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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