Report Faults Secrecy of Sex-Harassment Payment : City Hall: Special counsel says failure to inform council of hush money opened door to future claims.

By failing to discipline former Planning Director Robert Spaulding, after his affair with an employee cost San Diego nearly $100,000, city officials who kept the payment secret were jeopardizing, rather than protecting, the city’s financial interests, a report released Thursday said.

Although the officials hoped to protect the city against a potentially large lawsuit loss by quietly settling former planner Susan M. Bray’s sexual-harassment claim, their failure to inform the City Council of the deal allowed Spaulding’s behavior to go unpunished, creating the risk of similar future claims, special counsel Josiah Neeper concluded.

The previously secret 33-page report, released late Thursday along with other related documents in response to news media requests, provides few major disclosures about the month-old City Hall sex-and-hush-money scandal. Rather, it fills in some of the missing procedural details about the controversy, gives fuller accounts of some officials’ justifications for their actions and offers recommendations on avoiding a recurrence.

Neeper’s overview of the incident is that a handful of top city administrators relied on faulty legal advice from a low-level deputy city attorney to structure the secret $98,531 payment to Bray, then improperly failed to notify the council of the deal.

Of the roughly dozen city officials aware of at least parts of the settlement, Neeper faulted four--former City Manager John Lockwood, City Atty. John Witt, Assistant City Atty. Curtis Fitzpatrick and Personnel Director Rich Snapper--for not apprising the council. Their failure to do so, Neeper argued, effectively ruled out any potential discipline for Spaulding, because the council exercises hiring and firing authority over the planning director.

“Everyone knew that discipline would not occur in this situation unless the mayor and council were informed,” Neeper wrote. “Each allowed Lockwood to make the decision, and make it without informing any of the others of his decision and action.”

City personnel regulations do not expressly require that the council be notified of settlements similar to that in Bray’s case, Neeper noted. However, he stressed that such notification is necessary in order that “discipline can be considered and invoked . . . to remedy discrimination and prevent continuance or recurrence.”

Given that the settlement reflected city officials’ belief that there was “reasonable cause” to Bray’s complaint, their failure to ensure that the council could at least consider disciplining Spaulding is all the more baffling, Neeper said.

Though several officials involved expressed concerns about keeping the council in the dark, Lockwood took it upon himself to make that judgment, the report says.

Lockwood eventually chose to keep the deal secret for a number of reasons, including his desire to protect Spaulding’s family from public embarrassment and his growing displeasure over information “leaks” that had become “routine” during closed council sessions.

“Labor unions knew the council’s highest authorized offer before city management had concluded negotiations,” the report says. “Defense attorneys knew of the upper range of litigation amounts authorized by the council in closed session prior to the city attorney’s commencing negotiations.”

Even after Lockwood warned the council members that he would begin withholding discretionary information unless the leaks ceased, they continued. Because Bray’s settlement specifically included a confidentiality clause, Lockwood concluded that the only way to adhere to that provision would be to not inform the council. In one other case, Lockwood also withheld discretionary information from the council, Neeper said.

Neeper, however, contends that Lockwood “had a professional obligation as city manager to inform (the) mayor and/or council in some effective way to permit consideration of discipline” against Spaulding. None of the factors considered by Lockwood--protecting Spaulding’s family, saving the city money, anger over a “leaky” council--justified withholding information the council needed to “know to do its job,” Neeper said.

Similarly, Neeper concluded that Personnel Director Snapper “was not justified in relying on Lockwood” to make that decision. Being aware that possible discipline against offenders must be considered to prevent or remedy unlawful discrimination, Snapper “had an affirmative obligation to see the process through,” Neeper wrote.

Neeper’s report also discloses that:

* Lockwood never considered it his role to advise Spaulding to resign.

* Lockwood considered forcing Spaulding to help pay the settlement, but could not devise a way to get the money from him into the city’s treasury.

* Bray’s sexual involvement with Spaulding was disclosed to the city not when she filed her harassment complaint, but when a physician filed a Dec. 21, 1990, report on Bray’s application for worker’s compensation.

The city, based on the same physician’s oral report, had rejected Bray’s request for those benefits a month earlier. Apparently, the doctor had not told city officials about Bray’s sexual relationship with Spaulding.

The physician’s written report arrived on the very day Bray filed a sexual harassment complaint with the state Department of Fair Employment and Housing.

* Larry Gardner, then the city’s equal employment investigative officer, who appeared to handle both the investigation of Bray’s complaint and negotiations with her attorney, first offered Bray a $43,500 settlement. Her attorney, Frank E. Rogozienski, rejected it.

The offer consisted of a $17,500 cash payment, a one-year extension of Bray’s long-term disability benefits worth $26,000 and $2,000 in extended dental, medical and vision benefits.

During the negotiations in January and February of this year, the city twice unilaterally extended Bray’s long-term disability benefits--scheduled to run out on Jan. 17--until March 7.

* In assessing Bray’s chances of winning a large settlement in court, a city official put together a list of verdicts in similar cases. The handwritten list appears to show awards as low as $500 and as high as $1.5 million, though the largest settlements came in cases where both sexual harassment and wrongful termination were involved.

Gardner concluded that “there was reasonable cause (for Bray’s complaint) and that the financial risks for the city were great.” That judgment was based on the fact that there was a sexual relationship, to which Spaulding admitted, between a “very high superior” and a subordinate; that Bray feared she would be terminated as others in her department had been, and that Bray feared being cut off from long-term disability benefits if she ended the affair once she went out on leave in January, 1990.

That section of the report also contains two other reasons for Gardner’s conclusion that were censored because the information came from Bray’s personnel file and a medical report.

Mayor Maureen O’Connor said Thursday that the council did not necessarily concur with Gardner’s conclusions or Lockwood’s decision to settle the case.

“In retrospect, I’m not sure they thoroughly reasoned it out, and it might have been a different scenario if they had come to the council,” she said.

Neeper’s report also concludes that Witt and Fitzpatrick may have inadvertently violated legal ethics guidelines by failing to inform their client--the council--of the matter, Neeper said.

Though neither was certain that Lockwood had not notified the council, the absence of any disciplinary action being taken against Spaulding made that appear to be the case, he added. “That appearance of non-disclosure was a significant development in and of itself,” Neeper’s report says. “It should have been reported to (the) mayor and council by Fitzpatrick or Witt.”

After Lockwood retired in March, they could have informed the council of the deal without violating its confidentiality provisions, Neeper said.

Furthermore, Neeper criticizes the manner in which Witt’s office provided the legal justification for the secret payment to Bray. That legal opinion was based largely on the answer to two key questions: whether the secret deal would violate a city policy requiring the council to be notified of any settlement over $20,000, and whether Bray could receive long-term disability payments for three years, even if her purported psychological stress did not last that long or prevent her from taking another job.

The “lower-ranking” deputy city attorney who reviewed the case concluded that neither issue was an obstacle to the settlement, in which Bray was to immediately receive $19,995 in cash and $78,536 over the next three years.

Pointing out that neither Witt nor his top assistants reviewed that “highly questionable” legal advice, Neeper said, “There was no justification in relying on such advice without clearing it with the highest levels of the city attorney office.”

Witt, however, said in an interview Thursday that he does not hold the deputy city attorney, whom he identified as Sharon Marshall, “responsible at all.”

“If it was a mistake, it was a mistake of things falling through the cracks . . . and our not having enough oversight,” Witt said.

But City Councilman Bruce Henderson argued that the Neeper report is too easy on Witt’s office.

“I was very disappointed with the Neeper report, because I don’t think Mr. Neeper adequately dealt with the issues of how the city attorney handled this matter,” Henderson said.