Photo by Daniel C. TsangAt press time, DA Tony Rackauckas announced that ARCO agreed to pay just $8 million for leaks of the gasoline additive MTBE at scores of Orange County gas stations. The settlement was ridiculously low. In this story, investigative reporter R. Scott Moxley explains why Rackauckas settled for so little—and staked so much—in his own private oil war.
Tony Rackauckas entered an Oct. 19, 2000, press conference to announce his pursuit of suspected environmental villains. While the environment was on his lips, one man's political future was on Rackauckas' mind: his own.
After winning the 1998 DA race over prosecutor Wally Wade, Rackauckas promised to achieve "lofty things." It was telling, then, that one of his earliest acts was to hire a full-time public relations manager—a first for the DA's office.
Despite the $72,000 a year he spent for help with the media, Rackauckas nevertheless found himself continually battling embarrassing revelations:
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• Two men, Arthur Carmona and DeWayne McKinney, were freed after being wrongly arrested, prosecuted and imprisoned for 2.5 and 19 years, respectively, for crimes they did not commit.
• A jury voted 12-0 against the DA in the sensational Shantae Molina infant-murder case.
• Assistant Chief DA Devallis Rutledge was demoted and then quit. Rutledge went on to file a discrimination lawsuit asserting, in part, that while he was a judge, Rackauckas had engaged in an unethical, secret sexual affair with prosecutor Kay Anderle. The DA, who officially left his first wife for Anderle in 1997, denied the allegation, but the county quietly settled Rutledge's claim hours before Rackauckas was scheduled to testify.
• A concealed-weapons permit issued to Ghaby Nassar, head of the mysterious and ill-fated Tony Rackauckas Foundation, was revoked after sheriff's deputies discovered that the Orange County businessman had lied under oath about his criminal record.
• The DA's 31-year-old plumber son and daughter-in-law were arrested, she on drunk driving charges, he when police found him near Irvine Park—naked and asleep in a truck carrying drug paraphernalia and two grams of cocaine.
All of this followed Rackauckas into his press conference, where he announced "important litigation that the DA's office is engaged in to protect the groundwater of this county."
Dutifully, both local daily newspapers gave the DA the favorable coverage he likely hoped would overshadow a long stretch of bad publicity. How else can one explain the odd timing of the press conference—22 months after Rackauckas' environmental-prosecution unit had launched its case against oil companies and gas station polluters?
But the tardy press conference wouldn't be the last time Rackauckas' personal predicaments overshadowed and jeopardized the most important environmental corruption case in Orange County history.
More than 3 million Orange County residents get 70 percent of their drinking water from local groundwater supplies, but government officials say this increasingly precious resource has been threatened for two decades by continual leaks from gas storage tanks at ARCO, Shell, Thrifty and other Orange County service stations. Improperly discharged gasoline and its chemical additives—benzene, toluene, ethylbenzene, xylene and methyl tertiary-butyl ether (MTBE)—pose alarming health and environmental dangers. Benzene causes cancer in humans; toluene adversely affects the brain and the reproductive system.
But the most problematic chemical is MTBE. Since 1980, refiners have added MTBE to gas to improve automobile engine performance. Medical researchers say MTBE is a known animal carcinogen and, if ingested, likely causes cancer in humans. Unlike other additives—including benzene and toluene—MTBE is nearly impossible to contain once it is leaked. It dissolves into water upon contact and does not generally biodegrade. One drop is enough to make an Olympic-pool-sized supply of water taste like turpentine.
In Orange County, however, it hasn't just been a few minuscule drops of MTBE that have leaked into the soil and in some instances, such as in Yorba Linda, into public water supplies. The chemical has literally poured into the local environment. Leaks are so widespread throughout the county that the current list of MTBE-contaminated sites—available through the county's Health Care Agency—costs $37 to copy. In 2000, the nonprofit group Communities for a Better Environment studied inspection reports of underground gas-storage tanks here and found that soil around 444 of 636 reviewed sites was already contaminated. Prosecutors have singled out ARCO for their harshest criticism. Investigators found underground storage tank leaks at 102 of 132 ARCO-owned or -operated gas stations in the county. At the company's station on Magnolia Street in Fountain Valley, a July 20, 1998, groundwater test found MTBE levels of 3,400,000 parts per billion. California health officials say MTBE's danger threshold is 5 parts per billion.
If prosecutors are right, the oil companies knew that their underground storage tanks were leaky environmental time bombs but did little to correct the problem. Inspections of gas stations in Orange County routinely found:
• disconnected or inoperable leak monitoring equipment
• failures to conduct required integrity testing of tanks and to upgrade faulty tanks
• refusals to report contamination leaks to water quality officials in a timely manner, if at all
• a lackadaisical attitude toward regulators' demands to correct violations.
"We would visit sites and tell them their detection systems weren't working and they'd tell us, 'Oh, sorry. We'll fix it.' Then we'd go back to that same site a year later and find the same defect. They hadn't done a damn thing," said a county official who spoke on condition of anonymity. "They obviously weren't worried about the problems. It was a disgusting situation, and it was happening all over the place."
What likely encouraged the oil companies to ignore leaks is the weak regulatory system. Polluters who release MTBE into the environment are supposed to pay as much as $10,000 per day per leak in penalties. But county inspectors have no authority to enforce the fines. Regulators are left with the glacial tool of litigation: the only way to collect penalties and force cleanups is for state or county prosecutors to file lawsuits. As a result, only a tiny portion of fines are ever paid, cleanup requests are ignored, and MTBE contamination spreads.
But the problem wasn't just callous, politically connected oil executives and powerless regulators. For years, the DA's office, which is responsible for enforcing environmental laws, avoided the subject of MTBE. According to a source in the DA's office, suing the oil companies was considered a "political no-no." In November 1998, however, two environmental groups invoked an obscure provision of the Safe Drinking Water and Toxic Enforcement Act of 1986. Once the provision is raised with government officials, prosecutors have two months to either launch a case or allow private organizations to sue on the public's behalf. Sixty days after OC officials received notices—and two days after he was sworn into office—Rackauckas' staffers filed their lawsuit.
The oil companies were not amused. They called the suit factless, asserted statutes of limitation, and haughtily suggested that the DA did not have the legal authority to prosecute them even if they had polluted. In their court filings, attorneys for the defendants denied "each and every allegation" and vigorously disputed that the public is "entitled to any [financial] relief whatsoever" because the oil companies "did not knowingly discharge any dangerous chemical" into the environment. In fact, an ARCO representative described his company as a good corporate citizen that "conforms to all statutes, government regulations and industry standards."
Spin from the oil companies causes Richard Drury, an attorney with Communities for a Better Environment, to chuckle.
"They are outrageous," he said. In a statewide MTBE case involving his group, Drury helped uncover a critical oil company memo from 1985. In the document, an industry engineering executive noted MTBE's environmental risks and advised oil companies to factor into their budgets the costs of properly monitoring and preventing leakage of the chemical from storage tanks. The executive wrote, "The decision to utilize MTBE . . . should also consider the capital and expense associated with a program to increase monitoring at affected service stations."
Drury says the oil companies ignored such advice, choosing to protect billions of dollars in annual profits over environmental safeguards that would have cost little by comparison.
In Orange County, government officials agree that oil-industry negligence was willful. Prosecutor Michelle Lyman, who supervised the case until she quit in frustration last October, reported that she found systematic corporate neglect. "Records of the [state] Regional Water Quality Control Board and the Orange County Health Care Agency reveal numerous instances of ARCO and Thrifty resisting, delaying and failing to follow agency directives calling for corrective action," Lyman wrote in an October 2000 court filing. "The ineffective response of ARCO and Thrifty in addressing MTBE contaminant plumes has resulted in the spread and migration of MTBE contamination away from the original source into deep soil and groundwater, decreasing the feasibility and increasing the cost of cleanup as well as placing drinking water supplies at risk."
No one can yet determine the full extent of the MTBE damage—other than to say the costs will easily exceed $100 million. But this much is certain: geological maps show that many of ARCO and Thrifty's leaky gas storage tanks in north Orange County were located directly above one of the largest underground drinking water sources in California.
Two attorneys familiar with the details of the case against ARCO said the same thing: "This was the most solid environmental case I have ever seen."
District attorneys often make the evening news crime coverage; DAs themselves are rarely the focus of corruption stories. But Tony Rackauckas soon learned that the public embarrassments of 2000 were only a prologue to the personal humiliations he'd face over the next two years. Instead of modeling himself as the epitome of rectitude, the county's top law-enforcement official seemed to invite controversy. Here's a sampling of more indiscretions:
• In a major consumer-fraud case, Rackauckas ordered staff to delete incriminating evidence from their case against Newport Beach billionaire George Argyros, a Rackauckas friend and political contributor who, at the time of the investigation, was seeking a Bush administration appointment as ambassador to Spain.
• Rackauckas asked his veteran organized-crime investigators to help his friend Patrick Di Carlo, a wealthy Newport Beach businessman who said he was the victim of an extortion plot, only to kill the probe when investigators' suspicions turned toward Di Carlo.
• The DA reluctantly disbanded his secretive, taxpayer-funded Tony Rackauckas Foundation after evidence emerged that, despite its claims, the group gave scant money to charity and wouldn't open its books to public inspection.
• Someone with top-level access to confidential DA files and a motive to embarrass Mike Jacobs left the homicide prosecutor's personnel file on a reporter's doorstep after Jacobs visited the attorney general's office in Sacramento to complain about Rackauckas' ethical misconduct.
Those troubling incidents and more than a dozen others like them prompted the ultimate insult to the man who usually works closely with grand juries. In August 2001, the Orange County grand jury quietly asked state Attorney General Bill Lockyer to help them investigate Rackauckas.
Photo by Jack Gould
That date is critical. At the time, only three sources were aware of the grand jury's startling move against Rackauckas: the grand jury, of course; Lockyer; and Rackauckas and his inner circle of advisers. What happened next is the stuff of a dark Hollywood script: incredibly, the DA weighed his own political future against the safety of the county's drinking water—and decided to save his own skin.
Republicans and the businessmen who fund them hate two things: taxes and trial lawyers. Trial lawyers represent consumers and environmentalists in their battles with corporations. And trial lawyers are one of the largest groups of contributors to the Democratic Party and its liberal candidates. In the 2000 election, for example, Federal Election Commission records show that trial lawyers contributed $50 million more to Democrats than to Republicans.
The same circle of local Republican corporate executives who fund Newport Beach Representative Christopher Cox—the leader of hostile, annual congressional ambushes on trial lawyers and their ability to represent people against corporations—also helped enlist and fund Rackauckas as their candidate for DA in 1998. They knew he shared their conservative political philosophy and loathing of trial lawyers. In the mid-1980s, he helped lead the successful statewide recall of California Supreme Court Chief Justice Rose Bird for what he called her "pro-criminal" rulings.
A decade later, Rackauckas hadn't retreated. After his victory in the DA race, Rackauckas said one of his goals was to further restrict the procedural abilities of trial lawyers. "As a political activist," The Orange County Register's John McDonald wrote on the day Rackauckas was sworn in, "he was zealous, pushing relentlessly to toss liberal judges off the bench and abolish laws favoring the accused."
In Rackauckas' eyes, trial lawyers were the enemy—until August 2001, when the DA suddenly found he needed their behind-the-scenes political influence with their longtime ally: Attorney General Lockyer, a Democrat.
By the summer of 2001, members of Rackauckas' small but feisty environmental unit, which was handling the ARCO case, were frustrated by what they saw as the oil companies' strong-arm tactics. In more than a dozen negotiations, oil-industry lawyers routinely rejected the settlement proposals of Lyman and deputy district attorney Matt Kaplan.
Meanwhile, MTBE contamination was spreading. Sources say Lyman and Kaplan determined they needed help. They circulated a memo within the DA's office seeking additional prosecutors for the case, but it soon became apparent the DA would need outside legal expertise to battle the huge international law firms representing the unrepentant oil companies.
The chance to win a three-year, $7.4 million contract to provide legal services in a high-profile environmental case attracted the interest of some of California's most powerful legal firms. After weeks of interviews, the staff selected Los Angeles-based Liner, Yankelevitz, Sunshine & Regenstreif. Liner had assembled what one prosecutor would later call "a phenomenal team" to challenge ARCO. That team—formed by Liner attorney Randall Sunshine—included specialized lawyers from three other prominent firms and an acclaimed former Department of Justice counsel who won one of the largest environmental oil-pollution cases in U.S. history. Rackauckas concurred with his staff on the selection.
But on Aug. 24, 2001, inside the DA's Santa Ana headquarters, Rackauckas met with oil company representatives. One observer said that after the DA received "quite solicitous" comments from ARCO attorneys, he stunned his staff. Though he'd paid scant attention to the case up to this point and knew few factual details and even less of environmental law, Rackauckas told the gathering he wanted to settle the case quickly. He blurted out a specific dollar figure that would settle the case; the oil company lawyers were delighted. A DA source told the Weekly, "It was a ridiculous amount."
If oil company executives celebrated their good fortune, they made a mistake when they didn't finalize the deal on the spot. Four days later, on Aug. 28, Rackauckas appeared before the county's Board of Supervisors and asked them to approve the deal to hire Liner.
But the ARCO litigation would take another strange turn. By the time the oil companies got around to accepting Rackauckas' generous offer, the DA had changed his mind. Suddenly, there was no rush to settle the case.
Todd Spitzer, the former Third District supervisor who was recently elected to the state Assembly, is many things to many people. To Newport Beach businessmen who wanted an international airport at the former El Toro Marine Corps Air Station, he's a devious thug. To anti-airport South County communities, he's a godsend. To public contractors and bureaucrats who wanted to cut corners and avoid questions, he's a pain in the ass.
And to Rackauckas in 2001, Spitzer was an ally, an outspoken Republican who carefully advised the DA on how to handle his growing list of critics and negative publicity. For example, it was Spitzer who helped steer Rackauckas to a brilliant (if insincere) pre-2002 election endorsement of the anti-airport Great Park initiative. The supervisor—a former deputy DA—wasn't so much motivated by a fondness for Rackauckas as he was hostile to Wally Wade, the man who had lost to Rackauckas in 1998 and who had re-emerged as Rackauckas' rival in the March 2002 election. Spitzer associated Wade with what he believed were the excesses of Mike Capizzi, Rackauckas' predecessor in the DA's office.
Several sources said they believe Spitzer was one of the few Rackauckas confidants who knew of the unprecedented grand jury probe and the potential threat that could pose to the DA's upcoming re-election campaign. Whether true or not, this much is certain: Spitzer—perhaps one of the smartest tactical politicians in the county and a rising star in the state GOP—nixed the Liner firm as outside counsel in the ARCO case. His nominee was Robinson, Calcagnie, Robinson, a Newport Beach firm with no known environmental litigation experience.
Mark Robinson, the main partner, is a successful consumer attorney and a leader of the state trail-lawyer association, which has lavished politicians with $6 million to $10 million in contributions over the most-recent election cycles. But Robinson has one other noteworthy attribute that likely caught the notice of Spitzer and Rackauckas. Robinson is a longtime political supporter of Attorney General Lockyer, who began his investigations of the Orange County DA shortly before the DA sought outside counsel for the ARCO case. Robinson is a Democratic political insider, a man who Democrats say can pick up the phone and get the governor. Or the attorney general. And no wonder: in the last election, Robinson and his partners gave large contributions to the Democratic National Committee, the California Democratic Party, the Orange County Democratic Party, state Senate majority leader John Burton, Assembly speaker Herb Wesson, Nativo Lopez and $135,000 to Gray Davis. Most significantly, the Robinson firm gave Bill Lockyer—a man second only to Davis as a fund-raiser in California—a whopping $115,000 in a lopsided race against Orange County state Senator Dick Ackerman (R-Fullerton). Partner Jeff Robinson introduced the AG at a cocktail party at the home of state Senator Joe Dunn (D-Santa Ana).
Republicans Spitzer and Rackauckas were suddenly singing Democratic power broker Robinson's praises—even if the DA's staff was outraged. Liner—a firm with outstanding lawyers and a record of successful environmental litigation but no connections to the attorney general's office—was out.
Spitzer has called suspicions about hiring Robinson "ridiculous and frivolous" and "a ridiculous fabricated piece of trash." But the suspicions are natural. Spitzer began his life on the Board of Supervisors in 1997 berating his colleagues for their habitual secrecy. But in the fall of 2001, Spitzer himself had become secretive. The supervisor asked county counsel Benjamin de Mayo to provide a legal justification for making the switch to Robinson behind closed doors. De Mayo rebuffed Spitzer, saying such a move would violate open-meeting laws. "That's unfortunate," the supervisor responded.
Spitzer needn't have worried. Even in public, the switch from Liner to Robinson raised few questions. The dailies reported the story as a bloodless bureaucratic decision between competing law firms. Rackauckas was relieved.
"I feel very happy with a very, very good Orange County team of Robinson, Calcagnie, Robinson," the DA told supervisors when they selected the Democratic firm. "This is a very positive development."
"The Liner firm was screwed," said one prosecutor. "They were so unfortunate as to not know what else was going on behind the scenes."
Publicly, Spitzer had an explanation. The supervisor claimed Liner didn't want the case after the Board of Supervisors decided the outside counsel should be paid on a contingency fee—that is, on a percentage of the settlement with the oil companies—rather than on an hourly basis.
But that wasn't exactly true. Sources say Liner itself had first insisted on a contingency fee. And why not? A legal victory against ARCO seemed likely, and the resulting settlement would net Liner as much as 30 percent of the multimillion-dollar penalty.
But Rackauckas and county officials flip-flopped between a contingency deal and an hourly arrangement. While that was going on, the Liner firm researched the legality of a contingency fee in this case. Liner determined that a California Supreme Court decision called Clancy prohibited prosecutors—like the DA—or their agents—like outside counsel—from having personal financial stakes in the outcome of a case.
"We believe the Clancy issue is not just a significant problem, but it's a huge problem," the Liner firm's Sunshine told the board. "We believe it's likely that a judge will disqualify our firm from the case if we work on a contingency-fee basis."
Sunshine had an hourly fee basis contract in hand, but Spitzer wasn't interested. Even though he has no experience in practicing environmental law or in contracts, the supervisor insisted that the board ignore Sunshine's advice and find a firm that would serve as outside counsel on a contingency basis. Spitzer told his colleagues that he "had fashioned contract terms that would bolster the argument that Clancy will not apply" to the ARCO case. After discussion among his colleagues that battling Clancy in court with the oil companies would probably delay the case for an extended time, Spitzer grew noticeably impatient.
"My idea would remove the Clancy issue, or maybe not remove but make our position at least more [sic] stronger," he said.
Spitzer won that day. At the Nov. 6, 2001, board meeting, the contingency fee deal was given to the Robinson firm.
On July 19, 2002—two weeks after the grand jury issued a stinging, 100-page audit of the DA—Judge Raymond Ikola struck down the contingency fee and ridiculed Spitzer's attempt to bypass the Clancy decision. Nothing in the law, he said, "lends much support" to the supervisor's position. Then Ikola turned his attention to the Board of Supervisors and blasted them for their reckless disregard of public safety.
"The contingency fee was drafted in the best financial interests of outside counsel," the judge wrote. "If the county finds that it is unable or unwilling to devote sufficient resources to enforce the alleged violations of law to protect the county's drinking water without relying on private contingency fee attorneys, in the end, that is a political decision."
The contingency fee debacle had three obvious results: it delayed the case against ARCO for more than half a year—six months during which MTBE further contaminated the groundwater. And it cost taxpayers as much as $167,000 per month in additional attorney's fees to fight the issue. And when the smoke cleared, the Robinson firm was working on the same hourly terms that had been offered by the Liner firm nine months earlier.
"If Spitzer had given his Clancy advice as a private attorney, he could be sued for malpractice," one deputy DA said.
But the most important result of the switch to Robinson was the least obvious: Spitzer and Rackauckas had successfully channeled at least $2 million over each of the next three years into the hands of a law firm that generously funds the campaigns of Bill Lockyer, the man in charge of investigating Rackauckas.
Lockyer never opened a full-scale investigation of Tony Rackauckas.
Having lost $2 billion in stock market schemes and sparked the world's largest municipal bankruptcy in 1994, members of Orange County's Board of Supervisors are sensitive to questions about their management skills. But you might have two questions for them:
• Why was the county debating if and how to fund the critical ARCO lawsuit 23 months after the case was filed? Answer: Rackauckas never bothered to ask for the resources needed to handle the case until his troublesome summer of 2001.
• With a solid case that would likely bring the county tens of millions of dollars in a settlement, why would supervisors want to share the potential award with a private firm—especially after the DA's own staff had been handling the case for nearly two years? Answer: Spitzer and each of his board colleagues claimed they didn't have funds to spare for the case.
"We just couldn't afford to spend the money for it," board chairwoman Cynthia Coad told the Weeklybefore referring the rest of our questions to Rackauckas.
Is that true? The board that distributes $4 billion annually couldn't find $2 million to fund what it acknowledges is the most important environmental case in county history? Answer: Of course they could have. The board had $22 million in a contingency fund account. But even more incredibly, in the same Nov. 6, 2001, meeting when they posed destitute on the ARCO litigation, the board spent $3.9 million on projects such as the renovation of a county football field ($920,413) and the design of a new animal care center ($831,000).
If you think that was an anomaly, consider the importance of $12 million in projects the board funded in its 2002-2003 budget:
• replacement of a fence at a sheriff's department parking lot: $300,000
• renovation of the laundry room at Joplin Youth Center: $93,400
• replacement of 15 doors at Juvenile Hall: $450,000
• refurbishment of bathrooms at Los Pinos Conservation Camp: $582,000
• refurbishment of kitchen cabinets at Joplin Youth Center: $163,984
• refurbishment of tiles and lighting fixtures in sheriff's headquarters and remodeling of the employee lounge and locker room: $6,100,000
• purchase of new drainage control at Joplin Youth Center pond: $156,000
• replacement of carpets in Youth Guidance Center: $400,000
• consultant fees for a seismic study of a parking garage for the Board of Supervisors: $120,000
• construction of a new vehicle-repair facility at Fruit Street Transportation Yard: $349,000
• renovation of the Social Services Agency's West Regional office: $382,000
• remodeling of the lobby of Social Services Agency's Laguna Hills office: $286,000
• rebuilding the intercom system at Orangewood Children's Home: $380,000
• remodeling of bathrooms at Orangewood Children's Home: $177,900
• remodeling reception area of Social Services Agency's Santa Ana Regional office: $600,000
• remodeling reception area of Social Services Agency's Anaheim Regional office: $350,000
• repaving courthouse parking lot: $125,000
• renovating a football field for the probation department as well as retiling bathrooms: $324,825
• remodeling court clerk work stations: $100,000
• resealing courthouse art panels: $541,000
You might be wondering at this point about the county's commitment to hold ARCO and others responsible for the MTBE disaster. That's a reasonable concern, given what BP Amoco—the oil giant that purchased ARCO in 2000—recently told its shareholders, who have taken $30 billion in profits since the Orange County DA's office filed its suit.
"Proceedings instituted by governmental authorities are pending," they wrote earlier this year. "But no individual proceeding is—nor are the proceedings as a group—expected to have a material adverse effect" on BP Amoco's profits.
We'll have to wait and see if they're right. Last month, DA sources told an oil industry publication that the case is close to an out-of-court settlement even though it's scheduled for trial next month. In the meantime, we can ponder the fact that Tony Rackauckas is still struggling with his ethics. On Oct. 26, 2001, our DA accepted a $1,000 contribution from Los Angeles attorney Rafael Bernardino Jr. Bernardino's firm, Hornblower, Manning & Ward, represents BP Amoco.
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