Legal consultants last month shot down a proposal that the Merced Irrigation District help finance a new pipeline on private property owned by board member Kevin Gonsalves, calling it a conflict of interest and a gift of public funds.
The pipeline proposal was discussed by the MID board of directors at its July 2 public meeting. Fearing potential legal violations surrounding the proposed pipeline, the directors ordered a independent legal review of using public funds to benefit Gonsalves, an elected board member, according to the MID meeting minutes.
The independent report by Churchwell White LLP, a Sacramento law firm, said government reform legislation prohibits the board from building the pipeline because one of its members has a financial interest in the project. The legal analysis cost the district $7,665, according to documents obtained by the Merced Sun-Star.
“It would constitute an unlawful gift of public funds if MID were to pay the costs associated with repairing or replacing the private pipeline that services the Gonsalves’ property,” the report says. “Therefore, MID may not spend public funds to engineer or construct a new pipeline to replace the private one that currently serves the Gonsalves’ property.”
Now, a group of more than 50 MID ratepayers wants the board to hold Gonsalves financially responsible for the cost of the conflict of interest report. In a letter to the district, ratepayers said the public should not have to spend money “to remind a board member that he or she has legal and ethical laws to abide by.”
Gonsalves denied requesting the board discuss the pipeline proposal and said the MID staff took the issue to the board of directors behind his back. However, emails obtained by the Sun-Star show Gonsalves knew beforehand that the pipeline issue was on the board’s July 2 agenda and that he played a role in crafting reports on the pipeline proposal for the other directors to consider.
Lawsuit settlement sought
The proposed irrigation pipeline on Gonsalves’ farm in Winton would have settled competing lawsuits between Gonsalves and his neighbor, Gary Nunes. Gonsalves filed the original lawsuit in 2008 and Nunes filed a countersuit. The dispute dates back many years and has been an issue discussed by the board of directors in the past, most recently in 2007, before Gonsalves was elected to the board, according MID and Merced County Superior Court documents.
The dispute centers on an old private pipeline that borders property owned by both families, according to legal documents.
The two sides agreed to settle the lawsuit in April. The tentative settlement included the proposal that the MID spend up to $150,000 to help build a new pipeline, according to a staff report and an attorney for the Nunes family.
“The pipeline at issue here is a private pipeline,” the independent legal analysis says. “Its sole purpose is to provide water to the Gonsalves’ almond orchard.”
The new pipeline proposal was initially placed on the July 2 MID board agenda as a closed-session discussion topic, according to the MID’s records.
At the July meeting, Director Scott Koehn moved the item from closed session into the public portion of the meeting, and said he was concerned about the legality and ethics of the board even considering the proposal.
“I saw immediately that this was a very sensitive issue, and I saw a conflict of interest that I felt in no way should be discussed in closed session,” Koehn said in a telephone interview.
The MID directors took no action on the pipeline proposal and requested the legal opinion, which they received from Churchwell White on Aug. 27.
“If one board member has a financial interest in the contract, the entire board is disqualified from making the contract,” the report says.
Koehn said that after reviewing the legal opinion, the board instructed the MID staff to spend no more time on the pipeline issue.
In interviews with the Sun-Star, Gonsalves adamantly denied any involvement in bringing the pipeline issue before the MID board and said he was not aware the proposal had been brought before the board until after the fact. “They (MID staff) did not tell me it was going to be placed on the agenda,” Gonsalves said.
However, in an email dated July 1, the day before the board meeting, Gonsalves requested changes to the MID staff report on the pipeline proposal. The Sun-Star obtained Gonsalves’ emails through a public records request.
“Job well done and kudos to staff on helping with this challenging issue,” Gonsalves wrote in the email. “To follow up on our conversation from this morning, I have attached the map with some sticky notes added. The changes are simple. Thank you for your help and a job well done.”
During the July 2 meeting, which Gonsalves did not attend, the board tabled the discussion until the conflict of interest legal report was completed.
A day after the meeting, Gonsalves sent another email to the MID staff attorney asking why the board had not voted on the issue. In the July 3 email, Gonsalves asked a series of questions including: “Why was it not presented as a resolution and recommended by staff?” and “When is it scheduled to be on the agenda again?”
Gonsalves refused to explain the emails and said MID staff members secretly placed the item on the July agenda “in retaliation.”
“The only reason it’s on the agenda is that it’s slander and it’s bullying,” he said. Gonsalves would not say who he believed was retaliating against him or why.
Poncho Baker, the attorney representing the Nunes family in its civil lawsuit, said Gonsalves discussed plans in court to involve the MID in the pipeline project several months before the July 2 MID meeting.
“He (Gonsalves) was going to try and contact MID and see if he could get them involved,” Baker said. “From our perspective, (the settlement) can only work if MID gets involved; which they decided not to do. None of these discussions were private or confidential.”
Gonsalves is acting as his own attorney in the ongoing civil lawsuit, according to court records.
During the July 2 meeting, Koehn said he asked who was responsible for placing the pipeline proposal on the board’s agenda and said the MID’s staff attorney told the board the pipeline proposal was put on the agenda at Gonsalves’ request.
Put in ‘difficult position’
In a Sept. 3 letter to the board, a group of MID ratepayers said Gonsalves placed the district in a “difficult position” and said Gonsalves should repay the district for the cost of the legal opinion.
“...we believe that Director Gonsalves has violated his ethical obligations to MID, and his fiduciary duties to us as members of the public,” the letter says.
The group called for an independent investigation into how the pipeline issue was placed on the July 2 agenda.
One board member, Billy Pimentel, was supportive of Gonsalves and critical of the ratepayers’ letter. Pimentel said the issue was being “blown out of proportion” and said the ratepayers had “a bone to pick” with Gonsalves.
“I don’t know what their issue is, but I know it’s not good,” Pimentel said.
Gonsalves called the growers’ group “cowards” and “bullies” and said he would not pay for the legal analysis. “I did not ask for a pipeline. I did not ask for a legal evaluation,” Gonsalves said in a written statement. “There is NO Conflict of Interest (sic). I abstained from the vote. I will not reimburse MID for the legal opinion that they acquired on their own with no input from me.”
Gonsalves’ complete written statement can be read on the Sun-Star website.
Koehn said that many involved with the MID are on edge regarding the controversy.
“I think a lot of us are very uncomfortable with this issue and unfortunately the staff in particular has been put in a very difficult position,” Koehn said.
The MID staff members referred questions to district spokesman Mike Jensen.
“This (ratepayers’ letter) has been presented to the board and no action has been taken, so there is nothing about it that I can discuss at this time,” Jensen said. “It is expected to be placed on the board’s upcoming agenda in November.”
The MID board of directors meets again Nov. 5.