How a Public Employee Gets Governmental Immunity
By ANDREW DONOHUE Voice Staff Writer
Feb. 18, 2008 |

An ongoing breach of contract and fraud lawsuit against a top city of San
Diego official and the redevelopment wing she leads has shed light on state
laws that provide public workers with immunity in certain instances and give
them publicly funded legal representation.

California law generally offers public employees immunity from being
personally sued when they are working in an official capacity, but that immunity
vanishes in the presence of misconduct, as is alleged in the fraud lawsuit
against redevelopment official Carolyn Y. Smith.

Not Immune

The Issue: Government employees are granted limited immunity from being
sued personally for their professional work under state law.
What It Means: A top redevelopment official who has been sued claimed she
had governmental immunity from a personal lawsuit, but a judge struck it down.
The judge has sent the case to mediation.
The Bigger Picture: The law is intended to shield government employees from
the burdens of lawsuits, but the immunity can be stripped when there is
evidence of fraud, malice or corruption.

The idea behind the immunity is two-fold: Government officials can't do their
jobs if they're bogged down in personal lawsuits, and it'd be difficult to recruit
quality employees to public positions if they had to deal with the risk of paying
for legal representation out of their own pocket.

"(The limited immunity exists) so that they can spend their time discharging the
duties of their office rather than spending their time defending lawsuits," said
Thomas Barton, a law professor at California Western School of Law.

In the current suit here in San Diego, small business owners Mark and Sharon
Petrarca allege that Smith, president of the Southeastern Economic
Development Corp., the organization that oversees the revitalization of some
of San Diego's poorest neighborhoods, duped them into a legal settlement that
she never intended to uphold.

Attorneys for Smith sought to have the complaint against Smith dismissed,
claiming she had governmental immunity because she acted in her public
capacity in urging the release of the claim on the land.

Related Links

Councilman Asks for a Pause (Jan. 31, 2008)

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A Trail of Broken Promises (Nov. 13, 2007)

A judge disagreed, saying that the lawsuit contains allegations that, if true,
would be sufficient to establish fraud; the case against Smith and the breach of
contract allegations against SEDC as an entity have been forwarded to

With the claim against Smith remaining, there exists the possibility that she
could be held liable personally in the case. She continues to be represented
by publicly financed attorneys.

Under state law, a public entity is generally obligated to pay for the legal
representation of a public employee in these types of cases. However, the
SEDC board could refuse to do so if it determines that Smith acted with actual
fraud, corruption or malice, or if it found that defending the employee would
create a conflict with defending itself.

And, even if the board isn't obligated to pay the legal bills, it can choose to do
so under certain situations.

A lawsuit against a city of San Diego redevelopment arm and its president,
Carolyn Y. Smith (above), has illustrated the limits of the immunity against
personal suits given to public employees. Photo: Sam Hodgson  
Bruce Gridley, an attorney from the Los Angeles firm Kane Ballmer & Berkman
who is representing SEDC and Smith, said the state law obligates SEDC to pay
its president's legal tab and that its board had been presented a legal analysis
of the issue in a session closed to the public.

"There's a long way from allegation to proof," Gridley said.

Smith didn't return a phone call seeking comment for this story.

The dilemma over whether to back an employee's legal fund isn't a fresh one
for the city of San Diego, as it's been dealt with in various criminal and civil
ordeals in recent years.

The City Council declined to pay the criminal defense of former City
Councilmen Michael Zucchet and Ralph Inzunza after they were indicted in
2003 by the U.S. Attorney's Office in the Strippergate case.

Employees and City Council members have also had their legal bills covered
by taxpayer funds in the wake of Department of Justice and Securities and
Exchange Commission investigations, nearly all as witnesses, something that
has cost the city several million dollars since the probes began in 2004.

When it paid those bills, however, the city added a caveat: that it reserved the
right to get those funds returned to them if an employee was charged and
convicted of a crime, and stop paying the bills if an employee was indicted.

The retirement system has picked up the tab for its former top administrator
and attorney in relation to their 2006 indictment; if they are found guilty or
plead guilty, they will have to pay back what the pension system has paid out.
And, when six pension officials were charged by the district attorney in relation
to similar investigations, the City Council refused to pay their legal fees.

At the heart of the current controversy is a planned industrial development in a
dusty, mostly vacant plot of publicly owned land in the Valencia Park

It was there that the Petrarcas had planned to expand their exotic bird
business. But after their deal with an SEDC-selected developer fell through,
they sued the developer. At the end of the trial, SEDC stepped in and offered
the Petrarcas a settlement: SEDC would build the Petrarcas their building at
the old price agreed to in exchange for dropping the suit against the developer.

The Petrarcas agreed and dropped a legal claim they had on the parcel upon
SEDC's asking, believing, they claim, that they were removing a final hurdle to
the construction of their warehouse.

But they never got their building. They were later told the new developer
chosen by SEDC to build the project, Santa Monica-based Pacific
Development Partners LLC, wouldn't be providing the warehouse in its plans.
PDP claimed it was too expensive.

Instead, PDP, whose principals have an ongoing business relationship with
SEDC's board chairman, has since abandoned any plans to build industrial
development there and instead is asking for permission to change the land's
zoning and build what's expected to be a more valuable project -- a Tesco

To their surprise, the Petrarcas claim, they found out Smith and SEDC
attorneys never took the settlement for final approval to the SEDC board or
the final arbiter, the City Council, which oversees the Redevelopment Agency.

The Petrarcas have also sued SEDC for breach of contract in the same suit.
They claim they've had to significantly shrink their business rather than expand
it as the deal has dissolved over the last six years.

Gridley, attorney for Smith and SEDC, said the legal settlement called for more
details to be worked out later. But, those terms were never agreed to by the
two parties, he said, and the remedy for that would be to simply bring the
settlement back to the original judge who approved it, not be the grounds for a
separate breach and fraud suit.

John Moot, who served as the Petrarcas' attorney in the first case and expects
to be a witness in the second, argues that there is a conflict in the firm's
representation of both parties.

If SEDC argues that it isn't responsible for the legal settlement because it
never approved it, then Smith could be left on the hook in the case. Moot
argues that the same firm can't independently represent both SEDC and Smith
in the case.

If, for example, a tidbit of information surfaced that would be beneficial to one
party but damaging to the other, it might not be brought out because of the
dual legal representation, Moot said.

"I think independent counsel, protecting the interests of their own client, are
more likely to be candid about who is most responsible for what happened," he

Moot made the argument in a Feb. 1 letter to City Councilman Tony Young,
who represents much of the area that falls within SEDC's boundaries:

"Yet, the same attorneys who (were) representing SEDC at the time the
settlement agreement was entered in to and who are witness(es), are now
representing SEDC in this Complaint even though, at least in my opinion, both
Carolyn Smith and SEDC should have independent counsel who are not and
will not be called as a witness."

Gridley, the attorney representing SEDC, said an analysis of whether or not
his firm should represent SEDC and Smith has been prepared by the law firm
for the SEDC board. "Lawyers like us always clear with their client an issue
such as [this] one," he said.

Please contact Andrew Donohue directly with your thoughts, ideas, personal
stories or tips. Or send a letter to the editor.
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