Yorba Linda Sues Former City Manager

The Yorba Linda City Council sharpened its attack against former City Manager Arthur C. Simonian on Tuesday, filing a lawsuit that accuses him of coercing city employees into covering up at least $300,000 in unauthorized bonuses and other perks he received beginning in 1984.

The lawsuit also alleges that Simonian, whom the council fired in September, engaged in illegal “self-dealing” when he awarded himself the bonuses and, at city expense, leased a $50,000 BMW and secured a personal $1-million life insurance policy.

“This is not how government is supposed to run,” said attorney Henry Kraft, the city’s special counsel in the case. “Mr. Simonian substituted his personal interests for his financial and fiduciary responsibility for the city.”

Mayor John M. Gullixson added that the city will ask the state attorney general’s office to investigate Simonian for possible criminal wrongdoing.

The city’s actions have not been popular with some residents. A vocal group of Simonian supporters at Tuesday’s City Council meeting called for the resignation or recall of Gullixson and Councilwoman Barbara Kiley.

“You gambled with our money and lost,” resident Nancy Rikel said to the two in regard to expenditures to investigate Simonian and take legal action against him.

Councilman Mark Schwing, a Simonian advocate, said the city has spent more than $76,000 so far on legal fees related to the ouster of the city manager.

The Orange County district attorney’s office last week declined to press criminal charges against Simonian, saying the benefits in question appeared to be permissible under the very broad terms of the city manager’s employment contracts. Gullixson said the city has no other option but to take its case to state law enforcement authorities.

“We’re doing what we’re supposed to do. Mr. Simonian decided to hide information from the council, and he got the staff to go along with it,” said Gullixson, who led the effort to fire the city manager. “That’s what fraud is all about.”

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The lawsuit comes nearly a month after Simonian sued the city for wrongful dismissal. Simonian and his attorney, R. Craig Scott, were not available for comment Tuesday.

Councilman Henry W. Wedaa, who has been a staunch Simonian supporter, said Tuesday afternoon that he had not seen a copy of the complaint but is opposed to suing the former city manager.

“As far as I’m concerned, the district attorney found absolutely nothing to charge Mr. Simonian with, therefore the case is over,” Wedaa said. “We should stop spending money, pouring money down the rat hole.”

The city’s lawsuit, filed in Orange County Superior Court, accuses Simonian of instructing his finance directors to doctor employee payroll reports that came before the City Council over at least 15 years. Those altered reports did not include Simonian’s yearly bonuses, car expenses or the annual cost of the premiums on his life insurance policy, the lawsuit alleges.

Simonian also instructed city Finance Director Susan Hartman and former Finance Director Vicki Baker not to include the compensation he received for his car insurance policy on his W-2 tax statements, according to the lawsuit. Federal tax authorities already have met with city officials to discuss the allegations.

“He stated that if the city were fined, he would pay any fines assessed,” the lawsuit alleges.

Among the allegations spelled out in the city’s 36-page lawsuit:

* Simonian withheld information from the council about the cost of the city’s management incentive program. The council approved the bonus program but was never informed about the amount of money being paid out. Simonian granted more than $918,365 in bonuses to Yorba Linda’s top administrators without advising the council. That includes $143,514 in bonuses that Simonian awarded to himself, the lawsuit states.

* Simonian gave City Engineer Roy Stephenson an additional $30,000 a year in salary and benefits without council approval, which the lawsuit describes as a “gift of public funds.”

* Simonian violated the terms of his 1984 employment contract, which authorized the city to buy two $500,000 term life insurance policies on his behalf, with the city named as a beneficiary in one of the policies and a beneficiary of his choice for the other. Instead, Simonian bought a $1-million policy naming his family as the beneficiaries.

While Simonian’s employment contracts entitled him to a city car and an extra life insurance policy, and also to any incentives given to management, Kraft said the former city manager went way beyond what was permissible or reasonable.

Kraft said state conflict-of-interest laws prohibit government officials from negotiating city contracts in which they benefit. Simonian violated that law when he awarded himself bonuses, Kraft said.

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Simonian’s car leases also were a violation, the lawsuit states. Instead of accepting a car allowance or city fleet car, Simonian negotiated personal leases on luxury cars and arranged to have the city pay the bills. Simonian leased Cadillacs from 1986 to 1997 and then leased a BMW 540i for $776 a month, records show. Those leases were never submitted to the city financial director, or the City Council, for approval or review.

“You cannot make a contract where you have a financial interest. There are no checks and balances,” Kraft said. “How can we know the city got the best deal?” Simonian also secured his own life insurance policy, choosing a “whole life” policy that cost the city up to $10,790 in yearly premiums, which was another violation of state law, the lawsuit alleges.

The city also named Hartford Fire Insurance Co. and the National Union Fire Insurance Cos. as defendants in the case. Yorba Linda had bought “performance bonds” worth $2 million to protect the city from “employee dishonesty, and failure of any employee to perform his duties as prescribed by law.”

The city’s attempts to collect on those insurance bonds to recoup the unauthorized funds collected or disbursed by Simonian have been rebuffed, the lawsuit alleges.

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Times Community News reporter Jasmine Lee contributed to this report.