Lungren Probes Garamendi’s Use of Lawyers : Prop. 103: Attorney general questions whether it is appropriate for the insurance commissioner to hire two private attorneys to work on rate rollbacks. They had worked on the issue as state officials.

Atty. Gen. Dan Lungren is investigating whether a $195-an-hour contract that Insurance Commissioner John Garamendi arranged with two former state attorneys violates California’s “revolving door” prohibitions.

In a letter to Garamendi released to The Times on Thursday, Lungren said he was disturbed by “the lucrative contract negotiated by two Department of Justice employees who . . . left state service to reap its benefits.” The deal reportedly was struck when the two lawyers worked for Lungren’s Democratic predecessor, John K. Van de Kamp.

The Republican attorney general said that the circumstances of the contract with two former deputy attorneys general--Michael Strumwasser and Fredric Woocher--”create an appearance of a ‘sweetheart’ deal.”

Lungren said he was concerned that the contract may “run afoul of the current revolving door prohibitions in the law.” Under this law, former state officials are prohibited for two years from working on private contracts that they had a part in negotiating as public employees.

Garamendi, a Democrat, has argued that the contract did not violate the statute and that other private attorneys with approved contracts are charging the state higher fees.

Lungren’s office released several documents to The Times questioning terms of the $750,000 contract.

In the first two months of the contract, Strumwasser and Woocher billed the state $180,000 for a variety of services, including preparing the regulations that set insurance rates in the state, representing the Department of Insurance in court, and talking to reporters, records show.

One internal memo, prepared by Lungren’s staff, describes what the writers call “a very elaborate scheme” by the two lawyers and one or more Department of Insurance officials to win necessary approvals for the contract before Garamendi took office in January. The same document, released under a California Public Records Act request, asserts that Garamendi could have been well represented by deputies who work for Lungren at considerably less cost. The attorney general’s office charges the Department of Insurance $75 an hour.

However, Strumwasser and Woocher contend that they carefully reviewed all the legal questions raised by Lungren before they negotiated the contract and they are confident that the agreement is valid.

The penalty for violating the conflict-of-interest statute is to void the contract.

The two attorneys also said that Garamendi had no choice but to look for outside counsel to represent his office in the battle with the insurance industry over rate reduction.

“There is no one in the state attorney general’s office who could provide that kind of service,” Strumwasser said.

Garamendi could not be reached for comment, but spokesman Bill Schulz said the private legal contract was essential to Garamendi’s efforts to roll back insurance rates as required under Proposition 103, an initiative approved in 1988.

“This contract is one that is critical to delivering to California consumers the rollbacks denied them for too long,” Schulz said. He said the contract with Strumwasser and Woocher “followed the letter and spirit of the law.”

Schulz pointed out that Garamendi’s predecessor, Roxani M. Gillespie, had also contracted out for private legal help in dealing with Proposition 103, and at a higher rate--$225 an hour. Schulz said Garamendi believes “he is getting better legal counsel at a better price. It’s a deal too good to pass up.”

Harvey Rosenfield, whose organization Voter Revolt sponsored Proposition 103, contends that the challenge to the Strumwasser and Woocher contract is part of an effort by the insurance industry to prevent the initiative from being implemented. He said he believes that Lungren is part of that effort.

Strumwasser and Woocher “are the people who are making this work . . . and that’s why (the industry) is after these people. Industry doesn’t want them there,” Rosenfield said.

State law bars a former state employee from entering “into any contract in which he or she engaged in any of the negotiations, transactions, planning, arrangements or any part of the decision-making process relevant to the contract while employed in any capacity by any state agency or department.”

Strumwasser and Woocher point to another section of the law that provides an exception for attorneys who leave government service and continue to work on the same matters.

Both men were special assistants to Van de Kamp, who strongly disagreed with Gillespie’s reluctance to push ahead with rate cuts required under Proposition 103.

When Gillespie proposed regulations to implement the initiative, Van de Kamp had Strumwasser and Woocher develop alternatives that would cut insurance rates more deeply. Because Republican Gillespie was at odds with Democrat Van de Kamp, Gillespie hired a private legal firm to represent her both in court and in the regulatory hearings.

State law requires the attorney general to approve such outside legal contracts, and Van de Kamp and his staff agreed to Gillespie’s request.

Garamendi, the state’s first elected insurance commissioner, decided to reject the regulations that Gillespie developed. Garamendi preferred Van de Kamp’s approach. Two days after he took office, he canceled the earlier rate-setting rules and offered a new set of regulations that were almost identical to those prepared for Van de Kamp by Strumwasser and Woocher.

The insurance industry immediately challenged Garamendi’s order, but Strumwasser and Woocher won a key court test of Garamendi’s authority--allowing the new rate-setting rules to move ahead.