Sanitation district votes to stop litigation

June 4, 2016

By KAREN VELIE

The South San Luis Obispo County Sanitation District voted unanimously Wednesday to stop fighting the state in court over a $1.1 million fine levied because of a 384,000 to 3 million gallon raw sewage spill that flowed into Oceano homes and the ocean. The Central Coast Regional Water Quality Control Board determined the 2010 spill was the result of mismanagement by former plant administrator John Wallace.

For more than a year, Arroyo Grande Mayor Jim Hill has asked the sanitation district board to immediately cease and desist legal action against the state. However, while Hill was in favor of stopping all legal actions to fight the suit, which has already cost the district more than the fine, Grover Beach Mayor John Shoals and Oceano Community Services District President Mary Lucey battled to continue the legal fight.

Amid allegations that board members were attempting to continue the fight against paying the fine to protect Wallace, an investigative report released earlier this year accuses Wallace of extortion and conflicts of interest. The San Luis Obispo County District’s Attorney’s Office has since mounted an investigation into the allegations.

The sanitation district provides sewer services to about 38,000 customers in Arroyo Grande, Grover Beach and the unincorporated town of Oceano. Until early 2013, Wallace was the chief administrator of the district and also owner and president of the Wallace Group, a private engineering consulting firm located in San Luis Obispo that received between $50,000 and $80,000 a month from the district for a variety of engineering and administrative services.

In a closed session sanitation district board meeting on Wednesday, Hill, Shoals and Lucey agreed to stay all court proceedings and begin negotiations with the state.

History:

In 2010, issues at the sanitation district resulted in 384,000 gallons of raw sewage flowing into Oceano homes and the ocean. The Central Coast Regional Water Quality Control Board then determined the spill was the result of mismanagement and offered a $300,000 settlement to the sanitation district.

On April 20, 2012, the state proposed a settlement that included a $400,000 fine and the requirement for the district to spend $375,000 on specific plant upgrades.

On May 16, 2012, the three sanitation district board members, Oceano Community Services District President Matt Guerrero, Grover Beach Councilman Bill Nicolls and Arroyo Grande Mayor Tony Ferarra, rejected the state’s settlement offer in closed session.

On June 6, 2012, the sanitation district board discussed an anticipated timeline and a proposed strategy developed by then district administrator John Wallace, district legal counsel Mike Seitz, and outside legal counsel Melissa Thorme that included multiple appeals over the state’s fine. In their timeline, Wallace, Thorme and Seitz do not consider winning their battle against the state.

The district then paid about $750,000 to Wallace’s engineering firm, the Wallace Group, and a team of lawyers to argue against the allegations of mismanagement and the proposed fine.

In Feb. 2013, amid allegations of mismanagement, Wallace announced his retirement at a sanitation district board meeting.

In Nov. 2014, the district board voted to file a lawsuit against the state over the fine.

Then in December, board president and Arroyo Grande Mayor Jim Hill asked staff to work to settle the fine. However, the remaining board members did not support Hill’s request.

Then on Feb. 18, 2016, Seitz announced that the district had sent a settlement offer to the state. Nevertheless, the district did not drop its suit against the state.