STEP vs. SLO County: The Case for Civil Fraud and Concealment

When does product disparagement become an issue of fraud? At what point does the community of Los Osos become a victim of fraud? Razor Online continues our special “STEP vs. SLO County” series, documenting how honesty and fairness got lost in the sewer shuffle.

Previously, Razor Online discussed the potential case against San Luis Obispo County for product disparagement of the STEP collection system, which for two years was an integral part of the County’s design-build process — until April 7, 2009, when STEP was dropped without a plausible explanation and any chance of a true design-build process crumbled into failure. If what Orenco Systems’ Bill Cagle wrote in a letter to Chairman Frank Mecham on May 28, 2010 is accurate, and it appears to me that it certainly is, then the County’s Los Osos wastewater project team has intentionally and purposefully misrepresented STEP technology to the benefit of County coffers, MWH and County-friendly contractors and consultants.

Product disparagement includes the element of intentional misrepresentation. If one were to look at public comments made by County Public Works and its director Paavo Ogren, we notice a clear pattern of recklessly false statements of fact. These false statements presented as fact in a public forum were made principally free from fair rebuttal. Ultimately, the community of Los Osos was left to decide the facts based on the steady stream of hearsay opinions, conclusions and biases of Public Works without equitable public counterpoint by STEP vendors or contractors, and without legal representation to litigate the issues.

If not for Orenco Systems rising to the defense of their product and attempting to protect the core integrity of their business, establishing a case of civil fraud against the County would be virtually impossible. Cagle’s letter to Chairman Frank Mecham of the SLO County Board of Supervisors firmly addressed the “crux” of Ogren’s many assertions in plain language, claims that Ogren has repeated ad nauseum before and since April 7, 2009.

Here are some examples:

Ogren has stated that W.M. Lyles, the sole contractor that proposed a STEP collection system, never bothered to appeal the removal of their system from the contractor shortlist for the project. The assumption, which Ogren has often made, is that the W.M. Lyles team fully accepted the rationale behind the Public Works decision to remove STEP from consideration — and that was the basis for not filing an appeal. Last year, according to Cagle, during the W.M. Lyles interview with Public Works, the team stressed the importance of having committed participation by all the stakeholders throughout the design-build process.

However, due to the fact that Public Works dismissed STEP using reasons outside of the RFQ criteria (not pursuant to California Contract Code § 20133) — including the incorporation of results from the County-designed community survey, which has nothing to do with the RFQ  — it was clear that the County was an “unwilling participant” as a stakeholder. The nature of County Public Works’ campaign to dismiss STEP with ambiguous reasons — irrelevant to the original criteria — also demonstrates prejudice. Filing an appeal with an entity that is prejudiced against a product would be understandably futile and wasteful, but to decline filing an appeal does not validate Public Works’ evaluation of STEP, nor should it be posed to the public as an endorsement, as Ogren did.

Ogren has been quick to misrepresent STEP using the nuances of language. On numerous occasions since April 2009, Ogren and Public Works stated that STEP collection would only cost 20% less than a gravity collection system. According to Cagle, the County’s interview panel were informed that a STEP/STEG gravity hybrid system would cost 20% less, but a non-hybrid, pure STEP system would be even less expensive with significantly lower capital costs (see pg. 3, paragraph 1 of Cagle letter). Nonetheless, Ogren touted the 20% as being the definitive cost savings of a complete STEP collection system when he should have said STEP/STEG. There is reason to justify a case of fraud by concealment (“Deceit” as specifically defined in Cal. Civil Code §1710) due to the apparent lack of clarification by Public Works when the cost claim surfaced repeatedly during several LOWWP updates in mid-2009. The failure to disclose the real cost estimates — and substantial cost savings — for a complete, non-hybrid STEP system is a glaring omission and highly suspicious given the prejudicial makeup of County Public Works.

It’s important to note that STEP and STEP/STEG are two different project configurations.

The community of Los Osos, the potential plaintiffs for a civil fraud case, was subject to a community survey by frequent County partner, Opinion Studies, in early 2009. Here’s an example of a question posed to survey-takers:

“Two different collection systems are being considered: ‘hybrid’ gravity system and a STEP/STEG system. The Project team has found both options to be technically viable for Los Osos. A Project peer review by the National Water Research Institute also found the two systems are ‘functionally equivalent.’ However, the Draft EIR has determined that a gravity system has slightly less environmental impacts than STEP/STEG. A gravity system will also be less disruptive to individual properties and have less initial out of pocket costs for property owners, because it does not require the installation of new septic tanks in front yards, nor upgrading of your electrical panels. A STEP/STEG system might result in a lower overall project cost for property owners and residents but that is uncertain, especially considering the time required to design a new collection system and that further delays could jeopardize grant funding. Which system do you prefer?”

Aside of the question’s tilt toward gravity collection, notice there was no disclosure of the specific set of solutions presented by W.M. Lyles. Aside of the lack of readily available source documentation to back the anti-STEP/STEG claims made by Opinion Studies, there was no mention of a more cost-effective STEP solution, which would have appealed to those who felt that gravity had minimal monthly and initial costs. This question posed to responders created the appearance that there were only two choices when there were actually three, and the County was well aware that a complete STEP option was there. As evidenced in the February 25, 2009 Project Status Report, there was only mention of STEP/STEG, but not a standalone STEP option. There was no public statement why a complete STEP system was not considered. Once again, there is an indication of fraud by concealment.

To strengthen their concealment and quash the STEP vs. gravity debate, the County of San Luis Obispo government has not publicly released all of the statements and letters sent to Public Works and the Board of Supervisors by the parties representing STEP collection system. Razor Online has combed through all relevant, publicly available materials presented by the County. We concluded that there is no available public record of correspondence from Orenco Systems and the W.M. Lyles team (prior to April 7, 2009) that challenged statements made by Public Works staff, which ultimately led to STEP being removed from the shortlist. Those who are looking at the LOWWP web site to make informed choices on their survey are only presented the County’s perspective. Correspondence and rebuttals by STEP’s parties were not offered for public viewing. Again, Los Osos residents were forced to make their decisions based on the opinions provided by County Public Works, their contractors and consultants without a thorough, readily available cross-examination of all opinions. Instead, the residents of Los Osos were left to accept the opinions of a highly prejudicial entity.

Vocal opponents of the County’s handling of the LOWWP have often referred to Ogren, colleagues and sympathetic entourage as “corrupt.” When the details are examined, we see an unclean, corrupted process that’s non-compliant with DBIA standards. When many of us think of “corruption,” we think of our public servants accepting kickbacks from special interests. But corruption also comes gradually in the form of severe prejudice for a specific preference, such as conventional gravity collection systems. To satisfy their prejudice, County Public Works Director Paavo Ogren and staff made STEP an impossible, illogical choice through concealment and deceit.

The appearance of civil fraud is irrefutable. Misrepresenting STEP will have far-reaching consequences for STEP manufacturers and “Prohibition Zone” homeowners alike. So far the County has gotten away with it, but there is no statute of limitations on fraud. Orchestrating such an adulterated process has already damaged Ogren’s credibility significantly and exposed Gibson’s contempt for low-income households in Los Osos. Ogren’s deceitful tactics and Gibson’s contempt will force many out of town with $300 to $400 a month sewer bills. In the end, their gamble could even cost Gibson and Ogren their jobs. While many would hope for that result, justice may be bittersweet. By the time we ever see justice, the sewer will likely be built (Waddell estimates by September 2011). The people of Los Osos need to wake up and recognize they’ve been scammed — and do something about it. We hope that happens sooner than later.

— Aaron Ochs

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