Probe of Alleged RTD Pact Payoffs Centers on Parties

The investigation of possible payoffs in connection with the award of a major insurance claims-handling contract by the Southern California Rapid Transit District is focusing in part on two downtown gatherings where officials of the winning firm celebrated with their lobbyists.

The Los Angeles County district attorney’s office has not revealed details of its probe, but some of those interviewed by investigators say that much of the questioning has focused on the two celebrations, which took place immediately after crucial 1984 RTD board votes on the lucrative contract to administer the transit district’s workers’ compensation claims.

The contract was won by Leonard J. Russo Insurance Services Inc. of Emeryville, Calif., after intense competition between three finalists. The key decision was made in a brief, closed-door meeting of the RTD board’s Personnel Committee, which passed over the top-ranked firm to select Russo.

Improprieties Denied

RTD board members, Russo, and lobbyists Marty Carr and Jim Kernodle all have denied any improprieties. “There’s nothing there,” said Russo, who with Carr and Kernodle volunteered to be interviewed by investigators this week.

The district attorney’s office has said only that their investigation involves allegations of “irregularities” in the awarding of the contract to Russo. But sources familiar with the case have said it is concentrating on a what became of a $5,000 bonus paid by Russo to Carr and Kernodle. Carr said he used his share to put a new roof on his house and Kernodle said his share went for living expenses.

Precisely what prosecutors want to know about the downtown gatherings--a luncheon atop a skyscraper after Russo won the contract and another get-together a month later in the lobby of Little Tokyo’s New Otani Hotel after the board declined to reconsider its choice--is not clear.

Russo, Carr, Kernodle and Donna Bruhn, a former Russo employee who attended the celebrations, all said they were questioned about the gatherings by investigators.

Attending the sessions were Russo, the lobbyists and a few of Russo’s key employees. There were no RTD officials at the meetings, according to Russo and the lobbyists, and they insist nothing was said about payoffs to RTD officials.

Charles Murry, an auditor for Russo who was present at both gatherings, told The Times Friday that he recalled a comment made by Kernodle at the first luncheon celebration. Kernodle said Russo had promised him and Carr a bonus if they could get the firm the contract. Kernodle said Russo had said it would be “worth $5,000 to them,” Murry said.

However, Murry, who also has been interviewed by investigators, said he had no indication RTD officials may have been paid off.

Bruhn said investigators who traveled to Northern California to interview her seemed particularly interested in the first gathering, in August, 1984. Although the investigators did not ask about payoffs, she said, they asked “what was discussed, who was there, who’d you sit next to.”

That celebration came the same day the RTD board voted to give Russo the contract--a decision that surprised some bidders and RTD staff members because another firm, EBI Services Inc., had been recommended by the staff.

Russo’s firm was ranked second. Richard P. Carron, who chaired the RTD staff committee that prepared the final recommendations, said Russo and EBI were close in the final evaluation. But he said he still stands “very strongly” by his committee’s recommendation because the staff felt EBI was better equipped to handle the complex contract and had an aggressive program to reduce workers’ compensation claims.

Carron said the board committee acted within its authority to select a second-ranked firm. But he said the staff had carefully analyzed the bidders’ qualifications and proposals and the decision “was a bit surprising. . . . They acted rather quickly.” The minutes show that the committee meeting, which included another matter, lasted 18 minutes.

The minutes also show the committee members focused largely on price--a factor that was given relatively low importance by the staff because of the complex and specialized nature of the service. EBI had bid low for the initial two years of the contract, but Russo’s bid on a four-year basis was about $200,000 less than EBI’s.

Carr and Kernodle, the Russo lobbyists, have said they contacted the three Personnel Committee members who attended the key meeting before the vote and argued that the RTD would save money in the long run if their client was selected. The committee members they said they met with or telephoned were La Puente Councilman Charles Storing, Bell Councilman Jay Price, and Mike Lewis, a top aide to Los Angeles County Supervisor Pete Schabarum. Lewis is no longer on the RTD board. The committee’s recommendation of Russo was approved unanimously by the full board.

The committee members as well as other board members have denied any wrongdoing.

But Storing and Lewis did push for Russo, in part citing the long-term savings argument, according to the minutes of the meeting.

The contract has proven to be far more costly than anyone initially imagined. There were 30% more new workers’ compensation claims and 154% more continuing claims to be handled than initially estimated, RTD officials said. Russo’s four-year bid to handle new claims was $1.4 million, with RTD staff initially estimating an additional $50,000-a-year expense to handle on-going cases. However, the larger than anticipated volume of claims caused Russo and the RTD to renegotiate the terms of the contract for the current year. Russo’s total contract for this year alone has grown to $1.7 million, up 79% from last year.

In return, Russo agreed to correct understaffing problems identified by RTD auditors, who said claims were not being promptly investigated and settled, causing more costly litigation.

Several months after winning the contract, Russo made a $2,000 campaign contribution to Schabarum. Russo and Schabarum’s aide Lewis said it was not connected with the RTD contract. It is typical--and legal--for firms doing business with government agencies to make such contributions.

Russo, who has not been a major contributor to local campaigns, acknowledged the contribution was one of the largest he has made in Southern California. He said he bought tickets to a Schabarum fund raiser because he supports the supervisor’s drive to make government more cost-effective by contracting services to private industry.

He said he has an insurance adjusting contract with the county and contributed a similar amount to Supervisor Michael Antonovich, who like Schabarum appoints a member to the RTD board.

A few months before the Russo contract came to the board, Carr and Kernodle also met with Antonovich’s appointee to the board, Nikolas Patsaouras. Carr and Patsaouras said they could not recall the details of what was discussed at the meeting.

Russo said it “would not be unlikely” that he discussed the contributions with Carr, his lobbyist.

Carr is a former Schabarum aide and a friend of Lewis. In addition to being Schabarum’s top aide, Lewis is a paid consultant for Schabarum’s campaign committee.

But Lewis denied any connection between the award of the contract and the campaign contribution, saying the fund raiser Russo bought tickets to probably had not even been planned when the crucial votes took place.