Employee files fraud lawsuit against Wallace

February 24, 2011

By KAREN VELIE

A former employee of the South San Luis Obispo County Sanitation District filed a lawsuit that accuses plant administrators, including the head of the sanitation district, of risking public safety and fraud.

The civil lawsuit, filed in San Luis Obispo Superior Court on Monday against plant administrator John Wallace, the Wallace Group and Jeff Appleton, contends Wallace eliminated former district lab technician Devina Douglas’ position because her refusals to act unlawfully put his lucrative arrangement with the district at risk.

“In the manipulation of self dealing and conflict-plagued business relationships to terminate plaintiff’s employment at the expense of public safety and cost effectiveness of public money, defendant’s conduct was fraudulent and oppressive,” Douglas’ attorney Jeff Stulberg says in the filing. “Accordingly, plaintiff is entitled to an award of punitive damages to punish employees and deter others from engaging in such conduct in the future.”

Wallace is the chief administrator of the district that provides services to about 38,000 customers. He is also owner and president of the Wallace Group, a private engineering consulting firm located in San Luis Obispo that receives about $80,000 a month for plant administration and engineering services.

In 1986, the governing board hired Wallace as a consultant in charge of the district’s day-to-day administrative, budgeting and engineering operations even though he is not technically an employee of district. He sits at the board table with the members of the three-person governing board, writes the agendas and asks the board to approve expenditures.

The attorney for the district, Michael Seitz, claims he is not also the attorney for the Wallace Group. However, a receptionist at the Wallace Group said that not only was Seitz the Wallace Group’s attorney, he also sits in on the group’s board meetings,

In addition, Seitz’s wife, Sharon Seitz, heads the Wallace Group’s Human Resources department.

Over time, Wallace has sent an increasing amount of the plant’s work load to his privately owned company and bills the district for these services.

The suit also contends that Wallace terminated Douglas’ position to keep the district from discovering that the plant’s salaried staff could carry out many of the tasks performed by Wallace Group employees at a much lower cost.

For the past several years, Douglas and recently terminated former shift supervisor Scott Mascolo reported incidents of suspected misuse of public funds and problems with the plant complying with safety and health requirements to several government agencies.

Both Mascolo and Douglas said they first took their concerns to Wallace.

After a lengthy investigation, the State Water Resource Control Board determined that Appleton operated the plant “using fraud and deception,” according to a letter of proposed disciplinary action.

The state’s investigation validated Douglas’ claim that Appleton as plant manager instructed staff to manipulate effluent release numbers in order to make it appear the plant was operating in compliance with pollution and discharge requirements.

The district board, comprised of a representative from Grover Beach, Arroyo Grande and the Oceano Service District, regularly approves all work requests, often without going out to bid, that Wallace suggests.

Tony Ferrara, Arroyo Grande’s mayor and the head of the district’s governing board, claims that paying Wallace for engineering consulting, budgeting and administration has saved the district money, but he hasn’t supplied specific figures to back up that claim.

Douglas’ suit is slated to be heard by San Luis Obispo Superior Court Judge Charles Crandall. The first case management conference is scheduled for June 28.