HomeMy WebLinkAbout17 - Specialty Litigation Costs - Group Homes LitigationCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 17
(January 25, 2011)
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Office of the City Attorney
David R. Hunt, City Attorney
ext. 3131, dhunteNewportBeachCA.4ov
SUBJECT: Request for Budget Amendment to Cover Specialty Litigation Costs -
Particularly Group Homes Litigation
ISSUE:
Specialty litigation expense, driven by the Group Homes litigation, has exceeded its projected
budget and we ask for a budget amendment in the amount of $262,900 to cover the cost year
to date and through the balance of the year.
RECOMMENDATION:
Approve the Budget Amendment 11 BA -028 to appropriate $262,900 from the General fund
Unappropriated fund Balance to the City Attorney's budget line item 0520 -8657 to cover the
overrun to outside litigation for Group Homes and other specialty cases through the end of
fiscal year 2011.
DISCUSSION:
There is a cost overrun with-respect to specialty litigation within the budget -of the Office of the
City Attorney. All other budget categories are well within expectations. The budget for
specialty litigation needs to be augmented to cover the cost overrun and to provide sufficient
funds to complete the fiscal year.
1. Specialty Litigation Expense.
Specialty litigation expense has already exceeded budget projections for the fiscal year. The
2010/11 Fiscal Year Budget provided for three hundred and eighty -two thousand, three
hundred and eighty -six dollars ($382,386) to be spent on specialty litigation. To date,
however, a total of $706,459.05 has been expended and encumbered, for a total cost overrun
to date of $324,072.99. The status of the specialty litigation account as well as other outside
counsel and the professional - technical services account (8080) of the Office of the City
Attorney are shown in the table below.
Honorable Mayor and Members of City Council
January 25, 2011
Page 2
Recap of Outside Service Accounts in City Attornev Budget Fiscal Year 2010111
Of that cost overrun, $279,925 is due to the Group Homes litigation. Originally, $320,000 was
allocated to the expense of the Group Homes litigation. To -date, half way through the fiscal
year, a total of $599,925 has been expended on the Group Homes cases, for a cost overrun of
two hundred and seventy -nine thousand, nine hundred and twenty -five dollars ($279,925).
Moreover, further unanticipated specialty litigation expenses have been incurred through
litigation of the Catanzarite v. Newport Beach, Banning Ranch Conservancy v. Newport
Beach, and NextG v. Newport Beach matters. At the time of original preparation of the
proposed budget, it was not anticipated that there would be any costs incurred for outside
counsel in further specialty litigation matters since the Office of the City Attorney was handling
the Catanzarite matter in -house and the other two cases had not been filed. Furthermore, it
was anticipated the Office of the City Attorney would handle any new specialty litigation matter
- in -house and thus there would not be additional- outside counsel expense. Due to the events -
early in this calendar year causing the City Attorney and one Assistant City Attorney to be
absent from work for an extended time, both the Catanzarite and the Banning Ranch
Conservancy matters were assigned to outside counsel. The NextG case was assigned to
outside counsel in the summer of 2010. To date, this fiscal year the City has expended forty -
five thousand and fifty dollars ($45,050) on the Catanzarite and NextG matters combined and
forty - seven thousand and seventeen dollars ($47,017) on the Banning Ranch Conservancy
matter.
These facts taken together brought about the current cost overrun to specialty litigation in the
amount of three hundred twenty -four thousand and seventy three dollars ($324,073).
1 It is also noteworthy that code enforcement expense has exceeded expectations, though not on the
same scale. This overage is due to the City of Newport Beach v Leason and Lu matter. It is the sole
remaining code enforcement matter being handled by outside counsel.
Period
YTD
Acct
Acct Title
Budget
Exp.
Expense
Encumbrance
Balance
SERVICES -PROF
8080
TECH
121,000.00
-
1,942.50
6,000.00
113,057.50
OUTSIDE
COUNSEL:
8656
ADVISORY
103,500.00
-
2,135.60
-
101,364.40
OUTSIDE
8657
COUNSEL: SPEC LIT
382,386.06
57,809.05
702,572.99
3,886.06
(324,072.99)
OUTSIDE
COUNSEL: CODE
8658
ENF1 1
25,000.00
-
57,945.14
-
(32,945.14)
Total
(142,596.23)
Of that cost overrun, $279,925 is due to the Group Homes litigation. Originally, $320,000 was
allocated to the expense of the Group Homes litigation. To -date, half way through the fiscal
year, a total of $599,925 has been expended on the Group Homes cases, for a cost overrun of
two hundred and seventy -nine thousand, nine hundred and twenty -five dollars ($279,925).
Moreover, further unanticipated specialty litigation expenses have been incurred through
litigation of the Catanzarite v. Newport Beach, Banning Ranch Conservancy v. Newport
Beach, and NextG v. Newport Beach matters. At the time of original preparation of the
proposed budget, it was not anticipated that there would be any costs incurred for outside
counsel in further specialty litigation matters since the Office of the City Attorney was handling
the Catanzarite matter in -house and the other two cases had not been filed. Furthermore, it
was anticipated the Office of the City Attorney would handle any new specialty litigation matter
- in -house and thus there would not be additional- outside counsel expense. Due to the events -
early in this calendar year causing the City Attorney and one Assistant City Attorney to be
absent from work for an extended time, both the Catanzarite and the Banning Ranch
Conservancy matters were assigned to outside counsel. The NextG case was assigned to
outside counsel in the summer of 2010. To date, this fiscal year the City has expended forty -
five thousand and fifty dollars ($45,050) on the Catanzarite and NextG matters combined and
forty - seven thousand and seventeen dollars ($47,017) on the Banning Ranch Conservancy
matter.
These facts taken together brought about the current cost overrun to specialty litigation in the
amount of three hundred twenty -four thousand and seventy three dollars ($324,073).
1 It is also noteworthy that code enforcement expense has exceeded expectations, though not on the
same scale. This overage is due to the City of Newport Beach v Leason and Lu matter. It is the sole
remaining code enforcement matter being handled by outside counsel.
Honorable Mayor and Members of City Council
January 25, 2011
Page 3
2. Funds Needed to Complete the Year.
Additionally, further funds need to be allocated to the cases to reach the completion of the
fiscal year.
Outside counsel in the Group Homes litigation has projected costs through trial at an additional
$425,000. Of that future projected costs, two- hundred and twenty -five thousand dollars
($225,000) is expected to be expended in this fiscal year since the matters are now set for trial
on August 2, 2011. Additionally, we anticipate funding the balance of the other currently
pending cases through the completion of the fiscal year in an aggregate amount of one
hundred and sixty -two thousand dollars ($162,000). Finally, there is the threatened litigation
looming ahead in the MORN v. City of Newport Beach matter. Should the matter be referred
to outside counselZ, we anticipate an expenditure of $100,000 in the balance of this fiscal year.
Thus, an additional $487,000 is needed to fund the expected costs as reflected in the table
below.
Balance of Year
Case
Group Homes
Bradley -
Burn?
NextG
Catanzarite
BRC
MORN
Estimate
$ 225,000.00
$ 22,000.00
$ 45,000.00
$ 45,000.00
$ 50,000.00
$ 100,000.00
Total $ 487,000.00
3. Calculation of Transfer Needed.
We recommend a total transfer of $262,900 from reserves to cover the overage and to take
the City through the balance of the fiscal year. We can use $50,000 from the Office of the City
Attorney's Professional/Technical Account to cover a portion of the funds needed to complete
the fiscal year4 and there is an additional $50,000 set aside in the Internal Services Fund to
2 The Office of the City Attorney is prepared to and capable of, handling this matter in- house. If directed to do so
this sum could be saved.
3 We have always projected a total cost for the Bradley Burns Sales Tax matter in this fiscal year at $30,000, of
which $8,000 has been expended to date. The funds that were allocated to this matter, however, were used by the
Group Homes litigation and the other unanticipated matters.
4 These funds were budgeted to address potential investigation expenses in light of the expenses incurred in 2009/10
for personnel and related investigations.
Honorable Mayor and Members of City Council
January 25, 2011
Page 4
cover non -tort attorneys fees that can be used to cover Group Homes litigation costs. We
recommend against using funds from the Office of the City Attorney's Outside Counsel:
Advisory account (8656) since they will likely be needed to address other services obtained
dealing with personnel matters, harbor fees, and miscellaneous fee expenses.
4. Preventative Measures.
We have taken steps to reduce the chances of a scenario like this occurring again, though
they cannot be eliminated when dealing with litigation. First, we began entering "not to
exceed" contracts with outside counsel in the second quarter of 2010. This change of
convention gives us a stronger handle on attorneys fees incurred. Additionally, we are
changing the contract entered into with Richards, Watson & Gershon for the Group Homes
litigation to a "not to exceed" agreement as well. While this change of process cannot
guarantee there will not be cost overruns in litigation, it takes significant steps toward reducing
the chance of it occurring.
Environmental Review
Budgeting for existing programs that will not have a significant effect on the environment is
not a "project" under the California Environmental Quality Act and thus no environmental
review is needed.
Public Notice
Notice has been given consistent with the Ralph M. Brown Act. No other public notice is
required by this item.
Funding Availability
A funds transfer from reserves to the 0510 -8657 account in the amount of $262,900 is
needed for this matter.
Prepared and Submitted by:
OFFICE OF THE CITY ATTORNEY
By
David R. Hunt
City Attorney
[A 10- 00066]M &CC from DRH re Budget Amendment for 01.25. 11 CC mtg - CLEAN
5 This fund was originally established to cover the Group Homes litigation and those funds can simply be used for
that purpose.
City of Newport Beach
BUDGET AMENDMENT
2010 -11
EFFECT ON BUDGETARY FUND BALANCE:
Increase Revenue Estimates
X Increase Expenditure Appropriations AND
Transfer Budget Appropriations
SOURCE:
from existing budget appropriations
from additional estimated revenues
NX from unappropriated fund balance
EXPLANATION:
NO. BA- 11 BA -028
AMOUNT: $2s2,soo.00
Increase in Budgetary Fund Balance
X Decrease in Budgetary Fund Balance
No effect on Budgetary Fund Balance
This budget amendment is requested to provide for the following:
To increase expenditure appropriations from the General Fund unappropriated fund balance to cover specialty litigation costs,
particularly group homes litigation expense, in the Office of the City Attorney.
ACCOUNTING ENTRY:
BUDGETARY FUND BALANCE
Fund Account
010 3605
REVENUE ESTIMATES (3601)
Fund /Division Account
EXPENDITURE APPROPRIATIONS (3603)
Amount
Description Debit Credit
General Fund - Fund Balance $262,900.00 `
Description
r /1
Signed: �/i� u / r
r Financial Ap It l: Administrative Services Director Date
Signed:
Administrative Approval: City Manager Date
Signed:
City Council Approval: City Clerk Date
Description
Division
Number
0520 City Attorney - Outside Litigation
Account
Number
8657 Outside Counsel: Special Litigation $262,900.00
Division.
Number
Account
Number
Division
Number
Account
Number
Division
Number
Account
Number
r /1
Signed: �/i� u / r
r Financial Ap It l: Administrative Services Director Date
Signed:
Administrative Approval: City Manager Date
Signed:
City Council Approval: City Clerk Date
City of Newport Beach
BUDGET AMENDMENT
2010 -11
EFFECT ON BUDGETARY FUND BALANCE:
Increase Revenue Estimates
X Increase Expenditure Appropriations AND
Transfer Budget Appropriations
SOURCE:
from existing budget appropriations
from additional estimated revenues
PX from unappropriated fund balance
EXPLANATION:
NO. BA- 11 BA -028
AMOUNT: $zsz,sao.00
Increase in Budgetary Fund Balance
X Decrease in Budgetary Fund Balance
No effect on Budgetary Fund Balance
X17
This budget amendment is requested to provide for the following:
To increase expenditure appropriations from the General Fund unappropriated fund balance to cover specialty litigation costs,
particularly group homes litigation expense, in the Office of the City Attorney.
ACCOUNTING ENTRY:
BUDGETARY FUND BALANCE Amo
Fund Account Description Debit
010 3605 General Fund - Fund Balance $262,900.00
REVENUE ESTIMATES (3601)
Fund /Division Account
EXPENDITURE APPROPRIATIONS (3603)
Credit
$262,900.00
Date
Date
Signed:
City Council Approval: City Clerk Date
Description
Division
Number 0520
City Attorney - Outside Litigation
Account
Number 8657
Outside Counsel: Special Litigation
Division .
Number
Account
Number
Division
Number
Account
Number
Division
Number
Account
Number
Signed: G113U
Y
Financial Ap ro al: Administrative
Services Director
Signed:
Administrative Approval:
City Manager
Credit
$262,900.00
Date
Date
Signed:
City Council Approval: City Clerk Date