Debt to Irvine Co. by Mayor’s Firm Raises Question of Propriety

A $100,000 debt that Newport Beach Mayor John C. Cox’s advertising firm owes to the Irvine Co. for back rent may raise conflict-of-interest questions if it is forgiven in a pending bankruptcy case, Newport Beach City Atty. Robert Burnham said Tuesday.

Burnham said he will ask the state’s Fair Political Practices Commission for an opinion on whether Cox will have a conflict of interest if he repays only a portion of the debt. Cox’s advertising company filed for protection under Chapter 11 of the federal bankruptcy laws July 16 and listed the Irvine Co. as one of its main creditors.

The firm, Cox and Burch Advertising Co., has been a tenant at the Irvine Co.’s exclusive Newport Center complex for 10 years. Cox said his company’s rent was $22,000 a month for 10,000 square feet of office space until Sept. 1, when the financially troubled company moved to less expensive offices in Laguna Hills.

Under Chapter 11 of the bankruptcy laws, a firm is given protection from its creditors while it reorganizes and comes up with a plan to pay off debts. Typically, the bankruptcy court requires a company to pay off only a part of its full debt.

Burnham emphasized that Cox currently has no conflict and has not broken any laws by voting in favor of Irvine Co. projects. But he said he told Cox last month that “there was a possibility of a conflict or potential conflict in the event the bankruptcy proceeding culminated with payment of less than the full amount to the Irvine Co.”

Burnham said state law defines the forgiveness of a debt as income.

“If you are a source of income to a council member and the income is $250 or more, you are disqualified from voting on a matter where it is reasonably foreseeable that the decision could have a material financial effect on the source of income,” Burnham explained.

As a member of the Newport Beach City Council, Cox has often voted in favor of the Irvine Co.’s development projects, including the company’s recently proposed $300-million Newport Center expansion. The council’s approval of that expansion, however, was overturned by the voters in a special election five months later.

Should Have Abstained

Members of Newport Beach’s slow-growth citizens coalition said Tuesday they believe Cox should have abstained from voting on the controversial Newport Center expansion project when it came before the City Council last June.

“I don’t know whether the law required him to abstain, but as a matter of personal ethics, he should have abstained,” said Allan Beek, who spearheaded the successful grass-roots drive for a special election on the Newport Center expansion.

“It’s hard to vote against someone you owe $100,000 to, and who could toss you out at any time,” Beek said.

Stuart Williams, another slow-growth advocate and former member of SPON (Stop Polluting Our Newport), said he views it as a conflict “whenever anyone has an obligation or is indebted to someone who might want a favor done. They should just excuse themselves from voting on that--that’s all.”

FPPC spokeswoman Lynn Montgomery said Tuesday that Cox’s situation is not something the commission has ever dealt with before.

“This is not an area of advice we have given or ever considered,” Montgomery said. “What we told Burnham is that he should write us a letter, lay it all out . . . and we would then respond to it.”

Thomas H. Nielsen, vice chairman of the Irvine Co., said the Newport Beach-based company has not given Cox any special treatment because he is a city official and that the company does not intend to forgive the mayor’s debt.

“We would certainly be filing in the bankruptcy court a claim for the amount of the rent due,” Nielsen said. “As far as I’m concerned, I feel that his firm and Mr. Cox were treated as any other tenant in similar circumstances.”

Nielsen said the Irvine Co. has had delinquencies involving tenants who were more behind in rent than Cox’s firm and who, as in Cox’s case, were able to work out an arrangement with the company to avoid eviction.

Cox, in turn, said the Irvine Co. was treated no differently than any of his company’s other creditors. He added that he had not broken any conflict-of-interest laws by renting from the Irvine Co. and that his critics were using “innuendo” tactics.

“I’m a renter just like anybody else,” Cox said. “If that is creating any problem, someone is going to have to prove that in court, I guess.”

Referring to his critics, Cox added: “I see this as somebody trying to take political advantage. It can’t be any more than that. It’s none of their business. It’s a very unfortunate personal situation.”