By Jeff Birren and David Stern
Hiring a crook to run a Government-owned sports facility is one way to insure years of litigation. The Los Angeles Memorial Coliseum Commission (“Coliseum”) did just that, and has spent over four years investigating and litigating the corruption, with no end in sight.
In 2011, the Coliseum began investigating reports that its general manager, Pat Lynch, “received hundreds of thousands of dollars from stadium contractor Tony Estrada, who deposited the money in a Miami bank” (“Ex-Coliseum official received payments from stadium contractor” Pringle et al, Los Angeles Times, 10-22-11). Lynch’s criminal lawyer claimed the money was for an interest in two boats, and the money was sent to Miami because Lynch was there for the Super Bowl.
Lynch ran the Coliseum for 17 years, and quit as the scandal widened. Lynch had been highly involved in the Coliseum’s quest to gain an NFL team, attending NFL meetings and was often at the hotel bar, trying to talk to NFL officials and club representatives. When he left, a Coliseum spokesperson said Lynch was “making decisions that were obviously inappropriate” (“LA Coliseum manager quits over aide’s ties to rave promoter,” Blankstein et al, Los Angeles Times 2-16-12).
That November, the Coliseum sued Lynch and others for various torts, including a violation of the False Claim Act, breach of fiduciary duty, intentional and constructive fraud, unjust enrichment, civil conspiracy (Los Angeles Memorial Coliseum Commission et al v. Patrick Thomas Lynch II, et al, Los Angeles Superior Court Case No, BC 472814).
Six people including Lynch were indicted by the Los Angeles County District Attorney in March, 2012. According to the Los Angeles Times, the indictment “caps a 13-month investigation by the district attorney’s office, triggered by Times’ reports on a corruption scandal involving millions of dollars in questionable transactions at one of the nation’s most storied stadiums” (“Six indicted in Coliseum scandal” Blankstein et al, Los Angeles Times, March 23, 2012). Todd DeStefano, the former Coliseum events manager, was also indicted. The Times stated the “groundwork for the scandal lay in years of clumsy stewardship, marked by inattentive commission members and a cozy relationship between Lynch and his bosses” (Id.). The Times also reported that federal investigators “are examining cash payments of more than $1 million—much of it in suit cases—to a Coliseum union representative…the money was intended to cover stagehands’ wages” (Id.). The prosecutors alleged that “the contractor paid (Lynch) $1 for every hour worked by a janitorial employee. This alleged kickback was financed with an increase in Estrada’s hourly rates that Lynch arranged, according to documents” (Id.).
The Times further learned that in around 2000, a pornographic movie was filmed at the Coliseum, involving “football…and gangbangs.” The star stated: “that one really stands out…I mean, who gets to have sex on the Coliseum floor?” (“THE JUICE IS LOOSE! A PORN CALLED ‘GANGBANG GIRL #32 WAS FILMED AT THE HISTORIC LA COLISEUM 10 YEARS AGO” Dan Fogerty, Sports Grid.com, 5-30-12). During filming, the stadium lights were on and distinguishing characteristics of the stadium are visible (Id.).
A day after indictment, Lynch and DeStefano appeared in “blue jail jumpsuits before L.A. County Superior Court Judge Patricia Schnegg.” One law professor stated “this type of corruption and rank flouting of the law doesn’t happen every day” (“Coliseum case widens: six are charged” Blankstein et al, Los Angeles Times, 3-24-12).
Four days later, Lynch did the right thing and pled guilty to a felony charge of conflict-of-interest and agreed to pay back $385,000 the “prosecutors say he received in a side deal on Coliseum maintenance contracts. The lawyer of the boat story announced that his client “got a very fair sentence.” The boat story became even more dubious when that lawyer admitted that Estrada, who was also indicted “skipped” and was believed to have left the Country (Raves at The Coliseum: Patrick Lynch, Ex-Official, Pleads Guilty To Conflict Of Interest” Linda Deutsch, Huffington Post, 3-28-12). One local blogger lamented the light sentence, though stating that Lynch “is still a despicable little crook and abject failure at his job” (“Rave Against the (Political) Machine—No Justice for the Public When Public Officials Like Patrick Lynch Are the Crooks” Ron Ayela, ronayela.com, April 2, 2012).
The Coliseum then turned to the arduous task or seeking reimbursement from the various individuals and entities that were allegedly involved. That has not been easy. One of civil defendants, Pasquale Rotella, was dismissed from the case, and the Coliseum was suddenly on the wrong end of a $400,000 judgment for Rotella’s attorney’s fees (Insomniac Rave Promoter Pasquale Rotella Wins $400K In L.A. Coliseum Case” Dennis Romero, LA Weekly, 3-28-14.).
Fortunately for the public, the Coliseum appealed the Los Angeles Superior Court judgment and order of dismissal entered following the sustaining without leave to amend of demurrers by the defendants. Plaintiffs claimed that over the course of 37 music festivals and concerts, the defendants paid Lynch and DeStefano privately to secure the L.A. Coliseum as the venue for these events; the plaintiffs alleged that these individuals and the defendants entered into a series of agreements that were never disclosed to the plaintiffs, and Lynch and DeStefano provided the defendants with unusually low prices to host events at the Coliseum, and in return, the defendants would pay them under the table which ultimately deprived the plaintiffs millions of dollars.
Superior Court Judge Terry Green sustained the defendants’ demurrers without leave to amend for all of the plaintiffs’ complaints. Justice Mosk provided the opinion in the Court of Appeal decision. He clarified the standard of review in this matter: “[w]e treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of facts or law ((2010) 48 Ca.4th 32, 42.).
1. Cause of Action for False Claims Act (the “Act”)
Judge Green sustained the defendants’ demurrers to this cause of action because Government Code section 12652 states that claims under the Act must be brought by the Attorney General. The plaintiffs contended that this provision expressed a clear legislative intent to have persons held liable to the state of political subdivision for acts in violation of the Act. While acknowledging the violation of the Act by the defendants, Justice Mosk relied on the law and upheld the trial judge’s decision; the plaintiffs were not alleged to be among the governmental personnel authorized to bring suit under the Act.
2. Cause of Action for Violation of Section 1090
The California Government Code Section 1090 states that: Members of the Legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members (Cal. Gov. Code §1090). The trial judge explained that the defendants must have received “public funds” in order to be considered “in conflict”. Justice Mosk disagreed. Section 1090 is triggered when a public official receives any profit from a public contract and included the acceptance of a bribe in return for influencing the public entity to enter into a particular contract. In this case, the defendants entered into agreements with the plaintiffs to use public property for commercial purposes, and they derived significant profits from that use. According to Justice Mosk, the issue of whether the profits came from ticket sale or “public funds” was irrelevant.
3. Cause of Action for Negligence
The plaintiffs contended that the defendants knew DeStefano was a Commission employee, and it was reasonably foreseeable that the Defendants’ cash payments and performance under the consulting agreement with DeStefano would damage the plaintiffs. For the plaintiffs to demonstrate negligence, including duty of care in this case, they must have proven duty, breach, causation and damages by the defendants: “the threshold element of a cause of action for negligence is the existence of a duty to use due care towards an interest of another that enjoys legal protection against unintentional invasion” (Ortega v. Kmart Corp. (2001) 26 Cal.4th 1200, 1205). The Paz v. State of California case explained that “[l]egal duties are not discoverable facts of nature, but merely conclusory expressions that, in cases of a particular type, liability should be imposed for damage done ((2000) 22 Cal.4th 550, 559.). The facts at hand did not give rise to a duty of care based on the relationships involved. Although the defendants knew that DeStefano was employed by the Commission, this did not indicate that a duty of care was owed to the plaintiffs. Justice Mosk agreed with the trial judge in this instance.
4. Fraud-Based Causes of Action
There were two fraud-based causes of action: (a) fraud and (b) conspiracy to defraud. The defendants stated in the agreement with the plaintiffs that the rent would be a flat fee, when in fact the rent included additional 10 percent gross revenues paid to DeStefano under his consulting agreement with the defendants (which was not disclosed to the plaintiffs). The plaintiffs therefore claimed misrepresentation and concealment. To consider a concealment claim, there must have been allegations demonstrating that the defendants were under a legal duty to disclose those facts. Such a duty only arose in fiduciary relationships. In this situation, only a commercial relationship existed. The fraud cause of action was dismissed as a result.
For conspiracy to defraud, the same facts applied but Justice Mosk focused on DeStefano instead of the defendants. While the plaintiffs and defendants formed a commercial relationship only, DeStefano was an employee of the plaintiffs and acted as an agent in his dealings with the defendants. Unlike the defendants, the nature of his relationship with the plaintiffs was a fiduciary one, and he had an obligation to disclose all material facts to his employer. Since the defendants knew DeStefano did not disclose the existence of the consulting agreement to the plaintiffs, Justice Mosk determined that such allegations were sufficient to state a cause of action against the defendants for conspiracy to defraud, which led to his reversal of the trial judge’s decision to sustain the demurrers.
5. Cause of Action for Violation of the UCL (“Unfair Competition Law”)
The UCL defines “unfair competition” as “any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising” (Bus. & Prof. Code, 17200.). Justice Mosk examined this issue under a separate umbrella, as unfair practices are considered alternative grounds for relief rather than a substitute for a contract or tort action. UCL remedies are cumulative but narrow in scope (Zhang v. Superior Court (2013) 57 Cal.4th 364, 370-371.). Further, UCL borrows violations of other laws and treats them as unlawful practices that the UCL makes independently actionable (Rose v. Bank of America (2013) 57 Cal. 4th 390, 394.). The plaintiffs claimed that the defendants made cash payments of wages without paying the applicable payroll taxes. Since the defendants were guilty of conspiracy to defraud, the defendants also found a cause of action for violation of the UCL under fraud seeking restitution of the amounts the defendants paid to DeStefano under the consulting agreement.
6. Cause of Action for Accounting
The parties agreed that because the plaintiffs’ accounting cause of action is derivative of their other causes of action, the viability of this claim is dependent on the success of the other claims. The causes of action that were adequately pleaded were: violation of Section 1090, conspiracy to defraud, and violation of UCL. As a result, the accounting cause of action was added to the list.
The Coliseum may recover what it alleges are the ill-gotten gains it lost during the “Lynch” years. Yet such a recovery will be expensive and is years in the future. Lynch may or may not be unique as a felon-in-charge of a public facility, but the breadth of the scandal is unusual for public sports venues in North America in the recent past. This sad case can serve as reminder to other facilities across the continent as to what can happen when the adults in charge stop paying attention. Even if it does win damages, the Coliseum will never get its lost time back, and its name will forever be linked to Lynch and the corruption scandal that rocked the world’s only venue to have held two Summer Olympic Games, a World Series, and two Super Bowls. The NFL Pro Bowl began at the Coliseum. In the 1960’s the Lakers, and Kings, played at its adjacent Sports Arena, the site of the 1960 Democratic Convention, while the Rams, Dodgers, Chargers, Raiders, and UCLA played football at the Coliseum, site of visits by FDR and popes.
USC remains, and in 2013, entered into an agreement with the Coliseum to run the facilities, an “agreement which grew out of a corruption scandal at the Coliseum” (USC Deal for Coliseum approved by state board” Lin II et al, Los Angeles Times 6-25-13). Hopefully this sorry story of corruption will never be repeated.
Los Angeles Memorial Coliseum Commission v. Insomniac, Inc. (2015), Cal.App.4th [No. B252838. Second Dist., Div. Five. Jan. 27, 2015.]
Birren worked for the LA/Oakland Raiders for 34 seasons and was general counsel for much of that time. During that time he worked closely with owner Al Davis and Amy Trask, the NFL’s first female Club Chief Executive. He has an MA in History from USC and a JD from Southwestern, where he taught sports law for three years. He can be reached at jebirren@comcast.net.
Stern is a Toronto-based entertainment lawyer at Lewis Birnberg Hanet LLP, whose practice is focused on film and television production and distribution. He was previously legal counsel at Maple Leaf Sports & Entertainment and interned in the law department of the Oakland Raiders. He has a BA in Industrial Relations at McGill and a JD from University of Ottawa. He can be reached at daves@lbhmedialaw.com.
The opinions are that of the authors and not Sports Litigation Alert.
