Mayor Saw Firm as ‘Good Deal,’ Witness Says

San Diego Mayor Roger Hedgecock was “very enthusiastic” when his close friend Tom Shepard started a political consulting firm in 1982 because Hedgecock believed that “he would have a head start on organizing” his 1983 mayoral campaign, a former Hedgecock supporter testified Tuesday.

In the 10th day of testimony in the mayor’s felony retrial, Jean Kauth told the eight-woman, four-man jury that shortly before Shepard left the staff of then-county Supervisor Hedgecock to establish Tom Shepard & Associates in January, 1982, Hedgecock told her that Shepard’s decision “would be a good deal for him” that could enable Hedgecock to get a jump on other potential mayoral candidates.

“Getting an early start . . . could perhaps discourage some other (candidates) from getting involved in the race,” said Kauth, the business partner of key prosecution witness Harvey Schuster. Schuster, a Sorrento Valley investment counselor, testified Monday that Hedgecock, contrary to his oft-stated denials, was aware that former financier J. David (Jerry) Dominelli intended to bankroll Tom Shepard & Associates so that the firm could run Hedgecock’s 1983 race.

During his cross-examination of Schuster and Kauth, defense attorney Oscar Goodman emphasized that the two partners had discussed Schuster’s Monday testimony--regarded as some of the strongest prosecution evidence in the case--prior to Kauth’s appearance in court on Tuesday. Kauth and Schuster acknowledged during their testimony that they had talked about the case after Schuster’s court appearance Monday.

The conversation between the two California Investment Counsel Inc. executives apparently violates the so-called “exclusionary rule,” which forbids witnesses from discussing testimony--potential or actual--with each other, Goodman said. The legal rule’s purpose is to prevent witnesses from collaborating to make certain that their testimony is compatible.

Goodman conceded that Schuster and Kauth, not being lawyers, probably were unaware that their discussion Monday afternoon violated court rules. However, calling Schuster and Kauth “two peas in a pod,” the defense attorney added that he plans to file a motion asking Superior Court Judge William L. Todd Jr. to strike one or both witnesses’ testimony from the trial’s record.

“The law was broken, and we’re going to see what we can do about it,” Goodman said.

In other developments Tuesday, the jury’s youngest member, 18-year-old Jacke Clary of Carlsbad, was excused from the case because of illness. At the opening of Tuesday’s court session, Todd explained that Clary was suffering from a severe case of bronchitis that her doctor feared could worsen to pneumonia unless she remained in bed for about three days. Clary’s service on the jury initially was in question because of a severe toothache that last month delayed her official swearing in by one day.

Clary was replaced by alternate juror Marian J. Pierce, 39, a Mt. Helix housewife who was selected at random from among the trial’s four alternates. Pierce, whose husband markets automobile accessories, said during juror questioning that she lived in Del Mar from 1972 to 1978, overlapping the period in which Hedgecock was Del Mar’s city attorney. Hedgecock once wrote a legal opinion that helped Pierce and her neighbors have one side of their street declared a no-parking zone, she said.

Much of Kauth’s testimony focused on the long-range political planning among Hedgecock and his supporters that preceded Hedgecock’s successful May, 1983, mayoral campaign.

After his reelection to a second term as a county supervisor in June, 1980, Hedgecock and his backers began discussing possible future campaigns, including races for Congress or mayor, Kauth told Deputy Dist. Atty. Charles Wickersham. By 1981, however, “we pretty well focused” on a potential mayoral campaign, Kauth said, in the event that then-Mayor Pete Wilson was appointed or elected to higher office--a hypothetical situation that became reality with Wilson’s victory in the November, 1982, U.S. Senate race.

Hedgecock contends that serious planning for his potential mayoral campaign did not begin until after Wilson won the Republican U.S. Senate nomination in June, 1982. Kauth, however, said that Shepard asked her in January, 1982--the same month that he formed his political consulting firm--to prepare a campaign plan for a possible mayoral race.

Prosecutors argue that, from its inception, Tom Shepard & Associates was essentially a political laundry used to funnel tens of thousands of dollars in allegedly illegal contributions from J. David & Co. principals Dominelli and Nancy Hoover to Hedgecock’s campaign.

Hedgecock, though, has said that he was unaware that any of the more than $360,000 that the two J. David executives pumped into Shepard’s firm in 1982 and 1983 came from Dominelli, believing instead that Hoover alone invested the money to help her close friend Shepard start his own business. That assertion by the mayor contradicts Schuster’s claim--one of the cornerstones of the prosecution’s case--that Hedgecock had told him in November, 1981, that Dominelli was going to underwrite Tom Shepard & Associates because “Jerry was like putty in the hands of Nancy Hoover, and anything that Nancy wanted, Jerry would do.”

Kauth testified Tuesday that Hedgecock was excited about how the development of Shepard’s firm could affect his own political future.

“Roger was very enthusiastic about Tom opening his own firm,” Kauth said. “He said it would be a good deal for him, that he would have a head start on organizing his campaign before the other candidates.”

Kauth helped Shepard and other Hedgecock supporters develop preliminary plans for organizing precincts throughout early 1982, but ended her assistance later that year. Although Kauth did not specify the reason for ending her political alliance with Hedgecock, she conceded to Goodman that her departure from the campaign occurred after a business group that included her and Schuster lost a bid for a multimillion-dollar contract to develop the county’s bayfront parking lots in August, 1982.

Hedgecock and the other supervisors had voted unanimously to award that lucrative contract to another bidder--a fact that Goodman, who on Monday called Schuster “a liar,” cites as the reason why the investment counselor testified against the mayor.

Kauth also bolstered Schuster’s testimony concerning a $24,000 loan that Hedgecock sought from Schuster in March, 1982, because of severe personal financial difficulties caused by the failure of a condominium development partnership.

“Did you feel there was anything wrong” with Hedgecock’s request for the loan? Wickersham asked Kauth.

“Yes,” she replied, noting that the request came at a time when Schuster was bidding on the bayfront development contract. “We had a proposal before the county supervisors, and I didn’t feel it was appropriate to be in this negotiation.”

For the same reason, Kauth said, she opposed Schuster’s earlier plan to buy two of the condominiums from Hedgecock in the name of Schuster’s retired housekeeper and her daughter.

“I didn’t feel it was my problem,” Kauth said. “But . . . I preferred that (Schuster) not buy the condominiums.”

Ultimately, neither the condominiums’ sale nor the $24,000 loan was consummated. Hedgecock contends that he never picked up the $24,000 check because Schuster and Kauth, contrary to his wishes, made it out to a property management company owned by Hedgecock’s wife. However, Kauth reinforced Schuster’s version of events by testifying that Hedgecock had suggested making out the check to his wife’s company, allegedly to avoid reporting it on financial disclosure reports.

One of the key pieces of evidence in the case is a computerized mailing list that Hedgecock shared in 1982 with then-County Supervisor and now Rep. Jim Bates (D-San Diego). Hedgecock has said that after Shepard opened his firm, he sold the consultant the rights to use the list to solicit other clients in return for updating the data about registered voters and key Hedgecock supporters. Citing that agreement, Hedgecock argues that the services performed by Shepard’s firm in early 1982 that the prosecution describes as illegal campaign work actually involved updating the list pursuant to his agreement with Shepard.

However, David Gerrie, Bates’ chief of staff, testified Tuesday that the pact between Bates and Hedgecock specified that either had to notify the other before selling the list to a third party.

“To my knowledge, there was never any notification that the list was sold,” Gerrie testified.

Goodman, however, argued later that Gerrie misinterpreted the contract between Hedgecock and Bates. Because Hedgecock did not give Shepard access to that part of the list developed by Bates, Hedgecock had the right to sell the other, larger portion to Shepard without notifying Bates, the defense attorney said.