RTA Audit Report of Metra
Thursday, August 22, 2013
Special to suffredin.org
by Bill Coulson
RTA Forensic Audit
By: William R. Coulson
Member, Board of Directors of the Regional Transportation Authority, Chicago.
Former Assistant U.S. Attorney and Supervisor, Chicago and Denver; now a commercial litigator in private practice in Chicago.
Subject: RTA Audit Report: A Forensic Analysis of Mr. Clifford’s Claims against Metra
Alex Clifford was hired as Metra's Executive Director for a three-year term commencing February 11, 2011. His base salary was $252,500, with possible 3% raises each year. If he were to be discharged by the Metra Board for cause, he would receive no separation payment. 'Cause' is defined in the Employment Agreement to include acts of moral turpitude, dishonesty, and material violations of Metra’s governing statutes and regulations. If Clifford were to be discharged without 'cause', he would be entitled to his remaining salary for the three-year term plus six months additional salary.
Effective June 21, 2013, pursuant to a written Separation Agreement with the Metra Board, Mr. Clifford left Metra. The Separation Agreement included the following payments to Mr. Clifford: $75,000 for his attorneys fees (Metra has stated that his actual attorneys fees at that time exceeded $100,000); up to $75,000 for any actually incurred moving costs; his salary through February 11, 2014; his salary for six months thereafter; and for one year after that any differential between his Metra salary and any lesser salary he might receive from any new employment elsewhere. Metra has put the maximum potential payout to Mr. Clifford at $718,000, the numbers suggest it is closer to $871,000. The Separation Agreement also provided for mutual releases of all legal claims between Mr. Clifford and Metra (and Metra's Board members), which would include Mr. Clifford's threatened 'whistleblower' lawsuit against Metra and its Board. The Agreement limited the parties from making any public statements about the “terms or any other circumstances relating to the negotiation of this Agreement” ("Mutual Confidentiality"). Excepted from this confidentiality is testimony or statements made before public investigatory, legislative, and oversight bodies. The Metra Board voted 9-1 to approve the Agreement, with Director Huggins voting 'present'. Director Schaffer voted ‘no’. Director Schaffer subsequently called the payments “hush money”.
During the negotiations, and after the signing of the Separation Agreement, Metra made related expenditures for items such as legal fees and public relations services.
Pursuant to the RTA's audit responsibilities, RTA has conducted an inquiry into whether the Separation Agreement and related expenditures have been 'fiscally prudent'. As part of this audit function, RTA seeks for all relevant facts to be made public, and to explore possible guidelines going forward to prevent future such controversies.
Metra has conceded that it did not discharge Mr. Clifford for cause, nor did Metra have grounds to do so. If Metra discharged Mr. Clifford without 'cause' (i.e., for policy or management disagreements), Mr. Clifford would have been entitled to his salary from June 21, 2013 through February 10, 2014, plus six months salary: approximately $250,000. The actual cost to Metra under the Agreement depends on two contingencies:Mr. Clifford's actual moving expenses (up to the cap of $75,000) and whether or not (and at what salary) Mr. Clifford gets another job. While the maximum payout is $871,000, the minimum could be as low as $325,000($75,000 legal fees plus the approximately $250,000 salary to February 10, 2014 and six months thereafter). At the time of the Separation Agreement Metra had an ‘Employment Practices’ liability insurance policy with coverage up to $10 million, with a deductible of $150,000.
Any judgment as to the fiscal prudence of the Separation Agreement necessarily includes an analysis of the strength of Mr. Clifford's legal claims againstMetra and its Board Members, and Metra’s potential costs and liability. The Agreement released these claims, and legal releases have a monetary value. A claim assessment requires some examination of the underlyingfacts adduced to date from the public testimony and statements of the principals. Such a factual recitation will also be useful in crafting guidelines or regulations to avoid such a controversy in the future.
This report does not seek or need to make credibility judgments - that would ultimately have been a function of the judge or jury hearing the claim. Where reasonable inferences can be drawn from undisputed facts,however, a fact-finder likely would draw such inferences. The strengths and weaknesses of the claims can be assessed based on an analysis of what evidence the fact-finder surely would have heard. No one, of course,can predict accurately the ultimate outcome of any lawsuit. But the stronger Mr. Clifford’s claims are, then a larger payment for the release would be justified. The weaker the claims are, then only a smaller payment would be justifiedfor the releases. The value of these releases thus rests on attorneys' analyses, plus the Metra Board's cost-benefit analysis of the costs of litigating, versus the costs of the release. In addition to this pure cost-benefit analysis of the Separation Agreement, , if conduct of Metra Board Members or staff was tortious and created Mr. Clifford’s claims , then that conduct must be analyzed for its fiscal imprudence.
The statements underlying this report are taken from the public testimony before the RTA Board, from public statements quoted in the media, and from the documents made available to RTA. A complete investigation by an outside agency with subpoena power could also compel third parties to testify and produce documents. That process is beyond the scope of the RTA’s powers and capacity. The relevant statements made to date by the principals are sufficient, however, to permit this broad analysis of the potential value of Mr. Clifford’s claims against Metra, and of the conduct of Metra officials which gave rise to those claims.
Mr. Clifford stated that in March of 2012, through intermediaries, Illinois House Speaker Michael J. Madigan asked that Metra give a salary raise to Patrick Ward, a Metra employee and former Madigan staffer. At the time of this request, salaries were frozen at Metra. Mr. Clifford also stated that Speaker Madigan asked that another individual be hired by Metra. Speaker Madigan’s office has admitted requesting the pay raise. As to the hiring request, the Speaker’s office merely said that they “had no record of it”. Mr. Clifford rejected these requests; he characterized them as inappropriate “ethical flaws”. Metra Director and then Acting Board Chairman Larry Huggins later , in September, reiterated that the Speaker wanted the raise to be granted, and that Huggins told Clifford that the request should be granted. The men argued. Director Huggins admitted that he did speak to Clifford about the Madigan requests. Mr. Clifford then met with Mr. Ward, who said that he (Ward) had raised money for the Speaker’s campaign funds. Mr. Clifford told Ward that the request was inappropriate. Shortly thereafter, Mr. Ward was given a higher-paying job with a state agency. It is undisputed that at the time Mr. Clifford reported and discussed these requests with at least three Metra Board members: Schaffer, Huggins and O’Halloran. Mr. Clifford viewed the matters as closed. He said he had no reason to report these requests to any outside agency because, in his view, there was nothing wrong as long as Clifford denied the inappropriate requests.
Also in March of 2012, Mr. Clifford stated that he, Acting Board Chair Huggins, and Sam Smith from Metra’s Government Affairs office met in Springfield with members of the Latino Caucus. Rep. Louis Arroyo asked him if he would consider hiring as a deputy someone the caucus sent to him. Mr. Clifford replied that all applications would have to come to Metra “through the front door”. One of the Representatives present was later quoted in the media as stating that “we never liked him (Clifford) after that.” Two other State legislators made inquiries of Clifford about specific problems their relatives, who work for Metra, were having. there. Mr. Clifford told them that he could not appropriately discuss such personnel matters. Director Huggins confirmed that the meeting took place and that this request was made. Huggins told Clifford that Huggins “had no problems” with these legislative requests. Thus the requests and Mr. Clifford’s denial of them were made known at the time at least to the Metra Board Chair – Mr. Huggins. Clifford stated that he also informed several other Board members, who supported his denial of this request. Again, Mr. Clifford saw no reason at that time to report these requests to any outside agency, because nothing had happened – he had rejected the requests. It is worth noting that a Chicago jury or judge could well infer that this request to “consider” hiring someone the caucus sent over, in fact was more of a command than a request. Supporting this inference is the fact that the caucus subsequently sent over no resumes or recommendations for the open position to be “considered” for hiring.
Also in the Spring of 2012, the Metra staff, after an open and competitive bidding process, recommended that the Metra Board approve IHC’s lowest $93 million bid to construct the “Englewood Flyer” rail grade separation project on the south side of Chicago. IHC’s bid had satisfied the federal and state DBE requirements with a 25% DBE participation. Acting Board Chair Huggins withheld the Board vote on this contract, at the request of south side Congressmen who desired that the project provide more jobs for area residents. Mr. Clifford told Huggins that the bid could not be altered after-the-fact (presumably the Metra Board could have rejected the contract, and then re-bid it). Mr. Clifford sought and obtained a May 22, 2012 written opinion from Metra’s counsel which supported Clifford’s position. Mr. Huggins objected, and he then negotiated with the Congressmen a ‘memo-of-understanding’ with IHC which changed the DBE provisions of the bid. Mr. Huggins also told Clifford to write a $50,000 Metra check to an entity to be identified by one of the Congressmen’s staffs, to ‘monitor’ the new DBE provisions. Mr. Clifford declined to write such a check, even though he had the authority to do so. Instead he wrote up Director Huggins’ proposal and prepared to submit it to the Metra Board for approval or rejection. Director Huggins told Clifford to remove Huggin’s name and the Congressman’s name and present the matter as a Metra staff recommendation. Mr. Clifford declined to do so. Mr. Huggins did not materially dispute Clifford’s account. Huggin’s stated to the RTA Board, that “I was wrong on the law, but right morally.” It is also undisputed that Mr. Clifford at the time discussed this episode with Board members. Again, he saw no reason to report the incident to any outside agency, because he had rejected the proposal. Changing the bid exposed Metra and IHC to a potential lawsuit by any unsuccessful bidder. The Metra Board approved the IHC contract on July 16, 2012.
Mr. Clifford stated that, after the Englewood Flyer dispute, Mr. O’Halloran wanted the Metra Counsel demoted, and the Metra procurement officer fired. Mr. Clifford declined to do either. Mr. O’Halloran admitted that he characterized the Counsel as “incompetent” and wanted her demoted.
Mr. Clifford also complained about what he views as Board interference with his statutory prerogatives as Metra CEO. This allegation does not appear to implicate significant whistleblower concerns, however. Under the RTA Act, the Metra Board oversees Metra and its CEO. The Board has broad authority to inject itself into any particular aspect of Metra operations it wishes. This authority, however, is that of the Board, and not of any one Metra Director, even the Chairman.
In November of 2012 Director O’Halloran became Metra Board Chairperson. In the Spring of 2013 the Metra Board began the process of evaluating Mr. Clifford for a salary adjustment and for renewal of his three-year employment contract. Mr. Clifford’s job performance to that date had been entirely satisfactory. Around this time Mr. Clifford discerned that he was to be punished and/or not renewed for saying ‘no’ to the various ‘requests’ from elected officials. Clifford stated that Mr. O’Halloran told him that he would have to meet with Speaker Madigan to determine “how much damage” Clifford has done. O’Halloran denied making this statement: “we categorically deny everything Clifford alleges”, and he further derided Clifford’s accusations as “a whole lot of hooey”. Mr. Clifford’s performance review was to be conducted by a 3-person committee; two of whose members were to be O’Halloran and Huggins. Clifford retained private counsel at his own expense. In a March 12, 2013 email, and in more detail in an April 3, 2013 letter, Mr. Clifford detailed the contentious interactions with O’Halloran and Huggins over the requests from elected officials which Clifford had rebuffed. An April 3 letter from Clifford’s lawyer outlined the “whistleblower” claims that Clifford had against Metra for the alleged retaliation by O’Halloran and Huggins based on Clifford’s refusal to do improper things for the public officials. No accusations were made by Clifford against the other Metra Board members. Metra reported Clifford’s allegations to the OEIG (Executive Inspector General). Metra then hired outside counsel and a public relations firm and negotiated the Separation Agreement with Clifford. The parties hired a private mediator – a former Circuit Court Judge – who recommended the agreement largely as executed in June.
Upon Mr. Clifford’s negotiated resignation under the Agreement, Mr. O’Halloran issued a public statement which concluded that Metra needed to “ move in a different direction towards a new consensus in Washington and in Springfield ”.
A judge or a jury would have had to decide whether Mr. Clifford’s whistleblower claims were “more probable than not”. Just from the undisputed facts alone, a reasonable jury could well infer that Clifford’s refusal to cater to the elected officials was at least a ‘contributing cause’ of his demise at the hands of O’Halloran and Huggins. There may well have also been policy and performance disagreements, but the improper whistleblower retaliation needs only to be a ‘contributing cause’ of his firing. Moreover, a judge or jury could credit Mr. Clifford’s credibility over that of Mr. O’Halloran and Mr. Huggins. These considerations elevate the substantiality of Clifford’s claims.
Metra’s penchant for secrecy undermines its position. Mr. O’Halloran stated at a Union League Club press conference on July 9, 2013, that he was not mentioned in Clifford’s April 3 letter . Metra declined to produce this letter until the Illinois Legislative Committee threatened to subpoena it. Then Metra produced a redacted version of the April 3 letter which omitted opinions of Metra Counsel which supported Clifford’s stance. Mr. O’Halloran in fact was mentioned by name in the letter over a dozen times. At Mr. O’Halloran’s July 10 appearance before the RTA Board, he did not mention the Speaker Madigan allegation at all, and did not disclose Clifford’s April 3 letter. Metra has continued to withhold documents, and negative inferences can be drawn from such conduct. Metra paid $52,000 in public money for an investigation by a former Springfield US Attorney, and Mr. O’Halloran testified that this investigator found “no legal violations’ and “nothing of substance”. But Metra has refused to make this report and its work product available, so we do not know what this investigation consisted of, what interviews were conducted, and what, if any, conclusions were actually reached. Mr. O’Halloran also testified to the RTA Board that he had appointed Orland Park Police Chief and former US Secret Service Agent Tim McCarthy to head a Metra study of security issues at Metra. But Chief McCarthy has stated that well before the RTA hearing, he had turned down O’Halloran’s offer to head the study. Mr. O’Halloran also used his Board position to place Wintrust Bank on the list for future business, even though he sat on the board of a Wintrust subsidiary. These incidents would undermine O’Halloran’s basic claim that there were only policy differences with Clifford that led to his difficulties. Mr. O’Halloran was also receiving a salary from the Village of Orland Park as a Trustee, while serving on the Metra Board, in violation of the RTA Act. Director O’Halloran resigned from the Metra Board on August 1, 2013; Director Huggins resigned on August 2, 2013.
Metra would have a harder time impugning Mr. Clifford’s credibility. First, Metra hired Mr. Clifford as its CEO after a nationwide search. After the Pagano scandal at Metra, Clifford was hailed by Metra as a reformer whose outsider status and integrity would reform the agency. It is difficult at a trial to attack a person’s credibility when the attacker has so recently vouched for the person’s integrity at a very high level. Moreover, Metra’s attitude about Clifford seemed to change dramatically at about the time of these events involving public officials’ requests. Metra conceded that after his first year “things seemed to be going along very well”, and that “up to a certain point”, Mr. Clifford had good relations with the Metra Board. Things changed later in 2012, and a jury would wonder why. Mr. O’Halloran’s claims that there were only fatal operational and oversight disagreements with Clifford is not supported by the four 2013 letters of recommendation of Clifford written by four Metra Board members. According to these letters, Mr. Clifford is ‘hardworking, driven, goal oriented and ethical’; ‘an agent of change, accomplishing much’; and a man who has ‘great focus’ and whose ‘progressive leadership resulted in stability’ for Metra.
Metra has tacitly conceded that Clifford’s evidence and claims were substantial. Its counsel admitted that his lawsuit would have survived a motion to dismiss and would have required ’30-40 depositions’. Of course, such a lawsuit would also have been expensive for Mr. Clifford to maintain, unless he had a lawyer working for a contingent fee percentage of any recovery. Again, one cannot predict the outcome to such a suit. But Metra could well have lost the threatened lawsuit . And it would have been very costly to defend regardless of its ultimate outcome. Moreover, the threatened lawsuit must have looked very embarrassing to Metra and to its Board leaders O’Halloran and Huggins. Certainly Metra’s estimates of Metra’s cost to defend the lawsuit - $1,000,000 and up, plus a potential judgment which would include Mr. Clifford’s attorneys fees - are not exaggerated. Those estimates put the actual settlement payment of from $325,000 up to $871,000, in perspective. However, Metra owned an ‘Employment Practices’ liability insurance policy at the time. Metra had paid $98,000 for this coverage. Metra’s policy had a $150,000 deductible and a $10 million cap. Thus the threatened Clifford lawsuit would have cost Metra only $150,000 out-of-pocket; not $1 or $2 million. There is no evidence that this insurance coverage was disclosed to or discussed by the Metra Board in its deliberations over the settlement. Metra is correct, however, in pointing out that such a high-profile lawsuit would have cost many hours of Metra employees’ time and would have taken an immeasurable toll on Metra morale and on Metra’s public image. Ironically, both have badly suffered anyway as a result of this controversy. So the Metra Board had a difficult judgment call to make.
The Metra Board had three alternatives. It could have fired Clifford, without cause, based on policy or governance disagreements (Metra conceded that it did not have ‘cause’ to fire Mr. Clifford), paid him about $250,000 of salary plus the six months, and have him sue Metra. Or the Board could have just let Mr. Clifford serve out the remaining seven months of his contract for about $150,000, and have him sue Metra. With its liability insurance, Metra’s exposure to a lawsuit was limited to $150,000. Or the Board could try to resolve the entire dispute then. On a pure cost-benefit basis, the Metra Directors operated within their business judgment discretion and chose to approve the settlement. No facts or evidence suggest any impropriety by the other nine Metra Directors in taking this option. They used their discretion and made a decision, based on the legal advice they were given. These were the choices the Board faced. The settlement ended Mr. Clifford’s tenure, and avoided a difficult lawsuit. One can agree or disagree with their choice, and one can argue about the numbers and the risks, but the Board made a judgment call which was within its authority and discretion. The amount to be paid for this resolution – to be between about $325,000 up to $871,000 – is not grossly out of line for this type of settlement, which included Clifford’s resignation.
But that is not the end of the inquiry into the “fiscal prudence” of this whole affair. Metra has spent over another $340,000 on attorneys, investigators, and public relations in response to the Clifford allegations. And the fact remains that the conduct of two leading Metra Board members – Mr. O’Halloran and Mr. Huggins – created the substantial legal claims for which Metra has expended great sums of public moneys. Moreover, the settlement demanded secrecy. Had there not been third-party investigations opened by the RTA and by the State Legislative Committee, the underlying facts and conduct would never have surfaced. These aspects of the controversy deserve scrutiny.
Should there ever be secrecy in these situations? Illinois law presently excepts certain personnel matters from the Open Meetings requirements and from FOIA disclosure. Should Mr. Clifford have made his April 3, 2013 letter to Metra public? Should Metra have made it public? The allegations implicated certain public officials not in illegal actions, but in arguably inappropriate actions. And the alleged retaliation against Mr. Clifford for ‘just saying no’ to the public officials would be tortious and unlawful. Going forward, standards are needed for the handling and the disclosure, if any, of such allegations. If secrecy arrangements are designed to shield public officials from embarrassment, criticism or scrutiny, then they should be improper. Worse, Metra here has spent large sums to try to keep the facts secret – from asserting privileges to withholding documents to hiring a public relations firm to control damage. Sunshine is the best disinfectant, and public disclosure should be the rule, not the exception. Secrecy here was not ‘fiscally prudent’.
Should Metra have spent another $340,000 in public moneys on ‘damage control’ after the Separation Agreement? Most, if not all, of these subsequent expenditures were made without express Board approval. Mr. O’Halloran, who was one of the two central objects of the underlying accusations, should have recused himself not only from the vote on the settlement but from all subsequent actions and expenditures. Instead, he appears to have taken a leading role in the subsequent events, and made most of the public statements on Metra’s behalf. The various counsel attempting to simultaneously represent the interests of Metra, the Metra Board, as well as Mr. O’Halloran and Mr. Huggins, faced real and potential conflicts as a result of this activism. The fact that Metra had insurance coverage which would have significantly limited its litigation exposure should have disclosed to the Board and to the public. Hiding and spinning facts is not a value function for any public body. These ‘damage control’ expenditures were not ‘fiscally prudent’.
How should RTA and the Service Boards deal with inappropriate requests from elected officials? What is an ‘inappropriate’ request and what is a reasonable request? The RTA act expressly states that in employment there shall be no “discrimination based upon political reasons or factors” 70 ILCS 3615/2.02d. The Act also requires Metra to ‘establish regulations to insure’ that ‘hiring and promotions are based on merit’. Id. The Illinois Employees Ethics Act prohibits “any additional compensation or employee benefit” in consideration of certain political activity, including fundraising. 5 ILCS 430/5-15d. The Shakman ruling and its progeny in Illinois condemn political hiring and firing. The Office of the Cook County Assessor was recently ordered to pay $500,000 in fines for unlawful political firings. There are federal and state laws and regulations governing the award of public contracts. These longstanding requirements cannot be waived at the whim of any Board member or employee. They were in effect when Mr. O’Halloran and Mr. Huggins dealt with these issues. And the ‘whistleblower’ protections and caselaw protect from retaliation one who declines to violate any state or federal law, rule, or regulation. 740 ILCS 174/1-35. Indeed, after the fact, Mr. O’Halloran told the RTA Board that he was committed to merit hiring, pay, and promotions, and to strict compliance with all contracting regulations. He stated that transit officials should ‘just say no’ to requests which violate these precepts. So the standards which must apply are not in dispute and are well-known. But transit officials should also support personnel who ‘just say no’. Under these accepted standards, clearly the actions of Directors O’Halloran and Huggins subjected Metra to potential significant civil liability – these acts were certainly not ‘fiscally prudent’.
There need to be guidelines to deal with such requests. Any non-written request from an elected official that deals with a specific employee, salary, or contract should perhaps be noted in writing and made available for public inspection. That might deter improper requests, while protecting legitimate requests. Elected officials certainly have the right and the obligation to make inquiries, to discuss policy with transit officials, and even to submit written recommendations for job applicants they may know. But especially when those elected officials control the agency’s budget and enabling legislation, and the request is specific, there is no substitute for a public record. So the system needs guidelines for the future, so both the hardworking transit officials and the concerned elected officials can proceed with their work honorably and in the public interest.
WILLIAM R COULSON Member, Board of Directors, RTA August 19, 2013