Calif. City Sues Attorney for Failure to Have Insurers Clean-up Town’s Pollution

January 12, 2005

The city of Lodi, California, announced it’s suing the attorney responsible for a plan to clean up the town’s soil and water which instead left residents with millions in legal fees and groundwater that is still undrinkable.

City officials said attorney Michael C. Donovan’s legal strategy – to force insurance companies to pay for cleaning up the town’s pollution – failed.

The city attorney said instead of the town getting companies to cover the cost of a state-mandated environmental clean-up, the insurance companies have won cases against the town – Unigard won a judgment against the city for $764,000, and Fireman’s Fund plans to seek a $3 million judgment for civil rights violations.

The city has also been left with a $16 million loan, taken out from Lehman Brothers in 1999 to cover the legal and technical costs of carrying out the plan. The investment bank is now suing the city to get the money back.

“(Donovan) told the city we’d never have to pay it back unless we won,” Lodi City Attorney Steve Schwabauer said. “Well, that’s not the position Lehman’s taking.”

The lawsuit also alleges that Donovan structured the Lehman Brothers loan for his benefit, not the city’s, and that committed fraud by improperly billing the city for expenses. The city is seeking unspecified monetary damages, Schwabauer said.

The City Council fired Donovan in January 2004. He could not be reached for comment.

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