2 Firms Will Pay $2.5 Million to Settle O.C. Airport Lawsuit

A Los Angeles paving firm and a company that managed projects for Orange County’s John Wayne Airport will pay $2.5 million to the county to settle a federal whistleblower lawsuit alleging that company officials conspired to pad invoices and keep the cash.

At issue were paving contracts awarded to Sequel Contractors Inc. through JHTM & Associates of Orange County, which oversaw the county’s airport work.

The lawsuit alleged that Sequel inflated its bills by $1.5 million and used the money to pay kickbacks to JHTM project manager David McMiller, as well as build a swimming pool, retaining wall and driveway at McMiller’s Rancho Santa Margarita home.

There was no admission of wrongdoing by anyone involved in the settlement, which was signed late Thursday.

But county officials said that as a result, they had reassigned contract oversight to airport staff, were hiring a quality-control manager and would require multiple people to approve invoices.

“One of the issues here was the fact that we counted on and depended on an outside contractor that we trusted and had a long-term relationship with to do a good job for us,” airport spokeswoman Jenny Wedge said. “We had to reevaluate how we were operating.”

The county ended its contracts with Sequel and JHTM after officials learned of the lawsuit by a rival paving contractor. Until then, officials acknowledged, they were unaware of any problems with the airport payments.

Sialic Contractors Inc. will get $697,662 for acting as a whistleblower, paid out of the county’s share of the money. The lawsuit was filed under the state’s false-claims law, which forbids contractors to misrepresent work on government contracts and gives whistleblowers who discover the alleged scheme a share of any award. Thomas S. Pack and Abel Magallanes, who formed Sequel Contractors, formerly worked at Sialic.

“We have prosecuted False Claims Act cases all over the country, and this is one of the most blatant violations we have seen,” said San Diego attorney Don Warren, who represented Sialic. “It takes citizens willing to come forward to stop this.”

The incident shows how hiring private entities to oversee government contracts can backfire, said Robert Stern, president of the nonpartisan Center for Governmental Studies in Los Angeles.

“Sometimes you really need government doing the oversight,” he said.

Government officials must file conflict-of-interest forms and report outside income or gifts, he said. An official who failed to do so could be prosecuted for failing to report the money, rather than prosecutors having to prove that someone accepted a bribe, “which is a lot harder to do,” Stern said.

The lawsuit alleged that company officials conspired to falsify invoices paid to maintain 11 million square feet of asphalt and concrete at the airport. A paving job awarded for 1,000 square feet, for example, would be billed for 10,000 square feet, the suit said.

From 1996 to 2003, the suit alleged, Sequel added charges of $1.5 million onto contracts that would legitimately pay it as much as $1 million a year.

County Counsel Ben de Mayo said he would not comment on the settlement until it had been formally accepted by the court.

The county has turned over the details of the alleged bill padding to Dist. Atty. Tony Rackauckas.

Pack and Magallanes of Sequel Contractors will pay $1.25 million toward the settlement. Former Sequel President Mitchell W. Ward will pay $500,000; the insurance company for JHTM will pay the remaining $750,000.

Pack and Magallanes also agreed that they and Sequel would not seek work from Orange County government for five years.