Employee files fraud lawsuit against Wallace

February 24, 2011

John Wallace


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.

Tony Ferarra

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.



  1. MaryMalone says:

    I ran across the following article from the New Times, 2003. This is probably old news to many of you, but thought it was interesting in the coincidence here….


    SLO New Times, 2003

    ‘Huge financial loss’
    California Valley Services District ex-manager arrested for fund misappropriated


    Sheriff’s detectives journeyed to Bakersfield Tuesday to arrest Brad Bjork on charges alleging that he misappropriated more than $300,000 during his four-year tenure as general manager of the California Valley Community Services District.
    Bjork, 42, surrendered without incident and was booked into San Luis Obispo County Jail in lieu of $200,000 bail.
    Directors of the small community’s road, garbage, and sewer district terminated Bjork in October after learning about the missing money. The district’s annual budget is $146,000. Results of a district internal probe were turned over to sheriff’s investigators, who have been looking into the allegations ever since.
    San Luis Obispo attorney Michael Seitz, who represents the district, said the district “is doing its best to recover from a huge financial loss. We are working with district insurers, but they will not cover legal or investigative costs.” But Seitz added that efforts will be made to seek restitution from Bjork “as part of the sentencing.”
    California Valley CSD is one of two community services districts to have discovered missing funds last October.
    San Miguel Community Services District officials are trying to figure out what happened to an approximate $25,000 in public funds that apparently has disappeared from district bank accounts. Sheriff’s investigators are close to making an arrest in that case, according to Capt. Gary Hoving of the San Luis Obispo County Sheriff’s Department. The case is in the hands of the district attorney.
    After discovery of the missing money, board member Ron Ortega said the “whole board is just devastated by all this.”
    This summer, the district’s bank accounts were seized by the Internal Revenue Service after the federal agency investigated allegations of nonpayment of payroll taxes. During this period, said a source, employee paychecks bounced.
    Seitz confirmed that the district has had problems with the IRS.
    “But the Internal Revenue Service has indicated to us that the payroll taxes have been paid to date, and all employees will be paid for all time that has been worked,” Seitz said.
    An unidentified staff employee of the Avila Beach Community Services District has been filling in for the missing Bjork.
    Bjork could not be reached for comment. ³


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    • rallyraid says:

      So lets put the facts out on this. Sietz is the legal council for years, in walks Bjork as manager and makes off with $300,000 in a matter of four years from an agency who’s budget is only $146,000 and Sietz dosent notice this or question it? That answers one question, yes we are screwed with Sietz as legal council and pal to Wallace the general manager of the San Dist.

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  2. MaryMalone says:

    Question: Is the Douglas lawsuit online? Is there a URL available?


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  3. MaryMalone says:

    The SLO Trib article indicated they (Stulberg and Douglas) are asking for a jury trial.

    I hope they take it to court, as well, but will understand if they decide to take a settlement.

    Ms. Douglas has already paid quite a price for refusing to do what was wrong. Trials are very expensive, both in monetary and personal costs. She should be able to get on with her life at some point.

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