2 Accused of Billing Fraud Go on Trial

Two former public relations executives are to go on trial Tuesday on federal charges of conspiring to pad their bills to the city of Los Angeles, bilking taxpayers out of hundreds of thousands of dollars.

The case is the first criminal prosecution in an ongoing joint state and federal “pay-to-play” investigation into accusations that local politicians traded city contracts for campaign contributions.

Prosecutors are not alleging sweetheart contracts for donors in the current case, which focuses on allegations that Fleishman-Hillard executives Douglas R. Dowie and John Stodder Jr. told their employees to tack extra hours onto city billings.

But in a separate civil suit, Dowie, the former head of Fleishman-Hillard’s Los Angeles office, has accused his bosses of firing him in order to cover up a larger scandal involving the laundering of illegal campaign contributions to Los Angeles politicians. A lawyer for the firm denied the allegation.

The trial could shed unflattering light on city contracting practices, although it will have limited political effect because the alleged wrongdoing took place during the previous administration, headed by former Mayor James K. Hahn, said Laurie Levenson, a professor at Loyola Law School in Los Angeles.

“I would expect the defense will exploit any negative practices at City Hall,” she said.

Dowie, 58, of West Hills, and Stodder, 50, of Palos Verdes Estates, were indicted last year, after seven former Fleishman-Hillard employees told The Times they were encouraged -- sometimes explicitly told -- to falsify the hours they worked under the city’s Department of Water and Power contract.

Dowie, a one-time political fundraiser and confidant of Hahn, headed Fleishman-Hillard’s Los Angeles office. Stodder was his deputy.

Stodder and Dowie are accused of overbilling the city a total of about $325,000 in 2000, 2002 and 2003. In addition to overcharging the DWP, they are accused of directing schemes to pad bills under smaller contracts with the Port of Los Angeles and two private entities, the firm of architect Frank Gehry and the Worldwide Church of God.

Dowie participated in fraudulent billing “by encouraging and bullying his subordinates to bill time that had not in fact been worked” over four years beginning in January 2000, Adam D. Kamenstein and Cheryl O’Connor Murphy, assistant U.S. attorneys, alleged in newly filed court papers.

Since the indictment, Fleishman-Hillard has apologized for overbilling the city and agreed to pay the taxpayers nearly $6 million to settle a civil lawsuit. Richard Kline, Dowie’s replacement as head of the Los Angeles office, has said that neither he nor “anyone else in corporate management in St. Louis was aware of any improper activities.”

Dowie and Stodder have pleaded not guilty to conspiracy and wire fraud charges.

“Mr. Dowie maintains his innocence and is looking forward to trial to vindicate himself,” his defense lawyer, Thomas Holliday, said.

His defense “will hinge upon his contention that he had no knowledge of fraudulent overbilling by Fleishman-Hillard Inc. employees during the period alleged in the indictment,” Holliday wrote in a pretrial motion.

Stodder’s attorney, Jan Handzlik, said his client did the best he could under difficult circumstances.

“The evidence will show that John met his responsibilities to Fleishman-Hillard, DWP and the mayor’s office in good faith and without getting one additional penny in his paycheck.” Handzlik said.

At trial, prosecutors are expected to introduce more than 80,000 pages of documents, including e-mails and internal billing documents handed over by Fleishman-Hillard.

They also plan to call as many as 20 witnesses, including Steve Sugarman, a former Dowie deputy who pleaded guilty and agreed to testify against his boss in exchange for possible leniency. Sugarman was director of communications for former Mayor Richard Riordan.

Among the evidence is a string of e-mails between Dowie, a gruff ex-Marine and former managing editor of the Daily News of Los Angeles, and Stodder, a former reporter who worked for Mayor Tom Bradley and Los Angeles County Supervisor Ed Edelman.

Dowie e-mailed Stodder in January 2003 to ask whether they could “pad” the monthly bill to the DWP by adding $30,000 for “ambiguous counseling for the mayor” and two other top DWP executives, the indictment charged.

Stodder e-mailed back, saying that $30,000 was “more than the system could bear” but that a subordinate had told him that “she could ‘slip through another $15K without incurring too much more scrutiny.’ ”

He later sent Dowie another message saying the subordinate would “just add hours across the board,” according to the indictment. Dowie then responded, “OK, let’s do it.”

Michael J. Faber, Dowie’s lawyer in a civil case, said in a separate wrongful termination case that those electronic messages merely revealed that his client was “sloppy in his choice of words in a hastily dashed off e-mail.”

The trial before U.S. District Judge Gary A. Feess in downtown Los Angeles is expected to last three weeks. If convicted, each defendant could be sentenced to up to 20 years in prison, though legal experts said the actual penalty under federal guidelines mostly likely would be three to five years.