Los Angeles, CA -- Despite his pledge for “transparency” in the wake of a scandal involving a workers’ compensation insurer, Insurance Commissioner Ricardo Lara has refused to release or even search for public records of meetings and communications with key figures—including with his friend and political mentor, Former Assembly Speaker Fabian Nunez.
Nunez and his lobbying firm Mercury Public Affairs have filed a lawsuit to collect a $2 million fee promised by the insurer, Applied Underwriters, in exchange for Nunez’s efforts to win approval of the sale of an Applied subsidiary. Read more about the Nunez lawsuit in Jeff McDonald’s story in the San Diego Union Tribune.
Consumer Watchdog has been litigating a Public Records Act (“PRA”) lawsuit, brought by attorneys for Consumer Watchdog and the law offices of Kelly Aviles, since news of the scandal broke in mid-2019 over the Department of Insurance’s failure to search for and produce public records. Not a single record—no phone records, no calendar entries, no emails or text messages—between Nunez and Lara or Department staff were produced by the Department in response to the PRA requests by Consumer Watchdog.
Consumer Watchdog has recently learned that the Department did not even search for records involving Nunez or others, and has continued to refuse to do so to resolve the matter.
Consumer Watchdog’s original PRA requests asked for records of meetings and communications involving certain named individuals and any other people “representing” Applied—that would include Nunez and others. This provision of the PRA requests, which the Department has ignored in violation of the law, is essential for full transparency because only Commissioner Lara and Department staff know who they met with. Since filing the PRA lawsuit Consumer Watchdog has discovered that not only Nunez was representing Applied, but so was former New Mexico Insurance Commissioner Eric Serna.
If successful at trial in November, the Department will be compelled to search for records involving Nunez, Serna and others, and make them public.
“We should not have to file a lawsuit to get the Department to search for records after Commissioner Lara promised to be fully transparent,” said Jerry Flanagan, Litigation Director for Consumer Watchdog. “Lara has refused to even search for records of meetings and communications with Fabian Nunez even though we know he represented Applied and was to be paid a $2 million bounty to lobby the Department. The Department apparently conducted a deliberately neutered search to shield records from public view.”
Following a May 12th court order in the PRA case, the Department was forced to reveal that it is withholding approximately 400 internal emails and records of 21 meetings with Lara’s top political and legal advisors discussing how to respond to the PRA requests.
“Providing records to the public is a purely ministerial duty to be performed by disinterested government officials, not debated at length by top political advisors,” said Flanagan.
Background Information on Consumer Watchdog’s Public Records Act Lawsuit
Consumer Watchdog has been prosecuting a lawsuit seeking public records regarding Insurance Commissioner Lara’s contacts with representatives of Applied Underwriters, which was seeking favors from Lara and the Department of Insurance after making cloaked political contributions. New evidence has emerged of the intense political pressure applied in the scandal.
Former Assembly Speaker Fabian Nunez, a political mentor of Lara and his one-time boss, filed a lawsuit (brought by his lobbying firm Mercury Public Affairs and lobbyist Rusty Areias) against Applied attempting to collect a promised $2 million contract to lobby Lara. The $2 million “success fee” was contingent on Lara doing what the company wanted: approving an acquisition or, in lieu, allowing the company to redomicile in New Mexico. It appears Nunez parlayed his access to Lara to extract a 7-figure payday from the company at the center of the government corruption allegations.
Among the questions now raised: How can Lara claim he is transparent when his Department is refusing to turn over or even search for public records involving Nunez?
According to the Nunez lawsuit:
- A business partner of Applied’s current owner, Steven Menzies, would lose a $60 million deposit if the sale of Applied was not completed by October of 2019.
- Applied initially agreed to pay Nunez, Areias, and their lobbying firms $1 million to win Lara’s approval of the sale of Applied’s California subsidiary, California Insurance Company (“CIC”).
- The Nunez lawsuit claims that once it became clear the original deal was not going to be approved due to the growing scandal, the bounty was raised to $2 million. The $2 million was contingent on Nunez getting the Department of Insurance “not to object” to the company being redomiciled in New Mexico, which would effectively prevent the $60 million forfeiture fee from being paid.
- According to a declaration filed in the case by Rusty Areias, “[a]s the deadline for the forfeiture [of the $60 million deposit] approached, [Menzies’s financial backer] became increasingly anxious. . . . In one of our calls, he said that if we could get California not to object, we would be paid $2 million, instead of $1 million. The words he used were to tell Fabian that if [Fabian] get[s] this done, he would double the success fee.”
- According to the lawsuit, Nunez began working on the project as early as February 2019. Yet, not a single record of meetings or phone calls between Nunez and Lara or Department staff was identified or produced by the Department in response to public records requests by Consumer Watchdog—no phone records, no calendar entries, no emails or text messages.
- Half of the $2 million contingency fee to be paid by Applied to Nunez and his lobbying firm came after Lara pledged to recuse himself from decisions involving Applied.
- The lawsuit alleges that three “senior officials” representing the California Department of Insurance attended a hearing before the New Mexico insurance agency and “did not object” to the re-domestication of Applied to New Mexico.
- When Nunez and Areias attempted to collect the $2 million fee, Menzies’ financier responded that he should re-submit the invoice for the original $1 million: “There is a saying on Wall Street that the bears do well, and the bulls do well, but the pigs get slaughtered….”
The terms of the contract with Nunez were agreed to on June 26, 2019 and the agreement was signed about a week later, according to the Nunez lawsuit. Lara’s spokesperson said he would recuse him from deliberations about Applied on July 10, 2019. The second $1 million for Nunez to get the deal done was offered in early October 2019. The timing of the payments raises questions about why Nunez was paid so much money in exchange for his access to Lara if Lara was not involved in the decision making.
In mid-2019 Consumer Watchdog filed PRA requests seeking communications and calendar entries reflecting meetings between Lara and individuals representing Applied following statewide news reports that Lara had accepted $54,300 in contributions to his 2022 re-election campaign in exchange for political favors. In some instances, Lara received large contributions from family members of insurance industry executives, apparently to conceal the true origins of the money. Lara or Department staff intervened in cases at least four times on Applied’s behalf. And as noted above the sale of Applied’s subsidiary was also pending at the time and required Lara’s approval.
Because the Commissioner failed to comply with California law in response to Consumer Watchdog’s PRA requests, Consumer Watchdog filed a lawsuit under the California Public Records Act in Los Angeles Superior Court on February 18, 2020.
Though Commissioner Lara promised “transparency” in the wake of the scandal, it took a recent court order issued on May 12 of this year in Consumer Watchdog’s PRA case to get the Department of Insurance to provide some detail about what it did and did not do to respond to Consumer Watchdog’s PRA requests.
(In the wake of the pay-to-play scandal in 2019, Lara said “I believe in transparency, my calendar has been public and you can find those details on our website.” Insurance Journal. Lara spokesman Michael Soller told Politico: “Transparency is important to Commissioner Lara and that is why his calendar of meetings with external stakeholders is public and posted on our website and the Department has responded to all requests for his records.” Politico. In a letter to consumer advocates apologizing, Lara wrote, “I believe effective public service demands constant adherence to the highest ethical standards…. I am ordering regular public release of my official calendar of meetings with external stakeholders…. I look forward to the work ahead, and renew my commitment to hold myself to the highest ethical standards as your state Insurance Commissioner.”)
Read the court’s interim PRA Order on Consumer Watchdog’s motion to compel discovery responses here.
The Department has refused to search for, much less disclose, records of individuals that are now known to have represented Applied, including Fabian Nunez, despite the PRA request calling for records of all persons representing Applied.
“Commissioner Lara is not being transparent if his office is unwilling to search for meetings and messages he and his Department had with Fabian Nunez when we know Nunez represented Applied Underwriters,” said Jerry Flanagan, litigation director for Consumer Watchdog.
Following the May 12th court order in the PRA case, the Department was forced to reveal that it is withholding approximately 400 internal emails and records of 21 meetings with Lara’s top political and legal advisors discussing how to respond to the PRA requests. The meetings included: Catalina Hayes-Bautista (Chief Deputy), Michael Martinez (Senior Deputy Commissioner), Bryan Henley (Deputy Commissioner and Special Counsel to the Commissioner), Kenneth Schnoll (Deputy Commissioner and Department General Counsel), Susan Stapp (former Deputy General Counsel), Mike Peterson (Deputy Commissioner), and Roberta Potter (Commissioner Lara’s Scheduler). View a list of the meetings here (see pages 16-17).
The Department also refuses to disclose at least 102 communications over a five-month period in early 2019 with the workers’ compensation insurer at the center of the pay-to-play scandal, Applied, as the company sought concessions from the Department.
99 of the 102 withheld records were sent to or from just two individuals at the center of the pay-to-play scandal: Steven Menzies, Applied’s president and now owner, and Jeffrey Silver, Applied’s chief lawyer. View a newly disclosed list of the withheld communications here (see chart on pages 28-60).
The outcome of the PRA lawsuit will determine whether these documents have to be made public and whether the Department has to conduct an adequate search for new documents related to Nunez and others. The case is set for trial in November.
The Department of Insurance has also refused to search for records involving another figure central to the pay-to-play scandal,former New Mexico Superintendent of Insurance Eric Serna, who resigned in disgrace in the wake of another pay-to-play fundraising scandal. Documents show that Serna tried to broker Lara’s approval of the sale of Applied’s subsidiary on behalf of Steven Menzies while offering fundraising and political assistance to Lara.
According to the recent court Order, by failing to disclose the search terms the Department used to identify public records, “the court finds a further response by the Department to be warranted. The information [the Department] provide[d] is not ‘everything’ done to search. The information will assist [Consumer Watchdog] in understanding the nature of the Department’s search in the context of Petitioners’ [public records] requests.”
Following the court Order, the Department was forced to reveal it had not even searched for records of meetings and communications with Nunez and Serna.
“A lot of time and effort and taxpayer money has been spent to keep these records from public view that they could release tomorrow if they wanted to. The question is why? The Commissioner could and should settle all issues by simply searching for and releasing all records,” said Flanagan.
“We brought this lawsuit to provide transparency and accountability, but the Department has done nothing but conceal this information. Commissioner Lara has an opportunity to be transparent and should do so to demonstrate to voters that no wrongdoing occurred,” said Flanagan. “The people of California deserve transparency and certainty as to whether our elected leaders are living up to the trust the voting public has invested in them.”
- Download the lawsuit filed by Fabian Nunez’s lobbying firm against Applied for failing to pay a promised $2 million lobbying fee to gain Commissioner Lara’s support for the sale of CIC.
- Download Consumer Watchdog’s Motion to Compel brief that led to the May 12th Order.
- View a timeline of the pay-to-play scandal.
- Read a summary of the pay-to-play scandal.
- View photos of Feb 26, 2019 meeting between Commissioner Lara and Eric Serna for which no public records were provided.
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