HomeMy WebLinkAbout14 - Outside Counsel ExpensesCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 14
March 24, 2009
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Office of the City Attorney
David Hunt, City Attorney
dhunt(ccilcitv.newport- beach.ca. us
(949) 644 -3131
SUBJECT: PROPOSED BUDGET AMENDMENT RE OUTSIDE COUNSEL
EXPENSE
ISSUE:
Should the budget for outside counsel expense be augmented in the amount of
$742,000 to provide for forecasted costs that are likely to accrue before the end of the
Fiscal Year?
RECOMMENDATION:
Approve the request to transfer a total of $742,000 from the General Fund reserve to
cover forecasted outside counsel expense for the balance of the fiscal year; specifically
allocating: (1) $292,000 to the Office of the City Attorney's ( "OCA °) budget line item
051018080 to cover expenses and fees forecast for eelgrass mitigation program issues,
IBC litigation, Beek litigation (CEQA and Election issues) and outside counsel
assistance for Civil Service /Personnel System review; (2) an additional $150,000 to
OCA budget line item 0510/8084 to cover forecasted additional code enforcement
outside counsel expenses; and (3) an additional $300,000 to the Internal Services
budget line item 0605/6021 for outside counsel expenses with respect to group homes
issues.
SUMMARY:
Billings through the first half of the fiscal year from outside counsel and consultants
have exceeded budgeted amounts in all three accounts available for payment of outside
counsel expense. Using the expenses incurred to date, combined with knowledge of
the current status of matters being handled by outside legal counsel, we have forecast a
total needed budget augmentation for the balance of the fiscal year at $742,000. The
lion's share of the funds are needed to address ongoing policy initiatives instituted by
Council regarding group homes issues, challenges to Irvine's influx of residential units
into the Irvine Business Complex, eelgrass mitigation issues and general code
enforcement initiatives. The balance is needed to address general litigation matters and
Proposed Budget Amendment
Re Outside Counsel Expense
March 24, 2009
Page 2
other issues that are currently being defended or anticipated to be addressed before the
end of the fiscal year.
DISCUSSION:
At present our budget line items for outside counsel expense have been exceeded. We
recommend the budget adjustments as noted below to address the issues for the
balance of the fiscal year.
1. Outside Counsel and Consultant Expense Generally.
Expenses for general outside counsel services and consultants have been handled out
of the OCA budget line item 0510/8080. This line item was allocated $345,450 in the
Fiscal Year 2008/09 Budget. The City has incurred a total of $331,603.92 through mid-
year in this line item, an expenditure of 96% of the budgeted amount by mid -year.
General outside counsel and consultant expense have been charged against this
matter. Of the expenditures to date, the following large items, for a total of $312,826.54,
are reflected in this budget line item:
IBC Litigation and the Beek CEQA litigation - $150,015.49 (payments to Remy,
Thomas, Moose & Manley, our special counsel in those matters).
Eelgrass Mitigation Program Issues - $109,815.16 (payments to Latham &
Watkins, our special counsel on that matter). .
Defense of the Beek election case dealing with issues related to the New City
Hall project, and other election related issues - $52,995.89 (payments to Reed &
Davidson, our special counsel defending that matter and who previously had an
ongoing retention agreement with the OCA dealing with election issues').
Additional expenditures were charged against this line item related to code
enforcement, cable television matters, some group homes fees, and other small issues.
Based on our analysis of the present status of these matters, and the expense incurred
through mid -year, we recommend an augmentation to Fiscal Year 2008/09 Budget line
item 0510/8080 in the amount of $292,000.
2. Code Enforcement Expense.
Expenses for outside counsel services and consultants for code enforcement have been
handled out of the OCA budget line item 0510/8084. This line item was allocated
' The OCA ended that retention agreement as of the end of January, 2009.
Proposed Budget Amendment
Re Outside Counsel Expense
March 24, 2009
Page 3
$100,000 in the Fiscal Year 2008/09 Budget. The City has incurred a total of
$107,250.57 through mid -year in this line item.2
We currently have twenty -eight code enforcement cases in active litigation being
handled by outside counsel, with three more poised to be sent out in three weeks. We
do not see any reason for these cases to drop off significantly before the end of the
fiscal year. In addition, we have been authorized to pursue nuisance abatement
proceedings against non - conforming facilities that have not complied with the dictates of
Ordinance 2008 -05, which at the time of preparing this recommendation presented a
possibility of eleven "first tier' cases with other possible matters in the "second tier."
Therefore, we can forecast at least as much expense in outside counsel expense for
code enforcement matters for the balance of the fiscal year plus the added non-
conforming facilities litigation. For this reason we are recommending an augmentation
to this budget line item of $150,000 to cover the current deficit in the line item and to
prepare for the balance of the fiscal year.
3. Outside Counsel Expense Related to Group Homes Matters.
The City budgeted $250,000 at the outset of the fiscal year to address anticipated legal
expenses arising out of its efforts to reasonably balance and accommodate the needs of
disabled individuals with the needs of the residential neighborhoods and residents
within the City. It has used those funds to defend and prosecute litigation regarding the
issues; for legal support in working through the use permit and reasonable
accommodation processes related to existing facilities; and to seek and receive general
legal advice regarding our ordinances and regulations that address the issues.
The OCA has now approved billings on these issues through December of 2009. A
total amount of $452,893.96 was incurred through December from various budgets and
line items on this issue, though not all of these fees and costs were paid at the time of
preparing the analysis that supports this staff report. This amount has exceeded our
budgeted amount by $202,893.96.
As of this time, Richards, Watson & Gershon ( "RWG "), our outside counsel in these
matters, is involved in the defense and prosecution of three cases in active litigation,
Concerned Citizens v. Newport Beach, Pacific Shores v. Newport Beach, and Newport
Beach v. Momingside Recovery. Two of the cases, Concerned Citizens and
Morningside, are largely over, with the exception of some clean -up matters. The Pacific
Shores case is very active, having entered into the discovery phase of the
proceedings 3 In addition, RWG is integral to addressing legal issues related to the use
2 Of this amount, $102,819.22 was paid prior to January 1, 2009, with $4,431.35 incurred before January
1, 2009 but paid in February, 2009 per Administrative Services Report dated March 4, 2009.
3 We are sensitive to providing general information regarding the status of these matters without going
into detail in order to protect confidentiality regarding this active litigation. In no way is this brief reference
Proposed Budget Amendment
Re Outside Counsel Expense
March 24, 2009
Page 4
permit and reasonable accommodation hearings that are ongoing. Also, RWG is
assisting the City in developing strategies related to the State of California's processing
of sober living facility permits.
The OCA has been taking an active role in matters related to this issue. That role,
however, is restricted due to the need to maintain a strict ethical wall between the use
permit/reasonable accommodation administrative hearing process and issues related to
these matters. We are doing all we can at present to minimize outside counsel expense
and will continue to take appropriate action along those lines. Unfortunately, however,
based upon fees and costs incurred through the middle of the fiscal year and the status
of these matters, we must recommend the augmentation of this budget line item,
Internal Services budget line item 0605/6021, by an additional $300,000 for outside
counsel expenses with respect to group homes issues.
CONCLUSION:
The City has incurred outside counsel expense during the first half of the 2008/09 Fiscal
Year that exceeds budgeted amounts. With the current workload in the areas handled
by outside counsel, we are compelled to recommend a budget amendment to allocate
$742,000 from the General Fund reserve to cover overages and anticipated further
expense through the balance of the fiscal year.
Prepared and Submitted by:
Office of the City Attorney
David R. Hunt,
City Attorney
F: users /cadshered/ CCs talfReports /OCAchangesfaHFTdca. doc
intended to waive the attorney /client privilege. If further information is needed with respect to the status
of these issues we will be glad to notice, an appropriate closed session item.
City of Newport Beach NO. BA- 09BA -044
BUDGET AMENDMENT
2008 -09 AMOUNT: $742,000.00
EFFECT ON BUDGETARY FUND BALANCE:
Increase Revenue Estimates Increase in Budgetary Fund Balance
X Increase Expenditure Appropriations AND �X Decrease in Budgetary Fund Balance
Transfer Budget Appropriations No effect on Budgetary Fund Balance
SOURCE:
from existing budget appropriations
from additional estimated revenues
qX from unappropriated fund balance
EXPLANATION:
This budget amendment is requested to provide for the fallowing:
To increase expenditure appropriations from General Fund unappropirated fund balance for outside council expenses.
ACCOUNTING ENTRY:
BUDGETARYFUND BALANCE
Fund Account Description
010 3605 General Fund - Fund Balance
605 3605 General Liability - Fund Balance
REVENUE ESTIMATES (3601)
Fund/Division Account
EXPENDITURE APPROPRIATIONS (3603)
Description
Description
Division Number 0510 City Attorney -
Account Number 8080 Services - Professional & Technical
Account Number 8084 Services - Litigation
Division Number 6021 General Liability - Non Tort
Account Number 8652 Attorney Fees
Division Number
Account Number
Signed:
tftA�Inan-qAil Approval: Adminks tdj Services Director
Signed:
Administrative Appro el: City Manager
Signed:
Amount
Debit Credit
$442,000.00
$300,000.00
Automatic
$292,000.00
$150,000.00
$300,000.00
Date
p�1 a
ate
City Council Approval: City Clerk Date