City agreement with disbanded Centennial planning board raises liability questions

By Margie M. Palmer | Downtown News

The 2015 Balboa Park Centennial has been billed as a yearlong celebration designed to captivate visitors from around the globe. Less than two weeks ago, the group charged with producing the event disbanded amid allegations of fiscal mismanagement, raising questions about legal liabilities for the lost funding.

Planning for the celebration began during Mayor Jerry Sanders’ tenure. He envisioned a Centennial celebration that came with a $20 million production price tag. When Bob Filner took office, he wanted a production five times that size.

The City outsourced its plans for the event in 2011 to 501 (c)(3) nonprofit Balboa Park Celebration, Inc. (BPCI) . The agreement was that BCPI would organize, promote and implement all aspects of the celebration events. They also agreed to another heavy-lifting task: securing sponsorships.

The fundraising, however, didn’t start until just last year.

More than $2.6 million was spent by the group prior to the March 4 announcement that BPCI would be turning their operations over to the City.

“This decision was the result of long and careful consideration of the obligations spelled out in the BPCI Memorandum of Understanding (MOU) with the City of San Diego and, most importantly, our responsibility to the people of San Diego,” wrote BCPI Co-Chairs Ben and Nikki Clay in a statement.

Among the expenses were approximately $8,000 per month in allocations to consulting firm Gerry Braun and Associates and more than $33,000 per month marketing firm Loma Media Partners. The group’s former CEO, Julie Dubick, who resigned in February, was compensated at approximately $15,000 per month.

A recent article by U-T San Diego found that BCPI exaggerated funding applications about having key partnerships that didn’t actually exist. It also reported that in January, the City tabled a request for an additional $3.2 million in funding saying the group had not exhibited they could pull off an event of this size.

The MOU, which outlined the terms and conditions of BCPI’s working relationship with the City, was signed into agreement on Oct. 25, 2011. The agreement largely protects BPCI board members from liability, but local attorneys say the board could face legal action if serious misconduct is shown.

The crux of the issue relates to the agreement’s “Indemnity Clause and Hold Harmless Agreement,” which legal experts say essentially serves as an immunity clause for BCPI. Unless the City can prove BCPI engaged in embezzlement or fraud, they can’t be held liable.

Local criminal defense attorney Alexis Scott said there are a few possible outcomes moving forward.

“Indemnity and immunity clauses don’t protect against willful misconduct or negligence of a board member,” Scott said. “As a whole, board members of a nonprofit are typically safe from personal liability, but they could be held liable if they’ve done something that is intentionally fraudulent, illegal or clearly wrong.”

The primary question lies in whether illegal activity, including breach of duty, took place.

“In sum a board member’s central purpose is to ensure that the organization’s resources are used to achieve its purposes,” Scott said. “In this situation it is clear that this board did the exact opposite. It looks like a few people and a couple companies made a lot of extra income with nothing to show for it.”

The City may also be able to file a lawsuit based on allegations of embezzlement.

In this case, Scott said, the question is whether the taking of donations and other funds and using them as salaries qualifies as embezzlement.

If it can be proven that board members acted dishonestly by withholding and/or converting assets that were supposed to be used for one purpose to another — namely, high salaries and consulting fees that were dishonest or unjustified — they could be liable.

Issa Abuaita, another criminal defense attorney in San Diego, also stated that legal action could ensue if misconduct is shown with respect to how the funds were used.

“If the board members were taking enormous salaries and paying for things like their trip to Panama as part of the planning for the event, just to benefit themselves, then this would be a pretty big issue and embezzlement comes into play,” Abuaita said. “The District Attorney is going to need to take a look at that and this could become a federal issue, especially if wire fraud comes into play.”

Council President Todd Gloria said in an emailed statement that it’s important for the City and the community to better understand “how we ended up in this position,” although Gloria’s spokesperson Katie Keach said she was unaware of any legal action being considered against the BPCI by the City.

“I am confident that clarification will come as we delve further into the financial documents and consider the changes of leadership at the City and within the organization since BPCI’s inception,” Gloria stated. “I have been involved throughout the planning process for the 2015 Centennial and was well aware of the difficulties BPCI and its board had securing sponsors. I was not fully aware of how funds were being spent until I reviewed the financials when they became public this week. Further, the City Council’s Natural Resources and Culture Committee heard multiple updates on the Centennial planning efforts at its public meetings, where assurances were made and reasonable plans were discussed.”

Gloria said he is working closely with Mayor Kevin Faulconer, City Special Events staff and organizations within and outside of Balboa Park.

“We want to make sure we have a workable plan to extend the legacy of our predecessors and use the 2015 Centennial of the Panama-California Exposition to reinvest in our Park and invite San Diegans back to the park,” Gloria stated.