By Peter Maguire
By Charles Lam
By Charles Lam
By Andrew Galvin
By R. Scott Moxley
By Gustavo Arellano
By R. Scott Moxley
By R. Scott Moxley
And if not for the intervention of another powerful friend, Argyros might also be something else: under indictment for allegedly bilking thousands of tenants in his Arnel Management Co.-run apartments out of millions of dollars in unreturned security deposits.
In February, District Attorney Tony Rackauckas, whose 1998 campaign received Argyros' endorsement and a $1,000 contribution, stepped in and derailed a meticulous 15-month probe of Argyros by his own investigators.
First, Rackauckas ordered Argyros' name removed from the complaint against Arnel. Then, approximately 90 minutes after charges had been filed against Arnel, Rackauckas ordered them withdrawn. Next, Rackauckas personally presided over negotiations for an out-of-court settlement. Finally, Rackauckas withdrew the Orange County district attorney's office from the case altogether, referring it to the California attorney general's office.
Steve Douglass, the district attorney's lead investigator on the case, is appalled. He spent nearly all of his 18 months with the DA's office investigating Argyros and Arnel, only to have the case suddenly snatched away by Rackauckas. During his 30 years as a lieutenant with the Downey Police Department and six months as an investigator with the Los Angeles district attorney, Douglass says he has never witnessed such an egregious misuse of power by a law-enforcement official.
Douglass subsequently resigned from the DA's office to spend more time with his ailing wife. But he continues to follow the case closely. Douglass recently shared his observations of the case, culled from his long investigation of Argyros and Arnel, during an hour-long interview with the Weekly.
The conversation took place May 7 in the meticulously organized upstairs office of Douglass' upscale home in Huntington Beach. Wearing carpet slippers, blue jeans and a casual shirt and sitting next to a roll-top desk surrounded by plaques commemorating his decades in law enforcement, the registered Republican referred frequently to notes from a thick file as he painstakingly chronicled the disturbing twists and turns of the final case of his career.
OC Weekly:Let's start at the beginning.Steve Douglass:We started investigating this case at the beginning of November of 1999 after we found several complaints about how tenants were treated with their security deposits—the retention of them by Arnel Management. There seemed to be a common thread that was repeated over and over again. Then we found that a lot of small-claims lawsuits had been filed alleging the same thing. From there, it was like opening Pandora's box. How did you proceed? We looked at it in a number of different ways. I mean, we investigated and interviewed former employees at all levels of the company and former tenants, and we had done a pretty in-depth statistical analysis of all the information that was contained in tenant files to show what they had been charged, how often, what the costs were. And it strongly supported the position that the tenants were being overcharged when they moved out and that it was taken from their security deposits. This goes back pretty far? We have tenants that go back as far as 21 years, but in large numbers, back 15 years. We had hoped to file the case in the latter part of last year, but because of the sensitive nature of the case, obviously it was appropriate to have it reviewed by the DA, Tony Rackauckas, to keep him abreast of what was going on. How did that go? In the beginning, information was presented to him, and he said, "Fine." He was concerned—and I think it was an appropriate concern—that if the case was filed, he wanted to make sure we could win. So the feedback you got was that Rackauckas was concerned that you had enough to make it stick? Right. Because there was already a judgment against Arnel in 1980. There were similar things alleged, but they didn't plead to that. They pled to another count that dealt with misrepresentation and false advertising, something of that nature. [The DA's office] dropped the other charges, and that was the end of that. But there were allegations that Arnel had kept security deposits as far back as 1980.That was based, I think, solely on small-claims cases that were filed at that time, in 1980. There was another case, an investigation by the DA's office, about 10 years ago. And they were finding the same things that we found. But early on, they were ordered to close the investigation [by superiors], even though it was not finished. A copy of that file still exists, with all of the witnesses and victims in that investigation. Did you find these things out in the course of your own investigation? Yes. But, back to this case . . .About June of 2000, there was a meeting among the DA staff and Arnel defense attorneys. So they were aware of the investigation. There had been documents subpoenaed [from Arnel's offices], and there was interaction going on from early 2000. So in June of 2000—June 22—there was a meeting between the defense and the DA's office, in which the nature of our complaint was presented to them. There was a copy of a complaint draft given to the defense at that time. So, this was the beginning?So this was the beginning of the negotiations for a settlement with Arnel back on June 22. How did the negotiations go?On July 18, 2000, the DA's office sent out a 15-page offer to the defense, asking for an injunction that would prohibit them from doing certain things and require them to comply with the law. Also, it asked for $2.5 million in restitution and $2.8 million in penalties. And these numbers were really fairly conservative because the potential violations would be many times that amount. How did you arrive at those numbers?The two main offenses of the Business and Profession code each carry a $2,500 penalty per offense. So, theoretically, if Arnel commits the same offenses with each of the tenants who move out, you've got a potential of $5,000 per tenant. There's about 4,500 units, and each tenant stays [in an apartment] on average about 13 to 14 months. So there's somewhere in the neighborhood of 3,800 people per year at $5,000 per shot. And a four-year statute of limitations, so that's multiplied by four . . . It adds up to a sizable amount. A report in theRegister suggested seven-figure settlements in such cases are unusual. This is an unusual case. We're asking for $5.3 million. One of the class-action suits that have been filed is asking for in excess of $96 million. And I don't know if we've seen the end of that. How did Argyros' attorneys respond to your settlement proposal?Well, that was July 18. On Sept. 29, the DA's office wrote to Arnel's attorneys, saying there must be a counteroffer in order to continue negotiations. There had never been a counteroffer. We were trying to negotiate, but they weren't responding. There was interaction, but they wouldn't counter or discuss any type of settlement. And on Oct. 10, 2000, the deputy DA on the case had a conversation with one of the defense attorneys, who told her they had no interest in submitting a counterproposal. Let's just back up a moment: all of this is significant because . . .I just find it interesting that later on, Rackauckas said he had pulled the complaint that was filed in order to negotiate with Arnel. It had already been negotiated as far as was humanly possible, so what he's saying makes absolutely no sense. I can think of no reason that is legitimate, lawful or reasonable to do the things that he has done. I have yet to talk to anybody who has seen anything like it.