Dismissal of $33-Million Suit Sought in Kickback Case

Motions to dismiss the $33-million lawsuit filed by the city and two of its redevelopment agencies against contractors convicted in the bid-rigging and kickback scheme that rocked Industry last year, were submitted this week in Los Angeles federal court.

The motions heard on Monday by U.S. District Judge Mariana Pfaelzer challenged all aspects of Industry’s suit, which was filed last year to recover damages from Industry founder James M. Stafford and six others convicted of defrauding the city of $1.35 million in city construction contracts.

The most serious defects in the city’s suit, according to defense attorneys representing six of eight defendants named in the action, concern two federal laws that the city has used to press its claims: the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Sherman Antitrust Act.

Molly Munger, attorney for defendant Jack Carpenter, a contractor convicted last year on one count of mail fraud, said the city’s suit distorts the purpose of RICO, which was created to prosecute “mob-related crimes” and “efforts by organized crime to infiltrate legitimate businesses.”

Carpenter--who pleaded guilty to mailing phony invoices that were used to skim money from Industry Hills Exhibit-Conference Center construction contracts--has absolutely no connection to organized crime, Munger said.

“The law was never intended to duplicate relief available through other” laws, she said, adding that the Sherman Antitrust Act and other state laws still can be used by the city in its efforts to secure claims.

Consuelo Woodhead, the city’s attorney, said that Carpenter has admitted, and been convicted of, committing mail fraud, one of several criminal offenses on which RICO actions can be based. Woodhead said that RICO was created to attack all patterns of racketeering, not just racketeering by organized crime.

Lawrence Greenberg, the attorney for Roger Keith Haines, a subcontractor who was convicted last year on mail fraud charges in connection with the kickback scheme, called for dismissal of the antitrust portion of the city’s suit.

Greenberg said that there was not sufficient evidence of interstate acts committed in the course of the kickback scheme to justify the suit’s antitrust claims. A key issue in determining violations of antitrust law requires evidence of illegal acts performed across state boundaries.

Disputing Greenberg’s claim, Woodhead said that there was ample evidence that building supplies used in convention center and other city contracts, which were acquired through bid-rigging, came from out of state.

Judge Pfaelzer said it is too early in the case for her to decide the antitrust merits of the city’s suit, Greenberg said. Pfaelzer, however, raised some questions about the laws upon which the city’s suit is based.

Munger said that Pfaelzer expressed concern that the city’s case, which was based on federal grand jury indictments handed down since last April, may be so complicated that it may be impossible to determine each defendant’s individual culpability.

Complicating Issues

But Woodhead said that Munger and the other defense attorneys were attempting to further complicate an already difficult case by claiming that their clients could not be held responsible for the actions of other defendants. She said there is no way the defendants can escape their liability for participating in a conspiracy to rig $33 million in contracts.

“If these contracts had been awarded through fair and competitive bidding, there is no question that they could have been performed for less, and by different contractors,” she said, adding that a trial was essential to determine the full extent of excess costs caused by bid-rigging.

Defendants James M. Stafford and Frank C. Wood did not submit dismissal motions. Stafford, who is serving a 10-year prison sentence for his role in orchestrating the kickback scheme, was transferred Jan. 22 to the federal prison at Ft. Leavenworth, Tex. Assistant U.S. Atty. Gary Feess said that federal agents are continuing to investigate Stafford in connection with transactions to which he was a party.

Court action on the city’s suit against another defendant Warner W. Hodgdon and his firm, National Engineering Co., has been delayed pending a resolution of Hodgdon’s bankruptcy trial in San Bernardino. Hodgdon and National Engineering filed a Chapter 11 bankruptcy last month in an effort to reorganize his business and personal debts.

National Engineering forfeited its exclusive contracts as the city’s financial, planning and civil engineering consultant in October. The firm withdrew after it was unable to post a bond required by the city. The bond would have covered the firm’s potential liability for the role its former employee, C. Ronald Rabin, played in the kickback scheme.

Rabin, also a defendant in the city suit, was in charge of construction at the $65-million Industry Hills conference center during the mid-1970s and early 1980s. He pleaded guilty to conspiring to ensure that Carpenter and another contractor won city construction contracts. He was sentenced last year to five years probation and ordered to perform 2,500 hours of community work.