With two major legal issues in the past year – the COVID-19 pandemic and the bankruptcy of a major California utility, PG&E – Newsom administration has relied on a single law firm in Los Angeles.
This business was lucrative for O’Melveny & Myers LLP.
In early March, the law firm signed a $ 596,000 contract with the California emergency services agency to negotiate three state-mandated COVID-19 emergency contracts. These transactions included renting two COVID-19 field hospitals and negotiating with the Motel 6 chain to provide rooms for the homeless during the pandemic.
The company also represents the interests of the state in the bankruptcy proceedings under Chapter 11 of PG&E – at a cost of $ 700,000 per month. The law firm's remuneration has been $ 9.5 million for her work at PG&E since February 2019.
In addition to the PG&E and emergency pandemic contracts, O'Melveny also served as a lawyer for the California High Speed Railway Authority, which cost the agency $ 5 million.
In most cases, lawyers in government departments or the Department of Justice of California represent the state in legal matters. The Newsom administration, however, relied heavily on O'Melveny to do the legal work of the state – far more than any other law firm in California.
The payment to O'Melveny for his COVID-19 contract work appears to be the largest disbursement of taxpayers' fees for legal services in the state's database of more than $ 3 billion in emergency contracts related to the pandemic.
Under California law, all O'Melveny contracts with the state are exempt from the tender requirements that do not apply to external legal services.
Brian Ferguson, spokesman for the Office of Emergency Services, said the $ 596,000 contract for the three COVID-19 emergency contracts was "for legal services to help the state negotiate life-saving housing and hospital capacity."
O’Melveny and Myers was founded in Los Angeles in 1885 and is one of the oldest law firms in the state. It comprises almost 750 lawyers. Senior partners included Warren Christopher, the former U.S. Secretary of State, and Richard Riordan, the former Mayor of Los Angeles.
In a written statement, O'Melveny said that the legal services involved negotiating these "complex" transactions. They said they "mobilized an interdisciplinary team of restructuring, real estate, and healthcare lawyers to achieve the governor's office goals in record time."
"The transactions we advised on were complex, unique and urgent," they said.
In press releases announcing her work for the state, O'Melveny said: “We always welcome the opportunity to represent the state of California in matters where our expertise can add value. And we will proudly do it again when the state needs our help. "
H.D. Palmer, deputy director of the State Department of Finance, said O & # 39; Melveny had been suspended because of the complexity of the PG&E bankruptcy, which defended the state's interests in ensuring stability in the energy market, interest payers, shareholders the debtor and the victim of forest fires include claims against the provider.
"Bankruptcy is a highly specialized area of law, with relatively few practitioners who practice regularly in complex Chapter 11 cases, and PG&E is certainly a complex case," said Palmer.
The state of O'Melveny pays a flat fee instead of the usual hourly rates for its work, the company and state officials said. Peter Zeughauser, whose firm advises some of the country's largest law firms on best practices, said a flat fee structure would allow the state to contain the out of control costs
"With the hourly rate, there is always this incentive to fill hours to make money," said Zeughauser, who acknowledged that legal work is expensive regardless. He estimated that junior associates could cost around $ 500 an hour, and partners could cost around $ 1,300. If a company can end its work earlier than originally expected, a flat fee may work in its favor, Zeughauser said.
Mark Toney, whose PG&E surveillance group TURN has a $ 500,000 monthly budget, said that the $ 700,000 in taxpayers money O'Melveny receives in isolation can be difficult to understand when the stakes are so high are.
"The number is fading compared to what PG&E is paying its bankruptcy attorneys and financial analysts about $ 1.5 billion," said Toney.
Leases for two surge hospitals
The state's contract with the pandemic legal services firm is part of a flood of emergency contracts that the state signed when it hurried to equip the state to prepare for a flood of cases.
These include a $ 1 billion contract to buy masks from Chinese company BYD, which has now hit several roadblocks, and a $ 500,000 monthly agreement to help Sacramento Kings rent the Sleep Train Arena in To pay North Natomas as a field hospital. The kings recently announced that they would waive the remaining payment in the arena, which was largely not used as a treatment center.
The first pandemic contracts that O'Melveny negotiated were two leases with the then bankrupt Verity Health Systems to provide hundreds of additional hospital beds to treat COVID-19 patients. Dr. Patrick Soon-Shiong, who owns the Los Angeles Times, bought Verity Health in April after the lease was signed.
Steve Warren, partner of O & # 39; Melveny, told the Daily Journal governor that Gavin Newsom called the company on March 13, just nine days after the governor declared a state emergency over COVID-19, to "the." create a legal framework to bring the bankrupt hospitals back online. ”
Newsom and California health officials believe there has been a massive surge in coronavirus in California, overwhelming hospitals and requiring more than 20,000 beds outside the hospital system.
The agreements granted the state access to 266 beds in the then closed St. Vincent Medical Center in Los Angeles and 177 beds in the Seton Medical Center in Daly City. For the St. Vincent rental, the state paid a basic rent of $ 2.6 million plus all costs and even property taxes. The facility opened on April 13 and saw few patients.
To lease the Seton Medical Center in the Bay Area, Verity initially paid $ 5 million and between $ 2.5 and $ 3.2 million a month in operating costs, according to David Canepa, San Mateo County Supervisor.
Cal Matters reported that until May 18, only 354 patients were treated at the Seton Medical Center for $ 10.4 million and only 65 patients at the St. Vincent Medical Center for $ 15 million. Both surge hospitals will close on June 30 at the latest, officials say.
O’Melveny also represented and negotiated the state’s mid-April agreement with Motel 6 to rent 5,025 rooms “to protect California homeless people from COVID-19,” part of his Project Roomkey initiative. The contract and its details were not readily available on the state's website, where COVID-19 related contracts are published.
The agreement with Motel 6 was part of the Project Roomkey program, which aimed to provide up to 15,000 rooms for homeless people across the state. Courts participating in Project Roomkey are entitled to a 75 percent reimbursement of the associated costs from the Federal Emergency Management Agency. Motel 6 was one of several chains that participated in the project.
A rental agreement signed by The Bee between Motel 6 and San Joaquin County resulted in a daily rate per room of $ 69 "plus tax and applicable fees".
"Motel 6 is pleased to assist Governor Newsom and the efforts of the State of California to provide assistance during the pandemic, including housing our most vulnerable groups and first responders," said Rob Palleschi, CEO of G6 Hospitality LLC, the owner of the Motel 6 chain.
But weeks after Palleschi's statement on April 18, the program seemed to be stalling. During the May 9 protests in San Dimas, Mayor Emmet Badar said Palleschi had called during the protest to say that the G6 was no longer planning to place homeless people in the city.
On May 19, the Los Angeles Times reported that only half of the 15,000 hotel and motel rooms that California rented for the homeless to slow the spread of the corona virus were occupied.
Matt Kreiser is a reporter for The Beacon Project, the student journalism initiative supported by the Annenberg School for Communication and Journalism at the University of Southern California. His work appears in The Sacramento Bee.