Quackenbush Aide Accused of Conflict of Interest

For years, Insurance Commissioner Chuck Quackenbush has allowed his chief of staff to operate a lucrative private legal practice representing clients against a conglomerate that owns insurance interests the department regulates.

The outside legal activity of William W. Palmer has prompted scrutiny from two legislative committees and a decision by Assembly Insurance Committee Chairman Jack Scott (D-Altadena) to file a complaint with the state’s ethical watchdog, the Fair Political Practices Commission.

“I just know this is a conflict of interest,” Scott said in an interview. “It just doesn’t pass the smell test.”

Court records show that Palmer, who holds two top jobs in the Department of Insurance with an annual salary of more than $200,000, represents shareholders in a lawsuit against Berkshire Hathaway Inc., the conglomerate headed by investor Warren Buffett. Among the subsidiaries of Berkshire Hathaway are GEICO Corp., the nation’s sixth-largest auto insurer, Cypress Insurance Co. and Berkshire Hathaway Life Insurance.

Quackenbush and Palmer said through a spokeswoman that they believe there is no conflict of interest in Palmer’s outside activity and that the accusations against him are an attempt by Democrats to discredit the commissioner. Quackenbush is one of only two Republicans holding statewide office.

“I have been told that . . . Bill Palmer’s client work on the side was approved and met all conflict-of-interest codes that apply,” said Dana Spurrier, Quackenbush’s deputy for press and publications.

She said both Quackenbush and Palmer declined to be interviewed, contending that all they intend to say is in an 11-page statement provided to Senate Insurance Committee Chairwoman Jackie Speier (D-Daly City).

The statement does not address the conflict-of-interest issue; it focuses on Speier’s concern about Palmer’s dual job functions. Besides being chief of staff, Palmer heads the Conservation and Liquidation Office, the arm of the insurance department that handles the affairs of companies seized by the commissioner.

Quackenbush also has put Palmer in charge of recovering insurance benefits for Holocaust victims and has asked him to be the commissioner’s legal advisor.

Palmer’s salary, which exceeds the governor’s and is one of the highest in state government, is paid out of the assets of seized insurance companies. Speier said she therefore believes he should not be involved in both the Conservation and Liquidation Office and the other functions.

“The whole thing is really very peculiar,” she said. “I think it calls into question the public trust that is expected to be held by both the commissioner and by Mr. Palmer as head of the Conservation and Liquidation Office.”

The public interest group Consumers Union, in a memorandum supporting a bill by Scott that would require Senate confirmation of the head of the liquidation office, wrote that Palmer is in effect his own boss.

“CLO head Palmer reports to the head of the enforcement branch. In turn, the head of the enforcement branch reports to chief of staff Palmer,” the memo said.

In his statement to Speier, Quackenbush described Palmer as a “uniquely talented individual” who works 80 to 90 hours a week fulfilling numerous functions even though he is paid only a single salary.

“I routinely make strenuous demands on Mr. Palmer and, without exception, he has performed beyond my expectation,” Quackenbush wrote.

Spurrier said Palmer is a man of exceptional energy who could handle the workload of four people. “He doesn’t sleep; he’s an incredible state employee,” she said.

Scott said he finds it difficult to imagine that someone could perform four jobs and still run a private law practice.

Palmer’s law practice, according to state records, revolves around his efforts to recover assets for former stockholders of Blue Chip Stamp Co., which was a profitable venture in the heyday of the trading stamp craze. In 1983, Blue Chip merged with Berkshire Hathaway, and stockholders were directed to turn in the Blue Chip holdings in exchange for shares in Berkshire Hathaway.

The holdings of stockholders who could not be found eventually were turned over to the unclaimed property division of the state controller’s office. In the years since the merger, the value of stock in the spectacularly successful Berkshire company has skyrocketed. At the time of the merger, it sold for $962.50 a share. Today it sells for about $72,000 a share.

Under California law, property owners have the right to reclaim their assets from the state at any time without charge.

Palmer said in a 1997 interview with The Times that he tracked down the names and addresses of many of the former Blue Chip stockholders and offered to recover their assets from the state for a percentage of their value. At that time, he was also general counsel to the Department of Insurance.

In statements of economic interest required each year, Palmer showed that in 1996 he earned at least $200,000 in outside legal income, primarily from his share of the reclaimed assets of Blue Chip stockholders. Stockholders told The Times then that they paid a 10% finder’s fee plus 30% to cover legal expenses.

Byron Tucker, a spokesman for the controller, said state law caps at 10% the amount that can be charged by private interests as a fee for recovering unclaimed property. He said the department received information that Palmer was exceeding that maximum.

“We refused at that point to make any more payments [to Palmer],” he said.

If the stockholders had appealed directly to the state without using Palmer as their intermediary, Tucker said, they could have received the assets and avoided paying any fee.

In 1997, Palmer participated in the filing of a class action lawsuit in Los Angeles against Berkshire accusing the company of breach of fiduciary duty, fraud and negligence for failing to adequately notify hundreds of Blue Chip stockholders of their new holdings in Berkshire.

In its answer to the lawsuit, Berkshire said the soaring value of its stock had attracted what it called “bounty hunters” who sought former Blue Chip holders whose assets had been turned over to the state.

“One person attracted to this remunerative bounty hunter role was . . . William W. Palmer, then and now a talented full-time, high-ranking employee of the state of California--namely general counsel to the Department of Insurance who . . . has a private law practice for selected clients on the side,” the court documents said.

The company complained to the court that, before filing the lawsuit, Palmer had “gotten through to” Charles T. Munger, vice president of Berkshire, by identifying himself as the general counsel for the department of insurance. But then when he spoke to Munger, the document said, he wanted to talk about the Blue Chip matter.

The document said that when told about the large number of “lost” shareholders, Munger offered to hire experts to track them down and help them recover their shares. But, the document said, he informed Palmer that the company would not pay the attorney any fee.

“Mr. Palmer responded to Mr. Munger that he had hoped to get a reasonable fee and that Berkshire’s reaction ‘took the matter out of his hands,’ ” the documents said.

The lawsuit was eventually dismissed by a lower court. Palmer has appealed that decision to a higher court.

Spurrier said she was not aware of the court documents but said that Palmer had regularly kept Quackenbush apprised of his outside activities.

“That is only what Berkshire is alleging,” she said. “The clear fact here is that Mr. Palmer has no conflict.”

Several people who worked with Palmer on the Holocaust issue contacted The Times and described him as a dedicated worker who had spent countless hours of his own time trying to secure assets for victims.

“He has gone way beyond what is required of any public official,” said Frank Caplan, a private attorney who has worked on the issue.