Firm in O.C. Bus Deal Allegedly Skipped Rent : Transit: Officers of ‘SuperBus’ company are also being sued for fraud in unrelated ventures.

The company that recently won a $4-million contract to supply innovative “SuperBuses” to Orange County was accused last year of skipping out on its rent, and some of its officers are being sued for fraud in unrelated business deals, court records here show.

Orange County Transportation Authority officials say they were unaware that SuperBus Inc. had stopped paying rent on a downtown San Jose office suite months before it won a non-competitive contract last summer to build 10 high-capacity buses for the agency.

Instead, files show that the OCTA never closely questioned the finances of the fledgling Northern California firm, which a top officer said retained former Supervisor Ralph B. Clark to help arrange a number of “private” meetings with county officials before the vote.

That officer, SuperBus Chief Executive James F. Elder, said the company is financially sound and capable of delivering the 58-passenger buses as promised, and that the lawsuit allegations against him and his partners are untrue.

He said that the company is providing OCTA with a bank letter of credit to demonstrate its financial strength.

“I don’t know that I necessarily need to report everything that I shared with Orange County,” Elder said, “but it is very familiar with our ability to perform on our contracts.”

However, Roger R. Stanton, chairman of the Orange County Board of Supervisors, has asked transportation officials to review all aspects of the SuperBus contract in light of questions raised by a Times Orange County Edition investigation.

“We haven’t heard about this stuff you’re telling me,” said Stanton, who chairs the OCTA board. “There’s enough here to raise questions and I think these are things that should have been pointed out and they weren’t.”

Reached Thursday at his Anaheim home, Clark acknowledged that he owns stock in SuperBus and that he has acted as “an adviser” to the firm. But Clark said he did nothing to help win the Orange County contract.

Clark’s involvement with SuperBus is the second instance in which the retired Orange County politician had some association with a company that obtained a lucrative public contract while suffering financial difficulties.

Last summer, Clark contacted county officials and urged them to grant an exclusive airport-bus license to a firm that had already filed for bankruptcy protection and had strong ties to a man involved in a criminal savings-and-loan fraud. The airport agreement is with Ground Systems Inc., whose part-owner James Allee pleaded guilty to three counts of fraud connected to the demise of Consolidated Savings Bank of Irvine.

In the case of SuperBus, Elder said Clark helped make contacts for the company, which according to court files and interviews needed the business to settle a lawsuit over the unpaid rent.

A Times investigation shows that Elder, his business associates and the new bus company have all had trouble meeting some obligations in the past--circumstances that are detailed in public documents but were not sought by OCTA staff members responsible for negotiating the bus contract.

In particular, The Times has found:

- Elder and several officers, operating under the name of Capital Builders Inc., have been accused of fraud, self-dealing, co-mingling funds and misleading investors in lawsuits stemming from two Silicon Valley real estate ventures that failed in the late 1980s. Elder and his associates raised $6.9 million from two groups of investors to build and lease office space in Fremont and Milpitas, just north of San Jose.

Both ventures went bust, according to court records. A 1988 lawsuit alleged that Elder and his associates “manipulated” a $2.7-million partnership to reap a hefty sales commission while investing in properties. A 1990 lawsuit accused them of making “fraudulent inducements” by raising $4.2 million for a separate partnership with the promise of personally guaranteeing a loan that was eventually foreclosed on by the banks. The suits are pending in Santa Clara County court, and the one is scheduled for trial in April.

Elder and the current president of Capital Builders, Michael J. Metzger, vigorously deny misleading investors and blame the failed ventures on a sudden drop in the economy of Silicon Valley, where rents plummeted as research and development firms closed.

- Elder was sued personally by Union Bank for defaulting on a $77,500 loan that was due in 1985. The suit was dismissed after Elder agreed in mid-1988 to repay the balance of $70,000--plus interest, court files show.

Elder and a bank attorney declined recently to discuss the matter.

- SuperBus stopped paying its rent on 1,760 square feet of San Jose office space in November, 1990, according to a May, 1991, lawsuit in which the landlord asked for more than $17,100 in overdue rent, interest and attorney’s fees.

About that time, the company was working 400 miles away in Orange County to secure the $4-million non-competitive contract for 10 SuperBuses--an accord that would help extricate it from the lawsuit over rent. Less than a month after the OCTA board approved the county contract in October, Elder signed a stipulated judgment that based the landlord’s reimbursement on the next sale of SuperBuses. Elder said he is currently operating the company from his home in Saratoga.

OCTA staff and board members who approved the SuperBus deal said they were unaware of the lawsuit against the firm, as well as allegations of fraud against Elder and his associates. Administrators said they felt the agency was protected, however, because SuperBus has offered to give OCTA a $760,000 letter of credit as a guarantee it can deliver the vehicles.

Vince Rouzaud, OCTA manager of purchasing, said the transportation agency would have been bound to investigate any financial cloud surrounding SuperBus or its principals had the agency known about them.

“I wouldn’t expect anybody to volunteer any information about that. . . . If something was brought to my attention and I became aware of information, it would be a duty of mine to investigate it, yes,” Rouzaud said.

The fact that the agency failed to find those past financial problems involving SuperBus and Elder is not “good, responsible management,” said Supervisor Stanton, who abstained from voting on the contract, in part because it was not being competitively bid. Stanton said this week that he has asked OCTA to take a second look at the matter to get “full disclosure of the facts we weren’t made aware of previously.”

Elder said there has been “zero (financial) relationship” between the bus company and Capital Builders, although the two firms once shared San Jose office space, were run by some of the same people and had some common investors.

Elder also said he has since sold his interest in Capital Builders to Metzger, who is an investor in SuperBus and serves as a board member. The building firm has since relocated to the Sacramento area, where it has built three successful office and retail projects, tax records show.

Elder and several investors say the financial problems of SuperBus are typical of a start-up venture trying to break into an established market. The Orange County contract not only helps the firm survive, they say, but has given it a nationwide credibility that could lead to similar business from transit districts in Houston and Washington.

“Orange County, nationally, is looked upon as a leader,” said investor Royal Krieger, whose Oakland-based partnership has loaned SuperBus $500,000. “Our impression is that there are some pretty sharp people down there. They are on the cutting edge.”

From the beginning, Orange County transportation officials were keenly interested in the SuperBus, which looks from the outside like a big-rig truck. The idea came from Buena Park inventor Joseph M. FitzGerald, who first formed SuperBus with Elder in 1983. The men raised about $1.5 million from investors to produce prototypes of the new vehicle, which is designed to carry 20 more people than a conventional bus.

Instead of being pushed by a noisy engine from the back, SuperBus passengers are pulled in a low-slung, carpeted trailer by a separate driver’s cab. The configuration means a quieter, more comfortable ride for passengers and greater efficiency for the operating agency, supporters say.

SuperBus first approached local officials in 1986, and persuaded the Orange County Transit District--now a division of OCTA--to lease two prototype vehicles for three years of testing. Before transportation officials took delivery of the prototypes in 1988, SuperBus paid for then-OCTD board members William E. Farris and Gerald Mullen, General Manager James P. Reichert and Mechanic Supervisor Efren Medellin to tour its Mexico City assembly plant.

Since then, local officials say they have been pleased with the performance of the two vehicles on nonstop runs between Fullerton and downtown Los Angeles, as well as to Rams games at Anaheim Stadium.

Elder said that the first Orange County contract--which gave SuperBus lease payments of $4,020 a month per vehicle--was crucial to the company.

“It was very important to have the Orange County Transit District, which is a prestigious transit authority, right in our back yard, be willing to test this product,” he said.

Since then, Elder said the company has sold three vehicles to an operator who runs shuttles to the Minneapolis Airport. And it sold two more in 1989 to Walt Disney World, where the buses shuttle employees of the attractions from remote parking lots.

Elder said that at some point before the Walt Disney World deal he hired Clark as an adviser. Elder declined to say how Clark was paid. But the former supervisor said Thursday that he was given SuperBus stock as a retainer. Clark declined to say how much stock, but characterized it as “a small amount.”

According to a statement of earnings filed with OCTA auditors, however, even with the Walt Disney World sale the company lost $472,000 for the fiscal year ending November, 1990--the month it stopped paying rent on its San Jose office.

“I think what happened is they were still under severe cash constraints,” said investor Krieger. “They were forced to make very tough decisions. ‘Do we pay rent or do we stay alive. . . .?’ ”

In securing what would be its largest contract, Elder said the company turned to Clark, who retired from the former OCTD board in 1986.

“What Ralph did there was introduce us to the board members and that allowed us to make our presentation, talk about the benefits of SuperBus,” Elder said. “Ralph Clark helped to tell the factual story to board members.”

Elder said Clark helped set up a series of “private” meetings to discuss the contract, but Elder declined to say with whom.

However, one of those meetings was with Stanton, according to the supervisor’s personal appointment records. Stanton, to whom SuperBus had given a $225 campaign contribution in 1988, said Clark asked him to meet Elder for lunch at an Orange County restaurant last Aug. 20.

The month before, Stanton had raised questions at an OCTA meeting about the contract. The board voted unanimously to begin negotiations for the purchase of 10 SuperBuses.

In an interview early Thursday, Clark said the lunch with Stanton was a “chance” meeting and not a formal appointment. He said that his job advising SuperBus had ended even before OCTA formally considered the contract last July.

Late Thursday, however, Clark telephoned a reporter to say that he had reviewed his records and discovered that the August meeting with Stanton was, in fact, intentional.

Clark said he didn’t recall setting up any other meetings for Elder with local transportation officials.

After the OCTA board votes approving the SuperBus contract, administrators signed a purchase order on Oct. 23 agreeing to pay $388,000 for each vehicle. Construction approval is yet to be given because the agency is awaiting the final bank letter of credit that SuperBus is offering in lieu of a performance bond.

According to documents filed with OCTA, SuperBus has formed a joint venture with a large Mexican bus manufacturer, Capre of Mexico City, to set up a Baja California plant where Mexican workers will assemble American-made parts for the vehicles. As part of the deal, the Mexican government has promised to provide manufacturing financing “which is necessary to build the buses,” Elder wrote in a December memo in OCTA files.

In addition, Elder wrote, the Mexican government will help back the letter of credit being offered to OCTA through the Bank of America.

Stanton said the SuperBus arrangement with the Mexican government and a Mexican company raises the additional question of whether the agency is actually dealing with a California “shell” firm that will be exporting jobs.

“I have no hesitation in saying that we have to pull the plug on anything like this, if it is a shell (corporation), and in the future nothing like this better happen again,” he said.

Frammolino reported from San Jose and Perlman reported from Orange County.

‘SuperBus’ Facts and Figures

Passengers Length Height Weight Purchase Cost Standard bus 38 40’0” 9’11” 27,000 lbs. $250,000 SuperBus 58 55’6” 10’11” 44,700 lbs. $379,000

Maintenance Costs (1988-89)

Regular transit district fleet average: $0.59/mile

SuperBus average*: $0.39/mile

*For two buses used only in express service. Orange County Transportation Authority says main cost advantage is less need for regular buses and their drivers ($33,000 per year plus fringe benefits) due to larger SuperBus passenger capacity.

Source: Orange County Transportation Authority