Water District Fires Longtime General Counsel

In a move to cut costs and break with its troubled past, the Santa Margarita Water District has fired its longtime general counsel and plans to offer early retirement to its chief engineer, who is under criminal investigation.

The board of directors voted last month to terminate the services of Fritz R. Stradling, who helped found the special district in 1964 with local landowners such as Richard J. O’Neill.

Stradling, founding partner of Stradling, Yocca, Carlson & Rauth, Orange County’s second largest law firm, was present at the board’s April 20 meeting, in which the directors unanimously voted to terminate his contract.

“I have no animosity, although I am disappointed,” Stradling said. “I formed the district, but it’s a new regime and I think they wanted a change in all areas.”

More recently, the district has sought to amend its contract with the state’s Public Employees’ Retirement System so it can offer early retirement to four or five of its longtime staffers, including Bill Dye, the district’s engineering chief for the past 15 years.

Dye, 58, is expected to be offered credit for two extra years of service at the district toward his retirement in exchange for leaving the district within the next three months.

Dye, who makes $97,020 a year, has been talking about retiring after he was implicated in a criminal investigation over the alleged failure of top district officials to disclose gifts from companies that they helped recommend for contracts.

The district’s two top managers, Walter W. (Bill) Knitz and Michael P. Lord, face criminal conflict-of-interest charges stemming from their alleged acceptance of gifts from companies that relied on their help in getting district contracts.

Both Knitz and Lord have entered not guilty pleas to the misdemeanor charges. A pretrial hearing for the two men is scheduled for June 6.

Dye has not been charged, but prosecutors are still weighing possible charges against him and former board Chairman Don B. Schone over their failure to report the acceptance of gifts. Government officials have acknowledged, however, that neither man accepted anywhere near the number of gifts Knitz and Lord are accused of accepting but failing to report.

The Times reported in January that Dye and his chief assistant, Dan Ferons, received $12,000 in meals and entertainment from an engineering firm that received nearly $14 million in contracts from the district, many of them on Dye’s recommendation.

Although John J. Schatz, the district’s general manager, said Dye’s expected retirement has nothing to do with the criminal investigation, many see the departures of Dye and Stradling as a way for the board of directors to reshape its image, which was sullied over the past 14 months. During that time, the board’s composition has been completely overhauled through resignations, retirements and last November’s election.

Many of the problems involving Knitz, Lord, Schone and Dye center on their alleged failure to report large numbers of gifts and then recommending or voting on contracts benefiting the gift-givers, in violation of state law.

Attorneys for some of the men have suggested that Stradling should have offered better legal guidance on filling out their statements of economic interest and should have warned the officials to abstain from recommending contracts to people who gave them gifts.

Stradling has said he did his job explaining how the forms should be filled out and that it was up to the officials to abstain from voting if they believed they had a conflict.

“I don’t think they hold me responsible for anything that went wrong, and I cannot be held responsible; but it’s a new board, a new team, and they want some change,” said Stradling, who is not part of the criminal investigation.

Stradling’s firm will continue to handle bond financing for the district, such as the refinancing of several bond issues that will help provide water service to a new development. The law firm won that contract after the board voted to put the business out for competitive bid. Until that time, Stradling’s firm had handled the job without competition.

But the general counsel’s duties, which included everything from routine advice on legal matters to litigation to the drafting of resolutions and agendas, earned the firm more than $2 million over the past years alone.

“We just thought that with a new board and new general manager that a change was necessary,” said Schatz, a lawyer who will be handling some of the legal duties. “He was part of the prior regime and his expense was not an issue. It was the prior relationship he had with the board.”

Stradling’s firm was the subject of a critical legal audit conducted in December, 1993, that concluded that the district had overspent for legal services by about $150,000 for fiscal year 1992-93, the one year it was examined. For that year, the district spent $458,064 for legal services (this figure did not include the firm’s bond work).

“There is no compelling reason why the district’s legal costs should not have fit into the normal range during the period examined,” said the audit, conducted by EnviroLaw Strategies Inc. of Irvine.

The normal range for such fees is up to 0.5% of a government agency’s annual budget. Stradling’s fees were 0.75% of the budget.

The audit also included recommendations to reduce the number of attorneys at Stradling doing district work, to negotiate a discount on legal fees and to consider dividing the legal work among two or more law firms to save money.

As for Dye, his expected retirement is part of an overall effort to cut costs, particularly in the engineering department, which is seen as overstaffed, board member Bob Lay said.

“The man has put in 15 years,” Lay said. “He’s a quality guy, but there comes a time for a change, and this is a way to accommodate change in a responsible way.”