Foster Farms files suit against Livingston

For the second time in less than a year, Foster Farms is suing the city of Livingston over its utility rate hikes.

Only this time the company has squarely laid the blame in the lap of City Manager Richard Warne.

According to Foster Farms' latest lawsuit, filed in Merced County Superior Court on Jan. 10, Warne broke the law by lying to Livingston's citizens and attempting to cover up his mismanagement of city finances through the controversial utility rate hikes.

"Warne directed and orchestrated misconduct that has led to a financial crisis in the city, with numerous funds operating at a deficit, which has now culminated in an effort to impose exorbitant rate hikes on the city's residents to counteract the misdeeds," the suit claimed.

Despite the charges, Warne, the city's independent auditor and Livingston's finance director all said Warne hasn't mismanaged any of the city's funds.

"The allegations are false. It's just another effort by those that oppose the water rate increase," said Warne. "Anyone can make allegations, and anybody can file a lawsuit. It doesn't make what is said true."

The lawsuit specifically alleges that to fill deficits, Warne commingled restricted funds meant for specific uses, such as water services, and failed to inform citizens of this fact, in violation of state law.

In numerous meetings Warne has said the city needed to raise utility rates since it was borrowing from the general fund, not restricted funds, to pay for the deficits in restricted utility funds, such as the water fund.

Victoria Lewis, the city's director of finance, agreed.

She said any accusation that contends the city has been mixing its funds in some underhanded way was untrue. The city maintains one account for all its restricted funds and the general fund, said Lewis. But officials keep track of how much each fund has in it, and where it goes, through independent fund accounting, she said. "There is no commingling of funds," said Lewis.

But according to the suit, the city's own independent auditor said the city has borrowed money from restricted funds and "impaired" the funds.

"You're now using funds that the government has entrusted to the city's care to be used for specific purposes. You have ignored their regulations and are now using it to subsidize water, refuse, and sewer rates," said the city's auditor, Bryant Jolley, according to the lawsuit.

But Jolley said Foster Farms' accusations are off base. The city was given a clean audit opinion, and Warne hasn't mismanaged any funds, said Jolley.

Foster Farms didn't contact Jolley for comment on the suit, he said. "Most of it is taken out of context without realizing what was being said," he added.

The city's funds are pooled in one bank account, explained Jolley. Those pooled funds are used to run the city. At any given time one fund can be overspent, but the use of money from the pool to pay for that fund does not connote wrongdoing. "There's not a city in the state that doesn't do that," he said. "Foster Farms is actually trying to use this as a weapon against the city?"

The suit further alleges Warne committed fraud when he failed to tell citizens the city was allegedly using funds borrowed from restricted funds to fill deficits, not only its general fund. The suit claims by borrowing from restricted funds Warne acted in negligence of his duties as city manager.

The suit asks the court for a full accounting of city finances from Jan. 1, 2006, to the present, which mirrors Warne's tenure with the city. It also asks the court to declare Warne's use of restricted funds illegal, and for an injunction to stop such "borrowing."

Finally, it asks the court to make Warne pay the city in the amount he allegedly mismanaged as well as punitive damages to make an "example" of him, among other requests.

On July 7, 2009, the City Council voted 3-2 to pass a resolution that increased utility rates by 40 percent. The vote also included an increase of 270 percent over the next four years.

That same night the city fired its former attorney who said to pass water rate hikes the council needed to have a super majority, which it didn't have. After the firing, a new attorney was hired whose legal opinion was that the city could pass a rate hike resolution with only a simple majority, which it did.

The rate hikes have provoked public protest as well as two other lawsuits.

Reporter Jonah Owen Lamb can be reached at (209) 385-2484 or jlamb@mercedsun-star.com.