Westlands' $20,000-a-month lawyer/lobbyist runs into new troubles
By Lloyd G. Carter
Nearly a year ago I blogged on this website about the Westlands Water District hiring Washington powerhouse lawyer/lobbyist Norman Brownstein, dubbed the "101st Senator" by the late Sen. Ted Kennedy. That two-part article was titled "How the West(lands) Was Won." Just use the website search engine with the keyword "Brownstein" to find it.
That series detailed the rise of the Denver, Colo. law firm of Brownstein, Hyatt, Farber and Schreck, a major lobbying firm in Colorado and Washington, D.C., as well as a powerhouse law firm with branch offices in several states, including California.
It was a Brownstein partner, Steve Farber, who raised $50 million to land the 2008 Democratic Convention at Mile High Stadium in Denver where President Obama gave his nomination acceptance speech in October of 2008. The purported payback for Farber’s efforts was the naming of Brownstein protégé Kenneth Salazar as Interior Secretary (soon to be outgoing Secretary). The Brownstein firm had aided Secretary Salazar’s earlier successful campaigns for Colorado Attorney General and the U.S. Senate.
Westlands used Brownstein lawyers from Denver to quietly file a suit in the U.S. Court of Federal Claims in January of 2012, contending the U.S. Bureau of Reclamation repeatedly breached its water service and repayment contracts with Westlands by failing for decades to build a drainage system to carry away Westlands’ toxic waste waters to the Sacramento-San Joaquin Delta. The Brownstein brief was rejected by Chief Federal Claims Judge Emily Hewitt in January of this year (more on that below), and a government motion to throw out the case was granted, apparently crushing any hope Westlands had of getting the government to complete the drainage system.
Westlands paid the Brownstein firm $160,000 in 2011 and $240,000 in 2012 to lobby Congress on U.S. Bureau of Reclamation and Endangered Species Act issues. (The San Diego Water Authority also pays the Brownstein firm $17,472 plus expenses a month for lobbying. One wonders who Brownstein would back if a dispute arose between Westlands and San Diego over Northern California Water supplies.) A former Brownstein partner, Tom Strickland, was Chief of Staff to outgoing Secretary of Interior Kenneth Salazar until Strickland resigned in late September 2011 to work for the law firm representing the BP oil company in the Gulf oil spill litigation. One of Salazar’s predecessors as Interior secretary was Gale Norton, formerly a partner at the Brownstein law firm. In 2006, she was driven from office in disgrace following a scandal at the Minerals Management Service, an Interior agency.
In that series I noted that despite the enormous influence of his law firm, the political and courtroom successes over four and a half decades, plus the accumulation of considerable wealth, Norman Brownstein had undoubtedly been disheartened over scandals involving his two sons.
On January 11, 2012, Brownstein's younger son, Drew K. "Bo" Brownstein, 37, was sentenced in New York City to a sentence of a year and a day in prison for making a $5 million profit off of insider trading information. He was released on December 28, 2012.
The 88-year-old federal judge who sentenced Bo to prison, Robert Patterson, chastised the defendant for succumbing to greed but imposed only five percent of the maximum penalty. The defense had asked for probation. Bo Brownstein admitted to using insider information to buy stock on behalf of his father and sister. The Denver Post reported that according to an unnamed source the elder Brownstein was unaware of his son's insider trading.
The New York Times, without reference to any source, also simply reported that Bo Brownstein "bought stock for his family, including his father, without their knowledge." Neither newspaper explained how its reporters reached this conclusion but we do know the FBI did not pursue Norman Brownstein for Bo's illicit purchase of stock in his father's name.
Then, in late April 2012, Norman Brownstein's other son, Chad, further tarnished the family name. Chad had auctioned off a month-long paid internship in the office of Arkansas U.S. Senator Mark Pryor, a Democrat, as part of a fundraising campaign for a synagogue in Los Angeles. The only problem was that Chad had never received approval from Sen. Pryor about sponsoring the internship. And the successful bidder in the charity auction was none other than Joe Francis, the bankrupt founder of the Girls Gone Wild mail order videotapes that became part of America's soft porn culture. Francis, thinking he had won the auction, said he would use the Senate internship as a prize on his TV reality show, The Search for the Hottest Girl in America.
When word got back to Sen. Pryor, who thought it was all a hoax or a scam by Joe Francis, Chad Brownstein stepped forward and publicly apologized to the Senator in a letter. According to www.TheWashingtonian.com (Where you can read Chad's apology letter to Senator Pryor), the Synagogue returned the money to Joe Francis. The apology letter said Norman Brownstein had nothing to do with his son's stunt.
It turns out Norman Brownstein's troubles were not over. Now Brownstein has a high profile client, friend and occasional business partner, who recently was charged with illegal insider trading by the Securities and Exchange Commission (SEC) and may be facing felony criminal charges from the U.S. Justice Department.
The client is Roger Parker, who according to a long piece in the December 16, 2012 Denver Post, "appeared to have it all," in 2007, including a $9 million mansion in Denver's posh Cherry Hills Village community. Among Parker's golf buddies was NFL Hall of Famer John Elway, who has declined to comment on Parker's troubles. Parker bragged to friends that he was going to be worth $200 million. Parker's father, James Parker, was a federal judge in New Mexico, appointed by President Ronald Reagan. The judge, now retired, has major investments in gas and oil
Roger Parker was CEO and chairman of the board of Denver-based Delta Petroleum, an oil and gas exploration business founded in 1984. However, Delta was having cash flow problems in 2007 and Parker, in the biggest coup of his career, lured in Las Vegas magnate and billionaire investor (and Fresno native) Kirk Kerkorian, whose Tracinda Corporation, on Dec. 31, 2007, announced it was investing $684 million for a 35 percent interest in Delta, sending Delta stock soaring.
However, according to the SEC complaint filed October 24, 2012 , Parker, during the weeks leading to the Tracinda announcement of the stock purchase, tipped his close friend and golf buddy Michael Van Gilder, and at least one other friend - known in the SEC complaint only as "Friend A" - with material nonpublic information about Tracinda's pending investment in Delta Petroleum. Parker kept the negotiations with Kerkorian secret even from his closest fellow board directors.
Based on this insider information, Van Gilder, then CEO of Van Gilder Insurance, purchased Delta stock and options before the Tracinda buy-in was publicly announced. Van Gilder also tipped his siblings, his broker, and a co-worker, some of whom also bought Delta stock. The SEC said Van Gilder, his relatives and co-worker "made more than $161,000 in ill-gotten profits." According to the SEC, Friend A made over $730,000 in a short time by buying Delta stock after being tipped by Parker. After the Tracinda buy-in was announced, the SEC said Delta stock rose almost 20 percent.
Then on November 27, 2012, the SEC filed an amended complaint adding Parker as a defendant in the civil case. The Denver Post said federal prosecutors hinted there could be three or four criminal prosecutions in the unraveling of the insider trading scandal. A Denver Post reporter told this writer that there is considerable speculation in the Denver business and oil communities about who Friend A might be.
A few days before the SEC amended complaint naming Parker, he resigned as chairman and CEO of Recovery Energy Inc., a Denver oil and gas company. Parker joined Recovery's board of directors in November 2009 after leaving Delta and served as Recovery CEO since May 2010, when the company released a statement that said Parker, who is 51, was "retiring." This is a polite euphemism for being forced out.
Norman Brownstein, who was a friend and did business deals with Parker according to the Denver Post, also represented him in both his business and private affairs. Brownstein's lobbying firm was drawing $25,000 a month retainer for advising Delta, and he was an active participant in the secret negotiations leading up to the Tracinda buy-in. Brownstein has refused interviews from the media but his office said he does not represent Parker in the SEC complaint.
On March 9, 2008, Parker told the Denver Post how he met Kerkorian in a private suite at the Bellagio Casino/Hotel in early December 2007 and Kerkorian asked Parker, "What would $500 million do for your company?" Parker said "my response was that it would do a lot for the company in terms of being able to accelerate drilling activity." It was billionaire Kerkorian's first foray into the oil business. The meeting had been arranged by Edward Michael "Tiger" Davis, an oil industry figure who knew both Kerkorian and Parker.
However, the deal quickly soured. Both the U.S. and the world economy began collapsing in 2008 and oil and gas prices dropped. By November, 2008, Delta's shares, which had reached a high of nearly $25 a share, dropped below $4 a share, triggering a margin call on Parker's brokerage account.
Kerkorian was fed up and in May 2009, with Parker feuding with Kerkorian-appointed board members, Parker left the company with a severance check of $7 million. By 2011, interest expenses nearly equaled the value of oil and gas produced by Delta. Kerkorian took Delta into bankruptcy court in December 2011 and it was reorganized and re-emerged as Par Petroleum. His 36 million Delta shares he had purchased for $19 a share had dropped to 56 cents a share, basically wiping out his $684 million investment.
Kerkorian, claiming he had been duped and defrauded by Tiger Davis, Parker and Brownstein, also filed a suit against Davis in Las Vegas on December 6, 2011. Kerkorian's suit said Davis was supposed to be representing the interests of Kerkorian, but instead conspired with Parker who rewarded Davis with finder's fee of 263,00 shares of Delta stock, worth $5 million at the time. The suit said that in addition to the finder's fee, Tracinda officials later learned that "Parker secretly arranged for Davis to receive additional compensation in the form of lucrative contracts and business arrangements with Delta as quid pro quo for Davis having deceived plaintiff into making its initial Delta investment."
The Kerkorian suit also said that Brownstein joined with Davis in repeatedly assuring Tracinda officials "that Delta's management team and, in particular, Parker had extensive experience in the energy sector, that Parker had positioned Delta for future success and, most importantly, that Parker was a person of the highest character and inegrity."
The Kerkorian suit also claimed that Brownstein's law firm was under a four-year contract at $25,000 a month and that the contract was "in consideration of [Brownstein's] services" in the Kerkorian/Delta deal.
Kerkorian's acknowledged the drop in energy prices worldwide was not Parker's fault but he claimed that Parker's "gross mismanagement and incompetence" led to the company's downfall, including drilling projects that had not been properly assessed and surveyed.
Interestingly, Kerkorian did not name Parker and Brownstein as defendants in the lawsuit.
Tiger Davis responded to the Kerkorian suit in January of 2012, contending Tracinda had not shown that Davis was acting as an agent of Kerkorian in the buy-in negotiations. Davis's attorneys also complained bitterly about Kerkorian injecting "incredibly improper and scandalous allegations" about Davis in the complaint. The Kerkorian lawsuit raised the fact that in 1959, Davis was a 28-year-old chauffeur for 69-year-old Denver Post owner Helen Bonfils. When Bonfils' husband died, Davis married her, although being 41 years younger. This was Davis' entree to the business and oil world in Denver, according to Kerkorian's lawsuit. Kerkorian dropped this language from amended versions of his complaint.
Davis' attorney, Lew Brandon Jr. told the Las Vegas Review Journal that Kerkorian was "unable to cope" with the massive losses resulting from the worldwide recession and drop in energy prices and that Kerkorian "seeks to pass the buck and blame" to Davis. Brandon said it was "scandalous" that Kerkorian would bring up facts about Davis' marital background completely unrelated to the lawsuit.
For whatever reasons, the Kerkorian suit against Davis was quietly settled in April of 2012. Terms were not disclosed.
The controversy flared again last October when the SEC, in a civil filing, first charged Van Gilder with insider trading and the Justice Department followed with criminal charges against Van Gilder. Then, in an amended SEC complaint filed November 27, Parker was added as a defendant in the civil proceedings. Parker could still be charged criminally. Still unidentified is "Friend A." A Denver Post reporter told this writer there was considerable discussion in Denver's business and oil sectors about who Friend A might be. Brownstein, if he knows, is not talking. Presumably, Parker would invoke the attorney-client privilege between he and Brownstein in any court proceedings. SEC attorneys involved in the case did not return a call from this writer.
After the SEC complaint was filed against Van Gilder, 46, in October, he circulated an email to friends and relatives which was picked up and published by the New York Times on October 29, 2012. In that email Van Gilder said that although he could not discuss particulars of the SEC claim, he expressed confidence that he would be exonerated. He compared himself to Nelson Mandela and Steve Jobs, who both overcame major obstacles in their life.
Van Gilder's bravado did not last long. On Feb. 22 of this year, the Denver Post reported that Van Gilder's lawyer had said in a court filing that Van Gilder was prepared to plead guilty to one count of securities fraud.
In a Dec. 12, 2012 story, the Denver Post reported that earlier in 2012 Parker pledged 100,000 shares in Prospect Global Resources, Inc., a potash mining company in Arizona, as collateral to Brownstein's law firm for personal legal help. At the time the shares were worth $1 million. At the time of the Post story, they were valued at $167,000.
An SEC filing noted that Chad Brownstein (Norman Brownstein's son) sold 700,000 shares of Prospect Global Resources, Inc. stock on October 18, 2011. Brownstein was a co-founder and is executive vice chairman of the board of directors of Prospect Global Resources, Inc., according to the business website ZoomInfo. (WWW.ZoomInfo.com.)
Scott Reiman, a friend of Parker's and founder of Hexagon Investments, also was an investor in Prospect Global Resources, Inc., and loaned Parker $24.7 million to invest in Recovery Energy, Inc. Reiman declined an interview request from the Denver Post.
Shares of Prospect Global Resources, Inc. fell more than 21 percent on March 8 of this year after the Denver company disclosed it won't be receiving a $100 million investment from Apollo Global Management LLC, according to the Denver Business Journal. Prospect stock closed at 95 cents a share on March 8, down 26 cents and off 21.49 percent in extremely heavy trading. More than 1.2 million shares changed hands; about 199,000 shares is the normal daily trading volume.
On January 23 of this year, Parker filed for Chapter 11 bankruptcy, according to the Denver Business Journal. The Business Journal said Parker listed both assets and liabilities in the $10 million to $50 million range, and said that most of his debts were business related. Among the assets was his Cherry Hills Village mansion he valued at $9.2 million. Prior to the bankruptcy filing, Parker was plagued by garnishment actions filed by Kerkorian to recover various assets of Parker. Parker has asked the SEC that he be given until March 29 to respond to the insider trading charge.
The trustee in the separate Delta Petroleum bankruptcy case is suing Parker, trying to recover $66,555 from Parker that the trustee alleges Parker fraudulently transferred to his ex-wife, Delia Parker, after the company filed for bankruptcy.
Chad Brownstein was in the news in California in 2006 when it was learned his ITU Ventures company had made political contributions to CalPERS (the state employee pension fund) board members. CalPERS officials said they were concerned that the donations might be construed as creating an expectation of future CalPERS investments in ITU. CalPERS spokesman Brad Pacheco confirmed the pension fund had pulled $23.8 million from ITU Ventures, according to the Los Angeles Times. Chad Brownstein denied any wrongdoing in a newspaper interview, stating "there is nothing illegal here. There is nothing illicit."
From the time of the Kerkorian lawsuit through Parker's pending criminal indictment, Norman Brownstein has steadfastly refused to talk to the media about his role in the Kerkorian buy-in, and the status of his friendship/ business relationship with Parker, who still owes Brownstein's law firm hundreds of thousands of dollars in legal/lobbying fees.
However, Brownstein's law firm, traditionally viewed as essentially a Democrat Party-leaning business, continues to hire prominent Republicans. Last month, it was announced that Barry Jackson, longtime chief of staff to House Speaker John Boehner, was hired by the Brownstein law firm. Jackson told the Politico website he would not be lobbying but would be doing "strategery" adding, "what I've always done is try to figure out complex problems and how to solve them." The Brownstein law firm also recently hired Marc Lampkin, a Republican advisor to Boehner, and Elizabeth Maier, former legislative director to former Republican Senator John Kyl of Arizona.
Whatever Westlands officials think of all the negative press around Brownstein and his sons, they cannot be happy with the outcome of a breach of contract lawsuit the Westlands filed in January of 2011 against the U.S. Bureau of Reclamation, an agency of the Department of Interior, for failure to complete a drainage disposal system to carry away the selenium-laced waste waters of the 617,000-acre irrigation district, largest in America. Brownstein attorney Lawrence W. Treece handled the brief on behalf of Westlands.
Emily C. Hewitt, chief judge of the Washington, D.C.-based Court of Federal Claims, granted a motion by the defendant, the federal government, dismissing all six claims focusing on various types of breach of contract claims, including past breaches of express contractual drainage obligations, past implied breach of contract, breach of good faith and fair dealing, total breach and anticipatory breach, as well as issue preclusion and declaratory relief. The breaches concerned Westlands' 1963 water service contract with Reclamation, later water service contracts from 2007 and 2010 and the 1965 repayment contract paying for costs of building the irrigation water delivery system for Westlands, including a drainage system.
Importantly, the Claims Court said Westlands had missed the six-year filing requirement for breach of contract claims against Reclamation, and that the clock had started to run in 1986, when the Bureau plowed under the 1,280-acre evaporation pond complex at the Kesterson Reservoir/National Wildlife Refuge in western Merced County 60 miles north of the lands then being drained in Westlands. At that time, the Westlands agreed to the closure of Kesterson in exchange for continued water deliveries.
Judge Hewitt noted Westlands attorneys had conceded that the various contracts Westlands had with Reclamation "set no definite time for the government to provide drainage services, to construct a drainage system or even to construct discrete increments of a drainage system. Nor did they even set forth a construction schedule."
Hewitt, in a 56-page opinion, said Treece had taken the holding in an earlier Westlands federal suit "completely out of context." In that earlier case, former Fresno federal judge Oliver Wanger had ruled Reclamation had a statutory duty to attempt to obtain approval from the California State Water Resources Control Board for a drainage canal linking Westlands to the Bay-Delta estuary where the tainted water would be dumped and diluted. The Ninth Circuit Court of Appeal modified Wanger's ruling and said Reclamation could consider alternative drainage disposal methods instead of a drain canal to the Delta.
In another swipe at Treece and the Westlands, Judge Hewitt wrote "Plaintiff [Westlands] cites no operative contract provision that is susceptible to the interpretation that it created a drainage obligation because none of the provisions cited by plaintiff contain language creating a drainage obligation."
Hewitt said the Westlands complaint cited federal law from other cases but did show how those cases were applicable to the Westlands suit. She also noted that the Westlands complaint took cited cases out of context or misunderstood what their holdings were.
The Westlands suit also cited a 2010 letter from U.S. Bureau of Reclamation Commissioner Michael Connor to California Sen. Dianne Feinstein, as proof that the Bureau had breached its contractual duty to Westlands to complete the drainage system. Hewitt rejected this argument noting Connor's letter was to Feinstein and not the Westlands.
The Feinstein letter "is as clear a repudiation of the drainage obligation as there can be,"
The Westlands complaint alleged. But Hewitt responded that "[n]owhere does the letter say that defendant refuses to perform a contractual drainage obligation." The judge also said that from the start of the Westlands project in the early 1960s, Westlands always knew that completion of the project, including drainage, was subject to the availability of money from Congress. Over the decades, the cost of drainage for Westlands has escalated from an estimated $7 million to the current Reclamation estimate of $2.7 billion for 600 growers.
Westlands General Manager Thomas Birmingham, himself a water lawyer, cannot be happy with the ruling but there has been no indication from the Westlands website that the water agency will appeal Hewitt's ruling and, if so, will it use the Brownstein law firm to write the appeal. You can bet Westlands paid a pretty penny for the Brownstein law firm's feckless complaint.
At this point, it appears the only possibility for Westlands to keep all, or most, of its acreage in production, is to convince Congress to fund a drainage system, hence the hiring of Brownstein. However, Brownstein lobbyists will have a very hard sell in these budget-cutting economic times in Washington, D.C., no matter if the president is Republican or Democrat.
Reclamation Commissioner Connor's letter to Sen. Feinstein said the record of decision in the Westlands district court lawsuit said the favored drainage alternative, at a price tag of $2.7 billion "far exceeds" the remaining appropriations authorized for Westlands and adjacent water districts in the San Luis Unit of the Central Valley Project, the vast federal plumbing system for the heart of California. Connor's letter added that "while the selected alternative is both technically and environmentally feasible, it is economically and financially infeasible because the costs exceed the national economic benefits and are beyond the ability of the beneficiaries [Westlands farmer] to repay . . ." [Emphasis added.]
In other words, the long dreamed of drainage system for Westlands will never become a reality unless Congress approves massive additional funding, a highly unlikely scenario given that the costs far exceed the benefits. Connor suggested that if Westlands wants a drainage system, it will have to build it without major federal aid.
A 2008 U.S. Geological Survey report said that idling about half of Westlands' acreage would solve the drainage problem for the remaining good land in the district and export of salts and toxins to the Bay-Delta would be unnecessary. Ironically, Westlands - which has already seen 100,000 acres of land go out of production due to salt building - keeps fighting to keep as much land in production as possible. Westlands growers may find that an impossible dream.