FPPC Member--Conflict of Interest Questions Arise

The newest member of the state Fair Political Practices Commission--a man whose own public career has been marked by recurring conflict-of-interest questions--has been chosen to help revise the watchdog agency’s conflict rules for public officials.

Redevelopment agency lawyer Michael B. Montgomery, appointed to the FPPC in March despite a controversial background, has been named to a two-man subcommittee by Chairman Dan Stanford to study and revamp the rules with particular emphasis on redevelopment agencies.

Montgomery, who has held a variety of local government jobs over the last 20 years, has been caught up in a number of conflicts between his role as the public’s lawyer and his own personal business interests.

In the last decade, public records disclose, Montgomery has been involved in personal dealings with at least nine firms or individuals doing business with agencies Montgomery represented as a lawyer or elected official.

In 1980, Irwindale officials said, he resigned as legal counsel to that city’s redevelopment agency after disclosures that he had private business dealings with a developer and with a lawyer, both of whom were doing business with the Irwindale agency.

Besides employment as a redevelopment agency counsel, Montgomery has worked as a city attorney and a redevelopment agency director. He also served two terms as a South Pasadena city councilman. Presently, he is legal counsel to redevelopment agencies in Huntington Park and Walnut, as well as serving on the FPPC.

A Republican and GOP state chairman in 1977-79, Montgomery was appointed to the FPPC by Controller Ken Cory, a Democrat who chose him from a list of nominees provided by former Lt. Gov. Ed Reinecke, a personal friend and business associate of Montgomery’s, and his successor as Republican Party state chairman.

Montgomery’s GOP activities have made him a widely known figure in party circles around the state.

But on the local level, it has been Montgomery’s conflicts and apparent conflicts which have pushed him into the spotlight, as in 1980 when he resigned from the Irwindale redevelopment agency job after disclosures of his overlapping interests.

That same year, he cited a conflict and resigned in Monterey Park, too.

Montgomery has faced continuing problems since the beginning of his career, sometimes because of personal or financial interests in matters being dealt with by the public agencies he served and sometimes by his attempt simultaneously to serve two masters--to be the lawyer for a public agency at the same time he was the lawyer for someone doing business with the same agency.

By his own count, Montgomery has been investigated by the district attorney three times but he said the complaints against him were filed by his political enemies.

“I have never been asked to come down and explain anything,” he said.

“I haven’t done anything to put me before the grand jury. I get criticized I guess when it looks like I’m doing things when I haven’t.”

In fact, Montgomery defends most of the public acts that seem to inflame his critics. Over the last eight years, those acts include:

Buddy System

Giving public jobs without competition to his friends, private business associates and political supporters, among them independent real estate appraiser Lawrence D. Brown and economic consultant Frederick P. Lyte.

Montgomery recommended that Brown, whom he calls “one of my closest friends,” be chosen to handle Irwindale’s land appraisals. Brown earned more than $50,000 working with Montgomery on appraisals in condemnation cases for the city’s redevelopment agency.

Brown also worked for Montgomery at the Huntington Park redevelopment agency.

The appraiser said his “close personal relationship” with Montgomery was well known in both cities.

But the real plum was the consultant’s job Montgomery arranged in 1977 for Frederick P. Lyte, a friend and political supporter. Lyte said he was a major contributor and fund-raiser for Montgomery when Montgomery ran unsuccessfully for California secretary of state in 1972.

Montgomery drew up a contract under which Lyte was paid on a commission basis for negotiating agreements with industrial firms to locate in Irwindale’s redevelopment area. Montgomery said it was handled that way because the agency had no money to pay Lyte a salary.

The attorney general later held in a formal opinion that this method of payment violates California’s conflict-of-interest laws on the grounds that a public official might put his own financial interests ahead of the interests of the public in negotiating contract terms.

Besides getting Lyte the job with the Irwindale agency, Montgomery was involved in a variety of decisions that profited Lyte.

As redevelopment agency director, then assistant director and later legal counsel to the agency, Montgomery made legal decisions, drew up contracts and condemned land for projects generated by Lyte. Sometimes Montgomery made recommendations to the agency board on Lyte’s projects.

On Montgomery’s advice, the board in 1977 approved an agreement for the relocation to Irwindale of Miller Brewing Co., earning Lyte more than $2 million in commissions. Altogether, Lyte earned $3.5 million in commissions in only two years.

Montgomery had private business dealings with Lyte and appraiser Brown at the same time the two men were doing work for the Irwindale agency.

Public records show that Montgomery owned property with Brown, and after hiring Lyte as Irwindale’s economic consultant, Montgomery said, he invested $100,000 in a Lyte oil well project in Odessa, Tex. Montgomery said he made a profit of $200,000 to $300,000 when he swapped those oil interests for land in La Canada in a transaction arranged by Lyte. Among the members of the small investor group involved in the swap was Lyte’s business partner. That same partner also had shared in the $3.5 million in commissions Lyte earned in the job Montgomery had gotten for him in Irwindale, Lyte said.

“I didn’t see anything wrong with it,” Montgomery said. “I suppose the only criticism would be it gives an appearance it was a way to disguise a payoff. I didn’t get any of his (Lyte’s) commissions. That was my own money.”

Lyte said he and Montgomery were friends and, “I made him aware of investment opportunities (in the Texas oil project).” Lyte said he did it “as a favor.”

Hiring of Experts

The hiring of certain experts such as engineers, architects and appraisers such as Brown constitutes a “professional exception” to the rule requiring competitive bidding, Montgomery said.

Montgomery said he believes in doing what works.

“It’s the old argument. Do you spread it around and take the chance that you will not be successful on an unknown quantity versus staying with what you know is successful. Brown is a friend of mine. As long as I have confidence in his opinions and as long as he keeps winning in litigation, I’m going to continue to use him.

“I have no reservations about the buddy system,” Montgomery added. “I use people who have done a good job for me. . . . I will not ever do anything that’s gonna put the handcuffs on me.”

Economic Consultant

Montgomery offered Lyte the job of economic consultant over breakfast one morning at the Huntington Hotel in Pasadena. Lyte said it was Montgomery who proposed paying him a percentage of what he brought in. He said he thought over the proposal and a short time later “agreed to it.”

Lyte said: “I’m rather proud of my achievements which will result in the Irwindale Community Redevelopment Agency receiving at least $150 million in new taxes over the life of the agency.”

Bank Deals

Montgomery, who often served as legal counsel to several different cities at the same time, got personal loans from a bank that handled the accounts of two redevelopment agencies he was working for.

In one transaction, records show, the bank loaned Montgomery’s Arroyo Land Co. $100,000 on land the county assessor valued at only $5,915. Lawrence Brown, Montgomery’s appraiser friend who owned a small interest in Arroyo Land, said the property was “unuseable” because it had no street frontage.”

Montgomery got the loan from First City Bank of Rosemead, which handled the accounts of the Irwindale redevelopment agency. Montgomery was in the midst of working out a program to give the bank other business in Huntington Park when he got the loan in 1980.

“There was an apparent conflict and an opportunity for collusion,” Montgomery said. “I have known of occasions where there have been kickbacks on the interest rate.”

But Montgomery said he was charged the prevailing interest rate and denies that he got preferential treatment.

He acknowledges, however, that bank officials eventually told him to take his business somewhere else. Bank officials refused to discuss the matter.

The Poker Club

While employed as Huntington Park redevelopment agency attorney, Montgomery offered the potentially lucrative city contract for a poker club to a member of the James Warren Beebe law firm, with which Montgomery himself was associated.

Montgomery said he approached attorney Eric Fresch with the proposal because he knew that Fresch’s father was in the gambling business in Las Vegas.

Because poker is a “politically sensitive issue,” Montgomery said, he dealt behind the scenes with Fresch and his brother, Curtis. “The public doesn’t have to be told everything,” he said. “I believe there are exceptions. Some things have to be handled confidentially.”

Montgomery said he helped Fresch and his brother land the poker club contract by introducing them to the developer who held rights to the site where Fresch’s investment group eventually built the club. The developer, David Mink Maxwell, was a business associate of Montgomery.

Montgomery said he told the City Council that “we have a prospect,” and he advised the city that “I may have a conflict” and may have to be disqualified from acting as the city’s lawyer on the poker project.

Montgomery, in a letter to the council, said conflicts might arise from his association with the Beebe law firm and also his association with another attorney, Charles R. Martin, hired by Fresch to draw up needed agreements. Martin was city manager and city attorney in South Pasadena, where Montgomery sat as a councilman.

The letter did not mention his association with Maxwell.

Montgomery had been associated in a number of private business ventures with developer Maxwell, who controlled the land earmarked as the poker club site. At the time of the poker transaction, Montgomery jointly owned land with Maxwell in Northern California.

Industrial Park

And Montgomery said he knew that Maxwell stood to reap a windfall profit by relinquishing his claim to the poker club site.

Montgomery said he did not disclose to the redevelopment agency board his outside relationship with Maxwell, however, because Maxwell was not the owner of record.

Maxwell had a contract with the city to build an industrial park on the site, but actual title to the property was held by Gibraltar Savings & Loan, Maxwell’s lender.

Montgomery said Maxwell had an agreement with Gibraltar, so that if the property were sold Maxwell would share in the profits.

City officials say the sale produced a profit of more than $600,000.

Maxwell refuses to say how much he made. He said his “profit-participation agreement” with Gibraltar is confidential.

Same Relationship

The relationship of Montgomery with developer Maxwell was so intricate that it posed continuing conflict-of-interest problems for the two men.

Maxwell’s firm, Staff Development Co., had five projects in Irwindale alone. Montgomery, as Irwindale’s lawyer, had to deal with the firm on a continuing basis and in that situation he had an obligation to protect the public’s interest.

The same relationship existed in Huntington Park where Maxwell’s firm had agreements to develop an industrial park. But additionally, city records show, Montgomery hired the lawyer-son of one of Maxwell’s top executives and assigned him to work as assistant redevelopment agency counsel in that city.

Simultaneously in Northern California, Montgomery was Maxwell’s attorney on one project and co-developer with him on another.

Besides their business ties in Northern California, the two men had joined as co-venturers to make project proposals to redevelopment agencies in a Florida beach city and in Phoenix. Both projects were rejected.

Worked Several Years

In the Mother Lode area east of Sacramento, however, Montgomery, as Maxwell’s lawyer, helped persuade county officials to create a redevelopment agency in the mountains near Placerville.

Maxwell had purchased some blighted property inexpensively and wanted to get financial help from El Dorado County to build a high-tech industrial park on it.

In coordination with former Lt. Gov. Reinecke, Montgomery worked on the project for several years.

In a separate El Dorado County deal, Montgomery and Maxwell said they jointly bought a parcel of land and planned to build a shopping center.

Montgomery said Maxwell did not have enough cash to swing it alone so they each put up $25,000 as a down payment on the land. It was a 50-50 deal, they said.

The public record shows that Maxwell’s firm bought the property in 1979. Ten months later, a one-half interest in the property was deeded to Arroyo Land Co. Arroyo Land was owned by Montgomery and his friend, appraiser Lawrence D. Brown, who appraised most of the property condemned for Maxwell’s projects in Irwindale and Huntington Park.

Brown told The Times that he did not know anything about it.

Montgomery said he and Maxwell had a falling out later and that he sold his interest back to Maxwell at a profit.

Maxwell said he was not uncomfortable in his business relationship with Montgomery because they did not deal personally with one another on city matters in Irwindale and Huntington Park.

“The negotiations (there) were handled by the broker,” Maxwell said.

Besides that, Maxwell said, Montgomery told him that he had filed the “appropriate disclosures” with city officials and that their outside dealings were legal.

The Brewery

In 1980, big problems developed for Montgomery in Irwindale--problems that culminated in his resignation as redevelopment agency attorney there.

The city was trying to wind up its biggest redevelopment deal--the relocation of the Miller brewery from neighboring Azusa. When the time came to close the transaction, Montgomery had difficulties.

He abruptly announced that he could not approve the financial agreement between Miller and the city, which the brewery’s attorney, Michael A. McAndrews, drew up after consulting with Montgomery.

Montgomery sent Irwindale City Manager Charles R. Martin a letter saying that he could not approve the agreement because of an apparent conflict in that he had retained McAndrews to give him legal advice on a private land deal.

Montgomery told The Times that he could not recall the episode.

However, City Manager Martin recalled it with considerable chagrin.

“The straw that broke the camel’s back was his inability to complete the Miller deal,” Martin said. “At the time the Miller deal had to be signed off, he wrote a letter that he was unable to do that.

‘Intimately Familiar’

“He had been intimately familiar with all the contracts, subcontracts . . . and then he wasn’t able to complete it.

“He had formed a syndicate of some kind, and that syndicate had hired as their attorney the same attorney that represented Miller.

“Mike felt it would look bad if he took a position in negotiations (as the city’s lawyer) with an attorney who was, in a sense, his own attorney.”

Martin said Montgomery’s disclosure about the Miller conflict came “about a week” after Montgomery disclosed that he had bought land with developer Maxwell in Placerville while representing Irwindale in the city’s dealings with Maxwell.

Martin said he was concerned about the “public perception” of Montgomery’s overlapping interests, which he characterized as “bad judgment.” He said he advised Montgomery “to get out of Placerville.”

Shortly after their talk, Irwindale officials said the City Council called Montgomery into executive session to talk about his outside business dealings. Montgomery resigned a short time later.

Martin said he did not discover that Montgomery was also hooked up with Maxwell in the abortive Florida and Arizona ventures until after Montgomery resigned.

In discussing the problems he has had in Irwindale and other cities, Montgomery says he has been an independent thinker and his own man.

“I have not done anything to keep myself from being criticized,” he said. “There are people who to avoid criticism won’t do this and won’t do that. And that’s the way they live their life. I get criticized, I guess, when it looks like I’m doing things when I haven’t.

“I can see now if you take the pattern over the years and put it all together, I have stuck my chin out. And I have put myself exactly where I am, in your note pad. And I’m going to have to live with that.

“But I think you have to realize that if I had gone out deliberately to benefit myself in this way, I just wouldn’t have left a trail.”