LOS ANGELES—Fleishman-Hillard has reached an agreement with the Los Angeles city attorney to settle all civil claims against the agency arising from over-billing on its work with for various city agencies. Fleishman will pay the city $4.5 million and has agreed to waive payment of approximately $1.3 million the Department of Water & Power owes the firm for unpaid invoices from 2003 and 2004.
The size of the settlement surprised many industry observers, particularly since Fleishman’s own internal investigation found only $650,000 in over-billings and the Los Angeles city controller’s report suggested that the over-billing was in the region of $4.2 million. But FH executives believe the settlement is worth the cost if it helps the firm put the scandal behind it and focus on the future.
In a memo to employees, Fleishman chairman John Graham explained: “This is a significant payment, substantially more than the amount of questioned billing, but our firm’s reputation for honesty and integrity is a vital business asset and I am convinced that the cost of a prolonged legal and political battle would ultimately be far greater to our reputation than the cost of this settlement.
“This agreement also will allow us to avoid significant litigation expense, and it will help us focus more resources on serving our clients instead of defending these actions.”
The proposed agreement covers all work by Fleishman-Hillard’s L.A. office for the City of Los Angeles, including the DWP, Harbor Department, Department of Airports, and the Convention & Visitors Bureau. If approved by the appropriate city agencies, the settlement will resolve the lawsuit brought by the city attorney in July of last year.
Fleishman-Hillard conducted an extensive internal investigation of Los Angeles office records covering its six-year, $11 million contract with DWP and other City contracts. On the basis of that investigation, the firm says it believes “some senior executives of the Los Angeles office, who are no longer with the firm, caused certain bills to be presented to the City that appear to be improper and indefensible.”
Fleishman-Hillard has turned over the results of its internal investigation to the appropriate federal and county authorities, and the agency is continuing to cooperate fully with those authorities.
“We sincerely apologize to the citizens of Los Angeles and to City officials,” said Fleishman’s regional president and Los Angeles general manager Richard Kline. “Other than these recent problems in our Los Angeles office, we have never had an issue of this type in the almost 60-year history of our firm. We take full responsibility for any billing issues, and we have taken steps to ensure the integrity of our billing process.
“We have a strong and entirely new management team in Los Angeles, and we have moved forward with numerous new policies and procedures to highlight the importance of adhering to the highest ethical standards. With the proposed payment under this civil settlement, we believe we have taken a significant step in setting this matter right.”
He said the firm had offered such a substantial payment for several reasons. “First, out of basic respect for the citizens of Los Angeles, because we failed to meet our standards or those of the City with regard to this billing; second, because we know the ongoing cost of litigation in this matter would be significant; and finally, because resolving this dispute will help us focus on restoring our reputation in Los Angeles and serving our clients.”
One person—former Fleishman executive John Stodder—has been indicted in the scandal, and prosecutors have indicated that they expect at least one additional indictment.
Meanwhile, former Los Angeles general manager Doug Dowie has sued the firm, claiming he was made a scapegoat for the over-billing and fired without cause.
Dowie indicted through a statement by his attorney, Thomas Holliday, that he objected to the settlement. “We are very disappointed,” Holliday said. “We don’t believe anybody did anything wrong, and so they are only doing this to make peace with the city and federal government.”
Fleishman describes Dowie’s suit as groundless. “This lawsuit has absolutely no merit,” says Kline. “If this litigation goes forward, I’m confident that the facts will show we treated Doug more than fairly. Given the ongoing investigation and pending litigation, it’s simply not appropriate for me to comment further.”
The settlement seems likely to figure prominently in the mayoral race between incumbent Jim Hahn and challenger Antonio Villaraigosa.
“Jim Hahn needs to come clean with the people of Los Angeles about his relationship with Fleishman-Hillard,” Villaraigosa said after the settlement announcement. “They wrote his press releases, planned his events and he benefited from their work. Despite this, Jim Hahn has taken the position that he bears no responsibility.”