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home / insurance / in the media

Sacramento Bee
Jun 15, 2000

by Patrick Hoge

Lawsuit seeks to make Quackenbush repay nearly $13 million in donations

Two Los Angeles residents filed a lawsuit Wednesday seeking to force Insurance Commissioner Chuck Quackenbush and others to personally repay nearly $13 million they claim was misappropriated in settlements with insurance companies accused of mishandling claims.

The suit, filed in Sacramento Superior Court, contends that Quackenbush illegally spent money derived from enforcement actions "for partisan electoral purposes," describing those expenditures as "a gift of public funds." The money should have been collected by the state controller, the suit says.

Pasadena attorney Glenn Rothner said that he has closely followed the recent legislative hearings scrutinizing Quackenbush's decision to let insurance companies contribute to nonprofit foundations in lieu of paying fines.

While the legislative proceedings have been revealing, they have not sought to recompense taxpayers for money that was misspent, Rothner said.

"Whether he (Quackenbush) leaves office or not, he has a debt to the taxpayers," Rothner said. "He traded something of value, namely aggressive enforcement of the law, for huge infusions of cash into his partisan campaign fund. The taxpayers are entitled to be reimbursed for that unconstitutional transfer."

Expenditures the suit lists as inappropriate include:

Nearly $450,000 paid to three of Quackenbush's political consultants, David Bienstock, Don Sipple and Joe Shumate, to produce and run advertising that featured Quackenbush.

A separate $100,000 paid to Shumate to help sell insurance in minority communities, work that featured polling on political topics, including questions about job performances of Gov. Gray Davis, Lt. Gov. Cruz Bustamante, Attorney General Bill Lockyer, Secretary of State Bill Jones, Quackenbush and the Legislature.

$1.1 million paid to Strategi Inc. to develop the "Quake-Ready" program featuring NBA star Shaquille O'Neal and Quackenbush.

$600,000 paid to the public relations firm of Stoorza, Ziegaus & Metzger by the California Insurance Education Project, a non-profit foundation that the Stoorza firm established with insurance settlement money.

More than $1.4 million that was distributed in grants to community groups "for the specific purpose of enhancing Quackenbush's image."

The suit was filed by two law firms in Pasadena and San Francisco on behalf of taxpayers Dorothy Martinez and Janice Segall, both of Los Angeles County.

The firms have experience with such litigation, having sued state Assembly Republicans in 1996 alleging that retroactive pay raises given to Assembly staff members were "illegal gifts of public funds." The suit was settled after lawmakers promised not to approve similar raises in the future.

Whether the money actually belongs to the public, however, could be a key issue in any court battle, because the money was transferred to the non-profit foundations directly from the insurance companies at the direction of the insurance department.

At least one of those foundations, the California Research and Assistance Fund, has argued in court that the remaining $6 million in its account rightfully belongs to it.

The state attorney general, meanwhile, is seeking to dissolve the foundation and take control of the money on behalf of the public, alleging that the fund illegally spent millions of dollars and ceded authority to Quackenbush's deputy, George Grays.

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