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Lawsuit alleges Wallace intentionally mismanaged sewage plant

December 31, 2012

John Wallace

By KAREN VELIE

EDITOR’S NOTE: See a claim filed by six Oceano homeowners against South San Luis Obispo County Sanitation plant administrator John Wallace at the bottom of this story.

Six Oceano homeowners filed a lawsuit on Dec. 18 that claims sanitation plant administrator John Wallace’s financial motivations led him to intentionally mismanage the sanitation plant.

During a 2010 spill, sewage flowed into approximately 40 homes in Oceano. Unaware of allegations of mismanagement, none of the residents filed suits against the South San Luis Obispo County Sanitation plant before the six-month statute of limitations to make a claim against the public agency ran out.

However, that does not bar the homeowners from suing Wallace.

The Dec. 18 lawsuit filed by Santa Barbara based attorney Eric Woosley claims Wallace consciously elected to disregard public safety in an attempt to build his personal financial portfolio. Even though there is a two-year statute of limitations for filing suits against private contractors, Woosley said homeowners may still be able to seek reimbursement for their damages.

“Anyone wanting to sue should contact an attorney,” Woosley said. “The statute of limitations for a private contractor can be extended if facts had been concealed. It is conceivable people can sue now.”

In addition, Woosley asserts that there is no real financial separation between Wallace and his engineering firm the Wallace Group, and as such they should be treated as one entity by the court.

“There exists a commingling of funds, a failure of the shareholder to acquire insurance for the corporation despite a contractual duty to do so, and a complete sharing of the office and employees between the shareholder (Wallace) and the corporation (The Wallace Group), so as to make one the mere shell or conduit for the other,” the lawsuit says.

In late 2009, following reports of environmental abuses to local and state water authorities from sanitation district employees, the company that carried insurance for Wallace said it was canceling his coverage. Wallace’s failure to maintain errors and omissions insurance during the 2010 sewage spill could leave him financially responsible for the damage from the spill.

At a Central Coast Regional Water Quality Control Board hearing in September, another client of Woosley, former sanitation plant superintendent Jeff Appleton, testified that he had told both Wallace and the board prior to the 2010 spill that outdated wiring had led to two fires and needed to be repaired.

“Wallace would tell me, ‘We are continuing to look into it from an engineering standpoint,’ ” Appleton said at the hearing. “No work was actually done.”

In their complaint, water board prosecutors accused Wallace of not properly maintaining or operating the plant and failing to properly report incidents to regulators. Wallace is the owner and president of the Wallace Group, a private engineering consulting firm located in San Luis Obispo that receives from $50,000 to $80,000 a month for plant administration and engineering services. He, however, is not reimbursed for non-engineering related plant maintenance.

A month later, in October, the Central Coast Regional Water Quality Control Board voted to levy a $1.1 million fine against the district because the 2010 sewage spill was because of Wallace’s mismanagement.

The plaintiffs in the Dec. 16 claim are seeking an unspecified amount in punitive and compensatory damages along with court and attorney fees.
John Wallace Complaint:


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Lyn,

Thanks for the detailed response. I glanced at your reports a bit. The UWMP written by JW and Maddaus suggests retrofitting would begin in 2002 and be complete by 2004. This was well before the 2006 Bankruptcy of the LOCSD.

The second report, 2010, expressly suggests funding for new wells would come from grants, loans and/or rate increases.

Filing bankruptcy does not preclude the District from charging rate payers what it costs to do business. If building new wells is a capital improvement priority, then the District should be raising rates accordingly to build the necessary infrastructure to protect the basin. No if’s, and’s or but’s.

Thanks for the info. In light of Wallace’s involvement, makes it all suspect.


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The money to do the 2002 project was to come tied to the wastewater project. There were 15 lawsuits against the project from 2000 to 2005, so since the project itself was in jeopardy, there was little time and few prudent reasons to proceed. The bankruptcy occurred in 2006. The board then had no project to tie money to the related water issues. Who would loan money to a bankrupted district (!? and good luck with grants for the same reason) and the ratepayer could not possibly foot the entire cost.


Boards don’t just raise rates on their own, a 218 protest vote is required. If rates are too high, too many protests filed will stop the increase and then the board would spend money to go back to square one to start over, so they are very cautious in raising rates. They are also mindful of the economic downturn that hit everyone in town.


I do not see anything in Wallace’s dealings with Los Osos that look suspect.


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CSD boards raise rates to cover the expenses of providing water and sewer services. They don’t need a 218 protest vote.


Here’s an article about Nipomo CSD’s board voting a very hefty increase in water rates for its customers: tinyurl.com/b9ychdk


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MaryMalone, if you read the article that you pointed me too, you will see that the Nipomo CSD did the very same thing that the Los Osos CSD did, that is, hold a 218 protest vote for a water rate increase. You can read an LOCSD staff report at the link below that mentioned the 218:


http://www.losososcsd.org/Library/2010%20Agenda%20Packets/100506agenda-staffreports/Agenda%20Item%206A%20Public%20Hearing%20to%20Consider%20Proposed%20Water%20Rates.pdf


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Here is a quote from your Nipomo article,


“The proposed new rates still must pass a Proposition 218 protest hearing set for 9 a.m. Wednesday, Oct. 12, to become effective.”


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The buck stops with Wallace


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First, you should all read: http://www.waterboards.ca.gov/centralcoast/water_issues/programs/enforcement/docs/SLO_Sanit/sept7_12_transcript_cndsd.pdf .


It will take a few hours and knowledge of engineering to understand what truly happened.


Second, it was Jeff Appleton’s error that caused the spill, just read the report.


Third, this lawyer couldn’t litigate himself out of a wet paper bag. Just by reading his comments shows he does not understand engineering consultant contracts. It’s easy and popular to blame Wallace (don’t know him, never met him), but you have to understand that these types of contractual relationships are very common for small municipalities and utility districts. Wallace would have no benefit in not wanting to upgrade or spend money on the plant. He would only have benefited if Wallace Group gotten more engineering and services contracts to upgrade, maintain and construct new facilities. The board is the one that is motivated by not spending money to upgrade and maintain the plant.


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If there is actually criminal activity, let the AG indict and then have a trial. That hasn’t happened yet.


Jeff Appleton opened a valve that was not suppose to be opened and caused the pump failure which led to the spill.


If Wallace actually duped the board in the manner you say, the board is complicit. Once again let the AG indict and have a trial. I just don’t think things are as sinister as you make out.


It rained….hard.


Appleton opened a valve he shouldn’t have…a mistake.


The pumps failed…there was a bad spill.


Coastal Commission extracts its pound of flesh.


Let’s see what the AG says.


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You’ve misread a few of the details so I will provide some facts for you. You have misunderstood that Appleton closed the valve when in fact Appleton always had his staff keep this sub grade valve open and chained this way in the event a bypass pump was needed to pump down a flooded headworks or otherwise. Appleton was off on personal business for months either side of the event, he didnt even know it had been closed nor did the incompetent staff notify him.

Unfortunately during Appleton’s absence Wallace directed the staff to close this valve for unknown reasons. It became submerged in raw sewage and Appleton actually went swimming in the raw sewage attempting to open this valve and prevent the catastrophe that occurred. BTW, the closed valve is just one of the errors Wallace included in his $50,000 dollar O&M manual he had his staff prepare for the District. This O&M manuals absence was a significant concern to the authorities and part of the Notice of Violation #1. One has to ask why after 25 years of management by Wallace and legal representation by whats alleged as municipal specialist they would have the combined sense to provide basic legal documents to comply with state and federal regulations. Defiance or incompetence, you pick.

You cant blame Appleton either for the decades old incorrect O&M manual as Wallace told the plants staff he was working on it and the staff wasn’t capable of such a task. Well geeee wizzins, neither is the Wallace Group apparently.

On to your “few hours and knowledge” of how things work in the world of engineering. The following agencies have alleged or found fraud and/or malfeasance under Wallace’s management. The SLO Grand Jury, The EPA, the RWRCB and SWRCB, The public, the plants honest employees who weren’t yellow, the Surfriders, the Peer review group, PG Environmental… there are more but you get the point. And how it works……. how about engineering the same project year after year and never actually getting past that stage of the game. Just keep on charging over and over for the same thing, change order 1 thru 20, RFI,RFP bla,bla,bla keeps Wallace in the green and creates sustainable income. I liken it to a helpless dog (the San dist) guarded by its abusive owners (Ferrara,Nicolls and whoever is in charge of the OCSD this week) that’s covered in fleas & ticks having its life blood sucked dry (our tax dollars) until its dead. Then the parasites ( wallace group) move on to the next victim.

Its so easy to pull off its almost scary, but what really is scary is he is still in charge wasting our tax dollars.


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THANK YOU, doggin, for setting the record straight. Anyone who has read the transcript knows you are correct and onceknown is incorrect.


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I’m surprised the County hasn’t hired Wallace to run our sewer here in Los Osos.


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@Shelworth; Wallace Group has been in on the LO sewer design since the 1990’s. Don’t worry about JW, he’ll be there when the management goes out to bid, too. JW works for the LOCSD as the “District Engineer” giving advice to the Board and staff on water management issues. The fact that you have seawater intrusion all the way into the middle of your basin suggests you have had bad management advice for many years and paid dearly for it.


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There are three water purveyors in Los Osos and many private wells. Wallace only works with the LOCSD, not Golden State, not S & T Mutual and probably not the private well owners either. The cooperation between the three purveyors on basin management began in August of 2008. Basin protection from the LOCSD’s end at least would have happened in 2005 with water conservation measures and the Coastal Commission’s mandated Basin Management Plan had the CSD not stopped the sewer project and gone bankrupt. Also, there would have been money to drill new wells in safer areas of the aquifers than the areas that are being pumped from right now. Poor management from community services district boards plays a big part in problems like these.


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Lyn,

What part of the Wallace Group’s advice has been ignored by the LOCSD due to funding constraints related to bankruptcy?

Are you defending JW?

Are you familiar with the facts in the Oceano flood of Dec. 2010?

Are you saying that JW is good in some places and not others or that he/his firm is good at all times?

I am unclear as to what you are saying in your post.

You don’t really comment as to the issue that shelworth has raised.

As I understand the water conservation plan that is part of the LOWWP, only about 100 acre feet per year will be saved. Are you suggesting 100 acre feet a year for the last 7 years (700 acre feet total) would have prevented the seawater intrusion from advancing all they way under the town as it has?

I guess I don’t know what you’re trying to say.


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Bor Wat,


Bankruptcy caused by stopping the sewer project, resulted in an estimated loss of 198 acre feet a year. No sewer project, no money to effect the necessary


For details, I would refer you to a report by Wallace from the year 2Bor Wat,


Pardon my delay in answering due to a NewYear’s Day party.


The part ignored by the LOCSD:

The bankruptcy, caused by stopping the sewer project, resulted in an estimated loss of 198 acre feet a year. No sewer project, no money to effect the necessary conservation measures.


For details, I would refer you to a report by Wallace from the year 2000. The plan was to be funded by SRF monies (see Section 1, paragraph 1).Then look at Section 8.

LOCSD’s Urban Water Management Plan.


“By the year 2010, these two programs (Community Fixture Replacement Program, and Public Information), will save about 177,000 gallons per day (or 198 acre feet a year).” There was a 10-year implementation plan that included a schedule, budget and staffing.


I am only aware of the Oceano flood facts as presented in the newspaper. I hope that the entire truth comes out as to where fault lies.


I am saying that there have been no complaints of the reports by our District Engineer Rob Miller (from Wallace).


As no sewer has yet been built in Los Osos, I don’t know what sewer shelworth refers to. We have community septic tanks in certain areas (Bayridge, Vista de Oro) run by the utilities crew of the LOCSD. When these areas hook up to the sewer and the County is in control of them and the rest of the sewered areas, perhaps existing county wastewater crews will run the sewer. Perhaps the job will go out to bid. I don’t know.


The 2010 ISJ report suggests, “Relocation of Wells. This action would shift the location of a certain amount of groundwater production by LOCSD, GSWC and S&T from the Westside to the Eastside or the Los Osos Creek Valley. Implementation of this action may require the drilling of new groundwater production wells and transmission mains.” Read that report here:

Los Osos Groundwater Basin Update.


Conservation is important, but it is only part of the basin protection picture. The LOCSD has no funding to drill these new wells and the bankruptcy is STILL unsettled. Had the CSD been able to move pumping from the Palisades location in particular, much SWI could have been prevented.000. Look at Section 8.

LOCSD’s Urban Water Management Plan By the year 2010, there was to have been a water savings of 177,000 gallons per day (or 198 acre feet a year).


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Ugh, my half-written response did not delete. Below is what I meant to say:


Bor Wat,


Pardon my delay in answering due to a NewYear’s Day party.


The part ignored by the LOCSD:

The bankruptcy, caused by stopping the sewer project, resulted in an estimated loss of 198 acre feet a year. No sewer project, no money to effect the necessary conservation measures.


For details, I would refer you to a report by Wallace from the year 2000. The plan was to be funded by SRF monies (see Section 1, paragraph 1).Then look at Section 8.

LOCSD’s Urban Water Management Plan.


“By the year 2010, these two programs (Community Fixture Replacement Program, and Public Information), will save about 177,000 gallons per day (or 198 acre feet a year).” There was a 10-year implementation plan that included a schedule, budget and staffing.


I am only aware of the Oceano flood facts as presented in the newspaper. I hope that the entire truth comes out as to where fault lies.


I am saying that there have been no complaints of the reports by our District Engineer Rob Miller (from Wallace).


As no sewer has yet been built in Los Osos, I don’t know what sewer shelworth refers to. We have community septic tanks in certain areas (Bayridge, Vista de Oro) run by the utilities crew of the LOCSD. When these areas hook up to the sewer and the County is in control of them and the rest of the sewered areas, perhaps existing county wastewater crews will run the sewer. Perhaps the job will go out to bid. I don’t know.


The 2010 ISJ report suggests, “Relocation of Wells. This action would shift the location of a certain amount of groundwater production by LOCSD, GSWC and S&T from the Westside to the Eastside or the Los Osos Creek Valley. Implementation of this action may require the drilling of new groundwater production wells and transmission mains.” Read that report here:

Los Osos Groundwater Basin Update.


Conservation is important, but it is only part of the basin protection picture. The LOCSD has no funding to drill these new wells and the bankruptcy is STILL unsettled. Had the CSD been able to move pumping from the Palisades location in particular, much SWI could have been prevented.


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One only has to go back 15 years to see the results of mismanagement of a local sewer plant.

CMC’s sewage plant operator falsified the waste water discharge records that involved outflow into Chorro Creek. The result….prison time.

If found guilty, the same fate should befall Wallace.


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“none of the residents filed suits against the South San Luis Obispo County Sanitation plant before the six-month statute of limitations to make a claim against the public agency ran out”.

There is a reason for this. I spoke to several of the affected home owners who attended in the Water Board hearing and asked this, why didn’t any of you file a claim with the District?. I was told the same story by every one of them which was we promptly called the Sanitation District. We were directed to contact the Wallace Group, the Wallace Group said call the Board of Directors, the board of directors said call the Sanitation District.

One of the individuals was so frustrated with the circus she was near tears as she explained how she tried to get some answers and help.

Then you have Wallace, a self proclaimed community hero and donator of precious time, who like a coward hid wordlessly behind his attorney and had one of his staff do his talking during the 16 hour hearing

Wallace’s Aaron Yonkers who was designated the “Official” in this matter went on for what seemed like hours with a minute by minute account of how the Wallace group did so much to assist the affected neighbors with clean up. How Wallace’s staff worked so diligently monitoring the situation hour by hour, day by day. When Mr. Yonkers completed his presentation the State Water Board officers made him and the Wallace Group look like complete jackasses as they asked for specifics on what the wallace group did to assist the suffering home owners and Mr. Yonkers was not able to produce one single case. Acting as the Wallace/Sanitation Districts official, Yonkers was then asked by the inspectors when exactly did you arrive on site to access the situation. Yonkers told the State Officials well ….you see…..it was not until Wednesday. Some three days after the actual spill.


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A GREAT START FOR THE NEW YEAR! AND ONE THAT IS LONG OVERDUE……..


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I wonder if Tony Ferrara will continue to kiss John Wallace’s @ss now?


I just wish the SSLOCSD BOD would have been included because they enabled Wallace’s self-serving actions every step of the way. They are as responsible for the damages to our environment and to the Oceano residents as is Wallace because they miserably failed to provide the oversight with which they were charged.


Congratulations to the Oceano Six. This action is long overdue.


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It’s about time the neighbors got together and pointed the finger at who is responsible for sewage in their homes.


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Failures at the plant may be the fault of Mr Wallace, but the elected officals, AG Mayor Ferraro, GB Former Mayor Bill Nicolls and Mr Guerrero have the biggest fault because they are the people elected who should have been looking out for the public instead of looking out for Mr Wallace, for what reasons we may never know. Grover Beach started by getting rid of Mr Nicolls, Arroyo Grande needs to do the same with Mayor Ferraro, time for him to go.


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ITA. They completely failed in their role as providing oversight to the SSLOCSD facility’s operations and, indeed, enabled John Wallace to commit the actions/inactions for which he is now being sued. They were as negligent as John Wallace, and I would love to see each one sued and completely financially wiped out.


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