Cobra Solutions founder and president James Brady said he was disappointed by a jury’s verdict yesterday that determined the City and County of San Francisco and Cobra Solutions were responsible for failing to detect a city employee’s fraudulent kickback scheme. Photo by Luke Thomas.
By Luke Thomas
February 16, 2012
A jury awarded the City and County of San Francisco $24,498 yesterday following its deliberations of a complicated civil case filed by the city in 2003 against a minority-owned computer services company accused of fraud and breach of contract, a company that countersued with a claim of being harmed by top city officials.
But that paltry sum and the jury’s verdict of shared responsibility in failing to root out corruption in city government belied the more politically significant accusations made through depositions in the case that Mayor Ed Lee and former Mayor Willie Brown overrode city staff to give contracts to a “fraudulent” yet politically connected company, which proved to be a tangential issue that was left largely unexplored at trial.
In CCSF vs. Cobra Solutions, the jury found that both the city and Cobra Solutions failed in their responsibilities to prevent a former Department of Building Inspection information technology manager, Marcus Armstrong, from fraudulently bilking the city out of at least $482,000 between 1999 and 2001. An alleged Armstrong accomplice, Government Computer Sales, Inc. – which witnesses said Brown and Lee improperly certified, and which they say they don’t remember – fled and was never brought to justice.
Cobra Solutions, which was awarded master contract status in 1998, was bound by a provision in its agreement with the city that required Cobra to “supervise” sub-contractors. The allegation of fraud against Cobra, however, was effectively dropped from the city’s complaint, but not until the end of the trial when consideration of fraud was omitted from the city’s closing arguments.
The award to the city was the difference between the monies paid by the city to Cobra Solutions ($269,739.93) and the monies paid by Cobra Solutions to Armstrong’s phony companies ($245,241.93), or the markup Cobra Solutions received from the city following the submission of several fraudulent invoices from two phony sub-contractor companies, Monarch Enterprises and Mindstorm technologies, set up by Armstrong.
Following the verdict announcement, a juror who did not want to be identified, said there wasn’t a single piece of evidence that was most compelling, but that, “the city proved its case. Cobra failed to prove its case.” The “vast majority” of jurors shared that opinion, the juror said. “It wasn’t even close.”
“The jury thought there was obviously a failure to supervise,” the juror continued. “[Cobra Solutions] took on work without even knowing who the party was that was working for them. Who was Monarch?”
Several invoices from Armstrong’s phony companies contained different addresses that the juror described as “a bit of a red flag.”
“If I’m in business, I’m not going to have someone working for me who I don’t know, and I’m not going to be paying them checks,” the juror said.
“The city also bore responsibility” in its failure to detect Armstrong’s kickback scheme, the juror said, mirroring the same sentiment echoed by then-City Controller Ed Harrington, who took the stand and conceded the city’s internal controls – as well as those of Cobra Solutions – failed to detect Armstrong’s kickback scheme.
Cobra had sought damages for breach of contract (the city’s failure to pay monies owed Cobra) and due process violations in connection with the city’s alleged debarment of Cobra from doing further business with the city.
“I’m disappointed,” said Cobra Solutions founder and president James Brady. “Life goes on. We’ll continue to move forward and repair our damaged reputation, raise our grandchildren, and focus on our families.”
Asked about the issue of sub-contractor supervision, Brady said, “I don’t think anybody could supervise a con man and the city was negligent in hiring this guy – they wouldn’t even bring him in the courtroom – so it’s just betrayal. And it’s a sad day that you hire con man and you won’t take any responsibility for his actions and you blame the small business. That’s not the American way.”
On the jurors finding that Cobra was not intentionally or defacto debarred from doing further business with the city, Brady said, “I think they got it wrong. I have no doubt about that.”
“The jury missed a lot of important facts,” said Mr. Brady’s wife, Deborah Brady, a co-founder of Telecon, the parent company of Cobra Solutions. The city had originally sued Telecon in its case-in-chief, but pursued no claims against Telecon at trial. “I don’t know how they missed them, but they missed them.”
Ms. Brady said the city gave another company, Desktop, the opportunity to defend itself against debarment, but “they never gave us that opportunity.”
“Judith Blackwell, she told the whole story in terms of Monique Zmuda saying they wanted us out, that we’re crooks,” Ms. Brady continued. “They accused us… and never gave us the opportunity to respond, ever.” Monique Zmuda is the deputy City Controller.
“I feel really betrayed by a city that I used to really love and [City Attorney] Dennis Herrera, who is our private attorney, betrayed us,” a tearful Ms. Brady said. “Ed Lee, who claims he barely knew us, betrayed us. Ed Harrington? I don’t know what that was all about, or Monique Zmuda… but Ed Lee and Dennis Herrera, they let down really good people who used to live in this city and loved this city and did all that we could to do good in the community and this city. “
“So I pretty much call it, ‘The City of Betrayal.’”
Cobra’s lead counsel in the case, Whitney Leigh, told us, “The jury made its decision. We’re concerned that the jury was allowed to find that Cobra could have breached the contract by refusing to submit to an audit by the City Attorney. So we believe there are some issues that need to be researched, so we’ll be looking at those issues.”
Asked if there would be post-trial motions, Leigh said, “Post trial motions and/or appeal.”
“Obviously we’re disappointed,” Leigh added, “but we’ll review the transcripts and see what options are available.”
Because of the possibility of an appeal, Herrera was unable to comment on the verdict or to discuss city’s costs in trying the case, said Herrera spokesperson Matt Dorsey.
Luke Thomas
Luke Thomas is a former software developer and computer consultant who proudly hails from London, England. In 2001, Thomas took a yearlong sabbatical to travel and develop a photographic portfolio. Upon his return to the US, Thomas studied photojournalism to pursue a career in journalism. In 2004, Thomas worked for several neighborhood newspapers in San Francisco before accepting a partnership agreement with the SanFranciscoSentinel.com, a news website formerly covering local, state and national politics. In September 2006, Thomas launched FogCityJournal.com. The BBC, CNN, ABC, NBC, CBS, Fox News, New York Times, Der Spiegel, San Francisco Chronicle, San Francisco Magazine, 7x7, San Francisco Examiner, San Francisco Bay Guardian and the San Francisco Weekly, among other publications and news outlets, have published his work. Thomas is a member of the Freelance Unit of the Pacific Media Workers Guild, TNG-CWA Local 39521 and is a member of the Society of Professional Journalists.
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February 19, 2012 at 10:41 am
I can’t make sense of Herrera in this.
February 19, 2012 at 10:30 am
LoST. Accidentally moving one key to the left gets an “ar” instead of an “st,” and I have trouble seeing such errors until I return to thoughts triggering them the next day.
Anyway, Mayor Ed Lee lost his memory about an error in judgment, of one sort or another, that cost the City at least $484,000 in fraud, for services never performed, and a lot more $$$ in legal fees than we’re ever likely to know, including the cost of private attorneys after a trial court, court of appeal, and finally the State Supreme Court disqualified City Attorney Dennis Herrera and his entire office from prosecuting the case. Disqualified because Herrera, in private practice, had advised Cobra Solutions on doing business with the City, before being elected City Attorney and filing suit against Cobra over its business with the City.
February 18, 2012 at 7:34 pm
@h. You don’t have a deadly serious answer to my seriously dead question as to how good a mayor Ed Lee is going to be, considering that he exercised such poor and costly judgment as Willie Brown’s City Manager, and then loar his memory about the company he awarded a big no-bid contract to, overriding his senior staff’s judgment that the company was a fraud?
Sorry to be such a Pollyannie.
February 18, 2012 at 9:15 am
Welcome back Koddger.
Go Sweathogs.
GO GIANTS.
February 18, 2012 at 6:22 am
Oh Annie!
There are more important questions which were once posed by Crash Test Dummies. For instance, “How does a duck know which direction South is? Or, how to tell his wife from all the other ducks?”
Or, as the Temptations once pondered, “What’s so good about goodbye? And, how can farewell be fair?”.
Answer those key questions first Annie, then go diving in the septic tank for evidence on the Willie Brown gang.
h.
February 17, 2012 at 5:14 pm
Couple questions:
1) Can anyone prove that either Willie Brown or Ed Lee benefited, financially or otherwise? If not, this is just really bad judgment that cost the City a lot of money, probably far more in legal expenses than the original $482,000 loss.
It obviously makes an issue of how well Mayor Ed Lee is going to handle the City budget if he exercised such poor and costly judgment as City Manager and now can’t even remember the fraudulent company he award this big contract to after overruling his own staff’s judgment that it was fraudulent. But bad judgment isn’t corruption or racketeering. For that someone would have to prove that Willie Brown and/or Ed Lee actually benefited.
2) Should anyone choose to pursue an investigation, who would that be? DA George Gascón? City Attorney Dennis Herrera? Or Attorney General Kamala Harris or the US Attorney’s office? What would it take to interest any of them?
3) Is there a statute of limitations?
What it would take to inspire an investigation, politically, is another question.
February 17, 2012 at 5:06 pm
Richmondman,
Had they won, Gonzo had committed to not sharing any of the loot. And, Gonzalez hasn’t just represented ‘crooks’ in his career. Also, murderers and bank robbers and worse. When Adachi Inc. takes on 26,000 cases a year they get all kinds.
I’m concerned that top catching prospect Hector Sanchez has gained 50 lbs since he signed 3 years ago (now 5’11” at 235). But, his average has only gone up as he climbs the ladder?
h.
February 17, 2012 at 1:59 pm
$10M less to Gonzalez and the crooks he represented is $10M more for City Services.
Play Ball!
February 17, 2012 at 1:32 pm
Richmondman,
Of course you paid for the lawyers. Most expensive law firm and best connected in State (Joe Cotchett) to defend a raftload of crooked officials that includes 2 mayors. By my count, over the last 8 years or so this matter went before a combined mix of 8 juries and tribunals and the City lost 6 times. It’s kind of an ‘OJ’ thing. If you have enough money to hire enough lawyers you can get away with murder. Kudos to Gonzalez and Leigh for sticking with their client for all of this time.
On the upside, Giants pitchers and catchers report Sunday.
First of 36 Spring games is March 3rd against Diamondbacks.
h.
February 17, 2012 at 11:35 am
At least the City was spared $10M, and won’t have to pay COBRA or their lawyers.