Consultant Bolsters Hedgecock Defense : Jury Told the Contract Between Mayor and Firm Running Campaign Was Fair

The contract between Mayor Roger Hedgecock’s 1983 campaign committee and Tom Shepard & Associates was a fair one that resulted in a “very generous” fee for Shepard’s firm, a well-known Los Angeles political consultant testified Thursday in Hedgecock’s trial.

Reinforcing some of the defense’s most crucial arguments, political consultant Joseph Cerrell also testified that he has “never heard” of a consulting firm charging a candidate for its overhead costs--as prosecutors argue Shepard should have done to Hedgecock --and that he saw “nothing at all unusual” about Shepard’s willingness to absorb a financial loss by running the campaign in order to “establish his reputation . . . by winning something big.”

As the defense’s case in Hedgecock’s felony perjury and conspiracy trial entered its third day, San Diego City Councilman Mike Gotch bolstered Cerrell’s testimony by telling the six-man, six-woman Superior Court jury Thursday that the “most important factor” in his selection of Shepard’s firm to handle his 1983 reelection campaign was its success in the mayoral race.

In addition, Pat Ford, an accountant hired as a defense consultant, testified that the prosecution’s theory that Shepard should have charged Hedgecock’s campaign a pro-rated portion of his firm’s overhead costs is more applicable to manufacturing industries than to service firms such as a political consulting business.

“It’s been a very good day,” a beaming Hedgecock said as he left the courtroom. “I think we got across some important points.”

Assistant Dist. Atty. Richard D. Huffman was less impressed, characterizing the testimony of Cerrell, the day’s major witness, as “very entertaining . . . but hardly relevant to this case.”

Cerrell’s testimony, however, was the cornerstone in defense attorney Michael Pancer’s attempt Thursday to show that there was nothing improper about the Hedgecock committee’s contract with Shepard’s firm and that the firm’s business practices were similar to those of most new small companies.

Cerrell, who was paid a $1,000 fee to testify as an expert witness, has run numerous statewide campaigns during the last 27 years and owns a political consulting and public relations firm that has offices in Los Angeles and Washington, D.C. The president of the American Assn. of Political Consultants, Cerrell has had as clients Presidents John F. Kennedy and Lyndon B. Johnson, Sens. John Glenn (D-Ohio) and Lloyd Bentsen (D-Tex.) and California Govs. Pat Brown and Edmund G. Brown Jr.

Prosecutors allege that Shepard’s firm gave the Hedgecock campaign a cut-rate contract that, when overhead costs are considered, resulted in a loss of more than $140,000. Shepard was unconcerned about whether his firm made a profit on the campaign, Huffman argues, because former La Jolla financiers J. David (Jerry) Dominelli and Nancy Hoover invested more than $360,000 in his company--money that prosecutors contend was tantamount to an illegal donation to Hedgecock’s campaign.

Pancer, however, argues that Shepard viewed Hedgecock’s campaign as a “loss leader” that, if successful, would significantly enhance his new firm’s reputation and attract other clients. Moreover, the defense attorney contends that the question of whether the firm made or lost money on the Hedgecock campaign is irrelevant because the contract was a “fair, legal” one.

Under Pancer’s questioning, Cerrell said that new political consulting firms have to “do a lot of hustling and undercutting (of) established firms” to break into the market.

“You try to establish yourself . . . so that you can run up some big successes,” Cerrell said. “You try to become a winner in something big. It’s a word-of-mouth business . . . and your reputation is . . . what gets you clients.”

Gotch’s testimony helped Pancer show that that is precisely what happened to Shepard’s firm after its success with the Hedgecock campaign. Asked by Pancer why he selected Shepard’s firm to run his 1983 council reelection campaign, Gotch answered, “The most important factor is that Mr. Shepard’s firm had just completed the successful mayoral campaign of Roger Hedgecock.”

Throughout the trial, Huffman has repeatedly scoffed at Pancer’s argument that Shepard and some of his employees volunteered their time to work on Hedgecock’s behalf seven months before the firm, founded in January, 1982, signed a contract to manage Hedgecock’s potential mayoral campaign. Cerrell, though, testified that political consultants commonly volunteer their services to, as Pancer put it, “cement a relationship” that could lead to a future contract.

“I did that as recently as last Saturday,” Cerrell said.

The August, 1982, contract--negotiated at a time when any possibility of a mayoral race hinged on then-Mayor Pete Wilson’s fate in his U.S. Senate race --specified that Shepard’s firm would be paid a $750 monthly retainer. After Wilson was victorious in November and Hedgecock officially announced his candidacy for mayor, the contract was amended, giving Shepard’s firm a 15% commission on all television and radio advertisements. Hedgecock’s committee also paid all direct costs, such as brochure printing expenses, postage and TV and radio time. Overall, Shepard’s firm was paid about $30,000 by Hedgecock’s campaign.

“Would you consider that a standard or . . . unusual contract in your business?” Pancer asked.

“That’s not unusual,” Cerrell said.

Referring to the overhead cost formula that the prosecution has used to charge that Shepard’s firm suffered a heavy financial loss on Hedgecock’s campaign, Pancer asked Cerrell whether political consultants normally allocate such expenses to candidates.

“I’ve never heard of it being done that way,” Cerrell answered. Consulting fees normally are based on the “law of supply and demand,” with both the consultant and candidate seeking to attain the best possible price--high and low, respectively--in the contract.

During cross-examination, Huffman asked Cerrell whether it was common for political consultants to lose money on campaigns.

“It unfortunately happens too often,” Cerrell said.

Much of the volunteer work that Shepard’s firm did during the first half of 1982 involved updating a computerized mailing list of voters developed by then-county Supervisors Hedgecock and Jim Bates.

Prosecutors cite the updating of the mailing list as evidence that Hedgecock received free services from Shepard’s firm. Pancer, however, has described the list--which can be used to “target” mailed appeals for contributions or votes and to develop campaign strategies--as a “valuable asset” that helped Shepard attract other clients.

“In general, would you consider a mailing list a (valuable) tool . . . for a political consultant?” Pancer asked.

“I can’t think of very many things more important,” Cerrell responded. Gotch added that the computer list was another key factor that persuaded him to hire Shepard’s firm.

In testimony last week, an accountant called by the prosecution, Arthur Brodshatzer, argued that the Shepard’s firm unreimbursed overhead costs--rent, staff salaries and other administrative expenses --caused it to lose more than $140,000 on the Hedgecock campaign.

Seeking to rebut that argument, Pancer called Ford, an accountant hired by the defense, to testify Thursday. Ford testified that Brodshatzer’s financial analysis had been based on a so-called “full-absorption accounting” method that is more commonly used by companies that manufacture products than by service-oriented industries such as political consulting or advertising firms.

Pancer also used a bit of courtroom showmanship in an attempt to drive home another key defense argument during testimony by J. Michael McDade, Hedgecock’s chief of staff and 1983 campaign manager.

Prosecutors have emphasized that Hedgecock’s closest backers began contemplating a possible mayoral campaign shortly after Hedgecock was reelected as a county supervisor in 1980. Pancer, however, has frequently reminded the jury that such “what-if discussions” are routine in politics, noting that politicians constantly assess their future political possibilities.

Asked by Pancer on Thursday to describe a July, 1980, meeting at which Hedgecock’s future mayoral aspirations were seriously discussed for the first time, McDade said that a group of Hedgecock’s supporters gathered at a Mission Hills restaurant to “discuss Roger’s political future.”

As McDade spoke, Pancer wrote the words “assembled” and “speech” in large letters on a display board near the jurors’ box.

“Did you think that it was wrong for a group of people to assemble and talk about politics?” Pancer asked McDade.

“I may have been naive, but I assumed that was a constitutional right,” McDade answered.