HERCULES -- The city's $3 million-plus lawsuit against former city manager Nelson Oliva, his daughters and the family company is set for a court hearing Friday to determine whether it should proceed.
The lawsuit, filed originally in Contra Costa Superior Court, alleges conflict of interest and breach of fiduciary duty in the awarding of more than $3 million in city contracts to NEO Consulting Inc./Affordable Housing Solutions Group during Oliva's tenure as Hercules city manager from April 2007 to January 2011; he was assistant city manager in late 2006 and early 2007.
Hercules and its redevelopment agency first contracted with Oliva and AHSG in 2003 to run the city's affordable housing program, originally for up to $255,000 over two years. The suit asserts that Oliva, contrary to his assertions that he had divested himself of the company, did not give up control when he became city manager.
NEO held seven city contracts worth more than $1.1 million a year by the time the city terminated them in fiscal year 2010-11. The contracts covered a wide range of activities beyond managing the affordable housing program, from approving redevelopment agency-financed housing loans, mortgage bailouts and business development loans to overseeing neighborhood beautification and secure mailbox installation programs.
The city sued the Olivas and NEO in August 2011. Oliva's side argued for a change of venue to a neutral county. In February, a judge granted it -- to neighboring Alameda County, at the Superior Court in Oakland.
Since then, Oliva's side has sought to dismiss the three daughters from the suit, or to dismiss the suit entirely, arguing that it is vague and lacking in specificity and that it fails to state facts sufficient for a cause of action.
A 2009 Statement of Information on file with the California Secretary of State shows Taylor Oliva, Gabrielle Oliva and Adrianna Oliva as CEO, secretary and chief financial officer of NEO. Another NEO director was Eguzki Olano, Nelson Oliva's administrative assistant at City Hall. Two of the daughters each owned 50 percent of the company, Nelson Oliva told city officials at the time. Taylor Oliva also managed the Secure Mailbox program; she worked out of a portable office next to City Hall and had a city email address.
A demurrer filed Sept. 18 by the Olivas' lawyer, Richard Ewaniszyk of Victorville, argues that the daughters cannot be sued under California Government Code Sec. 1090 because they were not public officials or public employees. Section 1090 bars public officials from having a financial interest in contracts they make in their official capacity.
The city, in a Nov. 2 brief by attorney David Trotter of Walnut Creek, opposed the demurrer, arguing that Oliva and the three daughters were alter egos of NEO, meaning there was such a strong community of interest between the corporation and its owners as to pierce the corporate veil. The defendants used NEO for the transfer and commingling of city and redevelopment agency funds and NEO profits, proceeds and assets for their own personal use and benefit, the brief states, adding, in a footnote: "NEO's bank accounts and credit cards were used as a personal piggy bank of the Olivas thereby removing the separation afforded by its status as a California corporation and exposing the Olivas to personal liability."
The father and daughters participated in making the contracts, the brief continues, adding, "They did those things fraudulently, with malice and a willful and conscious disregard of the rights and interests of Plaintiffs (i.e. they had knowledge of what they were doing)."
In a Nov. 8 reply to Trotter's brief, Ewaniszyk reiterated his previous reasons for seeking to dismiss the daughters from the suit, and argued that the complaint against Nelson Oliva fails to allege sufficient facts, including whether his 2006 assistant city manager contract and his December 2010 separation agreement were written or verbal, and that no written agreement is attached to the pleadings.
There will be a hearing on the demurrer followed by a case management conference in court Friday.
Contact Tom Lochner at 510-262-2760. Follow him at twitter.com/tomlochner