Legal Lode: Here Comes the Bribe

California city invites trouble when it awards franchise to finagler.

Before you take your dispute to court, consider the possibility that your foray will fail and your opponent will turn the tables, cashing in — big time — at your expense.

Known as the “Hub City” because it is situated smack dab in the middle of Los Angeles County, the city of Compton for many years managed waste collection with multi-year franchises awarded to private vendors. Then, in 1999, the city thought it might be time for a change.

The franchise agreements, which were due to expire in 2000, were not renewed. New franchises were put on hold. Instead, the city looked at the pros and cons of bringing waste services in-house. A feasibility study and a business plan projected an annual savings of $700,000 if the city collected waste itself.

At the time, city officials reached out to Michael V. Aloyan for advice on establishing an in-house waste division. Never mind that five years before, Aloyan, given immunity from prosecution, testified in federal court that he had bribed two Compton city council members to gain favors for trash and casino companies for which he worked. The elected officials eventually went to prison.

In 2000, the city signed a management agreement with Aloyan’s company, American Utility Services (AUS), which had no equipment, no offices, and employed only Aloyan who, when he met with city officials, did so at city hall or at an International House of Pancakes restaurant. Until the agreement ended in February 2001, Aloyan, working alongside city employees, directed the city’s in-house waste operation, soliciting vendors, negotiating the purchase of trucks and containers, and assuring compliance with state-mandated recycling and waste reduction goals.

When the city incurred severance liabilities and transition costs stemming from its outsourcing of law-enforcement services to the county sheriff’s department, Aloyan offered the city $5 million in return for taking over the in-house waste disposal on a franchise basis. He later changed his proposal to a $2 million up-front fee and $700,000 per year for a 15-year engagement. His goal was to license the city’s recently purchased trucks, equipment and facilities, and hire the city’s waste management employees.

Before the AUS management agreement expired, Aloyan created a new company, HUB City Solid Waste Services, Inc. He was HUB’s sole shareholder, officer and director, and, similar to AUS, the company had no trucks, equipment or facilities.

City officials, already nervous about how to pay for eliminating the police department, saw a quick solution to the waste disposal situation: negotiate a franchise with AUS exclusively rather than solicit bids. On a roll, Aloyan gamely substituted HUB as the proposed franchisee.

In December 2000, the city council held a public hearing on the proposed no-bid arrangement, and voted 4-1 to award the franchise to HUB. Among the council members voting in favor of the contract were Amen Rahh, then-Mayor Omar Bradley and his aunt, Delores Zurita. All three later received campaign contributions from HUB, which was the largest contributor to each of their campaigns. Only the dissenting council member did not receive a contribution.

“Mike is a good man, and that trial [where Aloyan admitted bribing city officials] was a few years ago,” Councilwoman Marcine Shaw then told the Los Angeles Times. “If I waited for contractors to come along that didn’t have a controversy or past attached to them, I probably wouldn’t vote for a damn thing.”

After the franchise was awarded, HUB hired several of Bradley’s relatives, including his brother, Henry, who, despite having no experience in waste management, was valued by Aloyan as “the biggest bookie in Compton.”

Next month: the city decides to terminate Aloyan’s franchise agreement, setting up a legal showdown.

[Hub City Solid Waste Services, Inc. v. City of Compton, No. B196639, Cal.App.Dist.2, July 19, 2010]

Barry Shanoff is a Rockville, Md., attorney and general counsel of the Solid Waste Association of North America.

The legal editor welcomes comments from readers. Contact Barry Shanoff via e-mail:

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