How business was done - Page 2

Mayor Lee testifies in corruption lawsuit that could cost the city $10 million

Mayor Ed Lee (with attorney Joe Cotchett) heads for the courtroom to testify in the case.

The city completed a subsequent investigation in January 2003 that resulted in stopped payments to Cobra, contract termination, and the city's civil lawsuit filed by City Attorney Dennis Herrera against Cobra in April 2003. Following Herrera's filing against Cobra, Herrera demanded an audit of Cobra which Cobra refused, citing a conflict of interest. Herrera had previously represented Cobra in private practice before he was elected City Attorney in 2001.

A trial court ruled in that Herrera had a conflict of interest, disqualifying Herrera and his office from participating in the Cobra case, a ruling later upheld by the California Supreme Court. Yet the suit alleges Herrera and his office continued to supply work to various City agencies and to effectively prevent Cobra from doing further business with city. By withholding the $2 million Cobra was owed by the City, COIT was able to disbar Cobra from entering into master contract agreements with the city, claiming Cobra was fiscally "non-responsible," according to court testimony.

Blackwell, in her testimony at trial, said the determination of Cobra's non-responsibility was used as a "pretext" for Cobra's disbarment, a procedure that should have triggered a hearing to allow Cobra to defend itself against debarment. That never happened.

An FBI investigation into Armstrong's kickback scheme resulted in Armstrong pleading guilty to mail fraud, wire fraud, and obstruction of justice in July 2003. No criminal charges were ever brought against Cobra Solutions or Telecon and yet the city's outside law firm, Cotchett, Pitre & McCarthy LLP, which tried the case on behalf of the city, held on to the city's allegation of fraud committed by Cobra and Telecon throughout the case and trial until closing arguments on Feb. 9.

In his closing arguments, attorney Ara Jabagchourian made no mention of Telecon, effectively dropping the city's claims against Telecon, and constricted the city's damage claims against Cobra. He asked the jury to award the city up to $266,000, money paid to Cobra for work authorized and signed-off by the city, via Armstrong, for breaching a provision in the contract agreement between the city and Cobra that requires the master contractor to "supervise" sub-contractors.

But Cobra's lawyers — the firm of Gonzalez & Leigh, which includes former Board of Supervisors President Matt Gonzalez, who took a leave from his current job as deputy public defender to consult on the case — says it is the city that should pay for fatally harming a business without just cause.

"The City and City Attorney's office falsely accused Cobra and Telecon of stealing $2.4 million dollars from the City, destroying these companies and ruining the lives of good, decent people who were the victims of a city tech official who should not have been hired in the first place," said attorney Whitney Leigh. "Then the City Attorney made it worse, flatly defying an order disqualifying the City Attorney's Office and instead driving efforts to run Cobra and Telecon out of business just because Cobra raised the issue of the conflict of interest. I've been unable to find any case in which an attorney has so flagrantly ignored a disqualification order."

Herrera can't comment on the case, but his office previously told the Guardian, "Immediately upon discovery of Cobra's role, the office screened Herrera off from further involvement in the investigation and all matters related to it in accordance with a stringent ethical screening policy Herrera established when he took office."

The-City Controller Ed Harrington, who exerted significant influence over contract awards and debarment proceedings as chair of COIT, conceded in court testimony that internal controls failed to detect Armstrong's scheme.