Courts generally give conflicts of interest statutes a broad interpretation. When a court gives a conflict of interest statute a literal interpretation, it is noteworthy. In Klistoff v. Superior Court of Los Angeles County (City of South Gate), — Cal.Rptr.3d —-, 2007 WL 4358461, Cal. App. 2 Dist., December 14, 2007, the Court of Appeal held that persons who are not public officials or employees are not liable for violations of Government Code Section 1090, which prohibits conflicts of interest in public contracts; (2) persons who did not actually receive payments from a government entity under a contract void by virtue of Section 1090 cannot be required to restore the money paid-out under such contracts.
Facts
Klistoff’s company, Klistoff &Sons, Inc., responded to the City’s RFP for solid waste collection services. Robles, the City Treasurer (and a former Council member) used his influence to have the consultant that he wanted hired as an advisor to the City’s selection committee.
Garrido, the Treasurer’s business partner and supporter, informed Klistoff that in order to be awarded the franchise, he had to retain Garrido as a consultant. Klistoff hired Garrido, and also formed a shell corporation to contribute more than $10,000 to the Treasurer’s campaign committee.
The consultant to the selection committee provided Garrido with the questions that the selection committee intended to ask bidders during their presentation. Garrido in turn provided these questions to Klistoff before his presentation. No other bidder had access to these questions before the presentation.
The City Council awarded an exclusive, $48 million franchise agreement to Klistoff &Sons in 2001.
Between 2001 and 2004, Klistoff & Sons paid Garrido $437,500. Garrido kicked back a portion of these fees to the Treasurer.
The Treasurer and Garrido were found guilty of bribery in United States District Court, while Klistoff avoided trial by pleading guilty.
The City sued Klistoff in state court under Government Code Section 1090. Klistoff argued that as a non government official, he could not be liable under Section 1090. The trial court disagreed and found him liable for conspiracy to violate Section 1090.
Decision
The Court of Appeal reversed the trial court. The court explained that Section 1090 defines the persons who can violate that section: state legislators and state, county, district, judicial district, and city officers or employees. Section 1090 does not reach beyond these public officials. Inasmuch as only public officials or employees can violate Section 1090, Klistoff, who was not a public official or public employee, could not be liable for violating Section 1090, the court reasoned.
The court also refused to order Klistoff to return the money received by his corporation, Klistoff &Sons, Inc. Under Government Code Section 1092, contracts made in violation of Section 1090 are void, and public agencies may recover any amounts paid under such void contracts. Here, however, only the corporation, Klistoff &Sons, Inc., received payments under the franchise agreement, not Klistoff himself or his shell corporation. Because neither Klistoff nor his shell corporation received any payments under the franchise agreement, they did not owe the City any money. Instead, the City was limited to looking only to Klistoff & Sons, Inc. for the return of the money, the court concluded.