los Angeles, where Hahn at one point froze all municipal contracts for public relations consulting services.

Countering a perception that “public service is merely a revolving door for private gain” has been a central objective of the city Ethics Commission, said LeeAnne Pelham, who heads the agency. Pelham said inquiries about the city’s restrictions on doing business with former employees have increased since the Fleishman-Hillard case.

But whatever the verdict, the case will not end in U.S. District Judge Gary A. Feess’ court. Dowie has contended in a separate lawsuit that he was fired by Fleishman-Hillard because he was a whistle-blower who exposed illegal campaign donations.

Dowie said he privately told John Graham, head of the firm, about contributions that four Los Angeles executives had made to favored political candidates in 2001. Weeks later, he alleged, bonus checks arrived at his office from headquarters in St. Louis, one for each of the staffers Dowie had identified, each containing a check allegedly large enough to reimburse the employee.

The company has denied the allegations and has said that Dowie was fired because of his incompetence, including billing for more than $600,000 for services that a subsequent audit showed could not be substantiated.

Graham denied Dowie’s allegation of having given him a handwritten list of the executives who had made the political contributions.

“It just didn’t happen?” Graham was asked in a deposition.

“Did not happen. That sounds like a figment of Dowie’s imagination in order to extort money from us,” he replied.

The case cast a pall over Hahn’s unsuccessful reelection campaign last year.

Bill Boyarsky, vice president of the Ethics Commission, a teacher at USC and a former city editor at The Times, said the case and other contracting scandals suggested to voters “there’s something wrong here.”

“There’s been a great deal of discussion in the classroom,” said Jerry Swerling, director of public relations studies at USC’s Annenberg School for Communication. “If we don’t raise it, students do.”