LA WATCHDOG--Last week, Superior Court Judge Amy Hogue granted her preliminary approval of the settlement of a class action lawsuit (Ardon v. City of Los Angeles) alleging that the City illegally collected an estimated $750 million from the 10% Telephone Users Tax for 29 months beginning in October of 2005. With interest, the total liability would exceed $1 billion.
Under the terms of the settlement, the City capped its liability at $92.5 million. This will fund not only payments to the taxpayers, but attorney fees of up to $18.5 million (equal to 20% of the settlement) and administrative expenses that are estimated to be in the range of $3 million.
Judge Hogue’s preliminary approval of the settlement assumes that it’s “fair, adequate, and reasonable.” But that is not the case as this settlement agreement short changes the taxpayers, is a reward for bad behavior for the City, and a bonanza for the ambulance chasing strike-action lawyers.
The Judge stated that the $92.5 million settlement represented 31% of the $300 million potential estimated by the City. But after attorney fees and administrative expenses of over $21 million, the remaining $71 million represents less than 25% of the potential liability of $300 million.
Based on the assumptions outlined in the settlement agreement, the likely payout to taxpayers will be in the range of $25 million, or about 8% of the potential liability of $300 million.
This assumes that the claims rate by the 1.6 million residents of Los Angeles and the 569,000 businesses will be in the range of 20% to 30% and that the Standard Refund will be $30 for residential customers and $50 for business and mobile customers.
As an alternative, residents and businesses can request a full refund if they present copies of their telephone bill. But who keeps their telephone bills for nine years.
Under this scenario, attorney fees of $18.5 million represent an outrageous 74% of the expected payout of $25 million to taxpayers.
The legal fees are even more egregious when you consider that taxpayers’ $25 million payoff is a mere 2.5% of the $1 billion of the total liability.
This settlement agreement was not negotiated on an arm’s length basis, but rather cooked up behind closed doors, without any input from the taxpayers or Neighborhood Councils, by our self-serving elected officials who could care less about us, the people paying the bills, and a gaggle of class action lawyers whose primary interest is a big fat pay day at our expense.
This less than transparent settlement agreement is not “fair, adequate, or reasonable.” In a word, it stinks. It is just another example of how the less than transparent Herb Wesson and Eric Garcetti hold us in contempt when it comes to our wallets.
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Judge Hogue should reject this settlement and instruct an independent expert to determine the facts, including the amount of the tax that was illegally collected, the potential liability (including interest), and the circumstances and delays creating this liability. The expert would take into consideration input from the taxpayers and the report would be made public on a timely basis.
The expert should also consider the feasibility of determining the amounts owed to individual taxpayers and businesses by working with the telephone companies and mobile operators and develop alternative solutions to allocate the distribution of funds to the taxpayers or to trusts that benefit the taxpayers.
At the same time, the City Council needs to hold open and transparent public hearings on this matter, but only after the media and the public have had adequate time to review, analyze, and consider the written analysis of the City Administrative Officer.
Judge Hogue, we are counting on you to watch out for us, the underrepresented folks that pay the bills. In return, we will pledge to root for your Duke Blue Devils come March Madness.
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In February of 2008, 66% of the voters approved the 9% Communication Users Tax in a special election that cost the City over $5 million. It replaced the illegal 10% Telephone Users Tax. This measure was placed on the ballot by Mayor Villaraigosa and Eric Garcetti after much delay.
A shout out to Emily Alpert Reyes of our Los Angeles Times for her timely exposure of this settlement agreement in her August 12, 2015 article, LA taxpayers, lawyers could share up to $92.5-million city telephone tax settlement.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and a member of the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler Classifieds -- www.recycler.com. He can be reached at: [email protected])
-cw
CityWatch
Vol 13 Issue 67
Pub: Aug 18, 2015
