Date:August 02, 2017
A recent appellate decision illustrates the far-reaching and powerful impact of the Political Reform Act’s conflicts provisions, and how that law can be employed as a sword in litigation to negate or undo decisions of government officials who stand to personally financially benefit from such litigation.
An unpublished opinion issued July 27 by the Second District Court of Appeal in Los Angeles stemmed from a case that raised a host of inter-related issues, including qui tam actions, the ability to defend under the due process clause, the attorney-client privilege and, ultimately, the conflict of interest provisions of the Political Reform Act. (Buchalter Nemer v. Superior Court (Central Basin Municipal Water District ex rel. Vasquez, B275709/B276714))
Leticia Vasquez, a Central Basin Municipal Water District Board member, filed a qui tam action in 2013 under the False Claims Act on behalf of the District (which the District refused to join). A qui tam action is a brought by a private citizen (a “whistleblower”) on behalf of the government, and the citizen can be entitled to a percentage of the damages or penalties — if there are any. Vasquez’s lawsuit alleged that $2.75 million of District funds were transferred “secretly, improperly, illegally and without authority,” under cover of purported litigation, to bank accounts controlled by two law firms employed by the District. Allegedly referred to as a “slush fund,” Vasquez asserted the funds were used for a number of unauthorized and illegal purposes. Vasquez sued the law firms seeking return of the District’s funds, which, if successful, would have entitled her to receive 25 percent to 50 percent of the recovery, plus expenses, costs and attorney fees.
The law firms argued in motions to dismiss that they could not defend against the suit without violating the District’s attorney-client privilege. While those motions were pending, Vasquez introduced a motion before the District Board to waive the privilege. Two of the members abstained from the vote, but the remaining three members, including Vasquez, voted in favor of waiving the privilege. The firms then asserted that the vote on the waiver was void because Vasquez had a conflict of interest under the Political Reform Act when she proposed and voted on the motion because she stood to benefit financially from a successful qui tam action. The trial court rejected this contention, finding that the ultimate success of the lawsuit and an award to Vasquez was not “reasonably foreseeable” as required by the Act. The firms appealed.
The judicial and regulatory interpretation of the term “reasonably foreseeable” has shifted or drifted over the years. In 2015, as part of a wholesale overhaul of its regulations under the Act, the FPPC adopted a regulation that provides that a “financial effect need not be likely to be considered reasonably foreseeable. In general, if the financial effect can be recognized as a realistic possibility and more than hypothetical or theoretical, it is reasonably foreseeable.”
Vasquez argued that even this low threshold could not be met since at least three intervening events stood between the Board’s decision to waive the privilege and her reaping a financial benefit from the lawsuit: 1.) the privileged information would have to assist her cause, 2.) a favorable jury verdict must result and 3.) the court must determine that she is eligible to share in the judgment. Vasquez asserted these contingencies demonstrated any potential financial interest to her was too remote and attenuated, and, therefore not “reasonably foreseeable.”
The appellate court rejected Vasquez’s claim, holding that any lawsuit presents these contingencies and yet, in such a circumstance, the conflict is clear and not attenuated. “Under any reasonable reading of the ‘reasonably foreseeable’ test, including the regulations’ ‘realistic possibility’ test, Vasquez has a material financial interest in the outcome of the privilege waiver: had she not proposed and approved the waiver…the complaint was at risk of dismissal….” Thus, the appellate court reversed the trial court and sent the case back for further proceedings.